Alan Reynolds

 Some of the best humor is found on the business page. Explaining why stocks dropped, The Washington Post reported that "the fear was twofold -- that the Federal Reserve would raise rates from their historic low next month and possibly slow economic growth, and that the Fed may have been too slow to raise rates, raising the specter of inflation." Damned if you do, Mr. Greenspan, and damned if you don't. I find both concerns overblown, not to mention inconsistent.

 There has been some speculation that the Fed's "patience" might have something to do with the fact that Greenspan is a Republican and this is a presidential election year. And that, in turn, has invited analogies with 1972, when Fed Chairman Arthur Burns supposedly pursued an inflationary policy to help get Richard Nixon re-elected.

 In February, I wrote that during postwar presidential election years, "The Fed eased three times, in 1960, 1972 and 1992, yet the incumbent party lost two of those three." I did not say more about the one exception, 1972. But my old friend Bruce Bartlett recently quoted historian Allen Matusow who wrote: "Burns had offered Nixon an implicit bargain. In 1971 Nixon controlled prices, and in 1972 Burns supplied money by the bushel. The policy helped re-elect the president." That combination of easy money and price controls boosted demand and discouraged supply, creating widespread shortages and an explosive inflation that ultimately blew the lid off controls.

 Arthur Burns' son Joseph, on the other hand, recently wrote a letter to The Wall Street Journal denying his father was politically motivated. Who's right?

 Bartlett says: "One is left with the inescapable conclusion that Burns used the Fed to help Nixon with full knowledge of the disastrous consequences for the economy. The only alternative is to believe he was incompetent, which no economist believes was the case."

 I beg to differ. On the question of inflation, Arthur Burns was only one of many high-profile economists (Ken Galbraith was another) who actively promoted an "incomes policy" in 1971 to stop what they called "a wage-price spiral." That is why I submitted "The Case Against Wage and Price Controls" to National Review weeks before President Nixon announced the wage-price freeze on Aug. 15, 1971. I regard the advocacy of price controls as definitive evidence of incompetence.

Alan Reynolds

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