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How the Economists Got It Wrong

James K. Galbraith | November 30, 2002



The American Economic Association (AEA) met January 7-9 in Boston, for a millennial program distinguished by its attention to international policy issues, most particularly financial crises (as in Asia) and the failure of the so-called "economic transition" (as in Russia).

And yet, in this odd rush to relevance, something was curiously awry. Apart from a panel including former World Bank chief economist Joseph Stiglitz, the meetings featured almost no one with a record of criticizing the institutions that gave us the Asian crisis or the transition failure. Instead, they were dominated--in session after session--by the architects of the present world order, including Yeltsin advisers Andrei Shleifer and Anders Aslund, the International Monetary Fund's Stanley Fischer, and U.S. Treasury Secretary Lawrence Summers. Even the arch-speculator Myron Scholes appeared. Never, perhaps, has such a luminous crowd gathered to discuss so disastrous a set of its own failings.

Equally striking, from the larger intellectual standpoint, was the lack of retrospective in this year 2000 program of the AEA. The great issues of economic policy--inflation and unemployment, economic growth and stabilization, the government's budget, inequalities of income and wealth--were missing. The central themes of economic theory, including markets and market structure, competition and monopoly, efficiency and equity, and the business cycle, were to be found only in sessions devoted to narrowly defined applied cases. Reading through paper titles, one finds no mention of John Maynard Keynes, Adam Smith, or Karl Marx, or even of Paul Samuelson or Milton Friedman. Samuelson himself appeared once, to give a brilliant short lecture on "The Golden Virtue of Eclecticism"--but to the institutionalists rather than the mainstream.

Missing Ideas

So what is modern economics about? It seems to be, mainly, about itself: The AEA meets to celebrate the importance of its members, their presence in high public positions, their influence in foreign lands, and the winning of the Nobel Prize. Female and black members have won the right to organize sessions about gender and race--thus domesticating some of those who might otherwise complain. Radicals and Keynesians, on the other hand, appeared only on panels organized separately, by an alphabet soup of splinter associations. What was therefore most conspicuously missing from this meeting of America's premier social science organization, was any actual discussion of economic ideas.

But what am I thinking? Of course they don't want to discuss ideas. Would you, with the record of this professorate? Consider what has happened, in recent years, to five of the leading ideas of modern economics.

1. Inflation is everywhere and always a monetary phenomenon. This dictum is the most famous single thought associated with Milton Friedman. It was once, briefly in the early 1980s, the driving philosophy of the Federal Reserve. Its architect, and many of his students, have won the Nobel Prize. But in practice, monetarism has been completely, silently abandoned. Measures of money (notably M2) have been growing rapidly for years, with no inflationary effect. Monetarism as such is, today, an academic dead letter. There wasn't one monetarist topic on the AEA's calendar this year, and a new academic monetarist hasn't emerged in decades.

And yet, the signal policy achievement of the monetarist movement remains intact. Thirty years ago, Friedman-style monetarists wiped out all alternative theories of inflation. The ideas of "cost push" and "wage-price spirals," on which the successful anti-inflation strategies of the 1960s had been based, disappeared. To this day, there exist no alternatives for fighting inflation, except higher interest rates, recession, and unemployment. These are the hard measures, the brutal measures, for which we have the monetarists to thank.

2. Full employment without inflation is impossible. Four years ago, virtually all "serious" economists, including many self-described Keynesians, agreed: There existed a "natural rate of unemployment." This was in the vicinity of 6 percent, and below it inflation was certain to rise. The number, it turns out, had no basis in serious study; it was first made up by Robert J. Gordon as an illustration for his textbook. Since that time, unemployment has been continuously below 6 percent, without rising inflation. It is now almost exactly 4 percent, the formal target of the Full Employment Act. Faced with the embarrassing facts, only a handful of economists continue to defend the natural rate idea.

And yet, the natural rate movement still influences policy. Some of its survivors vote on the Federal Reserve's Open Market Committee. They are presently driving interest rates upward on precisely the pretext that low unemployment must otherwise soon bring rising inflation. It is a notion for which no evidence exists. And except for the damage that higher interest rates will do, it would be hard not to laugh.

