CAUSE VS. COINCIDENCE :

Lucky Us : A tribute to Milton Friedman (Donald H. Rumsfeld, July 31, 2002, National Review)

EDITORS NOTE: At the White House on May 9, 2002, Defense Secretary Donald Rumsfeld offered this tribute to the great 20th century economist Milton Friedman. We reprint the transcript on the occassion of Friedman's 90th birthday. [...]

[G]eorge Shultz came to me and asked me if I would run the wage price controls for the United States of America. (laughter) It was the country's first peacetime experiment. As I recall, it was not Milton Friedman, but H. L. Mencken who once said, "For every human problem there is a solution that is simple, neat and wrong." Richard Nixon found it.

(laughter and applause)

Early on, I figured out that the key to success was not to even try to manage wages and prices. Senator Proxmire's law, I think written on the back of an envelope, was only a paragraph or two, and it embarrassed the President because inflation was coming along and the President wasn't stopping it. So he passed a law saying that the president shall have the right to control wages and prices. I put the law on the floor in my office, next to my desk. And then every time The Wage Board, or The Price Commission, or The Health Services Board, or The Rent Board, or The Construction Stabilization Industries Board, any one of those alphabet boards that were spawned by this Economic Stabilization Act--every time they issued a regulation, we stuck on top. Before too long it started working its way up to the ceiling. As a reminder for everybody for the potential damage we were doing.

He's not here and I hate to talk behind people's back, but I think the record should show that Vice President (Richard) Cheney, of course, was part of that operation, (laughter) and I have never once seen it on his resume. (laughter) But he was there.

There was one other thing we did early on was to get agreement that any employee of the wage price controls could be fired within 30 days. The goal was to not allow a permanent bureaucracy to self-perpetuate, and it worked. So we worked and we worked we kept letting out everybody, we kept freeing up all of these categories. We had tiers and we would let this group free at wages and controls, and this group free at price controls, because it was an option or because of something else, or because it was food and the answer to (inaudible) prices is high prices.

And after a while, Milton Friedman called me up and he said, "You have got to stop doing what you are doing." And I said, "Why? Inflation used to be up at around 6 or 7, it's now down to about 4 or 5. We're freeing up all kinds of activities. We're not doing much damage the economy." He said, "I know, I know that. But you're not the reason inflation is coming down, and YOU know that! (laughter) I said "That's true." And he said the problem is that people are going to think that you're doing it, and you're not--you're letting everybody out and Inflation's coming down and they're going to learn the going to learn the wrong lesson. And it's important he did not quite go as far as to say that I should start damaging the economy, but that was right underneath what he was telling me. (laughter) And of course he was correct.

This is much the argument that we offered when Republican friends told us they were so disgusted with George H. W. Bush's tax hike that they were going to vote for Clinton or Perot. The natural rhythm of Amerixcan politics was done possibly irreparable harm by the Democrats' winning the White House just in time to preside over the boom that was created by the Peace Dividend from the Cold War. In the normal course of things, had Bush, Sr. been reelected, it might have been possible to begin seriously reducing and privatizing government functions. Instead, the opportunity was lost, Democrats remained competitive, and it will take a '94 size landslide for the GOP to gain sufficient control of Congress to enact real governmental reform.

Posted by Orrin Judd at August 5, 2002 9:21 AM