Booknotes

ROBERT BARTLEY: This book is about the seven fat years from 1983 to 1990. We had a big economic boom in this country and have almost forgotten it by now.

BARTLEY: The title comes from the Book of Genesis; the seven fat years that the pharaoh dreamed about, and Joseph interpreted his dream saying that they were going to have seven fat years followed by seven lean years.

BARTLEY: Well, I hope not. I hope that we can generate a little optimism in this society, partly by remembering what we did during the seven fat years. I think there is a danger of seven lean years if we get into kind of a self-realizing pessimism. That's basically what I'm warning against.

BARTLEY: Well, that we can do it again. The main thing is that there is nothing predestined about seven lean years. We can go out and apply some of the lessons we learned during the '80s and create prosperity. Maybe we can do it a little better this time. I think there were some mistakes. But I don't think that is what most of the books have been saying. Most of the books have been saying that it was a terrible time, but in fact we grew the economy by a third over these years that I'm writing about. The average disposable income went up by 20 percent. We won the Cold War. Not a bad record.

BARTLEY: The book, of course, draws very heavily on the editorials that I wrote going clear back to the middle-1970s. But it's a different thing if you can get it all together in one place rather than in little snippets day by day, and I hope that it will provide a record that people can consult if they want to understand the continuity of what went on.

BARTLEY: Oh, quite a bit. We are generally credited with inventing supply-side economics or at least spreading the word out or popularizing it, really, starting well before Ronald Reagan -- starting in the middle of the 1970s, really. As I explain in the book, the terminology may be a little misleading. None of us at the time thought that supply-side economics was something new on the face of the earth. We thought it was kind of standard pre-Keynesian kind of economics that applied better to the conditions of the 1970s and 1980s than the Keynesianism that was being taught in the universities at that time.

BARTLEY: Well, I have this man from Mars kind of opening the book. I call it the paradox of the '80s. The man from Mars lands in Kankakee and starts wandering around. He looks at all of the parking lots full of cars shipped all the way from Japan, and goes into the record stores that now have music videos by Madonna and Milli Vanilli. The kids have $100 sneakers, but everybody he listens to and all the book titles he reads say that the nation is declining, that we have enormous problems. We have the S&L, for example, mutated into the eggplant that ate Kankakee, Tampa and Los Angeles. He's trying to figure out what's going on here, so he has a little hand-held data boy and starts to punch into it to get the statistics for these years and finds, as I said, the economy grew by a third, the average disposable income grew by a fifth -- the whole face of the society was remade, really. In 1980, if I recall correctly -- I have it in the book exactly -- something like 2 percent of the homes had VCRs. That whole industry, all those video shops, were all created in the 1980s and particularly after the boom started in '83.

BARTLEY: I think that the biggest reason is that rapid progress is unsettling. I have a chapter in that talking about the fact that Thomas Malthus wrote about his very deeply pessimistic economics just at the outset of the industrial revolution when mankind was making this tremendous leap. Well, these leaps of progress cause rapid change, and in rapid change there are always people who lose. The United Auto Workers, for example, lost out, lost a lot of jobs, because of the rising Japanese industry, in this case. A lot of chief executive officers lost jobs when their firms were merged or taken over, and they had to go out and create new lives for themselves. This is a real problem. Reaction comes, then, when we want to stop all this upset and all this tumult and all this change, and there is kind of a societal reaction to slow things down. But you find that when you try to do that, then the whole economy slows down. That, I think, is the paradox. The same thing happened in the 1930s, in a way -- a reaction to the 1920s.

BARTLEY: Oh, Michael One is a restaurant with very good porter-house steaks down in the Wall Street area, a few steps from the American Stock Exchange. We used to hold seminars there. Bob Mundell is an economist at Columbia University, and Art Laffer, famous now by the Laffer curve, and Jude Wanniski, who was on my staff at the Wall Street Journal, and myself and a few other people used to gather there for dinner and talk, generally, about economics. Out of this came supply-side economics or a view of the modern economy that I think explains pretty well what happened as we resolved the economic crisis of the 1970s and started the seven fat years.

