Post-Election Possibilities
Jude Wanniski
November 9, 1990


The most ominous note we picked up this week after the elections was a report that President Bush on Wednesday morning told his White House team, "Now we have to put politics behind us." For two years the President has had politics behind him in pursuit of bi-partisan government and all he has to show for it is a divided and demoralized Republican Party, a unified and euphoric Democratic Party, higher taxes, a crumbling economy, and growing chances of defeat in 1992 at the hands of an unspecified opponent in one party or the other. There was marginal improvement Thursday morning when the President sounded a partisan note on taxes, saying he would veto millionaire surtaxes and renew attempts at cutting the capgains rate. Still, in his rhetoric, the President does not seem to connect the tax issue with economic growth. If he did, he would be talking of getting the GOP back on track as the Party of Economic Growth instead of Low Taxes. And his economic team, meeting with him today at Camp David, is still crowing over their Budget Deal and the elbow room they say it has given the Federal Reserve to ease. CEA Chairman Michael Boskin is no help, appearing on "Moneyline" yesterday with this advice.

The most ominous rumor we picked up this week is that Alan Greenspan will be replaced next spring as Fed chairman by Martin Feldstein, whom we believe is among the most incompetent economists of our time. If true, we would instantly advise unloading bonds and dollars, buying D-marks, yen and gold. We still think Greenspan will be reappointed, but Lawrence Kudlow of Bear Stearns tells us he believes if Greenspan is not reappointed, Feldstein has it locked up. The reason, of course, is that the Bush political inner circle will wish to have their man at the Fed's helm in 1992, to grease the wheels with liquidity at re-election time. The White House economic team remains irked at Greenspan for not responding to its pressures for easy money over the last 18 months. President Bush has a fondness for Feldstein, a manic devaluationist, and in fact recommended him to President Reagan as CEA chairman when Murray Weidenbaum quit. If not for this rumor, we could be bullish on bonds at the moment, as even Treasury's David Mulford is now talking up the dollar. With the Fed Open Market Committee meeting on Tuesday and gold at $380, Greenspan should be firm against any further easing of ged funds, but if he wants reappointment badly enough, he might push the FOMC toward ease to score points with the White House.

The most positive rumor we picked up this week is that Robert Teeter, the President's pollster, will have a larger role in White House policymaking in the future. It may seem odd to be happy that a pollster would have more say in policy, but Teeter believes: 1) the President should revive partisanship in his dealings with Congress; 2) there should be a return to the Reagan formula of espousing tax cuts for economic growth -- especially capital gains; 3) the President can push back the Democrats and their class-warfare "fairness" pitch with aggressive growth arguments.

The most positive development this week is the re-emergence of HUD Secretary Jack Kemp as the visible leader of the GOP's growth wing. Without asking anyone's permission at the White House, Kemp has adopted an unusual strategy of defending the real President Bush, the Bush who did not abandon his principles in 1990, but who simply suffered a setback on tactics. There may be a supply-side Bush and a demand-side Bush inside the same President, but Kemp is insisting the dominant Bush is supply-side, and that he is committed to completing the whole growth agenda.

In a way, he is now acting as if the President has made him the chief spokesman for this growth agenda, and if the White House doesn't like what he's saying, they will have to ask him to stop. The assumption is that there is a vacuum of leadership on domestic economic policymaking with Richard Darman's failure to score, and that Kemp might as well grab the ball. After all, since nobody ever thought Darman would fail, there never was a back-up plan or a back-up quarterback on domestic policy, just as there has never been any thought that James Baker III would fail as Secretary of State. Kemp's assumption, which seems sound enough, is that if he can in the next several weeks define the party's objectives with clarity, the President will find he can be comfortable with them.

On balance, I'm happier with the post-election possibilities than not. I don't think we're going to go to war with Iraq, at least in the balance of the year, and probably not at all. Jim Baker really has been carrying the ball beautifully on that end. The elections turned out poorly enough for the GOP to force a reappraisal, not so badly that the President has no room to maneuver. The near defeat of Bill Bradley in New Jersey by Christine Todd Whitman demonstrates anew the political power of ideas. The counter-revolution may be spent.