The Clinton Plan, Going Nowhere/
Japan's Turn, a Pattern of History
Jude Wanniski and Criton Zoakos
June 21, 1993


The White House and the Senate Democratic leadership are acting as if it is all over, that the Finance Committee package will pass more or less as is later this week or early next, and that a compromise will be pounded out in the conference committee that House liberals will accept. This is all bravado, intended to persuade the Senate Republicans to make a deal before the whole scheme comes crashing down. The White House now has to talk Senate Minority Leader Bob Dole into presenting a full-scale GOP alternative to the Clinton plan, a trap Dole so far has resisted. Sen. Bob Packwood, ranking Republican on Senate Finance, last week wisely talked committee Republicans into not presenting specific spending cut amendments, on the argument that Democrats would use specifics against them the way they always do. Instead of presenting a specific alternative, Dole should be promising a specific conceptual alternative that the GOP is now working out with the bipartisan Black Caucus, as the Caucus does have one GOP member! The Rangel-Wallop conceptual alternative is not only still alive, but winning more enthusiasm among the two principals, Rep. Charles Rangel [D NY] and Sen. Malcolm Wallop [R Wy]. Rangel tells me they now agree on the objective and need only work out an agreeable path. He dismisses concerns that he might simply be using Wallop as a "bargaining chip" with the White House, arguing that the White House now has more problems with conservative Democrats than the considerable problems it has with the Caucus. What this means to him is that if the White House does any bargaining with a conference report, it will have to bargain away more of the interests of the Caucus, rather than come to Rangel to bargain away more of the interests of the conservatives. The Rangel-Wallop alternative is built around the core idea of Federal Reserve Gov. Wayne Angell to index capital gains and end the "step-up" provision at death. Angell will make a presentation before the Joint Economic Committee tomorrow morning at 10:30 a.m., which I'm told may be carried by C-SPAN. In any case, don't believe what you read in the newspapers. Unless the GOP makes a desperate lunge to pull defeat from the jaws of victory, it has this one on ice.

Jude Wanniski


Today's Wall Street Journal editorial, "The Great Tokyo Earthquake," offers a thoroughly misleading impression of the tectonic shifts now occurring in Japanese politics. The Journal finds the fall of the LDP government to be caused by popular pressures for "a higher quality of life," for "more responsive government," less popular tolerance for protectionism, and need for "a greater degree of international engagement." The Journal would have us believe the post-LDP Japan that will emerge will be more pliable to U.S. bidding. Exactly the opposite is closer to reality.

The parallel in history is Japan's turn in 1931 from a country at peace to a country preparing for war. The roots of this turn to militarism lay in the failures of U.S. global leadership, culminating in the Hoover Administration's Smoot-Hawley Tariff Act of 1929-30, which had devastating effects on the Japanese economy. Japan became more economically and militarily assertive in Asia and the Roosevelt Administration became increasingly anti-Japanese. Push came to shove at the bombing of Pearl Harbor.

Events in Tokyo now follow a similar pattern, which began with the U.S. Trade Act of 1988, enacted in the waning hours of the Reagan Administration at the behest of Vice President Bush and his friend, Treasury Secretary Nick Brady. For four years, the Bush Administration used the bareknuckle provisions of the Act to push around Japan, a convenient scapegoat for its domestic economic blunders. For a while this year it seemed the Clinton Administration would back away from Japan-bashing, but not anymore. Scapegoating continues as usual. With the end of the Cold War, Japan no longer needs the protection of our nuclear umbrella. Thus the country's establishment is feeling its way toward greater assertiveness in the international arena meaning a greater willingness to risk friction with the United States.

What occupies the concerns of Japan's leaders more than political and party reform is constitutional reform, specifically abandonment of the famous Article 9 of the Constitution, which perpetually and unconditionally prohibits any deployments of military force abroad. The Constitution in its present form represents more than an injunction on military deployments: It codifies Japan's status as a vassal of the United States.

When Prime Minister Miyazawa lost the vote of confidence and was forced into elections, he did not lose to young idealistic reformers but to a combined one-two punch delivered jointly by the LDP's get-tough-on-the-U.S. old guard of Watanabe, Mitsuzuka and Nakasone, and the assertive young-Turks typified by Diet members Ozawa and Hata. In January 1993, when Miyazawa returned from his ASEAN tour, the Mitsuzuka-Watanabe and allied elderly leadership of the LDP had demanded that the issue of constitutional reform be placed on the agenda. Prime Minister Miyazawa, who takes pride in his personal and family connections with the United States, reacted harshly and prohibited any discussion of constitutional reform.

As a result, the political reform anti-corruption debate has been used as a surrogate warfare battlefield where the more important issues of the country's destiny are being decided. The single most important outcome of the current crisis triggered by the anti-corruption debate is this: The way has been opened wide in Japan for a constitutional reform which will formally bring the country out from under U.S. political vassalage. In principle, this ought to be a good development. Our government will no longer be able to assume conveniently that Japan has nowhere else to go, and will stand still no matter how much abuse we heap on it. As in the 1930s, Japan is turning to the rest of Asia, China in particular. But instead of using military muscle, it is training its capitalist investment guns on the region.

The Japanese stock market is being clobbered by the uncertainty wrought by these changes, as the pattern of history strongly suggests a heightening of commercial tension with the U.S. that can not be good for business. The new government that will emerge will pace itself according to developments in the world around it, however. If the American economy improves, the Clinton Administration will have less need of a scapegoat in Japan (or at the Federal Reserve, the second favorite target of presidents). If the Clinton Administration succeeds in punishing the U.S. economy with the tax legislation arriving on the Senate floor this week, we can expect a deepening rift with Japan. On the upside, there is the good possibility that the excruciatingly tight monetary policy of the Bank of Japan will soon end, as the result of this change of government. The fall of the LDP can in fact be partially attributed to the fanaticism of the Bank's governor, Yasushi Mieno, whose economic views have been in synch with those of Washington.

Our new U.S. Ambassador to Tokyo, former Vice President Walter Mondale, is at least a man of stature, who will be able to resist becoming an automatic agent of White House scapegoating, if he wants to. Mondale is a creation of the Democratic establishment and has in the past been dutiful in following its marching orders, but he's now a senior statesman. We count his nomination to the post as a positive. He could even make the difference.

After all, the parallel with the '30s does not have to play itself out toward World War III. Back then, the United States was still a schoolkid in short pants when it came to global leadership. The United Kingdom had run the global show in the previous two centuries. It's nice to think we've learned a thing or two from our mistakes of the past, in which case, this time, the turn in Japan will be for the better.

Jude Wanniski and Criton Zoakos