From: Gerald_A_Levy@MSN.COM
Date: Fri Nov 19 2004 - 10:19:36 EST
Rakesh wrote: > In 1987, Reagan seemed ready to reappoint Paul Volcker as Fed > Chairman, when Treasury Secretary James Baker convinced him to give > the job instead to Greenspan. Baker gloated ''We got the son of a > bitch'' after maneuvering Paul Volcker out of the Fed. and then asserted the following: > Greenspan was chosen--I am arguing--to run monetary policy in > accordance with what can be called Baker's modified gold standard. ========================================== I. That's quite a leap. To begin with, there weren't dramatic differences in monetary policy by Volcker and Greenspan. There are simpler explanations for the hostility of Baker to Volcker. The 1981-83 recession, in which the rate of unemployment briefly peaked at over 10%, was called the "Reagan recession" by opponents of the administration and the "Volcker recession" (or the "Carter/Volcker recession") by supply-side spinsters (although the expression "Volcker recession" was coined by Tobin., I believe). After the recession someone had to take the blame and, who better, from an administration standpoint than Paul Volcker? One has to recall that, although Volcker had been an Undersecretary of the Treasury under President Nixon, he was appointed to the Chair of the Fed by President Carter and Pres. Reagan then inherited him. Clearly he wasn't as much of an ideologue as administration spokespeople and supply-siders. That, by itself, was another good reason for Reagan -- influenced by Baker -- not to re-appoint Volcker as Chair of the Fed. With a variety of scandals hanging over the administration -- most notably, "Iran-Contra" -- they were in a circle the wagons mode and wanted people they could trust and control completely. (Something similar is happening with the current re-shuffling in the White House.) Thus, less than a month after Volcker departed Reagan nominated arch-reactionary Robert Bork to the Supreme Court. It has also been suggested that Baker feared that Volcker would allow the discount rate to increase before the 1984 election. Indeed, Volcker was "summoned to a meeting with President Ronald Reagan and James A. Baker III, Reagan's Chief of Staff, in the White House library in the summer of 1984. Baker bluntly told Volcker, with Reagan looking on, that the administration did not want any increases in interest rates that might hurt Reagan's re-election chances" (AP story, 8/15/04). The Woodward book also describes how Reagan used appointments of members to the Fed Board of Governors in order to pressure Volcker into lowering interest rates (from 2000 article by David R. Francis, "Silent political issue: nominations to the Fed board"). Volcker, it was claimed, was not a "team player" and had to be replaced. ========================================= II. Even if one accepts _none_ of the above, there is _no_ credible evidence that Greenspan was chosen _because_ he would run monetary policy in accordance with Baker's modified gold standard." Nor is there _any_ credible evidence that there has been a "modified gold standard." _Even if_ gold is included in a group of commodities identified as "leading economic indicators" this doesn't prove -- or even suggest -- the existence of a (modified) gold standard. By the same reckoning, there could be said to be a modified oil standard! Or a modified grain standard! In developing monetary policy, the Fed looks at a number of economic indicators -- such as capacity utilization, costs of production, raw material costs, etc. They, and other economists, also look at some branches of production and micro statistics: e.g. new home construction, automobile sales, etc. If they wanted to include gold as one such commodity that they tracked changes of prices in then ... no big deal. It proves nothing. It especially doesn't prove that gold is commodity money or that gold is quasi-commodity money or that there is a regime of quasi-commodity money or that there is a "standard" of quasi-commodity money. If the belief that a "modified gold standard" has gotten a "chilly reception here on OPE-L" it is because it is too speculative ... too conspiratorial. Show us the proof. In solidarity, Jerry
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