May Upbeat
Jude Wanniski
May 10, 1991


BRAZIL: The best news we've had out of Brazil in several years is the appointment of Marcilio Marques Moreira, who has been the Ambassador to the United States, as the new Economics Minister. I'd been rooting for this to happen since 1987!!! Those of you who were at our Boca Raton conference in March 1988 will remember he was our guest for the weekend and spoke to us about his troubled country. Fd met him a year earlier when I was unsuccessfully trying to persuade Brazil's creditor banks in NYC to sponsor a Polyconomics Brazil Project. The press accounts describe him as an orthodox "banker11 by profession, but his advanced degrees are in law and political science. Now 59, the heart of his career from '65-80 was as professor of modern political thought in Rio. The economist he admires the most is Frederic Bastiat, 1801-50, best known for his journalistic writings in France in favor of Adam Smith and free trade and against punitive taxation. I've been sharing our work on Mexico with him and warned him early in the administration of President Fernando Collor de Mello that the new government's policies would prove disastrous, a warning he accepted with stoic resignation. A thoughtful, quiet, almost shy man with great respect in the business and diplomatic communities, he is an excellent bet to finally get Brazil back on track. A year from now we could see Mexico, Brazil, Argentina, Chile and Peru ablaze with growth. No thanks to the New York creditor banks.

LINDSAY AT THE FED: Reports of Larry Lindsay's testimony before the Senate Banking Committee left many of our clients concerned that he may be a dove on inflation. Don't worry. He's terrific. Note that as much as he accepted the notion that the Fed in 1990 was too tight, he still did not satisfy Senator Riegle, who would like the dollar reduced to confetti. Riegle still has not decided whether to vote for confirmation. Lindsay absolutely understands that monetary policy cannot pull the U.S. out of recession, and that a capital gains tax cut is the key.

PRESIDENT BUSH & CAPGAINS: As we have been promising, the President has been getting fired up in the economic speeches he's been giving since Tony Snow came aboard as chief speechwriter. In St. Louis last Friday, with HUD Secretary Jack Kemp in tow, the President got carried away in a speech at a practically all black public housing project, calling for elimination of the capital gains tax as a way of revitalizing the American Dream. His audience cheered. On Saturday, speaking at the University of Michigan, he threw in a last minute plug for entrepreneurial capitalism and a capgains cut, and the business and engineering school contingents jumped up and cheered. This Sunday, at the Hampton Institute, he'll pitch entrepreneurial capitalism to an audience of black professionals and I doubt he'll be booed. Treasury Secretary Brady has been telling him for two years that because he, the President, was born rich, it is politically dangerous for him to argue for capital gains. The President is now finding out how popular capitalism is with ordinary folks.

THE ECONOMY: By all accounts, it's now bumping along at bottom, throwing off more signs that the recovery will be weak when it comes. Our midsize industrial clients tell us they are reading in the newspapers about upturns in various sectors, but it's still grim from their vantage point. The only upturns in sales are in do-it-yourself products. Even when an upturn comes, there is so much excess capacity in the system that it would take three or four months before normal pricing returns to permit a rebound in corporate profits. The good news in all this is that President Bush is realizing he has to get more aggressive in pushing a growth package on Capitol Hill.

THE BELTWAY DEMOCRATS: We saw unveiled this week the highly touted Growth Package of Senator Albert Gore and Rep. Thomas Downey. Even we were surprised to find it so unimaginative, a straight-out income redistribution from the Rich to the Middle Class. The New York Times this morning says, yes, it's fair, but in pushing income tax rates up to 40% it will give President Bush new arguments for cutting the capital gains tax. Therefore, it's a no-no to Times liberals. Senate Majority Leader George Mitchell told a private audience this morning that while the Gore-Downey bill meets his "fairness test," it doesn't meet his "growth test," because it simply takes money out of pockets of rich people and gives it to unrich people, therefore there is no increase in aggregate demand. How do you like that? With this argument, of course, no legislation can possibly pass the Mitchell "growth test," as the Budget Agreement only permits dollar-for-dollar changes in a static framework. The Beltway Democrats are in a hopeless position.

MARIO CUOMO: I met this week with Vince Tese, Governor Cuomo's point man on economic policy. I was delighted to find him unschooled in macro-economics, a former Wall Streeter who made millions trading gold futures along with Jim Sinclair during the inflationary Carter years. We had modest differences of opinion on what it will take to get the economy up and running, but for the most part he is firmly in the camp of entrepreneurial capitalism and I could see in him the firm support for Cuomo's position on cutting the capital gains tax. Cuomo is already being attacked by liberals in his own party in New York for sounding more and more like Ronald Reagan. My guess is he realizes now that he can't solve New York's problems in New York, that he will run for President, that he will wind up inviting Virginia Governor Doug Wilder on the ticket, and that he is the only Democrat who has a chance of beating the incumbent. "Anyone can be beaten," says Mr. Cuomo. I advised Mr. Tese that Polyconomics will be happy to provide the governor any economic counsel he wishes, in strict confidence, pro bono of course, in keeping with our non-partisan tradition. If both political parties had their growth agendas driven by supply-side economics, they would still be free to divide and argue over social, spending, foreign and defense policies. Henceforth, a Democrat can't win the presidency with a demand-side economic agenda, a la Senator Gore's, which Mario Cuomo surely realizes. He actually insists he was a supply-sider before I was, back when he was Lieutenant Governor to Hugh Carey. Okay.

FTA: With House Majority Leader Richard Gephardt swinging behind the "fast track" for the Free Trade Agreement with Mexico and the Uruguay Round of the GATT, it seems all but assured the President has won this round. There are a variety of conditions attached, but what the treaty writers really need is a fast track of economic growth as a backdrop. If the economies of the U.S. and Mexico are booming when the treaty is ready for ratification, its opponents in business and organized labor will be too busy making money to complain.