Memo To: Bob Herbert, NYTimes columnist
From: Jude Wanniski
Re: A Poke at Greenspan
Congratulations for taking a shot at Fed Chairman Alan Greenspan in your Labor Day column. It was just a small shot, but well-directed. The fact that you are among the most influential black journalists in the world -- by dint of your twice-a-week column in the world's most important newspaper -- I'm delighted you put your finger on monetary policy. Most complaints about the income gap involve taxes and fiscal policy. There have been dozens of commentaries in the last several days about the "income gap" between the rich and the not-rich -- coinciding with Labor Day. Your column really was about the relationship of middle-class Americans to where they were a generation ago -- citing a new study by the Economic Policy Institute. I haven't seen the study, but I do agree that the middle class just now is beginning to get back to where it was 30 years ago, in the after-tax purchasing power of their incomes. Just because nominal incomes have been going up all these years does not mean that standards of living have not fallen behind.
As one of the earliest advocates of supply-side economics, I've spent most of the last 30 years thinking about the implications of Art Laffer's remark, after President Richard Nixon closed the gold window in 1971, that "It won't be as much fun to be an American anymore." Laffer at the time was chief economist at the Office of Management and Budget in the Nixon administration, and he had worked on the August 15 package of economic initiatives that were supposed to have made things better, not worse. He lost the gold fight. You should know that Andrew Young, who was a Georgia Congressman and a member of House Banking at the time, to this day says the lives of black Americans really began to unravel when Nixon went off gold. It was the impact that the resulting inflation had on the progressive income-tax system that smothered commerce, drove down real wages, and dried up opportunities for people at the bottom -- which is why we now have a whole generation of black men being warehoused in the prison system and a generation of their women raising children alone, usually out of wedlock.
You note in your column that things have been getting somewhat better in the economy in recent years, but "the economic recovery will have to continue at approximately the same pace for another few years. You might mention that to Alan Greenspan when you see him." Actually, it will take several more years before we catch up to where the middle-class was back in those days, when it still was possible for an entry-level worker in a factory or on a construction site to support a family. You have to translate everything for the inflation of the last 30 years -- which really began in 1967 when President Lyndon Johnson closed the London gold pool.
Greenspan is a problem because he equates a tight labor market with inflation. A tight-labor market is especially good for the folks who labor, bad for the folks who want to hire labor. Karl Marx wisely identified this fact more than a century ago when he noted the propensity of capitalists to prefer a "reserve army of unemployed." There is that propensity in Greenspan's thinking, which finds encouragement with the way the Fed is established. Remember the Fed is really a private institution, which had been given its monopoly powers over the management of the nation's money by the 1913 Federal Reserve Act. Populists always have complained about the Fed, sometimes for the wrong reasons, but always knowing the 12 districts are presided over by presidents who were not elected by ordinary people. Rather they are "put up" for the jobs by the regional power establishments, the same way members are put up for country-club memberships. The board of governors is chosen by the President with the consent of the Senate, but the folks in the field come without even that political connection. It is very rare, of course, that a member of a minority is "put up" for the presidency of one of the 12 districts.
You see what I mean, Bob? There is an automatic institutional bias in favor of capital against labor. Labor does best when capital is in abundance relative to labor. Capital prefers an abundance of labor, so it can pick and choose, hiring the least desirable last, if ever. When the nation is on a gold standard, capital has no choice. When the Fed is on a Gold Standard, it cannot be on a Greenspan Standard. It must supply the liquidity being demanded by the marketplace, no matter how short the unemployment lines get. For most of our history, this is how the "undesirables" could arrive from abroad and climb the ladder of opportunity. There was no Greenspan who could decide on his own to "pull up the ladder" even temporarily, until workers were again in greater supply than capital. The President of the New York Fed or the San Francisco Fed or Boston Fed could not call Greenspan and tell him to raise interest rates to slow things down.
That's why I was so encouraged by your column, Bob. It broke out of the mold. Where I would have expected you to follow the line laid down by the Political/Business establishment -- agreeing with the editorial position of the newspaper for whom you work -- you showed a little independence of spirit. Why do you think Jack Kemp has been fighting for more than 20 years for a return to the dollar/gold link? Is it because he is anti-black, or because he represents the interests of the people at the bottom, as best he can? Why do you think he has been fighting to eliminate the capital gains tax? Because he wants capital to stay where it is, in the hands of rich, old white men or their widows? Or because he wants it to be in such abundance that it floods the economy, finally making it available to men and women of color, who now have to make do with their labor alone, without access to capital or credit?
If you want to follow up on this first flash of independence on matters economic, I suggest you give a call to Rep. Bill Jefferson [D-LA], a member of the Congressional Black Caucus, and a man who understands the benefits of capital being in abundance. Write a column about him. He's running for governor of Louisiana and could use a boost from you. Keep this ball rolling!