Memo To: President Clinton
From: Jude Wanniski
Re: WSJournal interview
I greatly enjoyed the one-on-one interview you gave to Trude Feldman that appeared on today’s WSJ editorial page, “The President at 50.” Your discussion about the potential of the U.S. economy was especially interesting to me, as you have correctly fastened on the central issue: How fast can this economy grow without inflation? You note that if we could grow faster than 3% for a while “we wouldn’t have this inequality of income that we have seen in the last few years.” You went on to say: “But the truth is, no one knows what the optimum rate of growth without inflation is. The o nly thing I’ve tried to do in dealing with the Federal Reserve was to show that I would be responsible in getting the deficit down, but I didn’t want to get in the way of economic growth.”
Exactly. What I recommend, Mr. President, is that you put that question directly to Alan Greenspan. There is almost nobody in the world who has spent more time thinking about it than your Fed chairman. If you engaged him in a discussion about the problem, he would be able to explain his thinking on a theoretical plain. In the delicate position he is in, he probably cannot even discuss with you his inclinations about central bank policy as it is now unfolding. But he can kick around the economics that underpins your concern. You need only ask him: Are there any circumstances under which the economy can grow at 5 or 6% a year for some period of time, without inflation? Having known Alan for 25 years, I know his answer will be “yes.” Your own staff of economists might disagree with his particulars, but it would be worth your while to hear him out. I don’t know exactly what he would say, but I would guess that it would involve making use of all human resources available to the economy, through a more efficient match of capital and labor.
If you were to ask me, I would say there is the potential to grow at 5 or 6% a year for several years without inflation, which we would realize if we followed the prescriptions laid out in the Wall Street Journal essay of June 18. I hope you read it.
By the way, happy birthday and many happy returns. (I just turned 60 myself, on June 17.)