3. Rising pay inequality stems from technological change. "Skill-biased technological change" became in the 1990s the profession's pet rationale for the splitting apart of the pay structure. Translation: The "markets" were rewarding those talented and farsighted enough to acquire new skills, particularly in the computer age. This position is now dismissed by all with a serious grip on the facts. Among other things, the rise in pay inequalities, which had not been timed carefully in the first studies, occurred largely before the wide distribution of personal computers. And the theory cannot account at all for declining pay inequalities after 1994, just when the diffusion of computers and information technologies was speeding up.

And yet, the notion that education can cure the inequality problem remains a staple of economics teaching. It also remains the central policy approach to inequality of "third way" politicians in the United States and Europe, including President Clinton. Once again, conventional policy thought lingers on, even as the research fad has faded out.

4. Rising minimum wages cause unemployment. A furious fight on this issue ensued as recently as 1995 when two distinguished researchers, Alan Krueger of Princeton and David Card of the University of California, Berkeley, broke ranks to declare that the evidence contradicted this thesis. Since then, the minimum wage has gone up twice, and unemployment has continued to decline. Card and Krueger were right--and so was their fundamental criticism of basic labor market theory.

And yet, you will not find more than a grudging acknowledgment of this in economics textbooks, virtually all of which will continue to teach false propositions to new generations of students. Nor have labor market economists thrown their professional weight behind a rising minimum wage.

5. Sustained growth cannot exceed 2.5 percent per year. This lulu was a compound of two errors: the idea that productivity growth was fixed, by mysterious forces, at less than 1.5 percent, and the idea that the growth of the labor force could not long exceed another percent or so. But it turns out that productivity growth picks up when unemployment is low (one entirely sensible reason being that businesses make better use of labor). And it also turns out that there are more potentially employable people out there, after three decades of policy-imposed stagnation, than the economists thought. Even at 4 percent measured unemployment, the economy has been zipping along at 3.5 percent growth or better for several years. In fact, present dangers to growth come very much more from unfounded worries about capacity constraints and labor shortages than from the constraints and shortages themselves.

Economically Correct

The evidence flatly contradicts each of the five dogmas I have just listed. Few economists any longer formally defend any of them. As the AEA's year 2000 program showed, these beliefs do not appear on the research agenda of the profession's leaders. But they haven't been abandoned either. They continue to form part of the core ideology of the economics profession, particularly as understood by outsiders. And they equally continue to underpin many economists' interventions in the policy sphere.

Why is this so? The reason is fairly clear. Leading active members of today's economics profession, the generation presently in their 40s and 50s, have joined together into a kind of politburo for correct economic thinking. As a general rule--as one might expect from a gentleman's club--this has placed them on the wrong side of every important policy issue, and not just recently but for decades. They predict disaster where none occurs. They deny the possibility of events that then happen. They offer a "rape is like the weather" fatalism about an "inevitable" problem (pay inequality) that then starts to recede. They oppose the most basic, decent, and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs.

And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject. No one loses face, in this club, for having been wrong. No one is disinvited from presenting papers at later annual meetings. And still less is anyone from the outside invited in. Only the occasional top-insider-turned-dissident--this year the admirable Stiglitz--can reliably count on getting a hearing.

No young economist better exemplifies the club spirit than MIT's Paul Krugman. Krugman has once or twice taken useful policy positions--he demolished The Wall Street Journal's effort to deny the rising inequality problem some years back, and he defended capital controls when Malaysia imposed them in 1997. But he has never seriously dissented from the core orthodoxies of his peers. Krugman is concerned, first and foremost, with his own standing among the club's leaders. And he has come to function as a kind of guard dog for their dogma, savagely attacking dim-witted outsiders while remaining generally quiet, if not always completely silent, about acts of illogic committed inside the profession.

