A Little Bit of Inflation Jude Wanniski February 5, 1997

Memo To: Michael Williams, Georgetown student
From: Jude Wanniski
Re: Obsolete ideas

[Williams e-mailed me yesterday about a front-page screed in Sunday's Washington Post by Edward Luttwak, a more-or-less conservative bigdome who normally writes about national security out of Georgetown's Center for Strategic and International Studies. Luttwak spends several thousand words denouncing the idea that inflation is a bad thing, repeating arguments I had not heard in 15 or 20 years. Luttwak turns out to be a neo-Keynesian who thinks Alan Greenspan should realize that any inflation below 8% a year should be okay.]

I read the Luttwak piece at your suggestion and found it pitiful. It is amazing something that silly can find its way to the front page of The Washington Post's "Outlook" section. Edward Luttwak has never been involved in economic debates before, as far as I can remember, but I see he is writing a book about capitalism. I shudder. The things he says were conventional wisdom 25 years ago, the Tobin idea that a little bit of inflation greases the wheels of commerce, for example. And that wages are sticky in a downward direction. Stupid stuff, we should have learned by now.

Your question about pre-Keynesian economics having such little currency in the academy is a good one. The fact is, supply-side economics is now dominant in the political realm, in the business world, and in the political world, except that few people have made that bald an admission. Alan Greenspan is practically the embodiment of supply-side economics, which is one reason Luttwak, recalling his adolescent lessons in Keynes 101, is so furious at him. Dole is "far right" because he embraced Jack Kemp. Clinton is only "right" because he embraced Greenspan.

In fact, if Keynes were alive, he would be much happier with the supply-siders than with those who oppose us in the name of "neo-Keynesianism," by which they mean they are so "neo," that they disagree with Keynes. It will take another generation before the revolution is complete. All the wise men who still lead these various schools first will have to expire, thereby liberating their students to reattach themselves to more relevant schools of thought.

Ordinary people were always pre-Keynesian, which is why they elected Reagan in 1980. They elected Bush because he promised he was pre-Keynesian, although he wasn't. They bounced him because he wasn't. They elected Clinton because he promised to become pre-Keynesian. They re-elected him because he tried, and because nobody believed Bob Dole when he said he finally saw the pre-Keynesian light. Next comes Kemp vs. Gore.