To: Students of Supply-Side University
From: Jude Wanniski
Re: A Question on Lesson #7: Choosing Political Leaders
There were several questions posed to me regarding last week’s lesson, which argued that the electorate always chooses the best candidate, given the information that it has available at the time of the election. The question asked by Adolfo Rivero [www.neoliberalismo.com] goes directly to the heart of the thesis and it will take up all of this week’s lesson. As he put it: “I wish someone will explain the wisdom of the electorate in Hitler's election in 1933, after he had written and carefully explained his ideas in Mein Kampf. Or Peron's government huge popularity (up to the present day) when his main achievement was to stop and then reverse Argentina's fast development in the 1940s. Or Castro's huge popularity in 1959, to mention a few examples.”
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Great question, Adolfo. I’ve been getting the question since TWTWW was first published in 1978. Hitler, of course, was never approved by Germany’s electorate, although he did become chancellor legally in January 1933. When he ran for president in April 1932 against Hindenburg, he did have a good showing, losing with 13 million votes to Hindenburg’s 19 million, even though Germany had been in an economic tailspin since the Wall Street Crash of 1929. History is clear that Hitler’s electoral advances AFTER he became chancellor through a deal with Hindenburg’s successor, Frank von Papen, came through strong-armed tactics of the Nazis, suppressing the opposition newspapers, cutting deals with the other nationalist parties. Still, we have to deal with the question of how Hitler could have to that point come to power legally, even after he carefully explained his ideas in Mein Kampf. Hitler himself was determined to come to power without actual revolution and managed to do so.
Remember, though, it is my argument that the highest priority of an individual or institution is survival, and the people of Germany were reeling from the losses they suffered in WWI followed by the Versailles Treaty, which explicitly sought to put Germany out of business as a European power. Even so, the economy was growing back into shape when Hoover signed the Smoot-Hawley Tariff Act in June 1930. The economic decline still might have been managed at that point, but the centrist government of Heinrich Brüning pushed through an economic program by decree, attempting to restore confidence in public finance by raising taxes. Things got worse and Nazi popularity increased as Hitler blamed the allied powers, Versailles, the reparations, and Jewish financiers for the miseries of the Volk.
What were the alternatives? Hitler promised survival and at that point there was no thought given to the consequences of what would follow. His anti-Semitism of course had been displayed back to his early adulthood, but we forget now that almost everyone in Christian Europe was anti-Semitic to one degree or another. It was not until Vatican II in 1963 that the Roman Catholic Church was sufficiently reformed that churchgoers no longer had to hear their priests refer to Jews as “Christ killers,” as I heard in the 1940s and early 1950s. It is also clear that Jewish financiers participated in some significant way in the financing of the Nazi regime in its earliest days, but that is to be expected, because all Christians with whom Jewish bankers dealt were to one degree or another anti-Semitic.
The point here is that mankind is one organic body and has been since Adam & Eve, and the history of civilization is the story of the afflictions and maladies that have caused that body to suffer -- and the cures that have brought the body back to health. If Hoover had not signed the Smoot-Hawley Tariff Act in 1929, Wall Street would not have crashed, Germany would not have been sent into a tailspin, Brüning would not have raised taxes, and Adolf Hitler would have died in bed or in a beer hall. We cannot argue with history, though. We are where we are because we learned from our mistakes. It was not until 1977 that I discovered the cause of the 1929 Crash and my discovery is still not taught in our schools, but I was gratified to hear the fictitious President of the popular TV show “West Wing” announced recently that he was not going to mess with tariff increases because they caused the Great Depression. If the organic body knew then what we know today, Hoover would have vetoed the bill and we might now be flying into Hoover National Airport in Washington, D.C. instead of Reagan National Airport.
When we get to Juan Peron of Argentina we are at least not dealing with a racist, but a populist and fascist in the mode of Mussolini. If there is one candidate up for election who seems to know how to make the trains run on time and all other candidates want to nationalize the trains, the electorate has no choice but to go for the former. I’d really have to take a few weeks off and read the history of the Peron era after WWII, which I never have done, but from my superficial reading do equate him with Italy’s Benito Mussolini, who made “fascism” so popular as a model of the political economy that Franklin Roosevelt patterned his New Deal after it. (All this is in my 1978 book, by the way, as I knew even then that I had to have an airtight argument for the wisdom of the masses and the outcome of elections before we went to press. Those of you who are trying to get copies from us, hang on, as we have sold out and our publisher, Regnery, will take another month to get more copies into our hands.)
