I Was the Last Person To Talk With Jude Wanniski
by Charles Goyette: Ron
Paul: Everything Republicans Say They Want
told the story before, but I was probably the very last person to
talk with Jude Wanniski on the day he died.
impact on Americas political-economic debate could not be
missed. While serving as associate editor of the Wall Street
Journal in the 1970s, he coined the term "supply side economics."
He was an advisor to Ronald Reagan from 1978 to 1981, and was instrumental
in the design of the Reagan tax cuts. Jude was the author of The
Way the World Works, which has been described as one of
the most influential books of the 20th century.
In my new book,
and Blue and Broke All Over: Restoring America’s Free Economy,
I cite Judes important discovery of the role the legislative
advance of the Smoot-Hawley trade tariff played in the 1929 stock
market crash and the Depression.
had a deep appreciation for the importance of gold in a stable and
reliable monetary system. And he saw at once through the bogus representations
about WMDs that took this country to war in Iraq in 2003 and bravely
denounced Bush for the imperialism of his elective war. In what
is by now a familiar experience suffered by many, his outspokenness
cost him and his business financially. But he was heroic and was
died of a heart attack on August 29, 2005.
had been a guest on my radio show that morning shortly before he
passed away, the show could not have been a contributing factor.
At least it certainly wasnt a stressful event or contentious
in the slightest, because I admired Jude greatly, had visited with
him often, and always learned from our conversations.
After I got
off the air that morning we even continued our discussion by email.
In searching my computer for a long-lost address the other day,
I ran across our exchanges from the morning he died six-and-a-half
years ago. He started off letting me know how enjoyable the show
had been for him, and resumed the conversation about the Federal
Reserve, real estate, and the economy right where we had left off
on the radio.
I thought you
might like to see how I described the real estate economy in my
response to Jude that morning. The bubble was building, but it was
two years before banks started falling like flies. Here is what
I wrote him on August 29, 2005:
While I can
only agree that the tax treatment you describe is a component
of the real estate boom (just as changing the passive investment
tax treatment of real estate tanked the commercial market in '86),
my observation is that while real estate may have been
made a preferred investment because of favorable tax treatment
residential real estate is highly leveraged and in weak
hands. People without the means of holding onto them every
cocktail waitress, cab driver, and boiler room telephone salesman
are snapping up apartments converted into condominiums
as fast as they can at ever escalating prices, only in the hopes
of flipping them to the next buyers who have the same aspirations.
Like the Beardstown Ladies Club in stocks, people are joining
with friends to speculate in homes that in the absence
of new buyers materializing at higher prices would not
be able to find renters at rates high enough to service the mortgages.
It is entirely reminiscent of the spectacle of people from all
walks of life quitting their jobs in the late 90's stay home and
"day trade." Just as every stock buyer was a genius
then, people are chasing real estate today because real estate
is going up. It's good fun and profitable in a bull market.
been a proliferation of innovative mortgage devices: Negative
amortization loans, interest-only loans, short-term loans that
require new mortgages in a couple of years, adjustable rate loans...
Meanwhile, builders continue to build because well, because
they are builders and lenders will lend to them.
But at some
point something happens: Interest rates go up, there is a layoff
by a major local employer, gas prices cut into investment budgets,
China decides that if it can't buy American oil companies, it
may not be wise to keep buying dollars and funding our debt, regulators
red-line certain industry loans... something happens and a lot
of people head for the door at once.
describing the behavior I observe in the market. And it looks
pretty wobbly to me.
a postscript to his last email that morning, a point that could
be made today about the fiat dollar and the Feds current orgy
of money printing. He wrote, "
the people who benefit
the most from a floating dollar are those who can play the exchange
system with better information and confidence. The Big Guys. The
little guys are always the ones hurt the most from the absence of
a unit of account that holds its value over a long period of time."
© 2012 Charles Goyette
Best of Charles Goyette