Washington Impressions
Jude Wanniski
February 21, 1989


In a visit to Washington last week I had meetings with the following: Vice President Dan Quayle and his chief advisor for policy, William Kristol; Treasury Secretary Nicholas Brady and his Undersecretary for domestic finance, Robert Glauber, and Assistant Secretary David Mullins; CEA Chairman Michael Boskin; Undersecretary of State for Economics, Richard McCormack; Deputy assistants for the White House Office of Policy Development Jim Pinkerton and Larry Lindsey; White House director of the office of the President, Jim Cicconi; White House director of communications, David Demarest; Federal Reserve Governor Wayne Angell. In addition, I had brief conversations with OMB Director Richard Darman, Fed Chairman Alan Greenspan, and HUD Secretary Jack Kemp. White House chief of staff John Sununu, who I'd met on my January visit and will see again in early March, was unavailable on this trip. Secretary of State Baker and his chief counselor, Bob Zoellick, who I hope to see on my March visit, were on their whirlwind NATO tour.

The name-dropping helps to confirm the point I'd made in an earlier FYI. The Bush Administration is open and eager for advice and criticism from our corner of the supply-side spectrum to a degree that has astonished us at Polyconomics. In spirit as well as in substance, the Bush team is more thoroughly supply-side than we ever found in the Reagan years. There are no signs of Friedmanite monetarism on the landscape, for example. The highest ranking monetarist at Treasury, Mike Darby, who Alan Reynolds met with last week, is moving to Commerce, where his monetarist model has no relevance and all that counts are his basic free-market principles. The highest ranking conservative Keynesian is Alan Greenspan, who angrily insisted to me that he has not, as I'd believed, argued that economic growth cannot exceed 2 1/2% this year without threatening inflation. (I told him I was happy that I was wrong, of course.) The only liberal Keynesian still in evidence is Treasury's Charles Dallara, and his undue influence on Treasury policy may soon be cramped.

My strongest impression is that the proposed capital gains tax cut will have a much better chance of enactment than I'd believed or that conventional wisdom suggests. The most ardent advocate, I was repeatedly told, was the President himself, but this enthusiasm and willingness to do battle was evident in all quarters. My guess is that an 18% rate will be the compromise, and the administration will agree to $5 billion in new taxes, but without touching the income-tax rates. President Bush would thus retain his "read my lips" pledge, the $5 billion offsetting the static revenue-loss projection of the capital gains cut. I gather House Democrats are less eager to do battle on this than appears on the surface, especially in the face of Bush's eye-popping popularity numbers in the opinion polls.

My impression of Vice President Quayle on this first visit was generally positive. He's still smarting from the gauntlet the Fourth Estate ran him through and is overly sensitive to press criticism. We talked international economic policy; he'd read my paper "A Growth Path to the 21st Century." Although I covered a lot of ground and spoke briskly, I only lost him two or three times. I came away suddenly thinking I had met dumb jocks in almost every sport, but I'd never known an excellent golfer who couldn't compute -- just as I'd never met a champion quarterback without a megabyte mind. Quayle is still green on experience, but he is absorbing information at a rapid clip, for the most part has a superior staff, and within the year should seem fit.

The meeting with Brady also left me with a surprisingly positive impression. He invited two of his chief lieutenants to the meeting, which lasted perhaps 40 minutes. My strongest impression as I left was that I could see why Bush likes him. There's not a trace of defensiveness or paranoia in his basic personality, almost like Reagan, who takes criticism as if you were giving him a gift. The absence of arrogance suggests he can develop in ways several of his predecessors could not. (It occurred to me that most of the people I associate with Bush have this quality, especially Jim Baker, but not John Tower.) In the few minutes I had after the Brady meeting with Bob Glauber, I got the sense he's on the same wavelength as Fed Vice Chairman Manuel Johnson and thus can be a critically important force at Treasury. I gather that Brady doesn't want any grass to grow under his feet on the international monetary issues he inherited from JBIII, and was happy to find Glauber on this wavelength.

I have had several good meetings with Michael Boskin this last year and again found this one no exception. I was told by several of the other Bush folk that Boskin is very close to the President, more so than any of RR's CEA chairmen, perhaps closer at this stage than any in memory. Boskin shares our view that inflation is not something the Fed should be overly worried about at the moment, and this certainly has been Bush's posture. I talked to several folks who thought Bush sounded too unconcerned about inflation in his remarks earlier in the w^ek, but I took the opposite view; Greenspan is already chafing on his Phillips Curve inflation/growttrtradeoff. I was reinforced in our view that the Fed will sooner be shaving short rates than boosting the discount rate.

President Bush ventured into the fiscal domain as well last week, asserting in a television interview that he could "almost guarantee" a decline in interest rates if the Congress would agree to his budget guidelines. This sounds more like Marty Feldstein than Mike Boskin and as a result makes us a little nervous. George Bush has long had an association and admiration of Feldstein, whose arrogance is profound, considering his lifetime batting average of .113 in the Forecasting League.

As impressed as I was in touching bases around the Bush League last week, my optimism is still not of the runaway variety. There is still a big hole on the international economic side throughout the administration, and while there's a clear awareness it exists, there's not much assurance that it will definitely be filled. My lone meeting at State, with McCormack, was very disappointing. He has a post that could be extremely important in grappling with the Third World problem, but he has a passive personality. He essentially announced that he will not make any waves. JBIII seems not to want another Darman at his side. Darman is enjoying life at OMB and seemed in high spirits, but admitted he is having trouble finding a moment to even think of monetary matters, foreign or domestic. He's crunched by budget numbers. In another month, he said, maybe the smoke will clear.