Mission to Moscow Jude Wanniski September 14, 1989

Executive Summary: Fed Governor Wayne Angell and I spent the first ten days of September in the Soviet Union at the invitation of the government, to offer advice on the deteriorating state of the economy. We went thinking Moscow had a year or two to work things out, but quickly realized the economy is on the verge of a serious inflation that could accelerate geometrically. We advised an immediate government commitment to gold convertibility of the ruble, at a gold/ruble exchange rate that would have immediate credibility with the Soviet people and international community. The USSR has neither a central bank, in our sense, nor a bond market, so cannot manage the forces that have ironically been put into play by Gorbachev's moves toward market socialism. Receptivity was very high because the economic and financial officials in Moscow are despairing of the approaches they have taken thus far. Angell argued that a gold-convertible ruble, a credible unit of account, is the first thing the government must do, not the last in a chain of policy moves. It could then issue gold/ruble bonds that would be in such demand in the USSR and foreign markets that the budget deficit could be financed with 3% interest rates instead of printing press money. There is no alternative we could recommend if they wish to prevent either the break-up of the Soviet Union, civil war, or a return to a fascist command economy. Fed Chairman Alan Greenspan's October trip to Moscow now becomes extremely important. 

Mission to Moscow

Federal Reserve Board Governor Wayne Angell and I spent the first ten days of September in Moscow and Leningrad at the invitation of the Soviet Government and state bank, Gosbank. We were urged to speak frankly with economic advice, and as the visit unfolded, the central theme became our insistence that only by going immediately to a fully convertible gold ruble can the nation avoid economic disaster, which is almost upon it.

The trip grew out of a lunch I arranged in March between Gueorgui Markossov, ranking economic counselor at the Soviet Embassy, and Angell. At the lunch, Markossov explained that his government was putting off consideration of a convertible ruble, believing that first many difficult problems would have to be addressed in shifting from the wage-and-price controlled command economy to market socialism. Angell observed that arranging ruble convertibility was a much easier task than the Soviet government had been led to believe, and that its achievement would facilitate the resolution of all the other problems Moscow faces in President Mikhail Gorbachev's political and economic reforms. Markossov was sufficiently impressed to arrange for Gosbank to invite the two of us to a series of meetings in the two cities with leading economic and financial figures in the government, the Communist Party, and Soviet think tanks.

The trip far surpassed our expectations, in that receptivity was at a high level throughout. The reason, I believe, is that we could not have come at a better time, which in fact we were told by our hosts. (We joked at one point that angel is a messenger from God, and Saint Jude is known as the patron saint of the impossible.) The Wall Street Journal's page one story from Volgograd September 13, "As Coup Talk Sweeps Moscow, How Firm is Gorbachev's Grip?" exaggerates the sense of desperation in the country, but things are moving in that direction. The officials we met were clearly eager for new ideas on how to get the country moving, as progress to date on perestroika has been pitifully small, and as a result there was no pretense from them that they did not need outside help. The most receptive officials we met included Viktor Gerashchenko, the new chairman of Gosbank, his deputy for monetary and economic research, Oleg Mozhaiskov, Prof. Andrei V. Anikin of the Academy of Sciences (who was familiar with my writings), Dmitri Penzin, economic advisor to the Soviet foreign minister, and A.I. Milikov, deputy head of the socio-economic department of the Communist Party central committee.

We told them in separate meetings that we found the situation worse than we anticipated, the state enterprise ruble economy on the verge of collapse. Its arithmetic deterioration is approaching geometric deterioration, as a result, ironically, of the market forces Gorbachev put into play in the last eighteen months.

The market sector emerging around the cooperative movement is not only pulling heavily subsidized resources out of the state system, along with talented manpower, it is also moving toward a dollar standard that reduces the utility of the existing stock of rubles. The official exchange rate of 0.65 rubles per dollar is pure fantasy. The street rate is 10 to 15 rubles per dollar, with young men on every busy street openly negotiating in this range. At the same time demand for rubles is falling, the government budget deficit -- 15% of GNP and growing -- is being financed by the printing press.

New rubles are flooding into the system with nothing to buy, the patient citizens simply adding them to their savings bank deposits that pay 2% interest rates amidst a hidden inflation rate that surely exceeds 10% now and could exceed 50% next year. The co-op market participants can see their ruble incomes climb, while the wages of state employes are fixed by budgetary constraints. The wage in the co-op economy often exceeds 1,000 rubles per week. The standard in the state economy is 215 rubles per month! Social tensions are mounting, with many of the officials we spoke to, who are of course on fixed wages themselves, speaking bitterly of the money the co-ops are making by buying subsidized materials in the state sector, and converting them into goods they sell in the market sector --at prices usually beyond the reach of state employes.