Krugman has started a new career as a regular on the op-ed page of The New York Times, and his priorities were on display in his opening column. Consider how it opens:

Beginnings are always difficult: even the most tough-minded writer finds it hard to avoid portentousness. And since this is a quadruple beginning (new year, new century, new millennium, and, for me, new column), I won't even try. What follows are some broad opening-night thoughts about the world economy.

I deliberately say world economy, not American economy. Whatever else they may have been, the 90's [sic] were the decade of globalization... .

And so it goes, one banality after another, grimly through to the end, where Krugman writes that "the facts may be on the side of the free traders ... [but] the opponents are winning the propaganda war." It is a typical Krugman flourish, broad and misleading, in which the economists are pitted against a ruffian fringe. There is not a word to suggest Krugman himself is aware (though he certainly is, having himself come down on the right side) that the key issue among economists is not trade but capital flows.

In a column just a few days later, he is even more explicit: "New challenges to orthodoxy, like the growing backlash against globalization, are already brewing. Such challenges may be ill-informed, but no matter." Always the defense of orthodoxy comes first. Nowhere does Krugman acknowledge the plain fact that the system of free global finance has been in deep crisis for over two years.

Collapse and Denial

But self-absorption and consistent policy error are just two of the endemic problems of the leading American economists, and not even the most serious among them. The deeper problem is the nearly complete collapse of the prevailing economic theory--of the structure of thought that supports their policy ideas. It is a collapse so complete, so pervasive, that the profession can only deny it by refusing to discuss theoretical questions in the first place.

The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist's way of thinking. And it is also the source of the profession's problem in getting almost anything important right.

The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded.

Supply and demand in the labor market underlies the notion that full employment cannot be reconciled with stable prices, that technological change drives pay inequality, and that raising minimum wages must drive up unemployment. In all these cases, the fundamental theoretical error is essentially the same: It consists in reifying a supply curve, for which no firm empirical foundation exists. Put another way, it consists in allowing a metaphor, one that originates in markets for fish, to govern a profoundly different human institution.

Of course, the collapse of supply and demand perhaps is best illustrated by the global capital markets, which were supposed to bring stable prosperity to the developing countries but instead brought them financial ruin. And nowhere is this more evident, or more catastrophic, than in the case of Russia, where the failure to build new institutions to replace the failing structures of the Soviet system, and the reliance instead on the "market" to provide, has given us a production, employment, and public health disaster, leading toward the reestablishment of a state directed by the secret police and the army. None of this was openly admitted, one can be sure, by the AEA's leaders.

My colleague, the physicist-turned-economist Ping Chen of the University of Texas at Austin and the China Center for Economic Research at Peking University, writes that at the turn of the last century, at the meetings of the Royal Society, Lord Kelvin declared the project of physics to be complete. The twentieth century, he declared, would be dedicated to filling in the details. Within five years, special relativity (and later, quantum mechanics) reduced Kelvin to an amusing footnote.

The reduction of many of today's leading economists to footnote status is overdue. But would those economists recognize a theoretical revolution if one were to occur? One is entitled to doubt it. Being right doesn't count for much in this club. ¤

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Also by James K. Galbraith:

How Much Will It Cost and Will It Come Soon Enough?

Why Populists Need to Re-think Trade

Rich World, Poor World

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James K. Galbraith is the Lloyd M. Bentsen Jr. Chair in government-business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, a senior scholar of the Levy Economics Institute, and chair of the Board of Economists for Peace and Security. His most recent book is Unbearable Cost: Bush, Greenspan and the Economics of Empire.

The Saddest Story Updated at 10:05 PM

One of the most unusual books and far-and-away the saddest I have ever read is James Douglass's "JFK and the Unspeakable: Why He Died and Why It Matters." This is the best documented account ever produced of why and how the CIA assassinated John F. Kennedy. That the CIA did this is beyond dispute, and that the first President Bush was involved is well established by Russ Baker's book "Family of Secrets." What separates Douglass's book from the pack is his account of how Kennedy lived his final months, the actions he took that turned the CIA against him but saved the world from a nuclear holocaust and -- had he lived -- would probably have avoided the Vietnam War and brought the Cold War to a swift and peaceful conclusion.