BARTLEY: I think it was probably in '74.

BARTLEY: Arthur Laffer is now a consulting economist. He was an academic economist at the University of Chicago and at the University of Southern California. During this period he achieved some sort of fame with the Laffer curve, which said that when taxes get too high they start to bring in lower revenues rather than higher revenues. Yes, there is the Laffer curve, as you see, drawn on a napkin. It's part of the lore that it was first drawn on a napkin in a restaurant here in Washington.

BARTLEY: Michael One is in New York, but this one was the Two Continents Restaurant in Washington.

BARTLEY: Yes.

BARTLEY: Yes, that's right. Well, Jude Wanniski has reported that he drew it for Dick Cheney, who was then deputy White House chief of staff, in the conversation the three of them had at the Two Continents Restaurant. Unfortunately, neither Laffer nor Cheney remembers this, and this has led to some dispute about where it was originally drawn. As I say in the book, I believe Wanniski. He is a good journalist, and it's the kind of thing that a journalist would remember.

BARTLEY: Jude Wanniski is a fellow that worked for me during these years. He now has his own firm. He was actually my first hire after I took over the editorial page at the Wall Street Journal in 1972. He had been a newspaperman in Las Vegas and Alaska. Originally from Brooklyn, a very brilliant character who really got us all together -- Laffer and Mundell and myself -- during these years, and then wrote a book about it modestly called "The Way the World Works," which was one of the bibles of the supply-side movement in the late 1970s. Then he left the Journal in '78 and struck out on his own and has met a payroll ever since.

BARTLEY: The first was George Will who was then an aide to a Colorado senator. No one knew him very well, but I got to know him when I lived in Washington for a year. I was told at lunch one day that I was going to take over the editorial page of the Wall Street Journal, and the next morning I was in George's living room trying to hire him. It didn't work out -- probably better for him, maybe not so good for me.

BARTLEY: Yes, the title has changed, but I've been running the editorial page ever since 1972.

BARTLEY: The title is editor and vice president now.

BARTLEY: Herb Stein named supply-side economics. He has been mostly against it throughout his career, but he named it at one resort at one conference talking about the supply-side fiscalist, which he'd said included, maybe, two economists. But then most of the people in the room wanted to enroll in what he was describing, and Wanniski then dropped the fiscalist and just kept supply-side economics, and that's what it became.

BARTLEY: Yes, that's correct.

BARTLEY: Well, the Homestead is a famous resort hotel there in Virginia that's host to a lot of different conferences. I didn't happen to read that story, but I presume this is a conference that discussed that particular issue.

BARTLEY: I suppose it is. I never really thought about that very much, but I think that a lot of it now is being developed in informal groups and think tanks; maybe less in universities than actually used to be the case because we've had this proliferation of think tanks in very high-powered places, really, starting with Brookings and including AEI and Heritage and a whole host of others that, I think, really do the policy-oriented kind of thinking these days, much more than the universities.

BARTLEY: Norman Ture is an economist in Washington. He ran his own consulting firm in these years and does again now. He was under-secretary of the Treasury under Reagan and the force for tax cuts. He's a very rigorous economist, and I think did the best job of developing the notion that if you change tax rates you change incentives, and that you have to look at this from what is called microeconomics; that is, from the individual consumer or firm, and that your management of the macroeconomy has to be built on firm microeconomic views.

BARTLEY: I would cut the capital gains tax. That would be the first one.

BARTLEY: As far as I could. I mean, I would not be averse to eliminating it if I thought that were politically feasible. If you look across the world, most places have very minimal and some have none in terms of taxes on capital gains. The income was taxed when you first earned it, and then if you invest it should you be taxed again if you invest it successfully, is the issue.