There is still not a good book written about the Mussolini Era, although I have been trying to encourage young would-be historians for years to dig into it. After WWI, Italy was in the pits and Mussolini, a journalist, came to power with socialist ideas that transformed into concepts of establishmentarian rule. The “fascist” model is simply one that in broadest outline recommends the cooperation of Big Government, Big Labor and Big Business. The top of the social economic pyramid. In contradiction, of course, is the Communist Model, the dictatorship of the proletariat, the bottom of the pyramid. Mussolini, with his supply-side finance minister, Alberto di Stefani, came up with a terrific scheme to manage the Italian economy. Every modern historian without exception has misinterpreted Mussolini’s success, thinking it was really fascist when it was really based on di Stefani’s ideas dating back to Adam Smith.
It was this misreading of Italy’s success -- as the Depression deepened in the rest of the industrial world -- that led Hitler and Roosevelt to try variations on the fascist idea, when they should have been studying the real reasons for that success in Di Stefani’s adherence to zero tariffs between Italian provinces, low tax rates, and a gold standard. The Peronista idea in Argentina picked up on the forms of fascism, but also picked up on enough of the substance to persuade 65% of the Argentinean electorate to re-elect him. He did not really know enough about why he was successful, though, to be able to deal with the problems hurled at Argentina by the rest of the world, and he came to a poor end, after the death of his wife Evita. President Bill Clinton to this day has no idea why he has enjoyed the popularity of the American people. If I were to ask him the ten things he did to achieve his success and overcome his personal deficiencies, I rather doubt there would be a coherent story or sequence of policy actions. Still, the electorate has to make do with what is available, and Clinton was clearly superior to President George Bush in 1992, who had been elected on a Reagan platform which he then tossed out without good reason.
As for Castro’s huge popularity in 1959, I would have to say that with the best hindsight, Castro was an incredibly attractive political leader in those years among the people of Cuba. The Cuban Revolution was really aimed against the Cuban elite -- wealthy, white and Spanish. It was a Daddy political establishment if ever there was one, with a political economy patterned on the superficial Mussolini fascist model. It was, accordingly, a racist system designed to keep white Spanish leaders on top and black Cubans on the bottom. Castro has never been “elected” by a vote of the national electorate, but I would bet if he had announced elections before the death two years ago of his Miami nemesis, Jorge Mas Canosa, he would have won. Mas Canosa, the leader of the Cuban emigre community, was the Daddy of the Cuban nation, the man who took his followers from Havana to Miami and who seemed to think he could force a remarriage where Mommy would go back into the status quo ante and the same old servitude.
Several years ago, I went to Havana at the request of Rep. Charles Rangel, the Harlem Democrat, who knew I had thought seriously about how to convert command economies to market economies. His interest in Cuba is directly related to the fact that it has become a more “black” nation, with the exodus of the white power elite. It was not a happy place, but clearly Castro had sold the people on the idea that the bad guys in Florida were behind the embargo and the embargo was the source of their poverty. To some degree, he is right, which is what has enabled him to maintain power for more than 40 years. I did not meet with him, but met with several of the most important leaders in the government, and I did find the willingness to seek common ground and reconciliation that Rangel assured me was there. When I returned, I stopped in Miami to meet with several factions of the exile group, some of which were clearly interested in any opening I might have found. The Mas Canosa group made it clear there could be no talks with Castro that did not begin with an understanding that he had to go into exile in another land. That of course is the position our political establishment has taken, based on the clout of the Miami exile community, which recently provided the margin of victory in Florida for President George W. Bush.
