Thursday's Banking Committee Hearings Jude Wanniski July 17, 1996

Memo To: Alan Greenspan, Chairman of the Federal Reserve
From: Jude Wanniski
Re: Thursday's message

If there is only one thing you should make clear tomorrow, it is that the object of good economic policy is to increase real wages — that real wages is just another way of saying standard of living. I suggest you put forward your own "rule of thumb," that wage increases are real, not inflated, when they occur against a backdrop of stable gold prices. You can say other people have different yardsticks for their own rules of thumb ~ exchange rates or various inflation indices — but that the gold price has been the most reliable over long periods of time, because it is the most monetary of all commodities. (Greatest stocks relative to flows.) The reason this is so important is that it establishes a guide to your thinking that does not have a simple Phillips Curve tradeoff at its base. It is critical that you educate the markets in this manner, which will help moderate the amplitudes of bond market swings.

Good luck.