(OPE-L) Re: James Baker's commodity index

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.


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

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


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

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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