For one thing, I had completely forgotten that John Snow, the President’s pick for Treasury Secretary, was an active member of the Kemp Tax Commission in 1995 when he was also chairman of the Business Roundtable. It was in that setting that he became exposed to all the supply-side arguments for economic growth through reform of the tax system, and that he signed off on the final report which advocated a “flatter” personal income-tax system. The “commission” was of little consequence as it was more or less “self-appointed.” It was promoted at the time by Senate Minority Leader Bob Dole, who was going to run for President in 1996 and wanted to keep on the good side of Kemp, who had just announced he would not run for President. Kemp’s Empower America organization undertook the assignment and raised the money to finance it. The idea of pulling in the Business Roundtable was designed to bridge the intellectual gap between Corporate America and Entrepreneurial America. Snow, who had gotten his first teaspoons of supply-side economics from me at the American Enterprise Institute in 1977, was not a vocal member, but his experience may turn out to be the best thing about the commission. His door clearly will be open to Kemp, and if he invites a supply-sider such as David Malpass of Bear Stearns to join Treasury as his deputy, the combination would be everything Wall Street could possibly ask.
The basic problem with chief executive officers of major corporations is one that Karl Marx correctly identified 150 years ago. Their natural tendency is to work within a paradigm that seeks to keep labor in surplus relative to capital. When the capital/labor ratio is low, capital is short and labor is plentiful, and the executives at the top like to keep it that way. When capital is in surplus, labor is in short supply, and Octopus, Inc., has to raise wages to attract workers who are drifting into new entrepreneurial companies that are aimed at outflanking Octopus, Inc. Marx saw that capitalism would be doomed if Octopus could squelch new growth from the bottom-up by maintaining “a reserve army of unemployed.” He opined that only an “active, universal suffrage” would keep Octopus in line. That is, the masses could outvote the corporatists, when necessary. Which is to say that established wealth has legitimate reasons for protecting itself for the health of the Body Economic, but that must be balanced by Entrepreneurial Capitalism, which represents new growth.
When Ronald Reagan won the GOP nomination in 1980 because “active universal suffrage” went wild over his supply-side agenda, for his running mate he reached across the party divide into the Corporate Establishment for George Bush the elder. The balance of entrepreneurial capitalists and corporate capitalists was an enormously successful one and the capital/labor ratio expanded for the greater part of the two Reagan terms. The winning streak continued with Bush announcing “read my lips” that he was a supply-sider, but in choosing Dan Quayle over Jack Kemp, he really did split the sheets, and the party’s internal balance was shattered. Quayle did his best to support the supply-siders and I always counted him an ally. But in the end, Bush buckled to the corporatists and backed the tax increase that did in the economy and his re-election chances.
What we have now is a Bush who chose as his running mate another member of the Corporatist wing of the GOP, Dick Cheney. Remember Cheney was President Ford’s chief of staff during the 1976 election campaign, where Ford stomped on Ronald Reagan. Cheney has always had a foot in the supply-side camp, but has never had it in his head or blood. Like Karl Rove, the President’s political advisor, he thinks “supply-side” is about tax-cutting, when it is really about removing the barriers to risk-taking and increasing the rewards to successful risk-takers. All growth is the result of risk-taking and there is really nobody around this President who thinks automatically in those terms. Certainly Paul O’Neill did not, nor did Larry Lindsey. Nor does John Snow or Stephen Friedman, whose natural instincts oppose risk-taking. (Remember Bush the Elder’s Treasury Secretary, Nick Brady, boasting that he had attributed his success to never taking a risk.)
These second thoughts are marginally more hopeful, but unless there are personnel changes that bring an entrepreneurial viewpoint to the center of the administration’s decision-making process, the dark forces of wealth-protection will smother economic growth and at best keep a lid on the stock market.