Senator Boren, Man on the Margin Jude Wanniski June 1, 1993

Sen. David Boren [D.-OK] is this week's man of the hour, a "maddeningly fickle" fellow, according to David Rosenbaum of The New York Times, a fellow whose knees we said would not buckle to White House pressure, but were seen to be buckling on Sunday's "Face the Nation." If the details can be worked out, it seems, he is ready to make a deal with the White House, one that will shift the President's plan away from tax increases toward spending cuts. The problem, of course, is that no details that will satisfy Boren can satisfy Democratic liberals, particularly the Black Caucus in the House of Representatives. The numbers now are so tightly drawn that every dime that comes out of tax increases will have to come out of the budget for social spending. If Boren is going to be satisfied, the Black Caucus will bolt, and the conference report will be killed by the unified GOP plus the Black Caucus. The President has no room for maneuver, unless he can somehow win over Republican support, which he cannot do in a zero-sum game.

This is why Mr. Clinton has hired David Gergen as his new White House counselor. Gergen's mission is to find out just what it will take to get the support of Senate Minority Leader Bob Dole, who is now nothing less than the President of the Shadow Government, with a completely unified GOP behind him. Unless Gergen can broker a deal with Dole, he will have failed in his mission, and would be advised to leave the White House and return to U.S. News & World Report. The White House might be hoping that Gergen will think of a scheme to win over a few GOP Senators, but Gergen is smart enough to know that his professional career would be forever compromised if he tried tricky stuff to get President Clinton such a "victory." Bob Dole has all the cards and Gergen has to find a way to work with him on a compromise that will not only have broad bipartisan support, but also one that will do more economic good than harm. In this sense, Gergen's appointment is a good one, good for the economy and good for the financial markets. [I had lunch with Dole on Sunday in Washington, after his appearance on the Brinkley Show, and came away confident he would not agree to any deal that would be a net minus to the economy.]

As I suggested last week in "Clintonomics, On the Line," 5-26, the raw material of a bipartisan plan almost certainly lies within the parameters of Federal Reserve Gov. Wayne Angell's plan to liquify the $8 trillion of capital gains in the economy. That, at least, is the only place where the numbers are big enough on the fiscal side to provide a solution. On the monetary side, the only place where we might find big numbers is in a renewed commitment to a gold dollar, which would cut in half the cost of debt service on $4 trillion. If these are the only logical places to look, why bother looking elsewhere, in defense spending or social spending?

It also makes logical sense that no solution can be agreed upon unless it has the support of the Black Caucus, which, because of the squeakiness of the voting patterns in Congress, is now in a position to block any deal the President might make if its members disapprove. The black community has never before had the political leverage to fashion a deal to its liking, which is why it makes sense for the Republicans to talk directly to the Black Caucus. Rep. Charles Rangel of Harlem suddenly finds himself the most powerful black politician in the world. This is due to this unusual circumstance and his position as the third ranking Democrat on the Ways & Means Committee, which gives him de facto leadership of the Black Caucus on this issue. At the moment, his power now exceeds that of the man he defeated, the Rev. Adam Clayton Powell, who had climbed to the chairmanship of the Judiciary Committee.

Rangel did not oppose the Bush Administration's position on capital gains taxation because of philosophical opposition. He did so because any changes in capital gains taxation were scored as revenue losers by the Joint Committee on Taxation. In practical terms, this meant the losses would have to come out of the budget line items of importance to the constituents of the Black Caucus. If the Angell Plan were to be scored as a revenue gainer, as Angell believes, it would have the opposite effect on Rangel and the other 38 members of the Black Caucus. It would even enable them to argue that spending cuts to which they agreed in order to get last week's House victory for the President could be restored. At least, this is the indication I've gotten from Rangel. If the Black Caucus were to accept the Angell Plan as part of a broader bipartisan alternative, President Clinton would have to ask the party's white liberals, who oppose the idea on "fairness" grounds, to swallow it for the good of the party. The party's liberal intellectuals would of course try to use their influence to block the Angell Plan at its source by having it scored as a revenue loser. It would be in the interests of Dole and Rangel to have it scored legitimately. It would also be in the interest of David Gergen, and the President, to have it scored legitimately.

A lot rides on this scenario. All of the zero-sum alternatives look pretty awful. If the bill that passed the House last week were amended only slightly, to pass without Republican support, it would cause the budget deficit to rise, not fall, as the tax burden would shut off the feeble economic recovery we are experiencing. There is already a revival of discussion about the Federal Reserve being obliged to offset the fiscal recession with monetary ease. In his Sunday column in The Washington Post, Hobart Rowen, a Keynesian warhorse, not only makes this argument, but also digs up Dr. Henry Kaufmann, "Dr. Doom," to second the motion. The Clinton Plan would send the stock market into a tailspin if it had a realistic chance of succeeding. It would also smash the bond market. I suggested to Senator Dole that the federal deficit would climb to $500 billion in the slipstream.

This morning's New York Times did the bond market a favor by running a business page story, by Steven Greenhouse, on Alan Greenspan's determination to raise short term interest rates, if necessary, to fend off inflationary impulses. An accompanying photograph of Greenspan shows him striking a pose of steely-eyed determination. The story never mentions the price of gold, but you can be assured gold bugs who looked into those eyes today got the willies, and gold is down $9 at last count. Greenhouse also reports as fact that the Fed has given Greenspan authority to take fed funds as high as 3.5% if need be. The rate is enough to scare off gold speculation at the moment. It would not be high enough if the Clinton Plan passed close to its current configuration. Given all that we know and all that I learned in my swing through Washington over the weekend, I can assure you I remain in a state of high anxiety, but still more upbeat than down.

RUSSIA UPDATE: The maniacs at the World Bank and their nephew at the U.S. Treasury continue to push Russia toward disintegration. The ruble is now 1000 to the dollar. The ruble price of oil, which had been pushed to R25,000 per metric ton in March, at the urging of the World Bank [up from R120 in January 1991], is now at R38,000. The World Bank still insists it be driven to the world level, which keeps getting further away as the ruble collapses, and is now at R200,000. The ruble's disintegration is still following an orderly path, but could go into a free fall any day. The average monthly wage of Russian workers is now R25,000, which translates into $25 in purchasing power on the international exchanges, but will still buy the equivalent of $125 per month in local goods, as the oil price is held at one-fifth the world level. Russian fruits and vegetables have disappeared from Moscow markets as the cost of transportation from the provinces has become prohibitive with the rising oil price. The government now imports all produce from abroad for Moscow, using precious foreign exchange. A free fall in the ruble would require martial law. (JW)