Support Your Local Farmer! Jude Wanniski May 8, 2002

Memo To: Karl Rove, counselor to President Bush
From: Jude Wanniski
Re: The $173 Billion Farm Bill

The Wall Street Journal editorial page is picking on you again, Karl, this time for encouraging the President to sign the farm bill that is headed his way ("Down on the Farm Bill," May 7). Please don't pay any attention to them. Their idea that this might "alienate" his GOP base and cause the Republicans to lose the House this November is nonsense. The legislation is a natural response to the horrendous problems in the farm sector caused by the Fed's monetary deflation, which caused the collapse of commodity prices that began five years ago. In fact, the Journal editors are partly to blame for the mess, as they were warned about the mess Fed Chairman Alan Greenspan's was creating and decided to do nothing about it. Of course I also warned the folks at the New York Times and they did nothing. Now I see their top economic columnist Paul Krugman, who moonlights at Princeton, making fun of the greedy farmers in his Tuesday column. He says they exploit their advantage by having two Senators for ever rinky-dink farm state that voted for Bush over Gore in 2000. Krugman understands less about the nation's political mechanisms than he does about economics. He carefully avoids mention of the fact the bill passed the House by 280-to-141, although farm districts have no population advantage. Something else has been going on.

The reason farmers need government subsidies from time to time is that every now and then the government screws up the national economy in such major ways that the farm sector is crushed. The Crash of 1929 and the Great Depression stemmed from the Smoot-Hawley Tariff Act, which was the outgrowth of Hoover's 1928 campaign promise to raise the tariff on farm goods. As soon as the votes were counted in 1928, the House Ways&Means Committee held hearings on the tariff... even though a new Congress would convene in December. The pigs all ran to the trough, and before Christmas the tariff bill covered 15 different industries and almost everything produced in the US that had foreign competition. It was my 1977 discovery that the Crash of 1929 was the result of the Senate turning from opposition to support of Smoot-Hawley in October. Hoover did not sign the bill until June 1930, which is why nobody blamed the '29 Crash on it, but Chapter VII of my book lays it all out in great, precise detail. When Hoover and then Franklin Roosevelt added insult to injury, piling taxes higher and higher trying to balance the budget, the farm sector collapsed and the government had to design a price-support system patch it together. You really should read my book, Karl.

The problem now is monetary deflation. The 1996 Freedom to Farm Act was a fine idea, but it came after the Fed had stabilized the price of gold at around $350-$380, during the years 1985-1997. The deflation began in early 1997 as the gold price began its decline, wiping out commodity producers, crushing the farm sector and the oil and mining sectors. Oil and mining are not as critical as agriculture because the wells and mines can keep producing beyond a calendar year and because the commodities are freely available on the open international market. Farm goods have to be planted and harvested in distinct seasonal cycles. I warned at the time that this commodity collapse would come.... I warned my clients, the Clinton Administration, my friends in Congress and in the press. They all ignored me, maybe thinking I was getting old and had gone off my rocker. The American Farm Bureau Federation will confirm my warnings, as they are subscribers who at least grasped the reason for the price declines. Or ask our mutual friend Bob Novak, who has been the only fellow who has followed my warnings every step of the way. The last outfit you should be taking advice from is the WSJ editorial page, which wants to spend $173 billion A MONTH on various ideas for wars with Muslims and trillion-dollar missile-defense boondoggles.

It is really necessary for the government to help fix a problem that it has caused, though. In this case, the pricetag on the farm bill subsidies (over 10 years) should be deducted from Alan Greenspan's paycheck (over a million years), as he flat-out refused to react to my warnings and in 1997 told me he no longer wished to hear from Polyconomics on the subject. He wanted a deflation!!

This is why we cannot afford to continue as a great nation with a floating unit of account, Karl. The costs are horrendous, except they are always attributed to the mistakes or the greed of ordinary citizens, not the federal government or the central bank. The President should be made aware of this. He should also start talking about gold, not gold coins and all that claptrap, but gold as the best signal of monetary errors by the central bank. President Reagan pleaded with his team for eight years to fix the dollar/gold price, so there would be an end to inflations and deflations, but they always talked him out of it. Eventually, some President will do it. It might as well be Bush.