The August Recess
Jude Wanniski
August 17, 2001


The rest of the world is worthy of non-stop commentary and our global clients are getting their money's worth these days. At the top of the world, though, things are as quiet as can be. Because Congress is in recess and the President is vacationing too, our nation's capital has shut down. The movers and shakers are waiting for the tax rebates and interest-rate cuts to pull the economy out of its slide. It will be mid-September before there is a clamor for policy change, I think. I've written the "Deflation Monster" cover story for the American Spectator, which will be delivered to subscribers on September 15, I'm told, just in time to move our recommended policy changes along. Here is a link to an op-ed that Mike Darda and I wrote for The New York Times, sent to them July 30, with never a response. This is the second deflation op-ed I've sent the NYT, both rejected. The WSJ editorial page has also resisted our arguments, but after allowing Jack Kemp to break the ice, the page has now had op-eds by George Gilder and Charles W. Kadlec, both of whom get our work, extending the Kemp arguments. The Financial Times of London is now picking up the story line, has interviewed Kadlec and I, and will run a deflation/gold piece this weekend, I'm told. The fact that the CPI is negative today and the PPI negative for two months in a row will help the story along, as most editors simply reject the idea that there can be a deflationary process underway while the price indices are still rising. The Washington Times instantly accepted the op-ed which the NYT coldly rejected.

The questions we have been getting in recent days are mostly about the $276 gold price, which does seem to be sticking at $10-12 above its plateau from the first of the year. The reason, we believe, is that the national climate on fiscal policy is souring, as the deflation is shrinking federal, state and local tax revenues that had been projected at higher levels. This means many planned tax cuts will be deferred and in several smaller states, tax increases are already in the works. We have noted any number of times that in the Catch-22 world we live in, with our floating unit of account, the easiest way to get the dollar gold price up to $325 or higher would be to have a big tax increase. This would change the risk structure of the economy, producing a decline in the demand for liquidity and a concomitant increase in the gold price. The deflation would be replaced by a contraction. The $10 climb in gold, in other words, would be promising, if not for our belief that is reflects a negative shift in domestic taxation. When Congress returns, if there are GOP demands for a lower capital gains tax, as promised by Senate Minority Leader Trent Lott, we'd expect gold to reverse if the White House gets behind the idea. There are probably enough Democrats to get capgains done tacked onto the minimum wage bill.

If you have specific questions, please e-mail me directly. I'll keep our exchange in confidence. Another treat for you will be the weekend lecture at my Supply-Side University. I've dug out the account I wrote for the National Observer issue of August 23, 1971, the first issue after Nixon took us off the gold standard on the 15th of the month. I have not looked at it since I wrote it, but have to admit it is pretty good, interesting and at times funny, in recalling the consensus at the time that our big problem was that our savings rate was too high, at 8.4%!! The piece will be posted by noon Friday and remain over the weekend.

P.S. Big news on the home front. My daughter Jennifer, 30, will be married September 2 to Andy Harlan, 35, a "method actor" out of the Lee Strasberg school. He's the nicest young man she ever presented to me for approval, and after a year of their dating, I decided he was not acting. (He actually came to visit and asked me for her hand in matrimony!) They will live in LA where he will shoot for stardom on the silver screen. Those of you who have known Jenny over the years, from our client conferences, can e-mail congrats; she will print them out, I'm sure, and paste them in her wedding book.