The Monday After:
On the Bright Side
Jude Wanniski
August 9, 1993


At the moment that Senator Kerrey informed us Friday evening that he would vote for the Clinton budget, I experienced a series of thoughts in quick succession. The first was that I was sorry he didn't go the other way, on the assumption a defeat would lead to a better budget. The second thought, oddly, was that I felt good for President Clinton, who really would have been crushed by such a colossal defeat so early in his administration; the legislation is wrongheaded, but in its final version hardly calamitous. The third thought that flashed to me was of a scene from one of the best western movies of all time, "The Big Country," in which Gregory Peck and Charlton Heston engage in a fistfight at dawn, not out of anger, but to establish the fact that Peck, who is about to leave the ranch, is not a coward. The two men fight to exhaustion, until the point is reached when Heston, dropping his fists and rubbing his jaw, smiles and tells Peck, "You sure take a long time to say goodbye."

It really isn't necessary to cast President Clinton or Senate Minority Leader Bob Dole in one role or the other. At the outset of this grand, historic debate that we have been privileged to witness up close, there were serious questions about the staying power of both sluggers. Both have proven themselves in ways we had not seen before, ways that we can admire: the President for his doggedness in pursuing his vision, maintaining a flexibility that enabled him to reach his goal, albeit by the narrowest of margins; Dole for his deftness in keeping the entire Republican Party unified, not through narrow partisanship, but by a principled approach to helping the President find his way to a budget that will in the long run do little damage to the economy. Thanks to Sen. Kerrey, who traded his vote for a commitment to keep the budget issue in play through the autumn, it may not be necessary to wait until next year to put forward a growth-oriented tax program of the kind Sen. Dole has already endorsed.

Early on, we informed you that the nature of this slugfest had been determined by my distant friend and adversary, Sen. Bill Bradley. The New Jersey Democrat advised the President not to negotiate with himself, but to ask Congress for a politically impossible mix of tax increases and spending cuts and let Congress whittle at it until it reached a point where it could pass. We also advised you not to worry, that the congressional process would improve the bill at every step of the way. Our greatest concern was that Senator Dole would be too easy, offering to cut a deal instead of slugging it out toe-to-toe. He wasn't easy at all, and in the end, we can count our blessings, the good things that we have now which we didn't have six months ago:

1. Fed Chairman Alan Greenspan performed magnificently, bringing the Fed through this colossal battle without a scratch. In fact, if the budget had failed, Greenspan may have come under attack from an embittered White House. As it is, he is in an unassailable position. The President will listen to him more carefully and he can be more open in stating his views on fiscal and monetary policy. The budget debate, for example, offered Greenspan the opportunity to state publicly his preference for the gold signal over the money supply as a determinant of inflation risk -- a milestone in the inevitable rebuilding of an international monetary system. Also, when Wayne Angell's seat opens up in January, Greenspan will have greater say in screening the President's appointment. In other words, Greenspan's position today is good news to the creditors of the United States, good news for the bond market.

2. NAFTA is in better shape as a result of the President's victory. Negotiators at the NAFTA talks in Washington report that Mickey Kantor began moving toward a deal the moment after the House approved the President's budget. Even by this razor-thin margin, the win enhances Clinton's stature with NAFTA's advocates, who will spend effort they might not have on behalf of a crippled administration. Dole, also a NAFTA supporter, will help with his enhanced standing among Republicans who might otherwise be drawn to Ross Perot's position on NAFTA. Dole and the GOP will take the lead here on behalf of a bipartisan coalition.

3. The President and his wife now have a much more realistic view of how Washington works, which will force them to lower their sights on health care. A Bradley confrontational strategy would not now have credibility, since a health care plan cannot easily be whittled and mixed into an acceptable design the way a budget can. It needs bipartisan support to begin with. This will not be possible if it requires mega-tax increases, because...

4. The exercise has developed Bob Dole's supply-side muscles. Six months ago, the GOP was demoralized, fractured and aimless. It is now unified around a clear-eyed vision of entrepreneurial capitalism. The party now demonstrates a commitment to the interests of small business even beyond the level of the Reagan years, leaving Democrats as the representatives of Big Business. In the debate, Dole openly celebrated the Reagan years, not the Bush years, shamelessly admitting the 1990 budget deal he helped produce was a mistake. In the health care debate, Dole will unify the GOP behind the interests of Main Street, while Big Business tries to unload its health costs onto a socialized system. When Congress returns, we'll hear more emphasis on economic growth.

5. A serious dialogue has opened between the GOP and Black America, with Dole bringing to a close the "Southern Strategy" which required Republicans to concede the black vote to the Democrats. The decision coincides with the growing muscle of the congressional Black Caucus, which realizes the GOP must compete for black votes if the Black Caucus is to have any serious leverage in the Democratic Party. Dole is determined the GOP should win at least 20% of the black vote in the '94 elections. Should he succeed, realignment will be underway; GOP control of the House would be feasible in '96. (I suspect this political breakthrough between the races may be the event historians will remember most about this budget debate.)

6. Rep. Charles Rangel [D-NY] is now on the threshold of being a national leader, potentially the most important black political leader in the country. He parleyed his leadership of the Black Caucus on budget issues into a stunning victory for the interests of Black America. Entrepreneurial capitalism for blacks lies in the direction of Empowerment Zones and an Earned-Income Tax Credit, policies Rangel could not get past the white Establishment until he threatened to abandon the Democrats and President Clinton for Dole and the Republicans. Both rest on plays that Arthur Laffer and I began cooking up almost 20 years ago at the dawn of the supply-side revolution. They were advanced by Jack Kemp and Rangel over the last dozen years to the five-yard line, then pushed across the goal line last week by Rangel, with an assist from the leverage provided by Dole.

7. Rewarding risk-taking is fashionable. The most important quotation of the year is from Rangel: "The Black Caucus has never had any problem with cutting the capital gains tax. That's been a problem for the white liberal intellectuals in the party." The Clinton budget is the last, muffled, tax-and-spend hurrah of the Roosevelt New Deal. The risk-taking wing of the Democratic Party, led by Sen. David Boren of Oklahoma, has moved the yardsticks on capital gains within scoring distance. The President's counselor, David Gergen, is telling everyone he knows that really, by gosh, the yardsticks have been moved. To win last week, the President went out of his way to confirm Gergen's assessment.

8. A Zero Capital Gains Caucus has been founded on Capitol Hill as a direct result of the budget slugfest. Rep. David Dreier [R-CA] said: "Why not?" and it was born a few days ago. It only has a few members at present, but Democrats are already signing up. It's a perfect place for Democrats who are worried about having voted last week for higher taxes on the entrepreneurs among their constituents. A great many Democrats are going to be looking for ways to redeem themselves, and this is an obvious way. Rangel has effectively punctured the "fairness issue" by bonding with Sen. Malcolm Wallop [R-WY] on capital gains, in the process nailing down the support of House Republicans for his empowerment initiatives.

9. The Perot movement of 1992 was really a movement of ordinary Americans who felt disenfranchised, as both political parties sucked up to corporate America. The "Subchapter S" entrepreneurs watched from a distance. Not any more. The Democratic decision to tax income retroactively has shaken the up-and-comers to the core. The quality of House and Senate candidates to be drawn from these ranks in 1994 and 1996 in both parties should increase dramatically as a result of the retroactivity decision.

10. The stock market and the economy have survived the slugfest. They are not nearly as robust as they need be to make real headway on budget deficits federal, state and local. Thanks, though, to the resolve of the Republicans and the skill at the Fed, the momentum of the moment has government on a more positive course and we now have more, not less, reason to be optimistic about the future than we had six months ago.