October End Notes
Jude Wanniski
October 29, 1993


HEALTH CARE: There really isn't any way to fix up the health care plan Clinton delivered to Congress this week. It is so incredibly complex and integrated that it is not realistic for the Congress to even think that they can use it as a base. When the bill itself is divided into several parts and routed to several committees, it will become obvious that it is as delicately balanced as a house of cards. President Clinton appears to be aware of this inherent weakness, as he seems almost imploring when inviting Republicans to work out a compromise. The GOP leadership would be well advised to recommend that all existing plans be set aside, including the Chafee Plan, the Gramm Plan, the Nichols Plan, etc. Then Congress can start from scratch, drafting legislation only after a series of hearings on scope and finance. The sense of inevitability that surrounded health-care reform just a month ago is now completely gone. If there is going to be legislation in 1994, it will almost certainly be narrow in scope and financial exposure. More likely, the process will take us into 1995, which is how it is beginning to look to key Senators in both parties. Paul Gigot writes in this morning's Wall Street Journal: "Everyone's trying to be polite, but the whispering here is that President Clinton's health plan is already terminal."

CANADA: A year ago, I asked friends in Montreal if there were one member of Parliament in the ruling Conservative Party who might be receptive to a supply-side approach to the economy, which had been and remains on its knees. I was told of one young M.P. from Toronto, whom I contacted and who indeed seemed interested, although it soon became clear he was a dingbat, with an attention span measured in nanoseconds. In their wisdom, the Canadian electorate this week pitched out all but two of these 155 Tories, a wall-to-wall collection of budget-balancing, cardboard captives of corporate Canada. Jean Chretien, the Prime-Minister designate, is at least interested in hearing fresh thinking on Canada's problems, which center on a capital gains tax that ranges as high as 55% in some provinces. The new western-based Reform Party, with 53 seats, has an anti-tax agenda that will surely spread eastward.

BOND NEWS BEARS: Hey, what's going on? The Commerce Department reports that third quarter growth, at a 2.8% annual rate, was stronger than expected, and economists are scrambling to hike their estimates for the fourth quarter. Yet the bond market, for goodness sakes, rallies! Jonathan Fuerbringer of the Times, the leader of the bond-news bears, can't figure it out. In his report today, "GDP Data Fail to Dampen Bonds," he stretches the limit: "Nor was it clear why Susan Phillips, a governor of the Federal Reserve Board, was able to start the rebound in prices after 9:30 A.M. by saying that the economy may grow at a slower pace in the current, fourth quarter than it grew in the third quarter. If anything, the third-quarter G.D.P. data seemed to confirm that the odds favor more growth at the end of the year." We are trying to persuade Ms. Phillips to repeat her forecast every morning at 9:30 until the long bond trades at 3%. What the heck.

FED INDEPENDENCE: A reporter from Reuters called to ask our view of the assault on Fed independence by Chairman Henry Gonzalez of the House Banking Committee. We told him nothing much would come of it because hardly anyone but Gonzalez wants to monkey with Greenspan while he is producing delightfully low interest rates. We also repeated our long-held view that FOMC meetings should be telecast on C-SPAN, and that by ending all uncertainty about what Greenspan & Co. are up to, interest rates would be marginally lower. The secrecy arguments made by the Fed governors are all baloney, as the governors themselves know. Secrecy is viewed rather as a line of defense against direct political control of monetary policy, which would, they assume, produce inflation. Secrecy, of course, did not prevent the worst inflation in U.S. history these past 20 years. Moreover, the Swiss central bank's deliberations are open to the general public and it hasn't hurt the Swiss franc or bond market. If the Fed were required to peg the gold price at $350, which is our preference, nobody would care if Fed meetings were secret or not, as the governors would not have anything of importance to deliberate. The long bond would quickly go to 3% and Ms. Phillips would no longer have to issue her daily, gloomy forecasts.

NEW JERSEY: We are, of course, rooting for Republican Christie Whitman to defeat Democratic Governor Jim Florio, whose midnight $2.8 billion tax increase in 1990 crippled the state economy and the public finances of every county and municipality. We advised Christie 15 months ago, when it seemed she couldn't lose, that by hiring Ed Rollins as her campaign manager she was buying a millstone around her neck. In fact, he turned her into a cardboard candidate, programmed by polls. Instead of expressing a political philosophy that voters might connect with -- which she is capable of doing -- she's running on a tax-cutting pledge that requires dollar-for-dollar spending cuts, which is no different than the Old Guard GOP positions of Eisenhower, Nixon, Ford and Bush. She has seemed to be well behind Florio in the polls, but has been closing the gap in the last few weeks, showing flashes of spontaneity to overcome the lead weight of her professional handlers. She could win narrowly, if only because many voters at the last minute will find themselves unable to reward a politician who showed such total contempt for the democratic process in sneaking through higher taxes. If she does, she'd be a good governor and could someday wind up on the national ticket. Maybe even '96.

NEW YORK CITY: We are, of course, rooting for Democratic incumbent David Dinkins over Republican challenger Rudy Giuliani, although the smart money says Rudy will win. New York City has not been in worse shape in its history, going back to Peter Stuyvesant, but Dinkins has not been the problem. He's been swimming against the tide of the administrations of Bush, Clinton, and Cuomo, and actually hasn't been all that bad under the circumstances. I'm afraid it would reach new depths with Giuliani, a scurrilous character who will do or say anything his handlers tell him to say. If he put together a new team of economic advisors to replace the Old Guard business types picked for him by Wall Streeters, Dinkins would look much better in the next four years, and so would the Apple.