Consulting by RPM || Free Advice Blog

A Lawyer for Moore/Laffer Steps Forward

(UPDATE: Selgin responds; I post it below.)

This is just a quick post because when I see people kicking a man who’s down, I feel obligated to step in. And note well, I am acting as a defense lawyer in the present post. Everybody who is accused of wrongdoing should have competent legal counsel, and the person acting as a defense attorney isn’t saying, “My client did nothing wrong.”

In other words, I am not here defending Moore from every accusation levied against him since Trump floated his name for the Fed. Rather, I am just pointing out that some of the piling-on has reached outlandish heights.

For example, consider George Selgin’s recent commentary (HT2 DRH). When talking about Moore’s claim that Paul Volcker had adopted a commodity price rule in the early 1980s, Selgin first links it to Moore’s work with Arthur Laffer.

Selgin accuses Laffer of being misleading and patting himself on the back for giving Volcker the idea. Here’s the quote from a 2010 book co-authored by Laffer and Moore that Selgin reproduces:

In the early 1980s under gifted Federal Reserve chairman Paul Volcker (1979-87), the United States once again returned to a price rule, only this time the dollar was not pegged to gold. Following a meeting I had with Chairman Volcker in 1982, I cowrote an article for the editorial page of the Wall Street Journal. In this article Charles Kadlec and I outlined in detail Chairman Volcker’s vision of a price rule, a vision that is as relevant today as it was in 1982. Volcker essentially said, “Look, I have no idea what prices are today. Or what inflation is today. And we won’t have those data for months. But I do know exactly what the spot prices of commodities are.”

In short, what Chairman Volcker did was to base monetary policy on the secular pattern of spot commodity prices (the market price of a commodity for current delivery). … It’s very similar to a gold standard, except that Chairman Volcker was using twenty-five commodities instead of just one. Every quarter from 1982 on, monetary policy has been guided by the spot price of a collection of commodities, save for our present period.

(To avoid confusion: The above quotation is from a book co-authored by Laffer and Moore, but in the text it’s Laffer talking in first-person.)

Now here’s Selgin’s commentary on the above, with the bold from me:

It’s easy to see why anyone reading this might think (1) that Laffer himself convinced Volcker to target an index of commodity prices; (2) that that is just what Volcker then proceeded to do; and (3) that subsequent Fed chairs, at least up to Bernanke, did the same. To presume that Moore himself understood his friend to be making these claims, and believed them, hardly seems a stretch.

But are the claims true? As for the first — that Laffer played some part in getting Volcker to adopt commodity-price targeting — Laffer’s own account offers plenty of room for doubt. Note how he merely says that he met with Volcker in ’82, and that he subsequently wrote about Volcker’s “vision of a [commodity] price rule.” Laffer never actually claims to have urged any such rule upon Volcker during the meeting of which he speaks. He merely mentions the meeting, and the subsequent (supposed) change in the Fed’s policy, inviting readers to connect the dots.

Do you see how nutty this is? Selgin is saying, “Laffer doesn’t actually say he got Volcker to adopt this policy. And in fact, I can quote from Laffer’s own account to conclude that he didn’t. Still, pretty arrogant and misleading on Laffer’s part, huh?”

So no, there’s nothing weird going on here, George. Laffer even called it “Chairman Volcker’s vision of a price rule.” He wasn’t at all suggesting he convinced Volcker to do it. To the extent that Laffer was casting himself as a hero, it was his role in communicating this new approach from the Fed chair to the rest of the world.

(Full disclosure: Back in 2006-07, I worked for Arthur Laffer. That’s why I am quite confident that Laffer didn’t intend this anecdote to suggest that he got Volcker to adopt a new rule. As Selgin himself says, Laffer’s own words show that that’s not what happened. Selgin is “reading between the lines” something that isn’t there.)

OK but if you thought that first criticism from Selgin was a stretch, here’s an even crazier one:

In their 2010 book…Laffer and Moore “quote” Volcker as “essentially” saying that he had “no idea what prices are today. Or what inflation is today. And we won’t have those data for months. But I do know exactly what the spot prices of commodities are.” But this begs the question, or rather two questions. First, if Volcker did “essentially” say something like this, why not quote his actual words?

Everyone got that? In 2010, Laffer is relaying a conversation he had in 1982. Laffer reported what the other guy (Volcker) “essentially” said, 28 years ago. Selgin is suspicious, and wonders why Laffer didn’t instead provide an exact quotation, rather than his mere recollection of the essence of what the guy said.

I can think of a much simpler explanation for this, besides, “Wow that Laffer is slippery.”

In conclusion, let me again emphasize that I am not defending (say) Moore’s handling of state employment numbers that got him into trouble, or his stances on monetary policy during the Obama and now Trump years. I’m just saying that some people smelled blood in the water and starting piling on in ways that are silly.

UPDATE: As a courtesy I emailed George this post, and he answered me in email (giving me permission to reproduce his remarks here).

I think you make some valid points, and I’d modify a couple things were I to write my post again in light of your comments. But given the context of the whole story, including Laffer’s Reason op-ed, which seems to directly contradict his 2010 claims, I’m left unmoved: the overall picture suggests that Laffer later claimed that Volcker actually embraced a commodity-price targeting policy sometime in 1982, whereas  Laffer’s contemporary writings suggest either that it was merely a possibility the authors were raising, or that Volcker had expressly repudiated the idea. Certainly if Volcker had “essentially” said what Laffer has him saying in 2010, it was odd that Laffer did not recall it in 1982.

I tried to come up with a reconstruction of events favorable to Laffer:

1. Laffer visits Volcker early in ’82. Volcker tells him he is (“essentially”) abandoning M targeting in favor of C-price targeting.  BUT he says not to quote him on it.

2. Laffer writes his “speculative” October ’82 WSJ article finding evidence that Volcker has in fact been C-price targeting.

3. Soon after, Volcker tells Laffer that he’s had to abandon the experiment. Laffer reports that decision in his Reason magazine piece.

I fear, though, that this is really quite a stretch, since in his Reason article Laffer simply says that Volcker offered his remark against C-price targeting “in response to his ’82 WSJ article” without any reference to having tried it and found it unworkable. What’s more, Volcker is supposed to have said that he considered C-price targeting impractical during a recession. Since the ‘82 recession started in July ’81, and ended in November ’82, that sounds pretty much like Volcker saying that he would not have considered it practical at any time that year.