Board of Contributors: Try a Little Tenderness
Riddle: What do the Pentagon and the Federal Reserve Board have in common?</br></br>Answer: Both are always prepared to fight the last war they won.</br></br>For years now, the Pentagon has concentrated its planning on a replay of World War II, with the American Navy controlling the North Atlantic, American ships ferrying troops and supplies to the European front, etc., etc. It regards military intervention in Central America, the Middle East or anywhere else as an irritating distraction from its major goal, which is to fight and defeat the Soviets in Western Europe, just as it did the Nazis. That this happens to be the conflict that, time after time, history perversely fails to place at the top of the American postwar agenda is regarded as a temporary aberration, best disregarded.</br></br>Similarly, the Fed under Paul Volcker won a great victory over inflation in the early 1980s, has been wreathed in laurels for achieving that victory and is determined to conduct that war all over again -- even if there are other, more pressing battles to be fought. In the course of mobilizing popular support for this war, the Fed has been trying its best, with considerable success, to instill a sense of panic in the business community and the media about the huge budget deficits and the inflationary danger they pose. Mr. Volcker is demanding that Congress cut spending and increase taxes. Until it does so, the Fed is keeping money and credit relatively tight and interest rates high, as its continuing contribution to the war against inflation.</br></br>Indeed, the Fed has been so successful in its propaganda that there has been little serious analysis of why we have such huge budget deficits in the first place. Which, from the Fed's point of view, is just as well, since such an analysis would reveal that in large measure the current deficit is a Volcker deficit and that the war against inflation that he won has many of the aspects of a Pyrrhic victory.