Memo To: Supply-side students
From: Jude Wanniski
Re: The Half-Turn of a Wheel
This lesson originally ran on November 5, 1999. I've altered it only to give it a present tense and bring it up to date a bit.
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In dealing with the political side of political economics, I originally thought of writing about "Establishment Politics," a cumbersome concept that would involve a discussion about how the ruling class permits marginal change to occur in a political system, and how it defends itself against major change -- revolution. The term itself can best be thought of as the half turn of a wheel. What was up is now down and what was down is now up. Revolution came to mind when I first wrote for SSU on this topic because of the Nobel Prize given Robert Mundell by the Swedish Academy. At the same time, I saw the demonization of "Pitchfork" Pat Buchanan by the ruling class. These both involve the turning of the wheel, the former an intellectual revolution and the latter a political revolution.
In Mundell's case, the Establishment was quite willing to concede that Mundell deserved the Prize because of work he did in the late 1950s and early 1960s in "optimal currency areas." The idea that economic gains could be had by replacing two currencies with one, or many with one, then may have seemed revolutionary. It now seems so old hat, though -- what with the creation of the euro out of 11 different currencies -- that some journalists wonder what was so original about his idea that deserved a Prize now. They stopped their griping when the chief Establishment economists begrudgingly conceded that Mundell's idea became the foundation for the euro. Still, they insist it was not revolutionary, only a marginal turn of the wheel.
Paul Krugman, then of MIT and now at Princeton, has become the Chief Establishment Economist by virtue of his twice weekly column for The New York Times -- had written just such a measly tribute to Mundell for Slate magazine. Krugman essentially said Mundell has been going downhill ever since he wrote his famous papers in 1960-62, and that his subsequent development of supply-side economics was sloppy stuff. The work on supply-side economics, of course, was truly revolutionary, which is why Krugman cannot permit it to be seen as having intellectual validity. Because he cannot challenge it head-on, he simply announces that it is a bunch of baloney. That is, his Slate column never cited the specific deficiencies of Mundell's "downhill" work and threw a mudball at me for becoming "loonier than ever," without saying what it is that is loony about my economics. As we will see, in the last stages of a revolution, the ruling class can only resort to ad hominem attacks, even demonization that may involve physical executions.
This was on my mind in 1992 when Ross Perot invited me to Dallas to discuss his plans for seeking the presidency through a new political party. As he told Larry King on the tv show that got the ball rolling, it would involve "taking out a fresh sheet of paper and writing a new tax system on it." Perot was clearly anti-Establishment and was talking revolution, not marginal change. To abruptly burn the entire federal tax code and start anew would strike at the heart of the status quo that has corrupted our political process. That status quo serves the interests of the people at the top, who run the show. I told him that he had to be careful, because the Establishment would do anything it could to stop him. "It will first try character assassination," I told him. "If that doesn't work, they may use real bullets."
In Perot's case, constant badgering about his money and press theories about his base motives in seeking the presidency led Perot to start complaining about the indignities being visited upon himself and his family. Once his whining began, the demonization of Perot unfurled. He finally dropped out of the race -- only in order to clear his campaign of incompetent staff -- and when he returned there was no further talk of a new tax system. He would balance the budget. With a sigh of relief, the NYTimes welcomed him back into the three-way 1992 race, knowing his presence increased the likelihood that the candidate of the Establishment's liberal wing would defeat the incumbent President, George Bush, the representative of the Establishment's conservative wing.
In 1980, Ronald Reagan of course was not the choice of the Establishment. In a poll of chief executive officers of the Fortune 500, Reagan got only three votes. The others went to President Jimmy Carter or to George Bush or to John Connally. But Reagan, who had been the only public figure in California to embrace Howard Jarvis in 1978, when Pitchfork Howard drove Proposition 13 down the throat of the ruling elite, was viewed as being too dangerous to established interests. In 1979, he had actually invited Jack Kemp and the revolutionary supply-siders into a prominent role in his campaign. Robert Solow of MIT, who has been one of the chief priests of the demand-siders -- and mentor to Paul Krugman -- spoke for the liberal wing of the Establishment in calling Kemp a "snake-oil salesman." George Bush, always the organization man, spoke for the right, calling supply-side economics "voodoo economics." Reagan was depicted as a washed-up movie actor who had been captured by right-wing lunatics. He was a demon, who upon inauguration, so they said, would cut federal spending so savagely that widows and orphans would starve in the snow. In foreign policy, Reagan of course would nuke the Russians and the world would end in a nuclear winter.
