Firlngl.Lne HOST: WILLIAM F

o FIRlnGl.lne HOST: WILLIAM F. BUCKLEY JR. GUESTS: DAVID LEVY, JACK KEMP, PRESTON MARTIN, EDWIN RUBENSTEIN, ROBERT KUTTNER SUBJECT: "HIGHER INTEREST RATES: GOOD OR BAD?" PART I

FIRING LINE is produced and directed by WARREN STEIBEL. This is a transcript of the Fjrjng Ljne program (#1034/2424) taped at the Jerome Levy Economics Institute at Bard College on January 11, 1995 and telecast later on public television stations. copyright 1995 NATIONAL REVIEW MR. BUCKLEY: For the last couple of years we've been here at Bard College under the auspices of the Jerome Levy Economics Institute. This time around we are going to discuss interest rates, a fascinating, provocative, and inscrutable subject. Try to stay in there. Thanks. * *** * MR. BUCKLEY: The ambitious purpose of this and the succeeding hour is to ponder the Federal Reserve Board's apparent attitude towards interest rates, and also to introduce the uninitiated- which includes your moderator--to the arcana of interest rate practices and to the rather special vocabulary used in discussing the question. Keep your eyes on me. As long as I continue to sit here, you can stick around. If you see me slide away, you are at liberty to turn to anoth~r .channel.

We have a glittering field of panelists for you, leading with a cherished figure, Jack Kemp. He has been a football star and ex~mplary congressman, a cabinet officer, a presidential candidate. It is a matter of speculation whether he will run in 1996. Perhaps that will depend on th~ interest rate. [laughter]

David Levy, familiar to our regular viewers, is still vice chairman of the Jerome Levy Economics Institute, under whose auspices we meet h~re today at Bard College, and he is director of its forecasting center. He is a graduate of Williams with post graduate work at the Columbia University Graduate School of Economics, co~author of the oldest monthly economic newsletter, and author of several books on finance.

Preston Martin was a governor and vice chairman of the Federal Reserve Board between 1982 and 1986. He has been a professor at the University of Southern California, chairman of the Federal Home Loan Bank Board, the founding father of Freddie Mac, and serves now as chairman and CEO of the LINCGroup in San Francisco.

Edwin Rubenstein is the economic consultant at National Review, a graduate of Johns Hopkins with a graduate degree in economics at Columbia. He is the author of The Right Data and of articles in The Harvard Business Review, The Wall street Journal, The New York Times, and elsewhere.

And Robert Kuttner is coeditor of The American Prospect, a liberal journal of politics and policy. He studied at Oberlin, at the University of California in Berkeley, and at the London School of Economics. He has served as economics editor of The New Republic,has a syndicated column and is the author of several books.

© Board of Trustees of the Leland Stanford Jr. University. And so to work. First a political question. Mr. Kemp, as it is said of the Supreme Court that it follows election returns, can as much be said about the Federal Reserve Board?

MR. KEMP: Oh, well, let's hope not. Let's hope that the central bank of the United States is not sUbject to the vagaries and vicissitudes of a political process. However, saying that, with regard to your opening comment, it seems to me that we would want a central bank that understands that a democracy cannot function without honest, stable, credible, consistent money--money that over a long period of time will maintain its integrity. So from my standpoint that is a very strong democratic principle--small "d"--but I don't think it should be subject to the last election.

MR. BUCKLEY: Well, I don't think it should be either, but the question wa$: Is it?

MR. KEMP: Well, my answer is no, it is not. I don't think that Alan Greenspan or before him, Chairman--

MR. MARTIN: Paul Volcker.

MR. KEMP: --Paul Volcker, or when my friend Pres Martin was on the board, I don't think necessarily-- I think the last time that a Fed probably responded directly to a political campaign was 1972 when Richard Nixon put tremendous pressure on the central bank to in effect inflate his way to a victory in the 1972 election. I don't mean to demean the chairman at that time, but I think that probably was one of the lower periods of u.s. political and economic history.

MR. KUTTNER: And if I may, poor Jimmy Carter appointed Paul Volcker in '79 and Volcker just completely sandbagged the economy by pushing interest rates through the roof, which, as much as the hostage crisis, ruined Jimmy Carter's reelection.

MR. KEMP: Well, if you remember though, Robert--Bob--

MR. BUCKLEY: There were reasons to act in '79, weren't there?

