The Market Fundamentalist

Paul Krugman is the Democrats’ court economist.

Trouble is, like the Democrats programs, he is outdated. You see, Krugman is the last of the unreconstructed Keynesians.
Keynes theories died in the late 1970’s when we had high inflation, high unemployment, and high interest rates all at the same time. It was called stagflation, or the “days of malaise”….it did more than the Iranian hostage crisis to get Ronald Reagan elected President in 1980. He simply asked “Are you better off today than you were four years ago?” To which America replied with a resounding NO! More to the point, Keynesian theory predicted that if government “stimulated” the economy, these three indices would NEVER, EVER rise together.

To be fair, it was Jimmy Carter who, belatedly, started Reaganomics. It was actually Carter, not Reagan, who started deregulation of oil distribution, airline tickets and trucking. It was actually Carter who appointed a new FEDERAL RESERVE chairman, Paul Volker, to try to do something about stagflation.

Reagan really just followed through and solidified these initiatives, as well as cut taxes in his first term.

Paul Volker decided to listen to the great libertarian economist of the Chicago School, Milton Friedman, and use HIS ideas to get a grip on inflation. It was inflation (remember, it was the last time, until now, that gold was selling for over $800 an ounce) that was determined to be the main culprit in stagflation. It was decided that the best way to attack the threat of high unemployment was NOT through the Keynesian model of printing more money to stimulate aggregate demand; that the best way to attack the high interest rates was NOT to have the Fed lower rates (which they realized was not possible), but to attack inflation the best way possible–to recognize, as Milton Friedman said, that “inflation is always and everywhere a monetary problem.”

If inflation was indeed a “monetary problem”, the best way to attack inflation was to reduce the supply of money. And this is precisely what the new Fed Chairman, Paul Volker, set out to do.

He stopped the printing presses. He said that the FED will stop or at least slow down the rate of growth of the money stocks. At the same time, they would let the interest rates float, or continue to rise.

And, he and President Reagan through his spokepersons told financial markets and the American people that interest rates and probably unemployment would continue to rise in the short run, but in the long run, the economy would stabilize, and the United States would not be like the banana republics of South America, and would NOT suffer real HYPERINFLATION. He told the American people to be ready for short term pain (even higher interest rates and unemployment) but that both would start to come down in a year or two.

They were right. In the next year interest rates and unemployment moved higher, but with the FED turning off the money supply spigot, eventually the economy righted itself, and we began a twenty five year expansion that hasseen some recessions, but no great depression.

Until now, and 2008.
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(originally in the NATION under a different title , by Peter C Baker)

Waiting for Giuliani
a Play in One Act by William Kristol

* * * *

Two hoboe’s meet by a trash can filled with burning garbage.

PODHORETZ: We are only in the very early stages of what promises to be a very long war–

PIPES: A profound war and long-term war, in which Afghanistan and Iraq are sideshows.

PODHORETZ: Iraq is only the second front to have been opened in that war: the second scene, so to speak, of the first act of a five-act play.

PIPES: I already predicted failure for an American-led military occupation of Iraq in February 1991…. [Podhoretz frowns] But President George W. Bush is right to insist on keeping troops in Iraq.

PODHORETZ: I think Iraq has gone not badly but well, is not a disaster or a crime or a delusion, but what’s more is a noble, necessary effort.

PIPES [apologetic]: Oh, it was a success…. That six-week victory remains a glory of American foreign policy…. The ingratitude of the Iraqis. [He raises his glass and takes a long, mournful swig. A tear wells in his eye.]

PODHORETZ [nodding sympathetically]: We’ve paid an extraordinarily small price by any reasonable historical standard for a huge accomplishment. It’s unseemly to be constantly whining.

PIPES [as the previously welled tear drops to the floor]: Probably those weapons were well hidden; maybe some were latterly destroyed.

PODHORETZ: They were shipped to Syria.

PIPES: They might well still appear.

PODHORETZ: The only reason in my opinion that we’re having as much trouble as we’re having in Iraq is that we’re not getting intelligence…. You can only get that kind of intelligence by squeezing it out of prisoners. Both domestic opposition and the international community, unhappily, are defining torture down. The things they’re calling “torture” now have never been and have no business being considered torture.

PIPES: Is there not something deeply flawed about the US government consistently siding with terrorists?

PODHORETZ: Even a lot of my neoconservative friends have either lost heart and deserted the cause or devoted themselves mostly to bitching about this and that and the other thing and everything else.

[An awkward pause. Both men look at the floor. After a few seconds, Podhoretz suddenly looks up.]

PODHORETZ: Which brings us back to Ahmadinejad.

[Pipes makes a fist, and pumps it furiously in the air.]

PIPES: Ahmadinejad threatens the elimination of the United States as well as Israel.

PODHORETZ: The old American foreign-policy establishment and many others say that these dreams are nothing more than the fantasies of a madman.

PIPES [Leaning in conspiratorially, sweating slightly]: The real story is Giuliani’s fresh start in foreign policy.

PODHORETZ: As far as I can tell there is very little difference in how he sees the war and how I see it.

[Both men jump from their chairs.]

PIPES [sweating slightly]: The war is against radical Islam.

PODHORETZ: I call this new war World War IV.

PIPES [sweating more, and panting]: A profound and long-term war.

PODHORETZ: There’s no alternative to military action.

PIPES: Will we act in time?

PODHORETZ: Even though Hitler in Mein Kampf had explicitly spelled out the goals he was now preparing to pursue, scarcely anyone took him seriously.

[They sit back down, switching seats.]
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