The same story can be applied to Iraq’s Saddam Hussein. He remains in power because the people of Iraq continue to know and support him as their leader and look upon the United States and Israel as the true source of their misery. I’ve argued before that the Iran/Iraq war would not have happened if Nixon had not gone off the gold standard in 1971. The inflation that followed in the first instance drove up commodity prices, oil being first. The political leaders of the oil countries actually believed the story that the world was running out of oil and the price would head toward $100 a barrel. The Shah of Iran, a monarch, borrowed heavily against future oil income in order to build a modern Iran with lavish government spending on foreign contracts. When the rest of the inflation caught up with oil, the Shah ordered the merchants of the lower income classes to sell goods at fixed prices, where they would lose money. Those who broke the wage-and-price controls were punished severely. The Shah lost their support, of course, and they called the Ayatollah Khomeini back from his exile in Paris to overthrow the Shah.
Saddam Hussein had come to power in Iraq at the same time as the Shah, but he was not of royal blood. A man of the people, like Castro in Cuba, he used the oil wealth that poured into Iraq to build schools, hospitals, libraries, bridges and roads. And like Castro he lived without ostentation, compared to the sheiks of the region, with their harems and jets, almost never leaving home. The Iran/Iraq war began when the fundamentalists in Tehran threatened their Islamic neighbors with appeals to what amounted to religious revolutions. Iraq is a third of the population of Iran, but Saddam sent his army into Iran to take a chunk dominated by non-fundamentalist Sunni Muslims that felt beleaguered by Khomeini. He miscalculated in thinking he would get away with only a piece of Iran, or in any case would win a quick war. It went on for more than eight years, of course, and left Iraq deeply in debt. The U.S. and the other Gulf states had supported Iraq, fearing the rise of Arab fundamentalism, but when the war ended, there was no help for Saddam with his public finances. Indeed, the Emir of neighboring Kuwait, which had been part of Iraq prior to WWI when Kuwait was created by the British, was generally known to have been pumping more oil than he had agreed to within OPEC and was also slant-drilling across the border into Iraq, stealing from Iraqi oil fields. Faced with bankruptcy, Saddam asked our Ambassador to Baghdad, April Glaspie, if we would mind if Iraq settled his border dispute with Kuwait and she told him what she had been told by her superiors at State. “No.” Whereupon Iraq invaded Kuwait and the Bush Administration changed its mind.
Now you do not have to agree with this account of the history, although I believe it to be accurate. It does, though, answer the question of why the Bush administration thoroughly miscalculated when they arranged for the United Nations embargo, thinking the pain which the people of Iraq would suffer would be so great that they would overthrow Saddam. Here he is ten years later, with the alliance in tatters and our young President without a clue on how to deal with the situation. There has been so much propaganda by our government and both political parties over the years, writing Iraqi history to make Saddam seem a monster, that there is no easy route to reconciliation -- although Secretary of State Colin Powell is trying to find one. Our Secretary of Defense, Donald Rumsfeld, believes all the propaganda he has heard from our government over the last decade, and is ready to bomb Iraq into the stone age.
In choosing Governor George W. Bush over Vice President Al Gore by the narrowest of margins, our national electorate had a very difficult decision. If both political parties are ready to bomb Iraq and the electorate believes that might lead to very nasty consequences, it probably decided on Bush by the narrowest of margins because he had clearly indicated he would choose Colin Powell as his Secretary of State. I personally would have voted for Ralph Nader or left the ballot blank, except for Bush’s choice of Dick Cheney as Vice President. In the Gulf War, Cheney sided with Powell in not breaking our agreement with the Islamic allies to not chase Saddam into Baghdad. He also has gotten to know the leaders of the oil states and they respect him for that. He would, I reckoned, keep a tight rein on the “bombers,” as Colin Powell calls the hardliners.
It was really necessary for me to go into this kind of detail to answer the question posed by Adolfo Rivera, asking how it is that the best candidate always wins, given the information available to the electorate. Even when there are not direct, democratic elections, with ballot boxes, chads, and all that, political leaders can only remain in power by retaining what the Chinese call the “Mandate of Heaven.” When we observe a Castro in power for 40 years, we know he must be doing something right. The same with Saddam Hussein, who has been running Iraq for almost 30 years. Even in our electoral process, the voters can never be sure the candidate who wins will do what he promised to do when he presented himself. Read my lips.