BARTLEY: I'm not too concerned about that. You can debate who the rich are and who it helps, but I think that my primary interest is that it helps the people who want to get rich; that is, in particular the entrepreneurs which I think are the absolute key to the economy these days. You can retrace the history. The capital gains tax was cut in 1978 -- the Steiger Amendment it was called, which I discuss in the book. Very shortly thereafter there was a great profusion in the venture capital industry and the start of a lot of new firms. The 1980s is just an amazing record of firms started by college dropouts and illegal immigrants and so on. The most notable are the software firms, in particular Microsoft which in 1980 was just a couple of guys who happened to land a contract and now is maybe the most valuable piece of industrial property in the United States after only 12 years.

BARTLEY: That's right.

BARTLEY: Yes.

BARTLEY: It's quite an amazing thing that that could happen, particular since it was passed over the very bitter opposition of the Carter White House. I think the answer is that the time was ripe; that people recognized that something was very deeply wrong with the economy and with the tax policies, and he managed to sell enough Democrats on his idea that it actually passed. But I think there was an underlying change in the national mood. I mean, 1978 was also the year of Proposition 13 in California. It was kind of a gathering mood, I think, of which the Steiger Amendment was part.

BARTLEY: Oh, Prop 13 very severely limited the property taxes in California. It was passed by Howard Jarvis as an initiative; that is, they petitioned it onto the ballot and then passed it over the objections of the state's political leaders.

BARTLEY: I can't say that I have in any real careful way, but, of course, California did have a big boom over most of those 14 years, and now recently they have raised taxes again and are a troubled economy.

BARTLEY: I would try to do what I could to make credit available to small businesses. I think this has been a particular problem over the last couple of years. I noticed at the Journal we had a story here the other day about how loans to small businesses are starting to pick up, and I think that's a very healthy kind of thing. I noticed the Securities and Exchange Commission also has proposals to encourage these kinds of loans by allowing banks to sell packages of them the way they do for mortgages. I think it's a very constructive proposal. In a way this is kind of reinventing the junk bond. The junk bond, in its early years at least, was a marvelous capital-raising device for small businesses and provided a lot of the start-up capital for various businesses.

BARTLEY: Michael Milken, I think, is a very complicated character who will take us some years yet to digest and come to some kind of a perspective on. Obviously, he committed some crimes. He pled guilty to crimes, I think, somewhat gratuitously. He did not need to get involved in some of these deals. He didn't need to deal with Ivan Boesky. At the same time, he also did a lot of good for a lot of rising businesses. He really was a very creative person in financing for start-up businesses. I think a lot of his problems arose when junk bonds then became used as a takeover device against large corporations, and this made him exceedingly unpopular with very influential figures in American business.

BARTLEY: Jim is page one editor -- a very talented editor. Page one is part of the news department. I'm in the opinion department. As editor of the Wall Street Journal I run the editorials, the op-ed material, the articles on the editorial page, the leisure/arts coverage and art set-up, plus the editorial pages of our two foreign editions in Hong Kong and Brussels. The news department is a different empire -- a much larger one, but, I think, not as much fun.

BARTLEY: Norman Pearlstine, the executive editor, and also Paul Steiger, the managing editor, are the two executives who run the news departments. Both Norman and I report at the same level. We both basically report to the chairman of Dow Jones.

BARTLEY: No. It seldom comes up in exactly that way, but if Norman has something he wants on the editorial page, he probably has a reason for it and I'd be very unlikely to say no, I think.

BARTLEY: I wouldn't ordinarily do that or do anything about that. If I had a story that I wanted written, I'd probably go write it on my pages rather than give it to them. You know, I might make a suggestion sometime of a story, and then they would either follow it up or not. But I wouldn't pressure them or get out of sorts if they didn't see the story the same way I did.

BARTLEY: Oh, I think so, yes.

BARTLEY: I think in a way it's narrowing some. If you read the epilogue to Jim's book, you find that, well, he thinks that insider trading ought to be defined. In other words, there is no definition of this crime that's supposedly so heinous. He goes through the fact that most of the Giuliani prosecutions were overturned.