The political unrest in the Baltic states is directly related to this banking issue, with Estonia recently asking for its own central bank and currency. Estonia, Lithuania and Latvia, where there is still a "market memory" compared to the rest of the USSR, are angry at seeing their shelves stripped by Soviets coming from other republics with the increasingly worthless rubles. The Soviets in Moscow insist the Baltic states are able to produce more because their raw materials are so heavily subsidized by the state. The Baltics have specialized in clothing co-ops, pulling in subsidized fabrics and threads from the other republics and peddling apparel at prices only other co-opers can afford. Petroleum, for example, is sold by the state at 3 rubles per barrel, which at the street exchange rate would be the equivalent of 30 cents a barrel. The high-income co-op employes and black marketeers pay the same 35 cents a gallon at the state gas pumps as the low-income state employes.

The central planners are still in a state of shock at the strikes by the coal miners in July, with a key element the absence of soap for sale in the communities around the mines, along with the shortages of just about all other consumer goods. State economists explained that the soap shortage cropped up unexpectedly. State soap companies, in seeking to increase profits to distribute to workers as higher wages, shifted production to more expensive bars, using more raw material, and cutting production of ordinary soap. The well-to-do co-op workers get the soap, the coal miners get the cold shoulder from their womenfolk. What better reason to strike? There have also been bread lines here and there, the planners complaining that co-ops have been grabbing up supplies of subsidized sugar and flour to make candy.

The potential for rampant bribery and corruption is obvious in these situations, especially as there seems to be no "equal protection" feature in Soviet law. A city official in Leningrad advised us that they have the power to tax different co-ops at different rates, depending on their social usefulness, which opens the possibility of co-ops paying protection from excessive taxes. There may be some grease at work as well in the state telephone system. It is virtually impossible to place a phone call to the United States. Between us, Angell and I dialed hundreds of times and were unsuccessful. The secretary to the Gosbank director spent an hour in our presence trying to reach the Fed, through Paris and London, and could not get a line! One official explained that the co-ops, doing international business, were monopolizing the lines so thoroughly that even the government had to stand in line. The Gosbank officials we spoke to seemed eager to be invited into the International Monetary Fund, an idea I suggested would do them more harm than good. I also joked that I didn't think they would be ready for the IMF club until they could make a telephone call to New York or Washington.

Without a monetary unit of account, it is almost impossible to gauge the true value of Soviet production. GNP is supposedly $2.5 trillion, but that's at the official exchange rate. At the street rate, GNP is a tenth of that, $250 billion. But we doubt that the figure would be that low. Our inquiries turned up the fact that the finance ministry sells gold to the domestic jewelry trade at prices designed to keep simple gold bands available on the shelves. The consumer price is about 80 rubles per gram, about 2500 rubles per ounce, and this may now be too low as everywhere we saw long lines at goldsmith shops. Streetwise informants told us raw gold is available at 45-to-47 rubles per gram, about 1400 per ounce. If we subtract dealer markup, we might put the spot quote at 35 or so, about 1100 rubles per ounce. This translates to a ruble/dollar exchange rate of three to one. On this back-of-the-envelope reasoning, Soviet GNP would be closer to $833 billion, about equivalent to the state of California.

Angell and I spent considerable time trying to guess at the true value of the ruble if the Soviets were to take our advice and go immediately to total convertibility, domestic and international. Angell argued strenuously that perestroika was doomed to fail without convertibility, and that it was not realistic to make the ruble simply convertible into the dollar, for several reasons. The most important is that Gosbank does not function as a central bank. It does not have authority to buy and sell government bonds in order to manage the ruble's dollar value, even if there were a government bond market. Gosbank officials indicated they were now contemplating a 5% bond issue, to finance some of the burgeoning budget deficit. Angell dismissed the practicality of such a flotation as too little, too late and wholly lacking in credibility. Furthermore, the markets for bonds are well aware that Gosbank could not resist, as the U.S. Fed does, political pressures for easy money.