Then, too, a third party candidate entered the race, a "compassionate" Republican congressman named John Anderson, who would presumably pull enough votes away from Reagan to re-elect Jimmy Carter. Carter, by the way, had begun his 1976 campaign as a peanut-farming Georgia populist, who promised revolution -- "Our tax system is a disgrace to the human race." But the Democratic Establishment quickly surrounded him with safe functionaries as part of a deal to get him to stop talking populist stuff. He accepted their choice of Walter Mondale as his running mate, and Mondale was given an office in the West Wing of the White House, where he became the conduit for the Establishment's Cabinet picks.
Jimmy Carter never knew what hit him. In the case of Reagan, the Establishment in 1980 quickly found there was no way to get his goat via character assassination. Their agents continually baited the hook, but he just chuckled. By Labor Day, the ruling class conceded it had no chance of stopping Reagan. It sent two of its most reliable men to Reagan -- George Shultz, who as President Nixon's Treasury Secretary in 1973, formally took us off the gold standard, and Alan Greenspan, the last chairman of Nixon's council of economic advisors. They met in a private home in the Virginia suburbs of Washington and told Reagan they would accept his supply-side tax-cut agenda, but he would have to temporarily drop his call for a return to gold. Jack Kemp, who participated in the meeting, agreed to the deal on behalf of his troops.
One agenda item that was not mentioned was the intent of the supply-siders to reform the World Bank and International Monetary Fund, which had been turned into playgrounds for the big bankers and industrialists. In the summer of 1980, I wrote an essay called "A Supply-Side Foreign Policy," for the American Spectator. In it, I mused on the possibility of Reagan replacing World Bank president Robert McNamara with William Simon, when McNamara's term expired in May 1981. In early October 1980, with Reagan now safely ahead in all the polls, he was roused from slumber while on a campaign stop in Indiana by George Shultz. There was an emergency, said Shultz! He had talked to Jimmy Carter's fixer in the White House, Lloyd Cutler, about a revolt among our European allies, who were insisting upon replacing McNamara with one of their own when his term expired. "What am I supposed to do about that?" Reagan asked. Shultz told him that Carter had agreed, if re-elected, to replace McNamara with A.W. Clausen, the chairman of the Bank of America, a California Republican known to Reagan. If Reagan also would agree, they could put the fire out in Europe. Reagan muttered a sleepy assent. The next day, as I saw the story on the front page of the NYTimes, I knew the Establishment had struck in the dark of night.
I recollected this anecdote in 1999 when I saw a Times story that Michel Camdessus, the director general of the IMF, may resign before his third five-year term is up in 2001. The story listed several names of possible successors, of course all agents of the international banking establishment. Clearly the big guys were hedging their bets on the 2000 elections in the United States. If they can get their own man in before the elections, they will not have to worry about demands from the anti-IMF crowd in the U.S. Congress that Camdessus be succeeded by someone who is not "safe," i.e., who will not necessarily do the bidding of our bankers and industrialists. The IMF can proceed as the collection agent for the banks in the impoverished countries of the world, which are indebted to the industrialists for projects financed with IMF and World Bank loans and grants. This most elegant form of corporate socialism has been the primary source of evil in the world, after the Berlin Wall came down and the USSR's agenda dissolved.
