A fews days ago, a young French scholar came in to see me. Recently graduated from one of the Grandes Ecoles , he had a grant from the Academie Francaise Economique Exterieure to study the American economic and political situation. It had been his original intention to work on Iran and Iraq, but the unsettled conditions there, combined with the unexpected strength of the franc in relation to the dollar, had caused him to shift his interest and field of study to the United States. He had been in Washington for several weeks, and he told me that he had begun to wonder if his Paris professors had been right in holding that a strictly logical mind was better for understanding economics than sophisticated training in the British or American manner.
Our conversation cannot be reproduced exactly, for his tape recorder was not working. But this is the substance.
Young French Scholar: Since President Carter is up for election this autumn, why did he choose to have a severe recession at this time? The papers a few days ago gave him an approval rating, as you call it, of only 30 percent in the polls. And this poor showing was attributed mostly to his economic policies.
JKG: The United States was suffering from severe inflation, and the dollar was weak. The president's economists and advisers believed that a mild recession was needed to stop the inflation.
YFS: But you already have serious unemployment and a deep slump in your automobile and housing industries. Can the president's economists plan for the particular kind of recession that they wish to have?
JKG: No. No one suggests that economists can plan for a particular kind of recession.
YFS: It seems odd that the president's people would run the risk of attempting something they cannot do. And the recession seems not to have stopped the inflation. The papers say that it is running at 11 percent annually -- what you call double-digit inflation. Do the president's economists think that it is better to have an inflation and a recession than just an inflation by itself?
JKG: The recession was supposed to stop the price increases.
YFS: But even in France we have learned that you can have inflation combined with unemployment. The unions get more money for their workers; the big companies can easily raise their prices. This keeps on happening even when there is unemployment. And when there is the OPEC. I am sure that President Carter's economists know about unions, corporations and the OPEC. They are all much discussed in Washington.
JKG: Mr. Miller, Mr. Schultze and Mr. Voicker are all very intelligent men, and they recognize that unions, corporations and OPEC are important causes of inflation. And Alfred Kahn, of whom you may have heard even in Paris, is charged with keeping down prices and wages.
YFS: But these efforts are purely voluntary. The president was very firm in saying that that was all you should do.
JKG: That is right. The president and his economists are opposed to mandatory controls in principle.
YFS: Principle is something that in France we do not fully understand. But in any case, why are voluntary controls in keeping with principle and enforced controls contrary to your principle?
JKG: The voluntary controls are not effective.
YFS: I think I understand. Something is sound in principle if it fails but not sound if it works. Didn't President Carter also say that controls have never worked in peacetime?
JKG: Yes, but in fact they have never been tried in peacetime. When President Nixon used them in 1971-72, the Vietnam War was still on.
YFS: I was told at the Brookings Institution that President Nixon got both unemployment and inflation down to less than 5 percent by the time of the election in 1972. He also won that election, did he not?
JKG: Handsomely. Everywhere except in Massachusetts and the District of Columbia. But you must remember that President Nixon was a very unprincipled man.
YFS: They also told me at Brookings that when the Nixon controls came off, prices went up. Why is it an argument against controls that prices go up when you do not have them?
JKG: There are some things I have difficulty explaining myself.
YFS: Getting back to Mr. Nixon's economic advisers. Were they also unprincipled men?
JKG: No. They were and are very principled men -- we even have a French expression, Chicago types . They are greatly committed to free market principles. However, they were willing to suppress their principles in order to get their president elected.
YFS: That I do understand. But are you saying that Democratic advisers are more committed to principles than the Republicans are?
JFG: I do not wish to be partisan in this matter. William Simon, who was President Ford's secretary of the Treasury, tells how he stood fast against "election eve compromises" that would have saved Republican seats in Congress in 1974 and against budget concessions that would have saved President Ford in 1976. We have economists in both parties who are willing to sacrifice their principals for a principle.
YFS: English is a very sophisticated language. Your secretary of the Treasury, Mr. Miller, has recently come out against a tax cut. Does that mean he wants the recession to continue?
JKG: I would also be opposed to a tax cut when we are already cutting back on expenditures for the cities and the poor in order to balance the budget.
YFS: So Mr. Miller would fight recession by increasing these expenditures?
JKG: I'm afraid he isn't for that either.
YFS: Then he must be in favor of a recession for its own sake. Sen. Kennedy has said that he would use wage and price controls and gasoline rationing to stabilize prices and fight OPEC -- all this instead of a recession. Tell me, does that mean he is lacking in what you call principles?
JKG: I wouldn't wish to comment on that; you see, I am a friend of Sen. Kennedy.
YFS: Or is he trying to save President Carter from the principles of his advisers?
JKG: That seems to me unlikely, but I can readily understand how it might look that way to an outsider.
YFS: If President Carter is defeated this autumn, what will happen to his economists and economic advisers?
JKG: They will go on to positions of much distinction. There is always a place for men of principle in our country.