MR. KEMP: Well, yes, that plus the fact that Paul Volcker kept interest rates high well into the first years of the 1980s when Ronald Reagan was president. I remember that the-- They are talking now about short-term interest rates; short-term interest rates in 1982 up until about August were close to 16 percent,the Fed funds rate and the overnight discount rate.

MR. MARTIN: And don't forget how high inflation was running in those d~ys too.

MR. KUTTNER: But the point is--

MR. KUTTNER: No, but he followed his own lights. He didn't give a fig about Carter's reelection chances.

MR. LEVY: The problem today is--

MR. KEMP: Or Ronald Reagan's.

MR. MARTIN: He followed the instructions that the Congress has given--after all, the Congress is the master of the central bank--that the Congress has given in the statutory structure for the Fed, which is that when inflation rates are high, cut down the growth of the money supply first, and secondly, raise interest rates.

MR. KUTTNER: Well, for better or for worse, it has been a very long time since the Congress has effectively been the master of the Fed. The Fed goes its own way.

MR. LEVY: I think the problem is that where a lot of people in the Federal Reserve, in the bond markets, think that we still face the same risks and the same creeping inflation around every corner, that we had back in the late 1970s coming into the '80s. And there have been a lot of changes, not only in the inflation rate, but institutionally, in the workplace, within corporations, that have given us a price stability that has a lot of inertia now. And yet we have interest rates rising, and with a lot of expectations in the markets and no statements from the Fed to dampen those expectations, that rates are going to continue to rise. We have just finished a year with the lowest--in 1994-~the lowest inflation on measure indexes in ages, and--

MR. KEMP: As measured by what, David? What is your indicator?

MR. LEVY: Well, you can pick almost-- The consumer price index, for example, rose two points-~

MR. KEMP: A very poor indicator.

MR. LEVY: Yes, but the criticisms are that it overstates the case.

MR. MARTIN: Which it does.

MR. KEMP: No, that's a recent--

MR. BUCKLEY: As Greenspan discovered, right?

MR. LEVY: Are you arguing there is more inflation than that?

MR. KEMP: No, I am not arguing that. I am just suggesting that the CPI is not a good indicator.

MR. RUBENSTEIN: What about taxes? Isn't that something that is part of inflation? It's not even included in the CPI.

MR. KEMP: Yes, that's right.

MR. RUBENSTEIN: I mean, if you ask the man on the street, has his--

MR. KEMP: Or the woman on the street.

MR. RUBENSTEIN: The person. street person. [laughter]

MR. KUTTNER: Woman on the street has a different meaning. [laughter]

MR. KEMP: Man and woman.

MR. RUBENSTEIN: Okay. If you ask the ordinary street person, "Has your cost of living increased?" he more likely will refer to the taxes that he has to pay, that COme out of his paycheck or that he pays on his house--

MR. MARTIN: Gentlemen--

MR. RUBENSTEIN: --more than the cost of living, which is--

MR. MARTIN: --let us not be naive here with regard to the political situation of the central bank of any country and every country. From my 49 months at the Fed, let me assure you that there is constant interaction between the members of the board of governors and various political figures of both parties--political figures from Germany and the Deutsche Bank, people coming over from Tokyo, and so forth--

MR. BUCKLEY: Mexico City.

MR. MARTIN: Monetary policy has to be implemented with a very, very sensitive awareness of what the political tides of a country are anct what the other policies of the other countries are. Believe me, the independent central bank is not completely independent.

MR. BUCKLEY: Mr. Martin, what are the protocols here? If a congressman calls you while you are a governor and says you've got to do something to reduce interest rates, is this an improper call? Is this like--

MR. BUCKLEY: --calling up a judge and saying-~

MR. MARTIN: Not at all.

MR. KEMP: As long as you don't--

MR. MARTIN: Or if a senator who is a chairman of a committee--

MR. BUCKLEY: Yes.

MR. MARTIN: --why, you have him come over with his staff, you bring your staff into the office, and you listen. Let's don't forget something else. People in Washington do not know what is going on in the real world. If that congressman from Bloomington, Indiana, and his staffperson from upstate have got something to tell us about the employment and the inflation situation--

MR. BUCKLEY: You want to hear it.

MR. MARTIN: --in Indiana, listen to them. The mistake the central bank makes as it evolves is making governors out of staffpeople who have worked at the Fed for 39 years and four months and never really listening to the bank presidents of the 12 Fed banks when they tell you what's going on in New York and New Jersey and how sick that that sub-market really is.