Angell also observed that the Soviet Union has no history at all of a "full-bodied money," as he put it. The United States has its roots in a gold standard, with elaborate mechanisms now in place to manage the dollar value of other currencies and commodities, including gold. Except for a very brief period in 1921-22, when the USSR had side-by-side gold notes and fiat rubles, the entire Soviet experiment over 72 years has been burdened by the absence of a predictable unit of account. In this connection, I advised our hosts that a gold convertible ruble might permit perestroika to proceed without privatization of property, as Gorbachev now insists. Angell emphatically agreed, although we of course said we were biased toward private property. Our relative neutrality on this point was a great relief to our hosts, who had been hearing from other visiting "conservatives" from the U.S. that private property was the essential key.

But neither a capitalist system nor a socialist system can do without a recognized, predictable money, we insisted. Operating without one, I said to several of the dozen groups we met with, was like trying to build a building with a meter that meant different things to the architect, the engineers, and the construction workers, sometimes six inches, sometimes between 15 and 30, sometimes 39 or more. Angell used as a metaphor a thermometer with lines but no numbers and no mercury. Such is the current uselessness of today's ruble, he said. Instead of being the last thing on the list of things to do, the cherry atop the cake, he urged the gold ruble be the first. He did so with great passion and intensity, believing after several days in Moscow that the Soviet Union is now on a course fraught with danger to its own citizens and the rest of the world. "You have to excuse my passion," he told Gosbank officials. "I'm becoming a little bit audacious and I'm almost embarrassed at my audaciousness, but I want you to know how strongly I feel about your present position."

In a speech Gorbachev delivered Saturday, September 9, which we read about upon our return, he himself warned of the prospect of civil war in the Soviet Union should the ethnic regions persist in pressing for independence. We addressed this specifically in our Soviet audiences, pointing out that the one economic tool a central government cannot decentralize is the value of its money. A gold ruble would set up centripetal forces, binding the outlying regions to Moscow, offsetting the centrifugal forces now working to tear the Soviet Union apart.

The audiences repeatedly raised the question of the absence of consumer goods as the chief reason why convertibility would have to wait, i.e., because there is nothing to buy with the enormous "ruble overhang" that has been built up. There are now roughly 100 billion ruble bank notes outstanding, about 350 billion rubles in savings bank deposits. The next budget, to be dealt with in this fall's Supreme Soviet, will cause about 9 billion rubles to be added to the money stock, as demand for rubles continues to decline. The "overhang" terrifies everyone in the government. The advice they are getting from western Keynesians is to "mop up" the surplus rubles with asset leasings, issuance of commodity-backed bonds, and higher taxes. Our advise is to leave the surplus rubles where they are, and increase the demand for them by the convertible gold link.

In a lecture at The Institute of the U.S.A. and Canada in Moscow September 4, Angell addressed these concerns:

During transition, one area of concern to monetary authorities may be the initial strength of demand resulting from any "monetary overhang" and its price level implications. A gold convertible ruble would address these concerns in two ways. First, gold-based rubles and ruble-denominated financial instruments would appear to be desirable savings vehicles, thereby serving to absorb part of the initial monetary overhang and possibly encourage more savings. Second, any one-time upward price pressure resulting from pent-up consumer demand would be less likely to shake the market confidence under a gold-ruble standard, as any upward movement in prices would be perceived as temporary.

The second feature that makes the Soviet situation unique is the country's prominent position in the world gold market in terms of reserves as well as volume of production. This position would seem to impart extra credibility to the ruble-gold convertibility. Moreover, it would be in the country's best interest to seek stability in the world gold market.

In these discussions I argued that there would be both domestic and international effects on consumer goods. Internally, because rubles would be as good as gold, workers would want to acquire them, not only by working harder, but also by finding ways to make their enterprises more efficient, so as to earn more rubles with the same effort. Street speculation in rubles would disappear overnight. Hoarded goods would appear on the market seeking gold rubles. Internationally, the government's credibility would soar instantly, and foreign capital would rush to acquire assets denominated in gold rubles. The shelves would fill with foreign goods offered in exchange. Angell predicted that Soviet ruble bonds would be snapped up in London and New York at about 3%, the lowest cost of capital in the world, lower than Japan's. The USSR would have the most sought-after money in the world. "It seems to me," said Angell, "if you are going through the trouble of restructuring your economy, you should aim at being number one, not number seven or twelve."

