Memo To: Supply-Side Students
From: Jude Wanniski
Re: Jack Kemp on gold, 1982
At the time Jack Kemp delivered this speech at the Federal Reserve Bank in Atlanta, March 17, 1982, the national economy was in its worst shape since the Great Depression. Unemployment was more than 10%, consumer prices were rising at almost the same rate, and the political establishment was assuming Ronald Reagan would be a one-term president. His supply-side tax cuts had become law the previous summer, but there was no sign they were having any positive effects on the economy. In fact, we were experiencing a monetary deflation, the result of the tax cuts calling for more dollar liquidity from the Fed, which was trying to hit monetarist money-supply targets and could not supply it. Gold, which had been $620 an ounce 18 months earlier, was at $310. The deflation ended abruptly that summer, when the Fed was forced to add $4 billion in liquidity to prevent a string of major bank failures. It is instructive to read the Kemp address to realize the kinds of ideas that supply-siders were contending with back then. Note Bob Mundellís whimsical quote near the end of the speech.
THE SUPPLY-SIDE STRATEGY FOR LOWER INTEREST RATES