Kennedy was a cold warrior who turned away from orthodoxy and became a heretic to those within the military industrial spook complex. He defied the demands of the Joint Chiefs of Staff and the CIA on the Bay of Pigs and the Cuban Missile Crisis, on Laos and Congo, on Berlin and Indonesia and -- above all -- on Vietnam, in opening up a dialogue with Khrushchev and with Castro, by creating a nuclear test ban treaty with the Soviet Union, by taking on the steel corporations, by firing the director of the CIA and other top officials, by planting a false story that his military advisors opposed escalation in Vietnam, by ordering a withdrawal from Vietnam, by selling wheat to the Soviet Union, by publicly and privately setting an agenda for peace and complete disarmament and world law, and by making plans to visit the Kremlin and declare the Cold War over.

This is not the Kennedy we think we know. It is certainly not the Kennedy the History Channel claims to document. But this is a Kennedy thoroughly researched and documented by the author. And if the History Channel's portrait of a sex-obsessed president has any relevance to how Kennedy acted on the large issues of war and peace, then we have an absolute moral duty to get President Obama some girlfriends fast!

Douglass has been a religious writer on the topic of religion, and that background shows up in this book, especially in the opening pages, but this atheist did not find that framing of the story distracting or troubling in the least. This is a history text and a dramatic tale by a talented researcher and summarizer of facts and their broader import.

Kennedy was the president of a nation that had already -- long before the Bush-Cheney age -- transferred tremendous power from the legislative branch to the president. This was not government of the people, but government of the person. But it was a person under the threat of death if he stepped too far out of line, a person unable to control his own military and CIA, a person able to make progress toward world peace only once Khrushchev and Castro understood that Kennedy's greatest impediment was his own bureaucracy.

Douglass shows us that Kennedy knew he was risking assassination but chose to take that risk, and that Johnson and later presidents knew what had transpired and chose not to put their necks on the line. The fear that presidents, congress members, and millions of other Americans have lived with -- allowed themselves to live with, CHOSEN to live with -- since the Kennedy assassination is the unspeakable weight dragging our republic and the world back to the abyss that Kennedy so narrowly avoided during the missile crisis, and which the powers behind the US throne would have plunged the world into could they have had their way.

Last year, Congressman Barney Frank, whose every utterance is usually televised, held a press conference to propose cutting 25% from the military budget. Not a single reporter came. This is also the story of President Kennedy's greatest and least known speech, a commencement address he gave at American University on June 10, 1963 -- a thing of beauty that no politician in Washington, outside of Dennis Kucinich, would ever come close to uttering today. Kennedy spoke of complete disarmament and world government, and announced the unilateral cessation of nuclear testing. He was urging the public toward peace, reversing the relationship the public has had with politicians ever since. In private Kennedy wrote:

"Things cannot be forced from the top. The international relinquishing of sovereignty would have to spring from the people -- it would have to be so strong that the elected delegates would be turned out of office if they failed to do it. . . . War will exist until that distant day when the conscientious objector enjoys the same reputation and prestige that the warrior does today."

Kennedy, like any president or member of Congress, knew that decisions he made risked many other people's lives, including those of soldiers in the U.S. military. He found the courage to risk his own life in order to save those of many others. We must demand that our elected officials today, in an era of greatly expanded power for the CIA, act on the same courage. To do so, we must find that courage ourselves.

Sometimes a sad story can be a beautiful guide forward.
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The Real Reason Obama's Plan Doesn't Include a Public OptionThe reason Robert Gibbs gives for President Obama's health care plan not including a public option -- that despite majority voter support, it can't get 51 Democratic votes in the Senate -- doesn't hold up. The real reason is that Obama made a backroom deal last summer with the for-profit hospital industry that there would be no meaningful public option.