MR. KUTTNER: I want to backtrack--

MR. LEVY: Well, shouldn't they also be listening to the leaders of business, who--I think if you walk around the economy today interviewing people, you would find very different perceptions. of the inflation risks, talking to people in the financial sector and people in the non-financial sector.

MR. MARTIN: You are absolutely right. What the Federal Reserve should today right today or next Monday is to bring in the various advisory councils that are already in place, already appointed, and cut a social compact with them, and say, We're going to leave interest rates alone, we're going to quit cutting the growth of the monetary base, and we expect you to keep your prices constant for awhile.

MR. KEMP: Yes.

MR. MARTIN: Let's have a waiting period here, Mr. Businessman, Mr. Banker, Mr. Investor--

MR. RUBENSTEIN: Preston Martin. Wait a minute. Wait--

MR. KEMP: --minority report here.

MR. KUTTNER: You don't need that compact, because they are keeping their prices constant.

MR. KEMP: That's what-- Well, wait a minute.

MR. KUTTNER: And this is how the Fed has its head in the sand. You are sort of on both sides of this argument. On the one hand, the Fed is this terrific, responsive institution, but on the other hand, it's not listening to the guy from Bloomington, Indiana. Let ~e just finiSh.

MR. KEMP: Yes, of course.

MR. KUTTNER: Thefac;:t is, because of the structural changes--

MR. MARTIN: It is listening to the one from Bloomington.

MR. KUTTNER: Because of the structural changes--

MR. MARTIN: You missed the point, sir.

MR. KUTTNER: --that David Levy is mentioning, the fact that there is international competition, the fact that there is technological change, the fact that unions have almost no bargaining power,the.fact that there is deregulation and no more no oligopolies, you can't make a price hike stick, and that's why there is so little inflationary pressure. But the Fed is behaving as if today's economy had the structural characteristics of Galbraith's New Industrial state circa 1960, and it doesn't. So we are unnecessarily deflating a noninflationary economy and denying the economy growth that it could have and it needs.

MR. MARTIN: Robert, this is going to be a precedent for the Firing Line.

MR. KUTTNER: Yes.

MR. MARTIN: Are you ready?

MR. KUTTNER: You agree.

MR. MARTIN: You are absolutely right. [laughter]

MR. KUTTNER: Can we shake on it?

MR. RUBENSTEIN: Let me--

MR. BUCKLEY: Yes, Jack.

MR. KEMP: Before this gets out of control here-- [laughter]

MR. MARTIN: Right.

MR. KEMP: Preston Martin and Robert Kuttner. MR. KUTTNER: We'll talk afterwards.

MR. KEMP: Look, they are both arguing--and both great guys and love their families--

MR. MARTIN: Uh oh.

MR. LEVY: This is how he got the name of bleeding-heart conservative.

MR. KEMP: They are patriotic Americans. Don't take this ad hominem, don't take it personally. You are wrong. You are both wrong. [laughter]

MR. KUTTNER: Where is the price bracket?

MR. KEMP: Look, there is only one place from which inflation can emanate.

MR. KUTTNER: Oh God, Milton Friedman.

MR. KEMP: No, not Milton Friedman.

MR. BUCKLEY: That's okay with me, for the record.

MR. KEMP: David Ricardo. The central bank of the United states holds the monopoly power over the issuance of the currency. Inflation is not caused by labor unions, it's not caused by football salaries, it's not caused by senior citizens asking for an index to social security, it's not caused by anchovy harvests in Peru, it's not caused by exogenous forces. It is caused centrally from one place on this earth, at least in the united states, and that is Washington, D.C., the central , bank, and when it devalues the currency, prices rise and interest rates rise and when it holds the currency stable, long~term interest rates can come down, and when it deflates--

MR. LEVY: And this is--

MR. KEMP: --as we did in the early '80s, and I would make a case that we did deflate in the early '80s--we are not deflating now. I disagree, however, with Greenspan raising

© Board of Trustees of the L..eland Stanford Jr. University. short-term interest rates in order to slow down the economy to fight inflation. You don't slow down the supply of a product to fight inflation; you increase the supply of a product to fight inflation.

MR. KUTTNER: So you have the same criticism, you just base it on a somewhat different theory.

MR. KEMP~ Yes, different premise.

MR. KUTTNER: Oh, so we really do agree.

