Bentsen, Moynihan and Greenspan
Jude Wanniski
January 18, 1993


In this morning's New York Times business section, we were surprised to learn that "Clinton Goes Head to Head With the Fed," by Steven Greenhouse. The story would have us believe that the Clinton Administration is going to take up where the Bush Administration leaves off, blaming the Fed for causing all the economic problems of the past four years and maybe the next four. The hook is a quote from Leon Panetta's confirmation hearing last Monday, in which Panetta supposedly "warned" the Fed not to tighten monetary policy and shut off the recovery. The story makes no mention of the fact that Lloyd Bentsen, in his confirmation hearing last week, went out of his way not only to express friendship with Alan Greenspan and cooperation with the Fed, but also volunteered intellectual opposition to easy money and currency devaluation. 

Greenhouse, along with David Rosenbaum of the Times and Alan Murray of The Wall Street Journal, belongs to a new breed of Beltway journalists who are completely non-partisan in their commitment to an ideological bias. They serve the interests of the austerity wings of both the Democratic and Republican parties, pushing the same policy mix that destroyed the Nixon and Carter administrations -- tax increases to balance the budget and easy money to devalue the currency and lower the real wage rate. Greenhouse, two weeks ago, advised Times readers on P.1 that Bill Clinton, who had rejected the idea of a gasoline tax, was now coming around to seeing the wisdom of a gasoline tax. There was nothing authoritative in the piece, but we assume that important austerity forces close to Clinton fed the piece to Greenhouse in order to re-open the debate. Leon Panetta at OMB is an obvious possibility here as well. Vice President-elect Albert Gore yesterday was emphatic in saying there would be no gas tax, but almost surely a "carbon tax." This sounds more like it, as Democrats have traditionally favored imposing energy taxes on business, who pass the tax on to the masses, rather than taxing the masses directly. Here again, we have not heard from the new Treasury Secretary, Lloyd Bentsen, who opposes both gas and carbon taxes. 

If this new Administration is to succeed to any degree, it will be as a result of the dominance of three key people who know and like each other, and who are now the most powerful growth force within the Beltway. Bentsen, of course is one, Greenspan another. The third is New York Senator Daniel P. Moynihan, who now chairs the Senate Finance Committee. In the last two years, Moynihan has been the most outspoken Democrat in Congress arguing against the austerity assumptions of his party, which now threaten to turn the Clinton administration into a carbon copy of the Bush administration. Remember his proposal to cut Social Security payroll taxes? This was an idea we applauded at the time, on the grounds that the payroll tax was excessive, producing a giant surplus in Social Security, now running at about $60 billion a year. This idea was really behind Governor Clinton's campaign promise of a "middle class tax cut," a promise that has now been scuttled, at least temporarily, by the austerity forces who have thus far dominated discussion. In the last week of blunders and stumbles by Mr. Clinton, Moynihan's comment about hearing "the clatter of campaign promises" being thrown out was repeated everywhere. What Moynihan has most in mind, of course, is the middle-class payroll tax cut he has been pushing all along. At the wind-up of the Bentsen hearings, Moynihan lectured his former chairman and the whole committee in a way that made it clear that he, for one, is not going to be swallowed up by the austerity crowd. 

Moynihan, after all, knows a lot about a lot. He has been in and out of Washington since the Truman Administration. He is the only genuine intellectual in the Senate. And he is thoroughly at ease with the neo-conservative growth wing of the GOP. He votes more liberally than he thinks because the constituency that elects him is more liberal than he is, and he believes he is elected to represent their interests. Irving Kristol, my intellectual godfather, is one of Moynihan's oldest and closest friends. The Senator knows a lot about Social Security because he and Alan Greenspan chaired President Reagan's bipartisan Social Security Commission in 1981-82. He followed the origins of the supply-side revolution through one of his proteges, David Stockman, who, as a student at the Kennedy School at Harvard, rented a room in the Moynihan home when Moynihan was professing political science there. 

