Leadership Vacuum
at the Top of the World
Jude Wanniski
May 30, 2000


A reporter for "Smart Money" called to ask me if I thought a backlash is building against Fed Chairman Alan Greenspan’s determination to slow the economy with higher interest rates. My response was that as long as the political establishment is happy with Fed policy, which it seems to be, no complaints from the occasional Senator like Jim Bunning [R-KY] or from retired political leaders like Jack Kemp will ruffle him. The two major party presidential hopefuls, Vice President Al Gore and Texas Governor George W. Bush, are not going to get involved in a discussion about monetary policy, at least not at the moment. With Gore trailing Bush in the latest public opinion polls by ten points, 49% to 39%, he may eventually get desperate for a cutting-edge issue, but will try a dozen other things before he tackles Greenspan. As I noted in my Friday brief, all it takes anyway to avoid “backlash” is a few gentle words from the chairman. He is in total control of the Federal Open Market Committee and the establishment press. There should be debates raging here and in several other critical areas that affect the nation and the world, but the major players either are silent on them or only nibbling at the edges.

SOCIAL SECURITY: There is no way the $15 trillion actuarial deficit in the SS/Medicare accounts can be "solved" by "privatizing" one-sixth of the payroll tax revenues. Bush wants to let workers take two points of the 12% payroll tax and funnel it into private accounts set up by the government that would be “owned” by SS recipients. Gore argues that this is a risky scheme. It isn’t, really, as Senator Pat Moynihan [D-NY] argued on the NYTimes editorial page Tuesday, 5-30. But having workers opt to funnel part of their payroll tax into approved index funds or bond funds in no way increases the long term productivity of the economy. The funds still will be "invested" in an economy with the same structure of tax rates, except now Moynihan has to find a source of revenue to offset the worker "ownership" of his private account -- which only means he can pass it on to his heirs or perhaps borrow against it. Moynihan funds a piece of it by increasing the retirement age at some distant point and by taxing all SS benefits as ordinary income instead of the current 85%. Both Bush and his Democratic supporters on this issue, like Moynihan, seem to assume the economy will be more productive if workers invest for themselves instead of having the government do it for them, with T-bills and bonds. Unless the tax-rate structure changes, though, the economy’s ROI does not change. The only way to SOLVE the SS/Medicare deficit is by eliminating the capital gains tax and simplifying the income tax generally. Bush does not want to address that matter and as long as Gore does not bring it up, Bush does not have to. Gore could suddenly announce for a capgains cut, but cannot because Bush then will agree with him. So there is no debate. The SS/Medicare furniture gets moved around. That’s all.

MISSILE DEFENSE: Here, Bush is totally in the grip of the arms merchants and Military Industrial Complex. His plan would scrap a bunch of ICBMs that were already sold to the Pentagon and now gather dust, replacing them with an elaborate ground-and-space-based Star Wars system to eventually protect all 50 states and cost a zillion dollars, give or take a trillion. It would be designed to use lasers to knock out the odd nuke hurled at us by a "rogue nation," which requires that we continue to classify a certain number of nations as "rogue" in order to justify the cost. Unhappily, Gore is afraid the polls show the American people want to be defended from rogue state missiles, without knowing what it will cost them. So he has backed the plan to shoot down incoming nukes with conventional missiles -- the "bullet-to-bullet" method. This plan costs less and satisfies Greenpeace, which runs the Gore campaign, because it does not shoot down incoming missiles with dirty nukes. But this plan is throughly laughable. Even if we could hit a bullet with a bullet, which we cannot, there is no way of knowing which "rogue" will fire them and at what spot. The only reasonable program might be a mobile regional fleet defense, designed to protect one spot now, another next year, wherever a threat appears. This is too cheap for the hardliners around Bush. So we have Gore guarding the house with an expensive blind Doberman. Bush defends it with a thousand Dobermans spaced three feet apart. No debate.

TAXES: The budget surpluses continue to pile up as far as the eye can see, but here again we have Gore proposing measly targeted tax cuts and denouncing Bush’s expensive tax cuts as “another risky scheme.” The Bush plan actually is risky because it makes ill use of the projected surpluses, leaving marginal income tax rates high and the 20% capgains tax untouched. We again have the two contestants moving around furniture and agreeing on a narrow discussion around the status quo. We at one point earlier this year believed Pat Buchanan would force this issue by discussing serious tax reforms that would attract voters away from Bush. His inept campaign to date has him at 2% in the public opinion polls while his wife Shelley gets 4% in the poll for First Lady. It now looks possible that we might go from here to November without a serious debate on marginal rates or fundamental tax reform.

FOREIGN POLICY: The May 22 issue of The New Yorker contains a dynamite report of 25,000 words by Seymour Hersh, on the “turkey shoot” that closed out the Gulf War. Hersh proves, at least to my satisfaction, that Major Gen. Barry McCaffrey, now Clinton’s Drug Czar, ordered an all-out attack on an Iraqi army that had already given up and was marching back to Baghdad. Should THIS be debated? Don’t be silly. Here is how Bob Novak put it in his Monday syndicated column: "Are fabled reporter Seymour M. Hersh’s carefully documented charges that in 1991, a U.S. mechanized division massacred defenseless retreating Iraqi troops worthy of new official investigation? The thundering answer from Congress, the Pentagon, the White House and leaders of both political parties: No, absolutely not. The governmental establishment’s attitude is that the horrifying events alleged by Hersh in The New Yorker magazine never happened, but we don’t want to know about it if they did happen. Since Hersh’s Gulf War expose was published two weeks ago, military and political leaders have joined together to kill the messenger." Even my erstwhile hero Colin Powell, McCaffrey’s patron, derides the report as "character assassination" when even a casual reading indicates Hersh has nailed McCaffrey. Should our presidential candidates be arguing about Iraq and the use of diplomacy and force in the post-Cold War world? Not on your life. The NYTimes quietly suggested an inquiry, then dropped it. The WSJournal ran McCaffrey’s defense and a subsequent defense of the article by NYorker editor David Remnick, but otherwise has not officially commented. The leadership vacuum at the top of the world is as complete as I’ve ever seen it.