MR. KEMP: We don't agree.

MR. MARTIN: Remember that the beginning--

MR. KEMP: I don't believe that unions and senior citizens and corporations cause inflation. They react to inflation.

MR. LEVY: wait a minute. I think we have to realize an economy is a human system. It involves the behavior of human beings. Prices don't rise magically, wages don't rise magically, they are the result of human interaction. Expectations, innovations, attitudes--for example, when we went into the late 160s and then early '70s after 25 years of tremendous growth in the standard of living, people suddenly found it wasn't happening. We had righteous indignation, which cannot be summed up as simply something that we dismiss, that the monetary growth caused inflation without that being a factor. There are productivity changes, there are resource shocks. A lot of things happened, and to simply say that Federal Reserve policy, or any central bank policy, is the straight cause for inflation--

MR. KEMP: All right--

MR. LEVY: --is really nonsensical.

MR. KEMP: How do you explain then a 40-percent drop in the value of the peso within a week caused by the Zedillo government floating the peso, cutting its link to the dollar and probably to other Latin American currencies, and the pain that is spreading throughout Latin America caused by the de jure devaluation of the peso?

MR. MARTIN: You do not--

MR. KEMP: How do you do that? Was it Chiapas--

MR. MARTIN: Asa financial officer--

MR. LEVY: This is not to say that the central bank has no effect, but I think to say that the central bank is the sole determinant, which is what you were arguing--

MR. KEMP: No, I am saying that they have the monopoly power over the issuance of a currency, and if they issue the currency with an eye on the long-term credibility and consistency of that currency against which the currency will buy. People will have confidence in that contract, i.e., that little piece of paper that says, you know, lowe you nothing, in effect. But if that piece of paper is consistent over time, long-term interest rates will fall and we can all--

MR. KUTTNER: Yes, but--

MR. MARTIN: Gentlemen, you are sliding over the basic assignments given the central bank of the united states.

MR. KEMP: What is it, Pres?

MR. MARTIN: The central bank of the United states has a mUltiplicity of functions, one of which is disinflation, one of which is the lender of last resort with regard to the banking system and foreign exchange balances and what-not, one of which is a supervisory authority over thousands of state-chartered commercial banks, one of which is the consumer credit qua credit situation. The silly Congress has loaded up the Federal Reserve with a whole mUltiplicity of functions, so when you have a board of governors meeting, this governor, who is responsible for the consumer credit set-up, has got something to say; John La Ware, who is the supervisory governor, has got something to say. It is a multiplicity of things. It isn't just the money supply and the price, you know. It ain't that easy, folks.

MR. KEMP: Would you repeal HumphreY-Hawkins?

MR. MARTIN: Sure. Of courSe.

MR. KEMP: Wouldn't that remove from the Federal Reserve Board--

MR. BUCKLEY: One at a time, pleqse.

MR. KEMP: --the responsibility?

MR. MARTIN: Absolutely not.

MR. KEMP: Why not? Why not?

MR. KEMP: The Humphrey-Hawkins bill-

MR. MARTIN: Yes. It complicates--

MR. LEVY: One of those on the list--excuse me--of responsibilities is not the responsibility for the federal budget, as it certainly shouldn't be.

MR. KEMP: Right.

MR. LEVY: And yet we are in a situation where we have near hysteria in this nation about getting this deficit down, that every dollar we spend is putting the nation that much farther into long-term debt, with horrendous consequences. And yet this one agency, the Federal Reserve, has an enormous impact on the federal deficit. In fact, the increases in interest rates we had in 1994 will within a year's time add about $25 billion onto the net interest payments to the Federal Reserve.

MR. KEMP: Easy. Easy.

MR. LEVY: And that's before you even count the indirect effect, if indeed it does slow the economy, what it does to revenue. Somehow within this debate we have tremendous difficulties cutting programs or deciding how to raise taxes or what we are going to do. There is very little discussion that I have heard about what the Federal Reserve's role and responsibility is in--

MR. MARTIN: David, you need to go on the board of directors of the Federal Reserve Bank of New York and you need to become the chairman of that board and then you need to march into 20th and constitution and lay that right on them, babe. [laughter]

MR. KUTTNER: But what's interesting here--

MR. LEVY: I have to ask my wife first actually. [laughter]

MR. KEMP: Yes, I don't know what-- That is an abstraction, what the central bank, what the Fed needs to recognize, and what Congress needs to recognize, and what Robert Bennett, chairman--I mean, not chairman, but senator, new senator from Utah, I guess four years ago or two years ago--suggested that everyone-percent drop in interest rates in the United States of America in long-term markets drops the deficit by $45-50 billion, reestablishing--get ready for this; it wouldn't be a Jack Kemp appearance on the Buckley show without an allusion to that four-letter word. But he empirically in my view or my opinion at least made quite evident that if the dollar were

MR. MARTIN: If Wayne Angell's listening, we're only kidding.

