The Bush-Darman Sell-Off
Jude Wanniski
October 5, 1992


If Budget Director Richard Darman only has a month left in which to do further damage to the U.S. economy, he is surely making the most of it. (Treasury Secretary Nick Brady has been out of sight lately, perhaps locked in the basement with Ross Perot's "crazy aunt.") Darman, though, is everywhere, making sure the President doesn't do anything that might help re-elect him, at the same time rewriting history to blame everyone but Darman for the failure of the President to win re-election. On "Meet the Press" on consecutive Sundays, he has been hammering away at the idea that his 1990 Budget Deal was not an "economic mistake," but a "political mistake." Paul Gigot of The Wall Street Journal has identified Darman as the source of an Los Angeles Times story that blames Fed Chairman Alan Greenspan for having caused the recession that is now pulling down the Bush Administration -- supposedly because Greenspan didn't keep his promise to pump up the money supply if the President would agree to break his campaign promise not to raise taxes. In yesterday's Washington Post , Bob Woodward, who is a social pal of Darman's, wrote the first installment of a forthcoming book on why things went haywire in the Bush years -- revealing that Darman had argued against the 1988 "read my lips" campaign pledge (which was decisive in winning the election).

The stock market sell-off Friday and today is almost certainly reflecting the tax legislation headed to the President's desk. The inane provision that would require security dealers to mark to market their inventory paper profits at the end of the year would strike yet another blow at our capital markets, adding to the capital gains tax on entrepreneurial capitalism. The boys reckon this would raise $3.7 billion in tax revenues. It would more likely add $300 billion to the deficit in the next two or three years. Why the President should even be hesitating on whether or not he would veto this incredibly stupid legislation -- originally meant as a response to the Los Angeles riots -- is further testimony to the utter incompetence of his economic team, Brady and Darman in particular. The "enterprise zone" provision in the bill has been designed by Democrats to ensure that it cannot succeed in improving conditions in the inner cities, requiring that all investments remain within the zone in perpetuity. How would you feel about getting a tax break on a new investment in Albania, if it were attached that you could not take profits out of Albania? The President should be screaming from the rooftops. Instead, his agents are whispering that maybe Senate Republicans will filibuster in order to keep it from getting to the Oval Office for a presidential decision.

But as markets are withering everywhere, the sell-off on Wall Street could also be simply reflecting the steady erosion of leadership in the Western world. It might even be traced to The Wall Street Journal's "Washington Wire" column of Friday morning, which advised: "Despite conservative cries for his scalp, Darman emerges stronger than ever on the Bush team. He not only shaped the president's convention speech, but has been a key negotiator in the debate talks. The OMB chief eyes the Treasury secretaryship in a second Bush term." The item was, of course, accurate in every respect. White House chief-of-staff James Baker III has essentially ceded control of economic issues to Darman, leaving Robert Zoellick, deputy chief-of-staff, neutered. Both Darman and Zoellick are proteges, but Darman is the senior of the two and by far the more manipulative. JBIII, who has dropped out of sight, apparently has locked in the last month of the campaign and given the keys to Darman. They are counting on the entry of Ross Perot to drain Bill Clinton's support, a barrage of negatives against the Arkansas governor's economic record, and the "trust" issue. It is a sign of Darman's power that the WSJ item could appear, boosting him for the Treasury post, without a peep from the White House to suggest otherwise. This is incredible since JBIII is supposedly trying to woo back Reaganauts, who would even campaign against Bush if there were the slightest chance of Darman at Treasury.

On the David Brinkley show yesterday, HUD Secretary Jack Kemp fired at least one small shot at Darman, which I hope will broaden into full scale combat. Kemp said he disagreed with Darman's comment earlier in the day that the 1990 Budget Deal was merely a political mistake, as the President has acknowledged, but that it was in fact an economic mistake. President Bush seems oblivious to the fact that Darman is essentially telling the world that the budget deal was economically correct, reflecting Darman's genius, but perhaps politically incorrect, reflecting George Bush's failings. On the "Larry King Live" show last night, straight from the White House, the President deflected a question about whether Darman and Brady would be around in a second term, although he was emphatic that JBIII would return to the State Department. Ted Forstmann, two weeks ago named National Co-chairman of the Bush-Quayle campaign, has been frozen out of the campaign since he was quoted as saying the President could not win re-election unless he replaced Brady with Kemp. Darman, who is counting on being Treasury Secretary, is working against anything that might improve Kemp's standing around the Oval Office. Outrageously, Darman is complaining to journalists that it is Kemp who is now muddying up the campaign message.

I forced myself to sit through the entire Bush interview with Larry King last night. It was a ghastly affair. The President whined and cried the Darman-Brady line about how the economy is actually in better shape than people think, that the Democrats and the liberal media have been making people feel bad by incessantly yammering about how bad it is. Larry King, bless his soul, advised the President that if he, King, feels good, there's nothing the media can tell him to make him feel bad. The President seemed non-plussed by this remark, unaware of how he had once again demonstrated his disconnection from the anxiety in the nation.

This seems to be a global condition among Western political leaders. Austerity is the order of the day practically everywhere. Germany and Japan remain in the grip of a monetary deflation that is only proving the masochistic side of their manhood. The DAX was down 3.6% in Frankfurt today, continuing the sickening slide in German equities. The Tokyo market had been making a brave bid to get its nose above water, but the G-7 leaders obviously persuaded the Bank of Japan to hold its nose and duck under until it turns blue. Yield curves have at least inverted, which tells us the markets are betting blue is on the way for both the DM and the yen.

Things are so bad that even Ross Perot began to look good to me again this morning, as I watched him on the "Today" show. Bryant Gumbel asked him if he had come back as a "spoiler," and Perot fixed him with an icy glare: "Spoiler?" he said. What's left to spoil? It was all spoiled before I showed up! Millions of people unemployed! Public schools are rotten! One percent of the world's population and 50% of the cocaine consumption! And you call me a spoiler! Ha!

If there is something left to spoil, Brady and Darman will find it in the next 30 days. They might start with this tax bill. If President Bush signs it, I will start a petition proposing his posterior's image be carved on the hind end of Mt. Rushmore, alongside Herbert Hoover's, and that the eternal reward of Messrs. Brady and Darman be that they shall be buried at its base.