Newsgroups: talk.politics.misc,alt.activism,misc.headlines,sci.econ
Subject: Derailing the Reagan Revoltion, part I: Reverse Reaganism
From: demon@desire.wright.edu (Stupendous Man)
Date: 18 Aug 92 13:30:02 EST
Organization: Demonic Possesions, Inc.

	"...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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