MR. KEMP: No, we're not. [laughter] No, Wayne is a price level targeting former member of the Fed. You would have long term credibility, interest rates come down, and you would save over five years a trillion dollars of servicing a debt. A trillion dollars.

MR. LEVY: Uh-uh, Jack. That's a little bit--

MR. BUCKLEY: I want to ask Mr. Martin a question.

MR. KEMP: When they nickel-and-dime the deficit--we're talking about saving hundreds of billions of dollars.

MR. BUCKLEY: Jack, I want to ask Mr. Martin a question here. In 1971 President Nixon had a special address to the nation. He said, "Inflation is running at 4.2 percent. This is intolerable. For that reason I am going to institute wage-and price controls." Now quite apart from the fact that he came up with a remedy that made things worse rather than better, why should he be announcing an inflation rate at that level if indeed an important mandate of the Federal Reserve Board is to maintain a constant~- Herbert Stein in this room a few years ago said the trouble with the injunctions aimed at the central bank is that they are too numerous; what they ought to be told to do is to keep the price level, period.

MR. MARTIN: Absolutely not.

MR. BUCKLEY: Is that simplistic?

MR. MARTIN: Just let economic growth go and just keep the price level. No way.

MR. BUCKLEY: No, no, no, no.

MR. KEMP: Why not?

MR. MARTIN: No way.

MR. KEMP: What else would you want the central bank to do?

MR. LEVY: Lender of last resort.

MR. MARTIN: Once in aWhile notice that the economy is ailing and do something about it.

© Board of Trustees of the Leland Stanford Jr. University. MR. KEMP: Well, question. Question. Ask yourself this question: If the dollar, Bill, was in an environment in which it was consistent, where the price level was stable over time--

MR. BUCKLEY: As in most of the 19th century.

MR. KEMP: Absolutely. We financed railroad bonds with one percent 100-year notes. Question: Would it be good for America or bad? Use monetary policy to keep inflation down and interest rates down and then use fiscal policy to stimulate the supply, the productive, the job, and the growing side of the economy.

MR. LEVY: That's like--

MR. MARTIN: Fiscal policy is always late.

MR. BUCKLEY: One at a time.

MR. MARTIN: Because fiscal policy is always late.

MR. BUCKLEY: You mean in 1896.

MR. MARTIN: Fiscal policy hasn't worked, has it?

MR. KEMP: On monetary policies.

MR. MARTIN: And remember that the law under which the central bank of the United states operates includes economic growth, not using those words, as well as disinflation.

MR. RUBENSTEIN: And also fiscal policy as practiced in the last few years has imparted a decidedly inflationary bias to the economy. If inflation--

MR. BUCKLEY: That's not the Federal--

MR. RUBENSTEIN: No, if inflation is indeed too much money chasing too few goods--

MR. KEMP: Well said.

MR. RUBENSTEIN: --we have to believe that the intrusion of government, the taxes, the regulations that we've been hit with since, well, the New Deal really, has slowed the economic growth below its long-term capacity and has made an overly tight monetary policy and higher than desirable interest rates a necessity in this country.

MR. KEMP: Well said.

© Board of Trustees of the Leland Stanford Jr. University. MR. RUBENSTEIN: I don't think you can analyze monetary policy just qua monetary policy. There is a whole range of things that impinge on inflation, and certainly taxes, regulations are very important and that's one of the reasons why I think interest rates are too-- And one more thing. People don't save enough in this country. If we saved more, I believe--and most people would agree--that interest rates would be lower because there would be more funds available to finance investment and--

MR. KUTTNER: Can I just offer three counter-examples here? I mean, in the Great Depression long-term interest rates were less than one percent.

MR. KEMP: Right.

MR. KUTTNER: And the economy was dead in the water. So tight money and stable currency by itself, if everything else is out of whack, is no recipe for economic growth.

MR. KEMP: For the record, I agree.

