Health Care Update, Etc. Jude Wanniski & James Brzycki February 3, 1994

President Clinton appeared to suffer a setback yesterday on his health plan when the Business Roundtable voted 46-to-14 against it, opting for the plan proposed by Rep. Jim Cooper of Tennessee "as a starting point." Conservative health care policy experts who now meet regularly in Washington in a "Consensus Group" are not much happier with the Cooper plan than with the Clinton plan. The CG, organized by Grace-Marie Arnett, whose work we have published, consists of Robert Moffit of the Heritage Foundation, Robert Helms of the American Enterprise Institute, and Michael Tanner of CATO, all Ph.D. economists. It has become the focal point for conservatives of varied perspectives. Its meetings and work are now engaging the interest of the GOP leadership in Congress, which knows it needs a solid consensus as an alternative to the Democratic proposals. The idea of such a group was inspired, says Arnett, by Sen. Pete Domenici [R NM] and Robert Bennett [R Utah], who last October expressed a desire for the views of the conservative think tanks as opposed to those coming from individual members of Congress. 

The Consensus Group core idea is that health care reform is urgently needed, whether or not one calls it a crisis. But the legislation that emerges must not be employer-based, which both the Clinton and Cooper plans are -- as is the consensus concept of the National Governors Association. The Group now insists any plan must restructure the market to make it possible for individuals to choose the scope and method of insurance, either shopping collectively through their places of employment, or as individuals. The plan can be universal, as President Clinton insists, but only in the sense that government would subsidize the insurance premiums of the needy. There would be no mandates requiring businesses or individuals to act according to one-size-fits-all government schematics. The employer-based plans, they believe, even those such as Cooper's which look acceptable to conservatives on the surface, would rapidly evolve into rigid bureaucratic nightmares. The critical fix, they advise, is in the tax system, permitting individuals to deduct their premiums from gross income. Utah's Bennett, who met with the group yesterday, is in agreement with this core idea not only on theoretical grounds, but on practical grounds informed by his experience as a businessman and entrepreneur. Bennett has become one of Senate Minority Leader Bob Dole's closest advisors on the politics and policy of the health care issue.

Congressional Republicans generally are still adrift on the issue, no doubt because for 12 years they have been used to awaiting the lead of the White House. Senator Dole's performance following the President's State of the Union address last week was universally panned as being wooden and uninspired -- as he read from a teleprompter and stared into a camera eye. His half-hour off-the-cuff address on Monday to the American Hospital Association's conference in Washington was confident, witty and laced with libertarian themes. But you had to be up at dawn to see its taped replay on C-SPAN, a very small audience. GOP strategists are worried that President Clinton will drive something close to his own plan through the House, make any compromise he has to with Republican moderates in the Senate along the lines of the Cooper plan, then bulldoze the essential elements of Hillary's scheme through the House-Senate conference. The most important Senate race of the year may be in Tennessee, where Democrat Cooper will slug it out over the health care issue with Republican Fred Thompson, who, like Senator Bennett, understands the dangers of the employer-based schemes. 

Jude Wanniski

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THE RISING SUN: Japan's stock market has paused after leaping 8% in one day's trading earlier this week, awaiting the finishing touches on a compromise between Prime Minister Morihiro Hosokawa and his Liberal Democratic Party opponents. The roughly Y15 trillion in tax cuts proposed by the LDP contains a cut in the capital gains tax on land sales, which we have been arguing is essential to the health of the financial system and real economy. The bureaucrats of the Finance Ministry have been blocking all income-tax cuts with an insistence they be paid for by a hike in the sales tax to 7% from 3% -- knowing the socialist bloc in Hosokawa's coalition would bolt over this trade-off. The socialists in fact are threatening to resign from the Cabinet unless the sales tax receipts are earmarked for social spending, which would be fine by us, but is unacceptable to the LDP. Our guess is that the socialists are on the way out, with a new coalition forming between Hosokawa's insurgent party and the LDP. If the tax plan is enacted, with or without the sales tax increase, but with the capital gains cut, the Nikkei will not look back at 20,000. (JW)

MURDER SHE WROTE: Rupert Murdoch's New York Post is having a field day in all but pronouncing the Vince Foster suicide a homicide. Last week, the Post revealed information that had been rumored for months -- implying that this close friend of the President and First Lady may in fact have been murdered. In December, we had been told by a reliable source close to the FBI that very senior FBI officials have believed from the beginning that this was an unlikely suicide, but that the investigation was bungled by the federal Park Police when the body was found. Foster's body was in an unlikely position, laid flat out as if he were ready for viewing at a wake. There was no "mess," as is usually the case when a man puts a pistol in his mouth and pulls the trigger -- only a trickle of blood at his mouth. The bullet was never found. Most of all, the gun was still in his hand. Experts say they can never recall a suicide where the recoil of the arm didn't fling the weapon at least 20 feet from the body. There is an intimation the body was brought to the park site in order to place it in the jurisdiction of the Park Police, who are not much more than traffic cops and night watchmen. Today, former FBI director William Sessions, who was fired by the President the day before Foster's death, told the Post in a hand-written statement that the FBI had been kept out of the Foster alleged suicide because of "a power struggle within the FBI and the Department of Justice." He said Foster, as the top deputy counsel in the White House, "was deeply involved in [the] relationships and events" involving these dueling bureaucracies. The Post also quotes William Roemer, former head of the FBI's Organized Strike Force, as saying Attorney General Janet Reno and President Clinton had exerted "undue influence," that "the FBI would normally be finding reasons to get involved in a high profile case." When Sessions was fired, a Justice Department bureaucrat, Floyd Clarke, was named acting FBI chief. Don't ask us what any of this means. It gets crazier all the time. We await word from Angela Lansbury. (JW)

GREENSPAN GAP: Additional evaluation of Fed chair Alan Greenspan's testimony to the Joint Economic Committee Monday turned up a glaring inconsistency that warrants further explanation. Although inflation remains under wraps, Greenspan said, "monetary policy must not overstay accommodation." The level of real short-term interest rates, which he called "abnormally low," was the only factor cited by the Fed chairman as indicative of this accommodative stance. At some point, he said, the Fed must move short rates to "a more neutral stance," unless the economy weakens sharply. Greenspan has been using this argument for most of the last year in warning of the snugging to come. The confusion derives from his sole reliance on short rates (presumably fed funds) to frame the discussion. Greenspan considers "abnormally low" a real rate of 30 basis points -- with the consumer price index rising at 2.7% last year and fed funds at 3%. Yet Greenspan also told the JEC that the CPI is probably overstating inflation by something on the order of half a percentage point, while other measures are even more quiet. He said the economy may actually be approaching what he considers "price stability." In that case, a 3% funds rate could hardly be considered "abnormally low." We have been told Greenspan personally briefed President Clinton on his testimony prior to the hearing, which was reflected in the President's calm response to the potential for a modest tightening. The surmise is a snugging of an eighth- or a quarter-point rise in fed funds. We're fairly sure there will also be arguments at today's FOMC meeting for a half-point jolt, to get ahead of the speculative curve. Why not? Without a clear guiding philosophy from the Fed on commodity targets or gold, 25 basis points might not do the job. It might only lead to more speculation that Greenspan is losing political control. 

James Brzycki