If the recall process resulted in a tax-and-spend Democrat being replaced by a supply-side Reaganaut, we would expect California to become an engine for growth during the next year instead of a drag on the national economy. We`d been encouraged to hear that Arnold Schwarzenegger was a true-blue Reaganaut and when he did propose a plan for the state`s economy, it would be growth-oriented and would include cuts in capital taxation. That has not happened, at least not yet. More troubling is that his economic summit Wednesday gathered together 23 advisors, none of whom appears to be a Reaganaut. Schwarzenegger introduced Warren Buffett as a man on his left and George Shultz as a man on his right, with he in-between. But the two men are both establishment figures who will always avoid risk-taking and whose worldview of business is decidedly Fortune 50.
We had been cheered to learn that Arthur Laffer had been picked for the board of advisors, but he was obviously vetoed by the other economists, all of them identified with the Old Guard, George Bush the Elder, and the American Enterprise Institute. AEI is the think tank of the multinationals, not at all tuned in to the entrepreneurial class. Shultz was probably the worst Treasury Secretary in U.S. history, until Nick Brady came along. The key man on the team may be Michael Boskin, who was Chairman of the Council of Economic Advisors (CEA) to Bush the Elder, a faux supply-sider who stood by while Bush broke his read-my-lips pledge, raised taxes, and lost to Bill Clinton as a result.
Unless there is some breakthrough from Schwarzenegger on the supply-side, he will get tangled up in GOP politics between now and October 7, and the confusion may even result in Gray Davis beating the recall. If voters prefer Davis to his Lt. Governor, Bustamante, they may be forced to come home to him rather than see Bustamante beat the GOP field, sliced up three or four ways with candidates who will not give way to give Schwarzenegger a clear field. A proposal to cut the capital gains tax is being urged on him by Rep. David Dreier, who is not among his official advisors. If he made the proposal, there would be screams to high heaven, but it would win for him in this complex field. He would be seen by the great majority of Californians as willing to take risks of this positive kind to move the economy in the right direction.
On another note, see today's Wall Street Journal op-ed by Vermont`s Howard Dean, who is doing extremely well with Democrats because of his anti-war stance, but who still thinks he can get to the White House with an economic program of tax increases and income-redistribution. He does seem to be modeling himself after Walter Mondale and George McGovern, both of whom won the Dem nomination and only won a single state in the general election, Mondale in Minnesota (1984), McGovern in Massachusetts (1972). Unless Dean has something up his sleeve, he might wind up with no better results.
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