Letter to Wesley Pruden
Jude Wanniski
September 5, 1991

September 5, 1991

Mr. Wesley Pruden
Editor
The Washington Times
3400 New York Ave NE
Washington, D.C. 20002
Dear Wes:

I've just read John Elvin's "Inside the Beltway" column in the August 28 Washington Times referring to my client letter on the Moscow coup, which you may have passed on to him. I must say it takes my observations grotesquely out of context to make me look foolish and illustrates the difficulty the press corps is having following the events in the USSR. To have it come after I spent so much time with you recently, explaining the desperate state of conditions in the USSR, is especially maddening.

In fact, I'd called The New York Times in July for the same reason I called you and other editors, warning that the situation in the Soviet Union was getting out of control. While every Western commentator and expert was clucking away, arguing the hard liners were the cause of the problem because they were blocking the liberal reforms, I was arguing the hard liners were right in blocking half-baked reforms that would lead to stupendous chaos, and insofar as the reforms have been partly implemented since last winter, they would bring dire problems this winter.

The Times asked me to write the article, accepted it on August 2, and let it sit in the ever-green file while they ran Soviet nonsense by the likes of Tom Brokaw. I pleaded with them to run the piece because I felt time was running out. As I've been arguing for two years, along with Wayne Angell, the critical problem for the USSR is monetary, and until it is correctly addressed by reform, the economy has to be run by the old method! My logic remains unassailable, directed not against Boris Yeltsin or Mikhail Gorbachev and in favor of Communist plotters, as John Elvin suggests, but against the stupidity of Western economists who have arranged for 300 million people to face starvation in the cold.

Given this stark reality, the coup against Gorbachev was, in fact, necessary and inevitable, and it has succeeded in putting into place a hard-line mechanism to try to get the country through the emergency that exists. Gorbachev had not only failed repeatedly to find the correct path to economic transition, but drove the national economy backwards while pursuing incorrect paths. He had also failed to persuade the West to send him a big bag of Marshall Plan money at the London summit, and then went on vacation with only six weeks to winter!!!

The coup plotters, remember, included practically everyone in the government excepting the vacationing Gorbachev. They went to his vacation spot and pleaded with him to sign the necessary decrees, declaring a state of emergency. When he refused, the coup leaders assumed he was mentally out to lunch, incapable of governing in a country falling to pieces. The "hard-liners" are now viewed almost universally as demented, power-crazed Gulag policemen types. Only Bill Keller, The New York Times' former Moscow bureau chief, correctly saw that the plotters saw themselves as "patriots."

Your columnist quotes me as saying "The policy of reforms launched at Gorbachev's initiative has entered for several reasons a blind alley," but these were the words used by the coup leaders to justify their action! There wasn't a Hitler or Stalin or Mao in the bunch. The closest parallel would be the second-string board of directors of a giant, obsolete corporation, going belly-up under the ditherings of an inept chairman, trying to grab control while putting out a search for a new leader.

In the process, Boris Yeltsin became the man the Establishment fastened upon to take control, to restore order in a way Gorbachev could not in the emergency that indeed exists. The military and political apparatus behind the coup did not roll over dead because Yeltsin cowed them by his sheer force of "will." The leadership of the Soviet military simply cut a deal with him, allowing him to occupy the chairman's seat at the board of directors, while Yeltsin, for his part, has in all essentials signed the emergency papers that Gorbachev would not. As I write this, a Reuters wire has come across my desk reporting that Gen. Boris Gromov, identified throughout the Western press as the man in charge of the mechanics of the coup, has only just today been removed from his number two slot at the Interior Ministry, and shifted to another job not arrested. Whom was Yeltsin on the phone with the night of Tuesday, August 20, with KGB troops supposedly ready to storm the Russian parliament building and fewer than 1,000 of his supporters standing outside in the rain?

Keller, among the very best reporters stationed in Moscow in the last several years, has also reported several times in the weeks following the coup that the Soviet population by and large remains indifferent to the political events that have unfolded the crisis simply passing from one group of inept political leaders to another. The big Moscow demonstrations occurred after it was clear Yeltsin had the support of the military/national security forces.

The press coverage of these events has been two-dimensional at best, as if the entire press corps was reading from a manual on "How to Cover a Coup." There are good guys, bad guys, and a guy in the middle, who has gone on vacation. When the coup doesn't unfold according to the textbook, it is the players who are at fault, not the textbook. Thus, the plotters seemed to bungle in not jailing Yeltsin. Yeltsin, who was the good guy in the script because he opposed Gorbachev the most and shouts "democracy" the loudest, is now the object of deep concern in the Bush Administration because he is using his new power in dictatorial fashion.

When I returned from Moscow in September 1989, after warning that the country would fly apart if not held together by a convertible ruble, I wrote my clients on September 14, 1989:

[The New York Times had reported] that 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 how 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 Mozowiecki, 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 economy in the center of Europe."

If Gorbachev fails, 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 geometric collapse underway now, does not seem possible. A bloody civil war would be avoided, with Ligachev reining in Gorbachev's glasnost political freedoms, and Yeltsin having Thurow over, and maybe Marty Feldstein again, to revive perestroika with a major ruble devaluation for starters.

This is approximately what has happened, although Ligachev's name can be replaced by the military/political apparatchiks that did cut the deal with Yeltsin. The Supreme Soviet is suspended, Yeltsin governing by decree, but with Gorbachev around to serve as punching bag for all the problems the country will be going through. And these will be considerable. I heard Jeff Sachs on WCBS radio this morning, interviewed in Moscow, where he is calling for a massive Marshall Plan from the West to help the Russian people through the winter. In this morning's New York Times, their chief economic correspondent, Peter Passell, quotes a variety of Ivy League economists who argue that the 15 independent republics that seem to be emerging not have a common currency. Better that they each be able to devalue their own currencies at the rate that suits them.

I take the trouble to write you at this great length, old friend, because you have in the past exhibited a healthy skepticism when the rest of the press corps eagerly swallowed conventional wisdom. In fact, this is not a routine historical happening. It's a more complicated kind of chess game being played out with moves never before encountered by any of the experts. As far as the press corps is concerned, I'm reminded of the coverage of the "energy crisis" of 1974, when reporters who had no experience with an energy crisis ran around interviewing experts who also had no experience with an energy crisis, and all decided it was a giant conspiracy. It was a giant conspiracy, but as in the present case, those holding the strings were not those in the public eye.

Sincerely, as always,

Jude