BARTLEY: Giuliani was the U. S. attorney in New York who was bringing these insider trading cases under the RICO law; that is, a racketeering law. He won a number of cases, but then a long series of them were overturned by the appellate judges on one ground or another. Of course, it didn't help Milken because he already agreed to plead guilty and the first of the reversals happened shortly after he agreed to his plea.

BARTLEY: It certainly could happen. I wouldn't want to suggest that the front page has only one philosophy. I mean, they cover the news in various kinds of ways. But there certainly have been instances in which they have different views on the editorial page and page one or the Washington page. This basically reflects the fact that we on the editorial page do our own reporting. That means that we have a set of sources, and the newsmen reporting it may have a different set of sources. Really, in that kind of position you have no alternative but to go with your own sources, so you get differences arising in that way. It may be a little unseemly sometimes, but I don't think the reader suffers, because he gets both perspectives.

BARTLEY: That's right.

BARTLEY: Lew Lehrman was a very successful executive with the Right Aide Corporation who then retired after he and his colleagues had built the corporation. He came to New York and set up the Lehrman Institute, which was kind of another public policy think shop. He ran that for a number of years, at which we'd have little seminars in the afternoon on both foreign policy and economic policy. Then after a point, Lew ran for governor of New York, and lost by a couple hundred thousand votes to Mario Cuomo.

BARTLEY: He's back in the think tank as of today, as well as, I think, being a very highly successful investor. Craig Roberts was a Capitol Hill staffer and a Ph.D. economist. He worked for Kemp for a while. He actually wrote the Kemp-Roth tax cut bill, or at least if you had to name a single author of it at the staff level it would certainly be Craig. When Wanniski left, I hired Craig for a year to come up to New York and kind of keep the ball rolling. He wrote a column for us at the Journal, he wrote some editorials, then came back to Washington and then was hired in to the Reagan administration as assistant secretary of the Treasury. A very powerful force for these ideas. He is now again in the think tank business here in Washington.

BARTLEY: The University of Chicago Department of Economics has been kind of a traditional home of classical economics all through the Keynesian era. They had a number of very distinguished professors. The most notable in our lifetime has been Milton Friedman, and Milton Friedman basically carried the classical economics idea -- of course, he was also a very skillful advocate -- and with him and with that tradition it's gathered together a lot of very ardent free-market types in its Department of Economics and, to some extent, in its business school. Laffer and Mundell were both there at different stages of their careers.

BARTLEY: Milton is in kind of a curious position. In many ways he is, and he would agree with us about nine out of ten things. I have a little section in there quoting some bank economists saying, "I used to be a monetarist," as I used to be a monetarist. But I have come to the conclusion that this kind of money supply isn't the be-all and end-all of economics. The second thing that Milton would disagree with myself and my friends about is that he's still an ardent proponent of floating exchange rates. That's something I think would be better of to get rid of, if we got back to something like the Bretton Woods international monetary system. Those things we disagree about. We would agree that government spending is the best measure of the government's impact on the economy rather than, for example, the deficit. We would agree that it's much better to let the markets work, that it's not too good an idea for the federal government to try and fine-tune the economy -- to juggle it around this way and that. Those very important things he would be a guru or a sympathizer of this group, but he has his own particular philosophy that he has his own personal stamp on that is a little different from where we are.

BARTLEY: A monetarist is basically a follower of Milton Friedman. They emphasize the very great importance of what we call the money supply.

BARTLEY: M-1 and M-2, etc., which is under the control, more or less, of the Federal Reserve System. In other words, the Federal Reserve can control at least bank reserves, and then those bank reserves are loaned out and become M-1 or M-2.

BARTLEY: Bretton Woods is a resort hotel in New Hampshire where in 1944 the Allied powers negotiated an international monetary arrangement; that is, they said, "Okay, when the war is over we're going to have to get the world economy straightened out," and they came up with some arrangements on exchange rates and they created the World Bank and the International Monetary Fund. Not at Bretton Woods, I don't think, but in conjunction with that you had the general agreement on tariffs and trade to cut tariffs around the world.

