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, 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 monkey wrench 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, 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% or even 15%, 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 ten 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, 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.
All the evils of inflation and deflation you have seen in the last 30 years, 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 Southwest. 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.