Why Our Crystal Ball Ain't Working Jude Wanniski July 23, 1997

Memo To: Dr. Peter Passell, PhD, Economics, The New York Times
From: Jude Wanniski
Re: Sleeping Inflation

Your page one piece on Tuesday, “A Pulse That Lingers,” advises your faithful readers that “Inflation, Believed in Terminal Condition, Could Soon Emerge From Its Deep Sleep.” You might also make that forecast about your own powers of neo-Keynesian prognostication, although I am tempted to say that Alan Greenspan has driven a golden spike through your heart. Since you broke off all communication with me several years ago, Peter, on the grounds that I had to be wrong, and your PhD chums had to be right, all of your precise mathematical calculations about the non-accelerating inflation rate of unemployment have gone to trash. Now you say Robert Gordon of Northwestern, “a specialist on inflation,” has reduced his inflation trigger from 6% to 5.3%, even though we are at 5% and there is no sign of inflation. When are you and the Times going to realize that Robert Gordon of Northwestern knows nothing about inflation? When an economist makes a bad call once, twice or three times, you can pass it off as atmospherics, but Gordon and the other characters you have in your moth-eaten neo-Keynesian rolodex have been floundering for as long as I can remember. Now Gordon tells us wages are not rising because employers are cleverly giving their workers promotions, which puts them into a different reporting category. This guy is brain dead, Peter.

And Peter, for God’s sakes, do you realize how ridiculous you seem in reporting with a straight face that Dale Jorgenson of Harvard says he was wrong about inflation because he didn’t realize today’s workers are older and more experienced than they were ten years ago? Stop and think how feeble this argument is. Did you ask Jorgenson if he had thought how feeble it is?

Then, Peter, think how stupid it sounds to quote Rudi Dornbusch of MIT, one of the inflation dunces of this generation, saying that we don’t have inflation because labor unions aren’t as strong as they used to be. Unions cause inflation? Karl Marx would have had Dornbusch shot. George Meany would have put him in solitary. I recommend Rudi take lots of sleeping pills and wake up when your sleeping inflation does.

Oh, yes, then we have William Dudley, chief U.S. economist of Goldman, Sachs & Co. “We’ve been very lucky,” you quote him as saying. Does he mean that Goldman, Sachs is lucky to have Abby Cohen, who knows what’s going on? Just what does Dudley mean, lucky?

Then you give us Paul Krugman of MIT, who may be the worst economist of the 1990s, replacing Lester Thurow, the worst of the 1980s. Krugman tells you, and you dutifully report, that it is fear and intimidation that has brought inflation to its knees. Workers are scared to death of losing their jobs, so they don’t ask for more money, which would be inflationary, he says. Now if Karl Marx wants to shoot Krugman, I would second the motion, but only if Kevorkian were on hand to make sure he goes without pain. This is vintage Krugman you quote: “Being nice to the rich hasn’t made much difference to the American economy, but being beastly to the poor does seem to increase efficiency.” To keep inflation really low, Peter, get the whip and scourge anyone who looks like they might be earning less than $20 K. Lash out at widows and orphans and you might drive the CPI into negative territory.

You conclude with the famous Barry Bosworth of the Brookings Institution, who has made a career out of the Phillips Curve and its “so-called non-accelerating rate of unemployment.” You wisely counsel that the only way to know for certain whether unemployment could be driven down further without igniting prices is to try, but Bosworth warns: “At this point, the risks are on the downside,” says Bosworth.

Well, yes, Peter. How scientific! But Bosworth doesn’t tell us how he would try to get unemployment down even further without risking inflation. What would he do? Do you think he might recommend a cut in the capital gains tax, even though Krugman will point out that would be a beastly thing to do to the poor? What would you do, Peter?

I recommend you get a tape of Greenspan’s testimony today before House Banking and play it over a few times, paying special attention to his commentary on gold. I say this not having seen the testimony, Peter, but I know our esteemed Fed Chairman, who is a genuine “expert on inflation,” had something smart to say.

You better get smart too, Dr. Passell. One of these days the top brass at the Times will take note that you have been off the rails for quite some time. Your executive editor, Joe Lelyveld, may wake up one of these days and decide you would make a better writer of obituaries, of all those dead economists in your rolodex. I’d hate to see that happen, for old times’ sake.

I know some readers of this memo on my website will think I’ve being too harsh in my criticism of your effort, that I would get further if I were nice. But you would be the first to agree, Peter, that I’ve tried being nice and it gets me nowhere with you.