Two years ago at this time, Moynihan dropped his bombshell on Washington, advocating a deep cut in the Social Security payroll tax to relieve the burden on the blue collar workers, to whom he feels a special affinity. [In 1988, to be sure, when Jack Kemp made a bid for the GOP presidential nomination, one of his policy planks was a similar cut in the tax on labor to balance his call for a cut to 15% in the capital gains tax. The rationale was the same. The Greenspan-Moynihan Commission had been overly conservative in its actuarial assumptions and recommendations, not anticipating the Reagan boom that followed.] This was a perfect opportunity for the Bush Administration to append Moynihan's proposal to their proposal on capital gains. Two members of the House GOP leadership, Rep. Vin Weber of Minnesota and Rep. Newt Gingrich of Georgia, tried to move the White House in this direction. But Budget Director Richard Darman and Treasury Secretary Nicholas Brady shot the idea down. 

On the Democratic side, Senate Majority Leader George Mitchell did his part in killing the Moynihan idea in the interests of austerity and gridlock. He persuaded the chairman of the Senate Finance Committee, Lloyd Bentsen, to ice Moynihan. He also persuaded Bentsen, in the interest of party harmony, to desist from his public advocacy of reducing the capital gains tax -- which I gather is why Bentsen shifted gears and began advocating expanded IRAs as an alternative to capgains. The Mitchell strategy was, of course, successful in breaking the Republican Party's 12-year control of the White House. As I argued at the time, though, it was no longer appropriate to blame Mitchell for the recession when the Bush Administration had only to make the slightest effort, reach out to Moynihan, and put together a growth package that would fly through Congress. If we remember that all this was happening while Operation Desert Storm was exceeding everyone's wildest expectations, pushing the President's favorable ratings above 90%, it should be clear that George Bush could have snapped his fingers and gotten this kind of deal from Congress. If he had, he would now be polishing his second Inaugural Address.

It is this reading of recent history that underlies my basic optimism about the Clinton Administration. If you have been reading the papers and watching the evening news lately, I'll grant you it looks pretty awful -- that is, if you are watching the continuing political campaign of the Clinton-Gore ticket, the extravaganza at the Lincoln Memorial, the clatter of broken promises, the Haitian boat people, the daily apologies of George Stephanopoulos for the misstatements of his boss, and the silly huffing and puffing over the high crimes and misdemeanors of Ron Brown and Zoe Baird. If you are watching the center of the economic chess board, though, you will see that the three most powerful pieces on the board -- the Secretary of the Treasury, the Chairman of Senate Finance, and the Chairman of the Fed -- are three old friends who know what they are doing, who are agents not of corpocracy, but of entrepreneurial capitalism, and who will be in relative control of the agenda very soon. We don't know about Bob Rubin, but if he is going to join with Bentsen, Moynihan and Greenspan in pursuing a growth strategy, I'd be perfectly happy to let the rest of the gang play with their Politically and Anatomically Correct Tinker Toys. Senator Mitchell, who has one of the shrewdest analytical minds in Washington, is not going to give the same kind of "help" to President Clinton that he did to President Bush. 

Rep. Charles Rangel, the South Bronx Democrat who enjoys a lofty perch at House Ways & Means, as well as the Black Caucus, was on a local TV talk show yesterday, being peppered with questions about Clinton's broken campaign promises. By way of answering, he told a story of an elderly lady in his district who advised him after the election that he would no longer have the excuse of a Republican President to explain why things weren't getting better. He went on to say that he did not think the American people paid much attention to what Clinton was promising on the campaign trail, that they simply wanted to oust Bush and a divided government, so there would be no more excuses. This is what the people and the markets are still applauding. They are looking into the nativity scene of this chubby babe in the woods, hoping for a savior, and at least they can see three wise men ready to help -- a Protestant, a Catholic, and a Jew.