BARTLEY: That's GATT, yes. And this arrangement with opening of the world markets and stable exchange rates basically pegged to the dollar, which then had a relationship to gold, led to an amazing time in the world economy. There was really a golden era between about 1950, when all these arrangements were in place, and 1973. You can see things kind of break in '73. That period from '50 to '73 was really the greatest growth period of this century, both in the industrial economies and in the developing economies.

BARTLEY: Yes.

BARTLEY: They're awfully important in history in terms of the geo-politics. I mean, this is when the Cold War was over, and I think that if we handle things right now, we may be entering an entirely new era. We've had a pretty ghastly century, with two world wars and the Great Depression and then followed by the Cold War. I hope that the breaching of the Berlin Wall 1989 may usher in an entirely new and much more hopeful era. We also have enormous technological progress going on at the moment. I call it the second industrial revolution. We've had atomic energy, we've had the splitting of the gene, we've had probably most important the invention of the transistor and now the micro-chip. It's changing the entire texture of the economy from an industrial economy into an information economy. This should be very good for us. Between the second industrial revolution and the end of this world war confrontation should allow us, if we kind of get things right, to expect a much more hopeful era than we've grown up in.

BARTLEY: Oh, I don't know that I could count the times. Maybe a dozen. I don't know.

BARTLEY: No, no. There wasn't any regular schedule to it, but of course in a way Michael One is a symbol. Even if we weren't at Michael One, these discussions about these ideas were almost constant. They would be around my desk at the Journal, they would be by phone with Laffer and Mundell, and later with Ture and Roberts in Washington, so that there was an awful lot of intellectual ferment. I wouldn't want to create the idea it only happened at Michael One.

BARTLEY: A lot of it, of course, we published in the Wall Street Journal.

BARTLEY: I think probably more op-ed pieces than editorials, although we had editorials, too.

BARTLEY: Under really a great variety of people's names. Wanniski wrote some notable ones. But what we found was that once we started to run some of these ideas, authors who shared them kind of started coming out of the woodwork. We'd get submissions from people in Atlanta or San Francisco that fit as part of the framework, and we would run those. That's one reason I think that this is not something that we dreamed up all by ourselves. It was part of the temper of the time, and a lot of people were thinking around the same lines. Once an outlet for these ideas was created, it became a kind of self-generating process.

BARTLEY: Yes, indeed.

BARTLEY: I think he'd make a good one. We've got enough candidates for president this year, I guess, but at some point in his career I would look enthusiastically on that. He might not be the only candidate that I would be willing to back enthusiastically. But Jack, of course, was instrumental on the political side of this. He is the fellow who picked up on these ideas and who was the driving force behind the Kemp-Roth bill that then ultimately became the Reagan 1981 tax cuts. And he's still at it today.

BARTLEY: I think that's the best single measure.

BARTLEY: GNP is the total output of the economy. I guess these days now we've switched to gross domestic product. They keep changing the figures on it.

BARTLEY: Yes, something in that neighborhood. I'm not real good at remembering specific figures.

BARTLEY: The government expenditures are now running around 24 or 25 percent of GNP. I had a chart in the book. Tax receipts are running around 19, maybe 20 percent. The interesting thing about this chart is that the receipts are really pretty stable. Going back clear to 1950 they are 20 percent. Twenty-one percent might be a record. The low might be 17 percent. It's a very narrow band. The expenditures, on the other hand, took off, starting really in 1974. The difference, of course, is the deficit.

BARTLEY: The expenditure part, about 25. That's federal. The state and local spending would be in addition.

BARTLEY: I get nervous at 25.

BARTLEY: No, for the fed, I think.