There might be a small gold outflow at first if the government set the price too low, but as rubles flowed back into the finance ministry, the automatic monetary tightening would quickly equilibrate. The Soviets, I gather, have roughly $26 billion of gold in their equivalent of Fort Knox. At four rubles to the dollar, this amount is sufficient to demonetize every single ruble bank note, leaving the country without any currency at all! It is of course ridiculous to think that more than a trivial amount of rubles would be redeemed for gold before the demand for them would climb.

There were questions to us on how we could be recommending gold to Moscow while the United States has demonetized gold. I advised that I favored monetization of gold for the United States, and said I believed we have been moving toward a new international gold-based system in recent years. The Fed has increasingly paid careful attention to the price of gold, Treasury Secretary James Baker in 1987 proposed a currency link to a commodity basket that would include gold. Angell simply argued that it was far easier for the USSR to achieve immediate credibility in its monetary unit by tying it to gold. The US already has a mature bond market and mechanisms to manage money. There is no way for the Soviet Union to replicate these quickly, even within years. A gold standard is the only realistic option.

The most important question to be faced would be the setting of the ruble/gold rate. "Full convertibility will require particular care in establishing the initial parity," Angell advised. The relationship between ruble debtors and creditors is a critical one that must be assessed. Soviet citizens who have saved 350 billion rubles believing they eventually will be worth something should not have the number of rubles per ounce of gold (or dollars) set so high that the government essentially repudiates most of its debt. Because the government itself is the principle debtor in the system, the rate could be set with a much stronger value to the ruble that most of the western economists have been advising, because there would be few of the deflationary consequences that would squeeze private borrowers in western market economies. That is, Soviet citizens don't owe rubles to anyone, so they can't be harmed by a deflation. As the state's chief creditors, they can only be hurt by inflation. It's conceivable that the rate should be set at one ruble for one dollar, which I think should at least be the starting point for discussion. Why not one ruble per dollar?

The closer the rate is set to the current official dollar equivalent, I suggested, the less difficulty the government will have in its contemplated price reforms. Everyone we talked to knows that prices have to reflect true values, for the most part, but they are baffled as to how to withdraw the subsidies to all the essential "social goods." My argument was that the government should carry the financial burdens of the social subsidies until the expansion is well underway, so the burden of adjustment takes place in a buoyant climate, not an austere one. Angell emphasized that once the goal of gold convertibility was established, the gold parity could be determined by thoughtful debate and analysis.

I spent two hours with the Finance Ministry's director of revenue, Viktor A. Tour, discussing the tax framework being developed. His central concern also seemed related to the banking question, worried that state enterprises in 1990 would enlarge the budget deficit by caving in to worker demands for higher wages. The government, he said, will propose a gross payroll tax that will levy three rubles of tax on a company for every one ruble in wage increases it grants over a specified threshold tied to overall costs of production. "It won't last long," he said, smiling wryly, and I could see the pressure cooker blowing up in his mind, "but we then will have to think of something else. If you have any ideas, please let me know."

My concern was that the government, in this state of mind, was being driven to increasing rates of taxation everywhere in sight — to close the budget deficit and thereby relieve the need for ruble printing presses. Tour says the new enterprise tax to be proposed to this fall's Supreme Soviet will probably be a 35% profits tax at the central level, with the republics permitted an additional tax of up to 25%. I asked if the state tax would be deductible from income for the purposes of calculating the federal tax, and he said the Ministry will present both methods to the government. I asked if there would be a tax-loss carry-forward provision. He said he's discussing this with western companies involved in joint ventures, who argue for it, and says it may be included in the near future. "The point of view of several of our senior economists is that companies should work hard so there is no problem of tax-loss, carry forward." Another smile. I'd drawn a Laffer Curve for him at the outset of our discussion, and the paper sat between us for reference. He'd not seen it or heard of it, but said the concept of the law of diminishing returns on tax rates had been seriously debated in internal discussions.

In this light, he understood my greatest concern, that the government would set progressive rates and tax thresholds before the monetary unit was fixed in terms of gold units. He had no resistance to my recommendation of a gold convertible ruble, as that was not his department, and acknowledged it would make a great difference if the gold/ruble rate were set low or high. But I came away thinking his vision of low and high was much different than mine. The plan set for Supreme Soviet deliberations calls for a 50% tax at 700 rubles per month, with no income averaging over the calendar year. At either 10 rubles per dollar or 1 ruble per dollar, the tax is punitive, half of all income above $8,400 a year or above $840 a year! Mr. Tour says there are amendments being proposed from every direction and the issue will be hotly debated. The "most rigid" proposed so far would set an 80% rate at 5,000 rubles per month. All this, he said, is the result of the budget, which must be taken into account! "In the first session, many deputies were demanding more money for their state budgets, pulling the blanket to their side of the bed."