The greatest threat to this primary evil was always a Kemp presidency. With his decision in January 1999 not to seek the GOP nomination -- partly out of the certain knowledge he would have to run the demonization gauntlet -- the next threat to the IMF/World Bank was Dan Quayle. As Vice President to George Bush, Quayle very early had learned of the evils of the IMF and when he could, acted against its goals. When he gave an interview critical of the IMF to Robert Novak, he was not only hauled onto the carpet and advised to keep quiet, he also was targeted for demonization. His weakness was his youthful looks and a caricature the press found easy to draw because of his surprise choice by Bush at the 1988 Houston convention. When he spelled "potato" with an "e" at a grade school spelling bee, he was a dead duck. The Establishment pronounced him a certain "loser" because of his "image," and decided that George W. Bush would be as "safe" as his Daddy in protecting the interests of the international banking establishment. Quayle could raise no money from the big guys, who threw cash with abandon at "Dubya". Worse, the GOP Establishment had tightened up the primary process so there would be no time, even if Quayle could make it through the New Hampshire primary, to overtake Bush in the primaries that followed rapidly thereupon.
In December 1999, "Pitchfork Pat" Buchanan represented the greatest potential threat to the Establishment. The assumption was that Bush would easily defeat Al Gore in 2000, if Gore is the nominee. The Democratic establishment was not unhappy about that thought, as long as it knew Bush would be President. Once again the Establishment agent was George Shultz, who arranged to introduce Governor Bush to Condoleezza Rice, who in turn introduced Shultz's cohorts, Richard Perle and Paul Wolfowitz, to Bush. The target even then was regime change in Iraq.
In this sense, Buchanan was of course correct that these are two wings of the same bird of prey. The two parties are allowed to squabble over nickels and dimes, as long as they leave the chief instruments of power in safe hands. There was a bit of nervousness at first about the candidacy of Bill Bradley, but his willingness to change his opposition to ethanol subsidies to support was a positive sign to the corporate socialists. Money has been flowing freely into his campaign from Wall Street and Hollywood. Nevertheless, he was not a predictable fellow, and could turn out to be a boat-rocker if he ever got to the White House. He never did reveal his plans for the domestic economy or for any ideas he might have on the world economy. Marginal change, okay, but no revolution!
Here is how I put Buchanan's chances in the 1999 SSU lesson:
Buchanan of course wants only revolution, upside down reform, with the peasants on top and the elites on the bottom. If he can pull together a peasant army under the banner of the Reform Party, he has a full year on this path to win the top spot. He would have to do it with the Perotistas, the supply-siders, the young upstarts and radicals in the black and Hispanic communities who are tired of Establishment plantation life, plus his own peasant brigades who identify "free trade" with the greed of our bankers and industrialists and who see the United States slouching toward Gomorrah. At the moment, it is not yet clear that Buchanan knows how to accommodate such a disparate band of populists, to unite them in common cause when they have such different interests in their extremes.
Even if he could, he would have to have some help from the guys on top. They have already decided that he is a Nazi-lover, an anti-Semitic bigot, a maniacal isolationist/protectionist who wants to shut down world trade. The demonization process is in full swing and it is a powerful force, which of course resembled the propaganda of Nazi Germany. So sure was Jack Kemp that what he was reading about Buchanan's book, "A Republic, Not an Empire," was soft on Hitler that he even refused to read it when I urged him to. Only when Buchanan sent him a copy with a note, asking his opinion, did Kemp read it, deciding it was not what he was led to believe. I'm certainly ready to vouch for Buchanan's purity of soul, having known him for more than 30 years, even though it means I also become the object of the same propaganda. Still, it is up to Buchanan to run the gauntlet if he hopes to win, for if he does all he is capable of in his bag of skills, he will at least turn the political process in healthier directions. The major Establishment parties will be forced to absorb and accommodate the most salient of his goals.
Throughout history, revolution has always been necessary, because political institutions still have not been developed to the point where marginal change can accommodate the changing nature of the world political economy. The U.S. Constitution was designed to do just that, but it was of course sufficiently flawed that it could not prevent the Civil War, or the mistakes of the 20th Century that led to so much war and economic depression. Eventually, a long time from now, even that will be figured out, and there will be no need to have "revolutions" that are painful or bloody.