BARTLEY: I would like to see it -- I think it's the trend more than anything else that's disturbing. I mean, the trend is more each year, and as you take more each year, it means you are taking a larger and larger share of the new money in the economy. At some point that becomes a disincentive to production or a disincentive in the private sector, and the general economy starts to slow down. I think that the rationale for looking at expenses rather than at the deficit is that the expenses are the amount of money that the government is taking out of the private sector. Whether it takes those by taxes or by borrowing them is kind of a secondary matter. The primary matter is how much money is it taking. That's measured by expenditures.

BARTLEY: Oh, one at a time. I would have been happier if Bush had been a little more Reaganesque, a little more like Ronald Reagan. I think ultimately, however, the record is still out. The revocation of his "no new tax" pledge I think hurt him both politically and economically. I think the 1990 budget deal raising taxes once you're already in a recession is a very bad mistake. On the other hand, I'm not sure how much choice he had at that time, because it also came just as he was building support for his war in Iraq, which I support. So he may not have been in a position to have a confrontation with Congress over the budget just at that time. I think you can forgive him that a little bit. I think if he has a second term, you're likely to have a different Congress, and he might be more successful because of that.

BARTLEY: I suspect so.

BARTLEY: I don't have any real strong opinions about Bill Clinton. I don't think he's a menace. I'm not sure that he really believes in anything, really. His whole life has been as a politician so that if he takes a position, the starting assumption is that, well, he's taking that for some political reason, not because he actually believes in it.

BARTLEY: Ross Perot, I don't know what he believes in either. He keeps telling us he's going to do these wonderful things as president, but he doesn't tell us what they are. I think unless he can get that straightened out, his candidacy may be in some difficulty.

BARTLEY: So far as I know, the Journal has endorsed one presidential candidate in its 100-and-some-year history, and that was Herbert Hoover. I think maybe we learned our lesson, and so we don't formally endorse. Now, we are pretty outspoken in our editorials, and we won't doubt where we stand in any particular election. Sometimes we may have stronger opinions than others, but if you read us you will find what we think about the men and the issues. But we don't typically write editorials saying we endorse so-and-so and because we endorse them you should vote for them. I think that's a little bit of an empty exercise.

BARTLEY: My budget staff is, I think, 35 people at the moment. This includes the people abroad, it includes the leisure and arts people and it includes the clerical people. If you ask how many people are actually contributing editorials, the question becomes where do you draw the line? We don't have too many people who do that full time. We have people like Paul Gigot in Washington and Tim Ferguson in Los Angeles and George Malone in Brussels who write columns, and write one column a week plus they write editorials. The principal force behind the editorials and putting them together every day now is the deputy editor of the editorial page, Daniel Henninger. Then we have a couple of other people who write editorials full time, and then we have a variety of people, including some of the leisure and arts people, who contribute one now and then.

BARTLEY: Probably in this last little while, every other week or so. I have also written some by-line columns here recently, though.

BARTLEY: I have been writing some economic editorials here because that's what we have needed. I also wrote about the Los Angeles riots in one of our two long editorials on that. I'm sure that as the presidential campaign heats up I'll have some editorials about politics. I have a way of picking off the ripest topics. They're the ones that usually get me moving.

BARTLEY: The best possible training for writing is writing. That's what, I think, Hemingway said. The way you write is to apply the seat of your pants to the seat of the chair and write. The way you become a journalist is to get something published, whether it's in a campus publication or whatever. When we sit down to hire someone, on the infrequent occasions when we actually have openings, what counts are the clips; in other words, what they've published elsewhere, if they can send along with their letter. That's by far the overwhelming factor in the hiring decisions.

BARTLEY: That's kind of a specific fact.

BARTLEY: We are likely to have an opening at the professional level every other year or something in that neighborhood. That would include editors as well as writers.

BARTLEY: I was born in Marshall, Minn., grew up basically in Ames, Iowa, and went to Iowa State University there. Worked for a year at the Grinnell, Iowa, Herald-Register, which comes out twice a week. I had an opportunity while I was there to hone my skills as a photographer as well as a writer. I took a master's degree in political science at the University of Wisconsin -- my undergraduate major at Iowa State had been journalism -- and I was hired on at the Chicago bureau of the Wall Street Journal in 1962.

