• Text smaller
  • Text bigger

To: Pat Buchanan

From: Jude Wanniski

Re: You are Scaring Me

After six months of trying to persuade you privately that your
understanding of international trade and economics is a bit eccentric –
and will prevent you from getting out of single digits in your
presidential bid — it is time to go public. As much as I admire your
views on a host of public policy issues, it would really be difficult to
vote for you as long as you continue to operate in an analytical
framework that is inherently dangerous. I thought you might have had it
under control, Pat, but your
National Press Club presentation was as bad
as it could be on this topic, and your comments to Wolf Blitzer on CNN
this Sunday were in the same vein.

Your press club speech March 2 itself was not so bad; a bit of China
bashing on trade policy works, especially when you are careful to
reaffirm the Nixon commitment to a “One China” policy. But the Q&A
session that followed was awful. When you said that as president you
would meet privately with the leaders of the People’s Republic of China
and tell them that unless they bought all their airplanes from Boeing
and spent at least $20 billion a year on U.S. farm products, that you
would cut them out of our market, I could hardly believe my ears. If an
American president would actually do such a thing, the whole world would
have to figure out a way to coalesce against us. There would have to be
a meltdown in the financial markets everywhere, given the power of the
American president to throw such a monkeywrench into the world trading
system.

It got worse, Pat, when you revealed your deep-down conviction in a
single-variable model of the way the world works — which is that it
works better when there is less trade between nations, works worse when
there is more trade. You did this by insisting that Great Britain’s
greatness peaked in 1846 and went down hill from there — because Sir
Robert Peel ended the Corn Laws by which England subsidized its farmers
via high duties on foreign agriculture.

To believe in such reactionary stuff, Pat, suggests you are
hard-wired into protectionism as a sure cure for any economic ailment.
I’ve told you over the years that I would support a higher ad valorem
tariff, to 10 percent or even 15 percent, as long as domestic tax rates
on capital formation were slashed simultaneously. You are obviously not
content with such a program, but intend to throw tariff thunderbolts
from the Oval Office whenever you get the itch. In your CNN interview
with Wolf Blitzer, I see you have decided the president has the power to
force foreign producers of oil to sell us as much as you want them to,
at prices you will determine. Read this over:

    Talk about the trade war being conducted against the United States
    of America by the OPEC cartel. We bail out Mexico, with what, $50
    billion. They conspire with Saudi Arabia and Kuwait to drive up oil
    prices by $70 billion against the United States? I would tell them, the
    Mexican government and these other governments, no foreign aid, no IMF
    loans, no World Bank loans, if you’re part of this OPEC conspiracy. I
    would tell the Kuwaitis, look, we saved you; you wouldn’t exist without
    us; now start pumping oil or the American fleet is leaving. … You
    know, I’d call up (Mexico President) Ernesto Zedillo and say, Ernesto,
    you’re my buddy. We bailed you out; we gave you NAFTA, which is about
    free trade. This isn’t free trade. This is a conspiracy to rob the
    American people. Now you sell us now 10 times as many cars as we sell
    you. We’re putting a 50 percent tariff on every car that comes north
    from Mexico until you start pumping oil to the max.

Pat, if you are prepared to declare economic war on Mexico and
Kuwait and the other oil producing states for keeping the oil price
close to $30 a barrel, would you also have insisted that when oil got
below $10, as it did in 1998, that they stop producing oil until the
price got to where you want it to be — to keep our domestic oil
producers from going out of business?

How many times did I try to explain to you that it was our Federal
Reserve that deflated the dollar in 1997, which caused the gold price to
plunge, taking the oil price down with it? And when oil was at $10 for
two years, this was a signal for the world oil industry to not supply
capital to develop more oilfields out of the proven reserves. So when
the world economy recovered from the Fed deflation and began demanding
more oil, it wasn’t there. Yes, OPEC is managing production at the
margin, but until it recovers the losses of the bad years, it continues
to signal the need for more capital.

You must understand, Pat, that the source of the problem is the
floating dollar, not OPEC. Before President Nixon took the world off the
dollar/gold standard in 1971, the oil producing nations had no power to
manage the supply of oil. There was no “Organization of Petroleum
Exporting Countries” because there was no need for one.

All the evils of inflation and deflation you have seen in the last 30
years, since Nixon floated the dollar, have been the result of Nixon
floating the dollar. Check back to 1971 and you will even find a trickle
of immigration from Mexico into the Southeast. Compare that to the flood
of legals and illegals from all over the hemisphere which resulted from
that single act — which was supported by practically every Ph.D.
economist in the country. All demand-siders.

If you are going to faithfully represent the interests of ordinary
people, Patrick, you should put your finger on the source of the problem
– the cause of the disease afflicting the body politic, not the
symptom. Having known you for all these 30 years, I know your heart is
in the right place, and you wish to put things right in the world. But
by announcing you will stand on the mountaintop and dictate solutions is
not only the wrong way to solve the problem; it scares people, me
included.

  • Text smaller
  • Text bigger
Note: Read our discussion guidelines before commenting.