MR. KUTTNER: We came out of--

MR. BUCKLEY: We also had deflation.

MR. KUTTNER: I'm not arguing for deflation--

MR. KEMP: But Robert, we had high taxes and high tariffs. Both of those should have been cut, as Kennedy did in '61.

MR. KUTTNER: Well, the problem in the Great Depression, Jack, was not high taxes. It was a massive deflation.

MR. LEVY: Oh, it was--1932.

MR. KEMP: What do you think the tax was in 1932?

MR. MARTIN: Roosevelt raised taxes.

MR. KEMP: Seventy~nine, or 78 percent.

MR. KUTTNER: Well, but that was the year that Mellon reduced it and when Roosevelt came in, he was--

MR. KEMP: No, nO I no, no. There was a tiny little--

MR. KUTTNER: You are not telling me the Great Depression was the fruit of an excessive top marginal tax rate, are you?

MR. KEMP: No, it was caused by high taxes, high tariffs and tight money.

© BOard of Trustees of the Leland Stanford Jr. University. MR. LEVY: Rather than engage in this, because I think the viewers are probably more interested in the current monetary policy than a historical argument about What caused the Depression--

MR. KEMP: Well, it's an important one, because most of the mistakes--

MR. LEVY: Right, it is important, but--

MR. KEMP: --of this year and this period are being made on a false premise, which was that the Depression was caused by laissez-faire capitalism, and it wasn't. It was caused by government interference, regulations, tariffs, taxes, and bad monetary policy.

MR. LEVY: I would disagree with that, but I want to go back to something Ed Rubenstein said, which is that, he said that inflation is too many dollars chasing too few goods. There are two kinds of inflation. After all, think about it. When a producer or seller raises a price, either he's widening his profit margin or his costs are going up.

MR. KEMP: Is that a cliche?

MR. LEVY: Yes--

MR. KEMP: Is a price rise always inflationary?

MR. LEVY: If there is a general price increase in the economy. No, of course, price is flexible, but on balance~-

MR. RUBENSTEIN: If on balance--

MR. KUTTNER: You canlt sustain a--

MR. LEVY: Let me finish the point, please.

MR. KEMP: Which prices do not cause--

MR. LEVY: You're not letting me £inis~. You're out of the Senate. Don't filibuster. '

MR. KEMP: Thank you. [laughter]

MR. LEVY: If you--

MR. KEMP: I never was in the Senate.

MR. LEVY: I'm sorry, you're right. I stand corrected.

MR. MARTIN: You should have been.

MR. KEMP: Not yet. [laughter]

MR. LEVY: The point being that when--

MR. MARTIN: Is that an announcement?

MR. KEMP: I'm not even chairman of the Federal Reserve Board.

MR. BUCKLEY: Shhhh. Quiet.

MR. LEVY: If there are too many dollars chasing too few goods, it should bid up profit margins--you see profit margins widen. That does happen on occasionally in the cycle. But over a long period of time when we have seen inflation, that's not what happens. What we see is rising costs and costs being passed on. That is due to dynamics in the labor market, it is due to commodity prices, productivity. Look, I don't think-- You can have the dollar fixed in terms of gold.

MR. KEMP: Yes.

MR. LEVY: But if you have--

MR. KEMP: And no inflation.

MR. LEVY: --a falling productivity, the standard of living goes down, then that forces deflation.

MR. BUCKLEY: But you can't pass these costs on, can you, in an international competitive situation?

MR. LEVY: If you have falling productivity and let's sayan oil shock that lowers the standard of living, under a dollar that's fixed to gold and cannot move, you actually force deflation in wages. And prices don't go down.

MR. KEMP: What preceded the oil shock of the '70s? The devaluation of the dollar and the suspension of the convertibility of the dollar into gold or the OPEC nations raising their prices?

MR. LEVY: I would say it was OPEC-- You had a whole global situation which--

MR. KEMP: No, you see, it was both. It was both.

MR. KUTTNER: It was very complicated.

MR. KEMP: It was complicated, but nonetheless it is empirically--that Bob Bartley in his book, The Seven Fat Years,

© BMrd of Trustees of the Leland Stanford Jr. University. proved historically, empirically, that the OPEC nations began to set the price of oil higher after the delinkage of the dollar from gold by Nixon, August 1971.

MR. BUCKLEY: Thank you, Mr. Kemp; thank you, gentlemen. We will be back in a week.