BARTLEY: Yes, I was two years as a reporter. In '64 I came on to the editorial page in New York.

BARTLEY: Oh, yes, this is the first book that I've written.

BARTLEY: Yes, well, it didn't take very long, I think.

BARTLEY: They made sure that I got a good education, and they went to some effort, I think, to do that.

BARTLEY: Yes, that's right. My father is still in Iowa.

BARTLEY: He was a veterinarian, and while he was in Ames was a professor of veterinary medicine at the university there.

BARTLEY: They, I guess, made me a serious young man. The traditional discipline and support, and they got me into the Ames public schools which were -- and I have every reason to believe still are -- quite remarkable schools because it's a university town, and a great percentage of the children are from faculty families. It's really a very intellectual kind of place, and at the same time a kind of down-to-earth Mid-western kind of place. A marvelous education.

BARTLEY: Yes, that's right -- the engineering and agricultural college.

BARTLEY: Jean Baptiste Say, yes.

BARTLEY: He was a very notable, classical economist from a couple of centuries ago or a century ago. He was after Adam Smith.

BARTLEY: Yes, I thought you might have it there. But he formed what's called Say's Law, which was kind of the bedrock proposition of classical economics. Say's Law is that production creates its own demand; in other words, that the economy is a cyclical kind of process. If you produce something you pay money. As I explain it in there, the widget makers pay their employees to make the widgets, and the employees use their compensation to buy widgets. If you extend this over an economy and over a great number and great variety of goods, you have a picture of an economy.

BARTLEY: Well, I remember Art Laffer saying during these discussions -- I don't know whether it was at Michael One or whether it was in my office -- but he was saying, "You've got to learn about Say. You've got to learn about Say's Law. It's what I believe in. It's what you believe in, too." Of course, then I didn't know what it was.

BARTLEY: He is a very famous Austrian economist who died this year. He was a very elderly man. He was a contemporary and a critic of Keynes, and then he was more or less forgotten for a great many years until -- well, "more or less forgotten" is not quite correct because he wrote a very famous book called The Road to Serfdom. But he wasn't viewed in the forefront of modern economics during the Keynesian era, but I think that Keynesianism kind of collapsed during the 1970s when you had this simultaneous inflation and unemployment that the Keynesian formulation doesn't even allow. I can't explain it. Well, and this perception I think gradually spread around the world, and lo and behold, very late in his life then Hayek was given a Nobel Prize for economics.

BARTLEY: Well, John Maynard Keynes was the most influential economist of this century. He was British, wrote before and during the depression in Great Britain. His most famous book is called The General Theory. It really established a view of economics for two generations. It was published in the '30s, and it was really dominant until the '70s. Whole structures of thought were built around Keynes's general theory. I, and most of the people of Michael One, are admirers of Keynes as a person. His theories may have been relevant and needed during the Great Depression, but they didn't apply very well in the 1970s. There is in the book a marvelous quote from Hayek who said that toward the end of Keynes's life he was very worried that his theories might be misused. But he told Hayek, "Don't worry about it because if that ever starts to get out of hand I can turn it around overnight." Two weeks later, Keynes was dead. He couldn't turn it around. Hayek said, "Now what will have to be explained by history is how a whole generation of economists kind of woke up bewildered because they couldn't understand things that had been fairly widely understood before the Keynesian revolution."

BARTLEY: You have occasions of that, of course. I'm kind of a populist. I believe that the common people out there in the country are really pretty smart. They may not be able to tell you about Keynes and Hayek and all that, but they have a kind of a street sense of what's working and what isn't out on the street. I think that when you get something like the kind of change in the mood that I was talking about in 1978, that often the common people in the street are ahead of the policy-makers and the big thinkers.

BARTLEY: Thank you very much, Brian.