Ken Dam at Treasury Jude Wanniski January 16, 2001

It now seems most likely that Ken Dam of the University of Chicago Law School will be Deputy Treasury Secretary. It may seem an odd choice, but Ken was a whiz kid in the Nixon administration and not only knows how Washington works -- he also knows the way the world works. I've known him since 1971. In the summer of 1971, during the currency turbulence resulting from the Fed's attempt to expand the economy with aggressive additions to monetary reserves, the Nixon economists set up working groups that led to the big economic package of August 15 -- including an import surtax, wage and price controls, and a closing of the gold window.

Ken was one of three members of the "gold team," the nuts-and-bolts member, who set up the options for the senior players. The other two members were Paul Volcker, undersecty of Treasury for monetary affairs, and Art Laffer, chief economist at OMB. In other words, Ken was present at the creation of the currency devaluation, the breaking of the gold link, and the floating of the dollar. If I remember correctly, all three members weighed against the gold action. The gold team's recommendation was overwhelmed by Treasury Secretary John Connally, who was persuaded that a 13% devaluation of the dollar against the Japanese yen would change the terms of trade, end the trade surplus with Japan, and create hundreds of thousands of jobs -- helping Nixon get re-elected in 1972. Laffer definitely argued that it would not work as Connally had been led to believe. Volcker only has hinted that he was negative. Ken Dam lined up with Art.

Donald Rumsfeld, who now will be Defense Secretary, knew Ken Dam well, as Rumsfeld became head of the Cost of Living Council which administered the wage-and-price controls. Cheney was Rumsfeld's assistant. They all attended the 8 a.m. White House staff meeting, which is why it was so easy for me to persuade Rumsfeld in November 1974, when he was chief of staff for President Ford, that he should hear Laffer's arguments for tax cuts.

Rumsfeld sent Cheney to meet with Laffer and me, which is when Art drew his "Laffer Curve." (When I saw Cheney recently, he said he remembered it as if it were yesterday.) Ken Dam was in the background to all these happenings.

In the years since he left the Nixon administration, Ken has kept his hand involved in international public policy, serving on various advisory groups. One of the most important, in the 1980s, was as an outside counselor to the CIA. I've spoken to him since by phone, but the last time we met was when I returned from Moscow in 1983 and was invited by Ken to an all-day conference in Washington for the CIA's Soviet "experts."

We still are waiting for the Undersecretary for International Affairs slot to be filled at Treasury, hoping it will be David Malpass, the director of international research at Bear Stearns. With O'Neill, Dam and Malpass, the Treasury team would be formidable. We noted last week when Bob Zoellick was named the US Trade Rep that we'd hoped he would have been named deputy, but now see why he did not get it -- as the way was being prepared for Ken Dam, an even better choice. Malpass, by the way, had worked as assistant to David Mulford when Mulford was Undersecretary of Treasury for International Affairs and also worked as deputy asst secretary of State for LatAm Affairs when James Baker III was Secretary and Zoellick was his deputy. Quite a mosaic.