A Commanding Position
Jude Wanniski
January 18, 1991

 

Vindicated by the magnificent success of the Mideast operations so far, President Bush is in perfect position to present a shopping list to the Democratic Congress to fire up the domestic economy. The assessment we get from inside sources: It will take at most another six weeks to mop up in Iraq and Kuwait, only three or four more days if the white flag goes up from the demoralized Iraqi field generals. With an 86% approval rating at this point higher even than FDR's 84% in responding to Pearl Harbor, President Bush will never have a better opportunity to ask for and get a growth package that will not only blow away the current recession, but also set the stage for a generation of dynamic growth in the United States to underpin his New World Order. "He can get anything he wants from Congress," HUD Secretary Jack Kemp is telling the President's domestic generals, urging them not to blow the chance by asking for too little.

The GOP growth forces in Congress are likewise moving rapidly to capitalize on the President's commanding position, circulating petitions to him to lay out a growth agenda in his State of the Union speech. House Minority Whip Newt Gingrich seems to have completely repaired his relationship with White House Chief of Staff John Sununu as well as Budget Director Richard Darman, both of whom seem to have revived their once flagging support of a substantial cut in the capital gains tax. With Fed Chairman Alan Greenspan and the other Fed governors behind it, only Treasury Secretary Nick Brady remains to be won over and his opposition was entirely based on the weak political hand the President has had in going a third year in a row for capgains after two years of failure. Kemp and Gingrich believe the President can now easily make an appeal for a 15% rate and a zero rate after a three-year holding period laying a foundation for an era of entrepreneurial capitalism. It has been Greenspan's position that it will be easier for the President to make the case for a zero rate than for any at all. Because of President Bush's towering position as global leader, the formula he lays out for U.S. economic expansion would likely be emulated far from our shores.

Opposition forces are hardly asleep, however. Opponents of capital gains reduction are already advancing the idea that with the plunge in the price of oil and the 114-poirit surge in the Dow Jones industrials yesterday, there is no need for fiscal stimulus. Remaining economic weakness can be handled by focusing on monetary policy as a cure for recession. Brady's Treasury holds to this position. The Wall Street Journal's Alan Murray and The New York Times' David Rosenbaum this morning reflect this view. Murray, a relentless foe of the supply-side agenda, has been pumping up the monetarist argument that the Fed has caused the recession by undershooting its M2 money-supply target. In an interview with Greenspan this morning, he asks the Fed Chairman to explain the "dismal" growth of the monetary aggregates. Rosenbaum writes in today's Times, on the assumption that monetary policy is to blame for the economy's troubles, that the Gulf war may have given Greenspan "a chance to redeem his reputation." Earlier this week, Louis Uchitelle of the Times started the rumor that Greenspan was trying to shift blame for monetary restraint onto other Fed governors. In the Journal today, though, Greenspan defends the monetary policies of the past year, as well he might.

What will the President do with the opportunity he has? For better or worse, we'll soon see.