This is one of the great under-reported stories of the health reform saga. Much has been written about the Obama administration's deal with big Pharma to continue to block Medicare from negotiating for lower drug prices or to allow consumers to buy cheaper drugs from Canada, in exchange for Pharma running pro-Democratic ads and giving campaign contributions to Democratic candidates. That's the reason, under pressure from the White House, that Senate Democrats voted down an amendment that would have allowed consumers to buy cheaper drugs from overseas.But Obama's deal with the for-profit hospital lobby to insure there would be no public option has, as best I can tell, only been reported in two articles in The New York Times. On August 13, The Times reported that while President Obama had presented himself as "aloof from the legislative fray," particularly in connection with the public option, "Behind the scenes, however, Mr. Obama and advisors have been...negotiating deals with a degree of cold-eyed political realism potentially at odds with the president's rhetoric." One of the deals reported in The Times article was the Pharma deal. The other was a deal with the for-profit hospital lobby to limit its cost reductions to $155 billion over 10 years in exchange for a White House promise that there would be no meaningful public option.According to The Times:http://www.nytimes.com/2009/08/13/health/p...

more:http://www.huffingtonpost.com/miles-mogule...

Hill & Knowlton sold the first Gulf War

http://www.prwatch.org/books/tsigfy10.html

US Congressman Jimmy Hayes of Louisiana - a conservative Democrat who supported the Gulf War - later estimated that the government of Kuwait funded as many as 20 PR, law and lobby firms in its campaign to mobilize US opinion and force against Hussein.72 Participating firms included the Rendon Group, which received a retainer of $100,000 per month for media work, and Neill & Co., which received $50,000 per month for lobbying Congress. Sam Zakhem, a former US ambassador to the oil-rich gulf state of Bahrain, funneled $7.7 million in advertising and lobbying dollars through two front groups, the "Coalition for Americans at Risk" and the "Freedom Task Force." The Coalition, which began in the 1980s as a front for the contras in Nicaragua, prepared and placed TV and newspaper ads, and kept a stable of fifty speakers available for pro-war rallies and publicity events.73

Hill & Knowlton, then the world's largest PR firm, served as mastermind for the Kuwaiti campaign. Its activities alone would have constituted the largest foreign-funded campaign ever aimed at manipulating American public opinion. By law, the Foreign Agents Registration Act should have exposed this propaganda campaign to the American people, but the Justice Department chose not to enforce it. Nine days after Saddam's army marched into Kuwait, the Emir's government agreed to fund a contract under which Hill & Knowlton would represent "Citizens for a Free Kuwait," a classic PR front group designed to hide the real role of the Kuwaiti government and its collusion with the Bush administration. Over the next six months, the Kuwaiti government channeled $11.9 million dollars to Citizens for a Free Kuwait, whose only other funding totalled $17,861 from 78 individuals. Virtually all of CFK's budget - $10.8 million - went to Hill & Knowlton in the form of fees.74

The man running Hill & Knowlton's Washington office was Craig Fuller, one of Bush's closest friends and inside political advisors. The news media never bothered to examine Fuller's role until after the war had ended, but if America's editors had read the PR trade press, they might have noticed this announcement, published in O'Dwyer's PR Services before the fighting began: "Craig L. Fuller, chief of staff to Bush when he was vice-president, has been on the Kuwaiti account at Hill & Knowlton since the first day. He and Dilenschneider at one point made a trip to Saudi Arabia, observing the production of some 20 videotapes, among other chores. The Wirthlin Group, research arm of H&K, was the pollster for the Reagan Administration. . . . Wirthlin has reported receiving $1.1 million in fees for research assignments for the Kuwaitis. Robert K. Gray, Chairman of H&K/USA based in Washington, DC had leading roles in both Reagan campaigns. He has been involved in foreign nation accounts for many years. . . . Lauri J. Fitz-Pegado, account supervisor on the Kuwait account, is a former Foreign Service Officer at the US Information Agency who joined Gray when he set up his firm in 1982."75

In addition to Republican notables like Gray and Fuller, Hill & Knowlton maintained a well-connected stable of in-house Democrats who helped develop the bipartisan support needed to support the war. Lauri Fitz-Pegado, who headed the Kuwait campaign, had previously worked with super-lobbyist Ron Brown representing Haiti's Duvalier dictatorship. Hill & Knowlton senior vice-president Thomas Ross had been Pentagon spokesman during the Carter Administration. To manage the news media, H&K relied on vice-chairman Frank Mankiewicz, whose background included service as press secretary and advisor to Robert F. Kennedy and George McGovern, followed by a stint as president of National Public Radio. Under his direction, Hill & Knowlton arranged hundreds of meetings, briefings, calls and mailings directed toward the editors of daily newspapers and other media outlets.

