I Was the Last Person To Talk With Jude Wanniski

by Charles Goyette

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I’ve never told the story before, but I was probably the very last person to talk with Jude Wanniski on the day he died.

Jude Wanniski’s impact on America’s 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, Red and Blue and Broke All Over: Restoring America’s Free Economy, I cite Jude’s important discovery of the role the legislative advance of the Smoot-Hawley trade tariff played in the 1929 stock market crash and the Depression.

Jude Wanniski 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 not deterred.

Jude Wanniski died of a heart attack on August 29, 2005.

Although he 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 wasn’t 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.

There has 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.

I'm only describing the behavior I observe in the market. And it looks pretty wobbly to me.

~ Charles

Jude added a postscript to his last email that morning, a point that could be made today about the fiat dollar and the Fed’s 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."

In memoriam Jude Wanniski.

Copyright © 2012 Charles Goyette

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