Kaldor, etc. Jude Wanniski July 23, 2004

From:Jude Wanniski jwanniski@polyconomics.com
To: James K. Galbraith <galbraith@* * * * *.edu>
Re: Kaldor, etc.
7/23/04 3:54 pm

There is no doubt Kaldor was a missionary, tireless in his convictions that his eonomic medicine would bring peace and prosperity. If you can show me evidence of how things improved after countries agreed to follow his medicine, I might change my view to yours, but I see he only left misery in his wake... Always with the idea that well, yes, things may have to get worse before they get better. I would never buy an economic theory that says things have to get worse before they get better.... remember the "J-Curve," which Fred Bergsten and Richard Cooper used always to explain why a currency devaluation was the right thing to do, even though in the short run, the economy would get worse. Eisner, by the way, was one of my favorite economists, remaining a Keynesian when his colleagues decided to go neo-Keynesian, or upside-down Keynes. I remember Hayek telling me the famous story of how he had lunch with JMK in 1946 and pointed out that his students were saying so many silly things that they could do real damage, and JMK looked at him, snapped his fingers in the air, and said he could turn them off like that. And then, Hayek said, Keynes was dead in two months.  I'm sure you heard the story, but I heard it at a lunch with Hayek at the WSJ.

The man who got me interested in economics was Herb Stein, who would patiently explain to me the economics behind Nixon's 1971 decisions. "It is all a big mosaic" he would explain in his CEA office, me a reporter for the National Observer at his feet, taking notes. He gave me his Fiscal Revolution in America and I devoured it, with its history of fiscal policy through the JFK tax cuts. It was there I found a footnote about Andrew Mellon and the Harding/Coolidge tax cuts, which were presented as being able to pay for themselves. That led me to an understanding of the Laffer Curve before the napkin and Art's drawing. At AEI, where I fellowed while writing the book in 1977, Stein would show up at daily lunches to debate me before a few dozen eminent thinkers, and he essentially argued the Kaldor model with a conservative twist. I had arranged to get him named to the WSJ board of contributors and I persuaded Bartley to hire Ben Stein as a tv critic. But in the end, we broke off communications. He told me and others that he did not believe so much damage could come out of one little footnote in his book.

I'm only saying this because I still have high hopes you and I will be able to find more common ground, and make ourselves more useful. As the economy continues to decline, I am pushing Keynesian "animal spirits" being in a funk, because all the news being broadcast out of Washington is that interest rates are going up and the terrorists are coming to bomb us.

Jude

At 04:21 PM 7/23/2004, you wrote:

Bob died maybe five or six years ago, much to my grief.  We'll have to disagree on Kaldor, who had a great effect on me during the year I spent in Cambridge, persuading me by example that economists could be useful people. That, and I ate a great many roast beefs at his Sunday table.