November 27, 2008


Barack Obama, Supply-Sider? (Kevin A. Hassett 11.26.08, Forbes)

If you paid attention to the political rhetoric that President-elect Barack Obama engaged in during the Democratic primary, then you probably expected his economic team to be made up of left-wing ideologues. When Obama took a rare holiday from blaming all of America's problems on NAFTA and deregulation, he bashed Hillary Clinton for her cozy relationship with that corporate symbol of evil incarnate: Wal-Mart.

But that rhetoric was, we now know, just that. How "sensible" is Obama's economic team? So sensible, that one can construct a pretty stirring defense of supply-side economics relying solely on their work.

Volcker's Tough Approach As Fed Chief Upset Many: Today Economist Is Credited With Defeating Inflation (Glenn Kessler, 11/27/08, Washington Post)
As Federal Reserve chairman, he took an uncompromising stance against inflation, jacking up interest rates as high as 20.5 percent. Unemployment soared to 11 percent in the most painful recession since the Great Depression. Volcker had been appointed by President Jimmy Carter in 1979, but his tough medicine likely contributed to the Democrat's failure to win reelection in 1980.

According to Joseph Treaster's 2004 biography, "Paul Volcker: The Making of a Financial Legend," angry workers who had lost their jobs flooded Volcker's office with mementos of their plight -- two-by-fours from carpenters unable to build houses; bags filled with ignition keys from car dealers stuck with unsold cars. One leading Democrat, Rep. Henry Gonzalez of Texas, called for Volcker's impeachment. Another, Rep. Frank Annunzio of Illinois, sputtered at the cigar-smoking Volcker during a hearing: "Your course of action is wrong. It must be wrong. There isn't anyone who says you are right."

Republicans were no happier during Volcker's eight-year chairmanship. While President Ronald Reagan remained silent as Volcker's policies sent his approval ratings tumbling, White House aides were eager to remove the Fed chairman.

It wasn't just a matter of President Reagan letting Mr. Volcker wring out inflation but that breaking PATCO contributed to the phenomenon.

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Posted by Orrin Judd at November 27, 2008 10:10 AM
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