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- Subject: Derailing the Reagan Revolution, part I: Reverse Reaganism
- Message-ID: <1992Aug18.142838.3577@desire.wright.edu>
- From: demon@desire.wright.edu (Stupendous Man)
- Date: 18 Aug 92 14:28:38 EST
- Organization: Demonic Possesions, Inc.
- Lines: 128
-
- "...it looks as if the East European countries are trying to move to
- where we were 50 years ago while we are trying to move to where they were 50
- years ago." --Milton Friedman.
-
- Emulating the Losers: How the US and emerging nations are swapping
- histories. In part one we examine how President Bush has helped derail the
- economic programs of the Reagan presidency. And how that has plunged the US
- into economic turmoil.
- As we will see in parts two and three, the solution is not less
- Reaganomics, but more.
-
- Most of the following is taken from _Forbes_, August 17, 1992. Part
- II includes an article by Arthur Laffer that appeared in the WSJ.
-
- Despite the collapse of socialism, people living in capitalist
- societies like the US, Japan, and Europe seem sunk in economic gloom. Why?
- Peter Brimelow flew to San Francisco to put the question to that Sage of
- Capitalism, Milton Friedman. Friedman produced some provocative answers.
-
- Nobel Prize-winning economist Milton Friedman rockets into San
- Francisco's traffic in his Cadillac Allante convertible, wearing a jaunty
- baseball cap that reads AYAU PRESIDENTE, the souvenir of a Guatemalan ally's
- election campaign. Can this man really have turned 80 last month? Well, he's
- just published his 24th book, _Money Mischief: Episodes in Monetary History_
- (Harcourt Brace). After a brisk morning spent terrorizing a Mexican TV crew,
- massacring opponents of drug decriminalization over a long distance hookup and
- lunching knowledgeably on dim sum, Friedman talked to FORBES in his Russian
- Hill apartment with its magnificent views over the Golden Gate. Despite his
- exuberence, his outlook has darkened considerably since our last chat (FORBES,
- Dec. 12, 1988).
-
- FORBES: How's the economy?
-
- Friedman: If you look closely, and pay attention to the short-term
- money supply movement, it looks very scary.
- President Bush has a policy I've been calling reverse Reaganism. It
- promises slow growth in the 1990s. Now, on top of that, the short-term cycle
- came down sharply, then started to go up, but has been severely retarted by
- slow monetary growth. It may indeed turn into another recession.
- [Federal Reserve Chairman Alan] Greenspan has ben more successful than
- Volcker in avoiding excessive volatility in the money supply. But while I
- share his objective of long-run zero inflation, in the short run the money
- supply has grown much too slowly....
-
- Aren't markets now supposed to discipline central banks?
-
- Oh, there's no doubt that the market has made inflation less profitable
- than it was before, first by forcing the government to move to short-term
- securities and second by reacting more rapidly to an inflationary monetary
- policy, so that the long-term rates go up more quickly. But as a technical
- matter, that wouldn't prevent an inflation. On the contrary, it means
- inflation would occur more rapidly. The Fed could flood the country with money
- and nominal rates would shoot up, just like the 1970s. Unlike the 1970s, the
- markets would be able to prevent real rates going negative. But then that just
- means nominal rates--and inflation--would be worse.
-
- Four years ago, when we interviewed you, our cover line was "Why
- liberalism"--in the American sense of interventionist government--"is
- obsolete." Well, if liberalism is dead, why won't it lie down?
-
- There are too many good jobs at stake. You have this enormous
- bureaucracy in Washington, and also in every city and state, all dependent upon
- the continuation of New Deal and Great Society kinds of programs.
- Instead of Licoln's government of the people, by the people, for the
- people, we have government of the people, by the bureaucrats, for the
- bureaucrats--including among the bureaucrats the elected bureaucrats.
- If you're going to have term limits, they ought to apply to the
- bureaucrats as well as to elected officials....
- See look at the reaction in the US to the collapse of the Berlin Wall.
- You'd think it would be: "Well, you see, that just shows what happens when
- government's too powerful." But instead I believe the reaction has been:
- "Hmm. You see, we must be doing everything right, because they're trying to
- immitate us."
- There weren't any summit meetings in Washington about how to cut down
- the size of government. What was there a summit meeting about? How to
- increase government spending. What was the supposedly right-wing President,
- Mr. Bush, doing? Presiding over enormous increases in paternalism--the Clean
- Air Act and the the Americans with Disabilities Act, the so-called Civil Rights
- quota bill.
- Indeed, right now it looks as if the East European countries are
- trying to move to where we were 50 years ago while we are trying to move to
- where they were 50 years ago.
- And not only in Eastern European countries. Look at Latin American
- countries. Fifteen years ago or so I was being picketed and harassed for
- supposedly running Chile from my office at the Univ. of Chicago. Today Chile
- is a greate success story. You've got a politically free country. Mexico is
- trying to follow. Argentina, too.
- In the Far East you have four "Little Tigers." [Hong Kong, S. Korea,
- Singapore, Taiwan] Hong Kong is the purest case of free market approach.
- Taiwan, Singapore and South Korea have large elements of authoritarian
- paternalism. But all of them stress the market as opposed to central planning.
- The same thing is now happening in Indonesia. It's certainly happening in
- Malaysia. It's happening all over the place.
-
- Does this mean that you're disappointed in Bush?
-
- [Laughs.] Disappointed is putting it very mildly. I believe the Bush
- presidency has been very close to a disaster.
- Reagan when he came into office had four basic points: one, reduce
- marginal taxes; two, reduce regulation; three, restrain government spending;
- four, have a stable and noninfaltionary monetary policy. And while he did not
- achieve them to the extent to which I would have liked, he did achieve a great
- many of them.
- Now Mr. Bush comes into office, and what happens with respect to these
- four planks? He presided over the summit, which ended up with an increase in
- marginal tax rates. Not very large. But it's opening the door to future
- increases. As long as you had a firm policy, "Read my lips," that possibility
- was simply ruled out.
- On regulation: an enormous increase in control over the citizens. The
- number of people employed by the regulatory agencies has now gone up under Bush
- more than it went down under Reagan. He reversed Reagan on policy number three
- as well, spending. Government spending has been going up more rapidly under
- Mr. Bush than--you have to go back a very long time to find a comparable
- period.
- On inflation: He hasn't been able to dominate the Federal Reserve
- Board. However, he did try to interfere. He waited until the last minute to
- reappoint Alan Greenspan. He and Secretary of the Treasury Brady have been
- jawboning the Fed. I'm not going to defend the Fed's policy. I'm just
- contrasting the situation.
- -----------
-
- In part two, the conclusion of the Friedman interview.
-
- Brett
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