Letter to Californians Jude Wanniski June 26, 2001

Memo To: The Los Angeles Times
From: Jude Wanniski
Re: Blame Richard Nixon

[While I’m taking a few days vacation, visiting my brother and his family in Las Vegas, I have been reading the LATimes, one of the nation’s best newspapers. It had been my daily paper in the 1950s when I was at UCLA and I still know my way around it. Because the “energy crisis” is a continuing story in California, I found myself reading letters and commentaries on whether President Bill Clinton should take the blame or President George W. Bush. It remains amazing to me that nobody has thought to blame President Richard Nixon, whom I blame, for having taken the United States off the gold standard 30 years ago. Here is how I put it in a letter to the editor of the LATimes, Janet Clayton, which I e-mailed on Sunday. I don’t know the lady and she probably thinks I’m a crackpot, but I have not heard back, so assume my letter isn’t going to run. As we have lots of readers in California, I’m putting it up here in hopes the message gets through. The letter is quite short, as letters editors seem to prefer short letters, even when the topic is cosmic.]

To the editor:

The "blame" for California's energy crisis can be traced back to President Nixon's decision to break the dollar's link to gold in August 1971. Ever since, we have had to make do with a "floating" unit of account, the paper dollar managed by a Federal Reserve Board that has ever since been making inflationary and deflationary errors. When Chairman Alan Greenspan ignored the sharp decline in the dollar/gold price in 1997 -- a sign he was not supplying the banking system sufficient liquidity -- the result was a serious deflation that is still playing itself out.

The first effect -- as I warned Greenspan and the Clinton Treasury in early 1997 -- would be a decline in oil prices followed by declines in other commodity prices. When oil fell below $10 from $25 in 1998, it was no longer profitable for the world energy industry to invest in new production. For almost two years, it sat back and waited for the price to rebound, which it did with a vengeance. California, along with the rest of the nation, was misled by the cheapness of oil and did not take steps to provide for its coming scarcity.

Capitalism can work, sort of, with a floating standard of measure, but for capital to be directed at the long term investment needs of the economy, the unit of account must be anchored to gold, the purest barometer of central bank performance. Before the Nixon float, there never was an energy crisis in American history. Now we have had two major crises, one caused by an inflation, this one by a monetary deflation. Our national economy and the world's will continue to weaken unless the deflationary process that brought gold to $270 from $385 is reversed, with gold stabilized at least above $300 and perhaps $350 to be safe.


Jude Wanniski
President, Polyconomics, Inc.
Morristown, N.J.