On this path, combining a sharply accelerating monetary policy and a confiscatory fiscal policy, it isn't possible for either Governor Angell or me to see anything but disaster for the country in the next several months. Angell was practically pulling at shirt collars to express the intensity of his belief that every day counts! When Leonid Abalkin, chairman of the State Commission for Economic Reform and as of June 28 Gorbachev's closest economic advisor, did not show up for a meeting with us, sending a deputy instead, Angell was furious. He advised our hosts in front of Abalkin's deputy that he did not travel around the world at the invitation of the Soviet Government to advise on the seriousness of their problem to be snubbed. The deputy explained that Abalkin had to meet with U.S. Ambassador John Matlock at that same hour, which left Angell speechless, and he asked that Matlock be called by telephone.

Angell meanwhile composed himself enough to tell the deputy about his fears for the economy and the gold solution. But when it was determined that Abalkin was not then meeting with Matlock, Angell stood up, announced that he was not sufficiently in control of his temper, and urged that the meeting proceed with me taking over. It was clear through the remainder of the trip that Angell's Khrushchev-like outburst had gotten the government's attention.

Another way Angell worked to underscore the seriousness of his message was to dismiss all other policy questions put to him, saying he did not want anything to distract from the central issue. But at my request, we did spend several hours at a collective farm 32 kilometers west of Moscow. The fact that Angell was raised on a wheat farm in Kansas, which he still owns, and that he had owned part of a bank he founded to serve the farm community, proved illuminating. AngelFs insights would have escaped me completely. At a dinner that night back in Moscow, Angell completely absorbed the attention of A. I. Milikov, a top economic official of the Communist Party's central committee staff, who had earlier impressed both of us with his grasp of the banking crisis, which he put at the top of the list, the farm problem second.

The collective employs 1,200 people on 8,400 acres. It produces 9500 tons of milk annually, 600 tons of meat, 8,000 tons of vegetables, 2,000 tons of potatoes, 300 head of livestock, and 1 million pieces of flowers. The lot is valued at 15 million rubles, 4-to-5 million of which is profit. Of this 13% is taxed by the central government, the remainder distributed according to the decisions of the farm-elected board, some to capital improvements, some to worker bonuses based on smaller "brigade" decisions on who worked hardest and deserved more. In addition to the farming, the collective earns 1 million rubles per year processing food, 2 million rubles doing construction work, and 2 million rubles manufacturing chemicals, mainly PVC. In a new joint venture with an American firm to begin this winter, while workers are otherwise idled, the farm will produce computer diskettes at a facility 10,000 square meters in size.

Angell was shown a report prepared by two agriculture specialists from Texas A&M that the coop is following. After skimming it, he advised that almost all the recommendations were "silly," and the one correct recommendation, that the farm shift to hybrid seed for its corn production, was only relatively good, since he advised the farm should not be producing corn at all at that northern latitude.

Then came the shocker. Angell advised that his Kansas farm, which grows only wheat, is almost half the size of the Soviet co-op, and has not 1,200 workers, but only one and one-half. The half is a part-time machinery repairman, he said. "Modern American agriculture," he said, "is chiefly a job of machinery repair." The elected director of the farm, a grizzled Grigor Alergant, seemed stunned when Angell explained that his co-op should be producing no more than two types of crops. Specializing would permit them to cut their work force in half, freeing the other half to do other productive work.

"Your farm is being driven by the size of your work force instead of a determination to produce the greatest value at the least cost." The Texas A&M report fed the co-op's incorrect objective of maximizing production instead of productivity, he said, and thus would do little to increase the efficiency of labor. "How can you only produce wheat?" Alergant asked. "How do you protect yourself against shortages of vegetables?"

It was thus clear the farm system is organized as a microcosm of the national economy's xenophobic determination to be self-sufficient. Alergant gets directives from the central government on what he must produce, to meet central targets on milk, potatoes, beef, flowers, etc. He said his farm has benefited thus far from Gorbachev's perestroika because the rigidity of state demands have been relaxed somewhat. He said his workers are looking forward to this fall's session of the Supreme Soviet, hoping for greater freedom to decide on local production as well as clearer rules relating to the laws of the land. As it is, the state can now confiscate co-op land for other uses, paying only 10,000 or 15,000 rubles per hectare, which translates into perhaps $500 per acre at the street exchange-rate of the ruble. Angell and I noted that a gold ruble would even take care of this problem, especially at a rate of one ruble per one dollar. After touring the farm on this bright, cool Saturday afternoon, Angell engaging the workers in discussion and tromping through wheat and potato fields, we wished Mr. Alergant and his farmers well and wound up our 10-day trip.

