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Look to Keynes, not Viets

Posted By Jude Wanniski On 05/03/2000 @ 1:00 am In Commentary | Comments Disabled

To: Sen. John McCain [R AZ]
From: Jude Wanniski
Re: A battle, not a war

“The wrong guys won the war,” you are quoted as saying on your trip to Hanoi, marking the 25th anniversary of the end of what I’ve called a long battle in the larger Cold War. Just as the Union army clearly lost battles against the Confederates, but won the Civil War — and just as the Allies lost battles to the Axis powers, but still won WWII, the Free World experienced what amounted to a stalemate in the Korean battle and a setback in the Vietnam battle.

If we were in fact fighting a hot “war” against Korea and its Chinese allies in the early 1950′s, we would of course have followed General MacArthur’s counsel and fought to win. The same is true in the struggle between our client state in South Vietnam and the client state of the Communist powers, the USSR in particular. Those who at the time criticized our leadership for not going all out to win really meant using all the power at our command, up to and perhaps including nuclear weaponry at some level.

During the decade from 1965 to 1975 — the critical period of our Vietnam involvement — I was a reporter and columnist for the Dow Jones National Observer in Washington and then as an editorialist for the Wall Street Journal in New York. To this day, I’ve never set foot in Southeast Asia, but at long distance got to know it as much as that is possible by combing through all the records and reading all the books available on the subject of the conflict … especially how it began and why it escalated from a very slow start in the early 1960′s. In my 1978 book, The Way the World Works, I wrote about my findings with the perfect hindsight of a classical (supply-side) economist. I’m going to send you a copy of the book, now in its 4th edition, hoping you will at least read the section on Vietnam.

Instead of being as angry as you have been at the North Vietnamese for all the evils you encountered there, you might transfer some of your wrath to the Keynesian economists who — with the best of intentions — destroyed the South Vietnamese economy. They did so by forcing tax hikes, currency devaluations, and an insane “land reform” program down the throat of President Diem.

The Kennedy Administration did this in December 1961, when the South Vietnamese economy was doing just fine and the total number of communist rebels in South Vietnam was tiny. It did so by threatening to withdraw support from Diem unless he adopted the “plan” designed by a team of economists from the University of Michigan. The economists argued correctly that: “for the long-run, accelerated economic growth may be the crucial factor contributing to a solution of the security problem.” The first step in the “plan,” though, was to “limit consumption so that resources may be released from the production of consumer goods and devoted to capital formation.” On January 5, 1962, in a story from Washington by Max Frankel, the New York Times announced: “U.S. Giving Saigon New economic Aid in Fight on Reds; 11-Point Plan Seeks to Raise Living Levels; Vietnam to Alter Tax System.”

When you now read what I’ve written, John, you will have not the slightest doubt that I’m right. Almost 40 years have passed since those “modern” economic policies were adopted by the Saigon government, so it is far easier to see now than it was then that a 76% “luxury tax” on practically all goods other than rice would demolish internal commerce. An accompanying tax on foreign exchange to discourage imports meant that urban goods would have to rise in price, cutting the purchasing power of farm goods. Instead of revenues increasing, they immediately went into sharp decline, with Diem experiencing its “first budget deficit” in his regime’s long history, according to the New York Times of June 20, 1962.

As the economy slid into depression, the American economists urged currency devaluation to make exports cheaper and runaway inflation began. In the economic contraction, tensions increased between Buddhists and Catholics and the Catholic Diem was forced to resort to more authoritarian crackdowns to maintain order. The upshot was that by October 1963, Diem had been demonized, and the option President Kennedy chose was to signal the South Vietnamese military that it would be okay by him if they removed Diem, who was assassinated by the generals on November 1. On November 22, JFK was assassinated.

All these years have passed, John, and the American political establishment continues to ignore it, as it would hurt too much to assign the blame where it belongs. The cost of not doing so has been the continued use of the same economic model, by the International Monetary Fund, when it goes into one country after another urging tax increases and currency devaluations. Why not make it your mission, when you meet with George W. Bush this month, to commit yourself to make major changes in the way we push economic policies down the throats of poor countries? Put campaign finance reform aside for awhile, and take on this really big enterprise.

Five years ago, Defense Secretary Robert S. McNamara wrote a book apologizing for his part in the Vietnam escalation. On April 12, 1995, the New York Times blasted him in an editorial entitled “Mr. McNamara’s War.” I wrote a letter to the editor which ran two days later, which I include in this missive to you. It may help clear your own understanding of what Vietnam was all about.

The New York Times
Letters
Friday, April 14, 1995

To the Editor:

It is sad that Robert S. McNamara carries such a heavy burden, believing himself to be responsible for the lives lost and the blood spilled in the war in Vietnam. It is unfortunate that The Times, which supported the war effort in its early stages, is so unforgiving in its “Mr. McNamara’s War” (editorial, April 12), as if it were all so unnecessary.

In a representative democracy such as ours, the whole of the nation shares equally in the costs history extracts from us, as we do the best we can in making our way in the world. All Americans who voted and chose not to vote in all the Presidential and Congressional elections of that era did the best they could, given the information available to us. In the largest sense, we did extremely well. We managed our way through the gravest threat to our nation’s existence — without a shot being fired in a nuclear war. Only if we think of Vietnam as an isolated event, a war unto itself, might we have some excuse now in thinking of it as a tragic and useless exercise.

Of course, it was not, but rather an extended battle during the long cold war that stretched almost from V-J Day in 1945 to the fall of the Berlin Wall. A century from now, history will also look back upon the “police action” in Korea as another such battle, indecisive, but critical to the final outcome.

Lincoln understood the imperatives of history as he grieved over the fallen at Gettysburg, among the gray, as well as the blue. Our democracy triumphed then over the dark impulse of man to enslave his brothers, just as it did in our delicate, half-century war with the egalitarian elites of Moscow and Beijing. Now especially, with the cold war won, ordinary Americans who lost loved ones in the battles of Korea and Vietnam know full well that their lives were not lost in vain. Robert McNamara and The Times should not try to persuade them otherwise.

Jude Wanniski
Morristown, N.J., April 12, 1995


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