Jack O'Dwyer had reported on the PR business for more than twenty years, but he was awed by the rapid and expansive work of H&K on behalf of Citizens for a Free Kuwait: "Hill & Knowlton . . . has assumed a role in world affairs unprecedented for a PR firm. H&K has employed a stunning variety of opinion-forming devices and techniques to help keep US opinion on the side of the Kuwaitis. . . . The techniques range from full-scale press conferences showing torture and other abuses by the Iraqis to the distribution of tens of thousands of 'Free Kuwait' T-shirts and bumper stickers at college campuses across the US."76

Documents filed with the US Department of Justice showed that 119 H&K executives in 12 offices across the US were overseeing the Kuwait account. "The firm's activities, as listed in its report to the Justice Department, included arranging media interviews for visiting Kuwaitis, setting up observances such as National Free Kuwait Day, National Prayer Day (for Kuwait), and National Student Information Day, organizing public rallies, releasing hostage letters to the media, distributing news releases and information kits, contacting politicians at all levels, and producing a nightly radio show in Arabic from Saudi Arabia," wrote Arthur Rowse in the Progressive after the war. Citizens for a Free Kuwait also capitalized on the publication of a quickie 154-page book about Iraqi atrocities titled The Rape of Kuwait, copies of which were stuffed into media kits and then featured on TV talk shows and the Wall Street Journal. The Kuwaiti embassy also bought 200,000 copies of the book for distribution to American troops.77

Hill & Knowlton produced dozens of video news releases at a cost of well over half a million dollars, but it was money well spent, resulting in tens of millions of dollars worth of "free" air time. The VNRs were shown by eager TV news directors around the world who rarely (if ever) identified Kuwait's PR firm as the source of the footage and stories. TV stations and networks simply fed the carefully-crafted propaganda to unwitting viewers, who assumed they were watching "real" journalism. After the war Arthur Rowse asked Hill & Knowlton to show him some of the VNRs, but the PR company refused. Obviously the phony TV news reports had served their purpose, and it would do H&K no good to help a reporter reveal the extent of the deception. In Unreliable Sources, authors Martin Lee and Norman Solomon noted that "when a research team from the communications department of the University of Massachusetts surveyed public opinion and correlated it with knowledge of basic facts about US policy in the region, they drew some sobering conclusions: The more television people watched, the fewer facts they knew; and the less people knew in terms of basic facts, the more likely they were to back the Bush administration."78

Throughout the campaign, the Wirthlin Group conducted daily opinion polls to help Hill & Knowlton take the emotional pulse of key constituencies so it could identify the themes and slogans that would be most effective in promoting support for US military action. After the war ended, the Canadian Broadcasting Corporation produced an Emmy award-winning TV documentary on the PR campaign titled "To Sell a War." The show featured an interview with Wirthlin executive Dee Alsop in which Alsop bragged of his work and demonstrated how audience surveys were even used to physically adapt the clothing and hairstyle of the Kuwait ambassador so he would seem more likeable to TV audiences. Wirthlin's job, Alsop explained, was "to identify the messages that really resonate emotionally with the American people." The theme that struck the deepest emotional chord, they discovered, was "the fact that Saddam Hussein was a madman who had committed atrocities even against his own people, and had tremendous power to do further damage, and he needed to be stopped."79
Suffer the Little Children

Every big media event needs what journalists and flacks alike refer to as "the hook." An ideal hook becomes the central element of a story that makes it newsworthy, evokes a strong emotional response, and sticks in the memory. In the case of the Gulf War, the "hook" was invented by Hill & Knowlton. In style, substance and mode of delivery, it bore an uncanny resemblance to England's World War I hearings that accused German soldiers of killing babies.