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On Pan Am flight 31 non-stop from Moscow to JFK, I got further confirmation of the tension between the dollar/market sector of the economy and the ruble/command sector. Sitting next to me in business class was a young woman of 24 traveling from Lithuania, who spoke enough English for me to understand that she worked for a clothing co-op in Vilnius that was doing extremely well, and she was taking a two month vacation to visit friends in New York. Her round-trip ticket, at the street exchange rate of 10 rubles per dollar, cost the equivalent of 10 years income of the average worker in state enterprise. Yet she said, "Life is very difficult in the Soviet Union these days." I related the purpose of my trip, saying I'd advised an immediate Soviet commitment to a gold convertible ruble. She smiled another sad smile, "It will not happen."

Perhaps not. What then? I opened the copy of the previous day's New York Times, the first Times I'd seen since the day we left, and saw that Soviet firebrand Boris Yeltsin was about to arrive in New York for a speaking tour of the United States. It suddenly struck me why Yeltsin makes me nervous. The story related that he would be feted by David Rockefeller, by the Council on Foreign Relations, by MIT's zero-sum economist Lester Thurow, and by leading liberals of the Democratic Party. Yeltsin is of course Gorbachev's most outspoken critic, next to Yegor Ligachev, leader of the Old Guard. My nervousness about Yeltsin is not only related to the dubious company he is keeping in the U.S., but the fact that he does not have a specific agenda. He simply demands that Gorbachev move faster. Where? How? What does Lester Thurow advise? Another devalued ruble, of course, and higher taxes to balance the budget, so that by the year 2005, the ruble can be made convertible to the dollar.

Perhaps Yeltsin does not really want power at the moment, it occurred to me, because he would rather the system collapse on Gorbachev's watch. In the same way, Solidarity's Lech Walesa in Warsaw does not want power, preferring to have collapse come with a caretaker as fall guy, Tadeusz Mazowiecki, the new prime minister. Walesa's chief economic advisor in the United States is Jeffrey Sachs of Harvard, who with Lester Thurow has been among the economists behind Jimmy Carter, Walter Mondale, and Michael Dukakis. So the first item of business has been another 18% devaluation of the zloty, and we read in the September 13 Wall Street Journal, "Poles Get Non-Communist Government; First Goal is to Slow Surging Inflation." The article describes how Solidarity deputies were "captivated last month during a visit by Jeffrey Sachs," who "proposed a suspension of debt payments and an immediate end to Poland's huge state subsidies," causing the budget deficit to disappear and the zloty to be worth something. Nice going, Jeff. On the op-ed of The New York Times September 12, we find Mr. Sachs, described as a consultant to Solidarity, writing "Helping Poland Help Itself," demanding that the Bush Administration cheapskates send a big bag of money to Warsaw, to cushion the economy while the government, with his help, "works out economic reforms that will create a highly productive market economy in the center of Europe."

If Gorbachev falls, I surmise he will be replaced by a coalition of Yeltsin and Ligachev, which may seem preposterous, but no more so than a coalition of David Rockefeller and Lester Thurow. Given the nature of the problems facing Moscow and Warsaw, the "solution" of going back to an arithmetic rate of deterioration, instead of the geometric collapse underway now, does not seem possible. A bloody civil war would be avoided, with Ligachev reigning Gorbachev's glasnost political freedoms, and Yeltsin having Thurow over, and maybe Marty Feldstein again, to revise perestroika with a major ruble devaluation for starters.

The better solution is Wayne Angell's supply-side prescription. Is there time? Can it happen? We will know more in October, when our Mission to Moscow is followed up by Fed Chairman Alan Greenspan's. Leonid Abalkin, who stood up Wayne Angell, has promised to meet with Greenspan. Greenspan, at one time a fervid advocate of a gold standard may in fact advise that he agrees with Angell, that a gold standard may not be quite appropriate for the U.S. at the moment, but that it is the only monetary option open to Moscow. Angell hopes he will do just that. It would be nice if the Fed Chairman did.

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