On October 10, 1990, the Congressional Human Rights Caucus held a hearing on Capitol Hill which provided the first opportunity for formal presentations of Iraqi human rights violations. Outwardly, the hearing resembled an official congressional proceeding, but appearances were deceiving. In reality, the Human Rights Caucus, chaired by California Democrat Tom Lantos and Illinois Republican John Porter, was simply an association of politicians. Lantos and Porter were also co-chairs of the Congressional Human Rights Foundation, a legally separate entity that occupied free office space valued at $3,000 a year in Hill & Knowlton's Washington, DC office. Notwithstanding its congressional trappings, the Congressional Human Rights Caucus served as another Hill & Knowlton front group, which - like all front groups - used a noble-sounding name to disguise its true purpose.80

Only a few astute observers noticed the hypocrisy in Hill & Knowlton's use of the term "human rights." One of those observers was John MacArthur, author of The Second Front, which remains the best book written about the manipulation of the news media during the Gulf War. In the fall of 1990, MacArthur reported, Hill & Knowlton's Washington switchboard was simultaneously fielding calls for the Human Rights Foundation and for "government representatives of Indonesia, another H&K client. Like H&K client Turkey, Indonesia is a practitioner of naked aggression, having seized . . . the former Portuguese colony of East Timor in 1975. Since the annexation of East Timor, the Indonesian government has killed, by conservative estimate, about 100,000 inhabitants of the region."81

MacArthur also noticed another telling detail about the October 1990 hearings: "The Human Rights Caucus is not a committee of congress, and therefore it is unencumbered by the legal accouterments that would make a witness hesitate before he or she lied. ... Lying under oath in front of a congressional committee is a crime; lying from under the cover of anonymity to a caucus is merely public relations."82

In fact, the most emotionally moving testimony on October 10 came from a 15-year-old Kuwaiti girl, known only by her first name of Nayirah. According to the Caucus, Nayirah's full name was being kept confidential to prevent Iraqi reprisals against her family in occupied Kuwait. Sobbing, she described what she had seen with her own eyes in a hospital in Kuwait City. Her written testimony was passed out in a media kit prepared by Citizens for a Free Kuwait. "I volunteered at the al-Addan hospital," Nayirah said. "While I was there, I saw the Iraqi soldiers come into the hospital with guns, and go into the room where . . . babies were in incubators. They took the babies out of the incubators, took the incubators, and left the babies on the cold floor to die."83

Three months passed between Nayirah's testimony and the start of the war. During those months, the story of babies torn from their incubators was repeated over and over again. President Bush told the story. It was recited as fact in Congressional testimony, on TV and radio talk shows, and at the UN Security Council. "Of all the accusations made against the dictator," MacArthur observed, "none had more impact on American public opinion than the one about Iraqi soldiers removing 312 babies from their incubators and leaving them to die on the cold hospital floors of Kuwait City."84

At the Human Rights Caucus, however, Hill & Knowlton and Congressman Lantos had failed to reveal that Nayirah was a member of the Kuwaiti Royal Family. Her father, in fact, was Saud Nasir al-Sabah, Kuwait's Ambassador to the US, who sat listening in the hearing room during her testimony. The Caucus also failed to reveal that H&K vice-president Lauri Fitz-Pegado had coached Nayirah in what even the Kuwaitis' own investigators later confirmed was false testimony.

If Nayirah's outrageous lie had been exposed at the time it was told, it might have at least caused some in Congress and the news media to soberly reevaluate the extent to which they were being skillfully manipulated to support military action. Public opinion was deeply divided on Bush's Gulf policy. As late as December 1990, a New York Times/CBS News poll indicated that 48 percent of the American people wanted Bush to wait before taking any action if Iraq failed to withdraw from Kuwait by Bush's January 15 deadline.85 On January 12, the US Senate voted by a narrow, five-vote margin to support the Bush administration in a declaration of war. Given the narrowness of the vote, the babies-thrown-from-incubators story may have turned the tide in Bush's favor.