If my GATT analysis has seemed confusing to some of you lately it is because I have become alarmed by the political cross currents that have been brought to bear around the issue in this lame-duck session. What frightens me most of all is the feeding of the new baby born November 8, the infant GOP Congress that will climb out of diapers into short pants on January 4. It was hardly encouraging to observe everyone in the Establishment who has ever caused problems for the supply-side revolution (excepting perhaps Dick Darman) gathering at the White House to celebrate today's expected House vote on behalf of GATT, with Newt Gingrich and Dick Armey the guests of honor.
Murphy's Law suggests the following: In exchange for today delivering enough Republican votes for GATT's easy passage in the House, the Clinton administration has given Gingrich and Armey assurances that next year they will be showered with school prayers and a line-item veto (which transfers power from Congress to the White House). Once the White House and the Business Roundtable have GATT in their back pocket, they can rest easy. The President will be able to give the GOP Congress everything it wants, except the retroactive indexation of capital gains and a 50% exclusion, which the President will veto. The GOP will settle for prospective indexation and a 3-point rate cut to be "paid for" by an increase in the corporate tax rate. We then will have two more years of economic stagnation, inasmuch as GATT will not do diddly to invite new capital formation. The GOP will pass a harsh welfare reform, with Clinton getting credit for softening its orphanage provisions. The electorate will blame the GOP for not getting things moving again with its balanced-budget amendment. Ross Perot will form a third party with Pat Buchanan and Ralph Nader. And Bill Clinton will be re-elected with 43% of the vote.
It would be so much better if this lame-duck Congress, which has just been massively repudiated by the American people, refuses to pass GATT in its current condition and pushes it into the 104th Congress. It could then be really fixed, and the Business Roundtable and the Fortune 500, which are lusting after GATT, could tell the President to give the damned Republicans their damned capital gains and he would do it. This is not only worth fighting for. It is also worth risking some downside volatility on Wall Street. The upside potential is a DJIA a year from now of 5000 or 6000 and an economic expansion that can finance the GOP conversion to a smaller government.
The most important development of the last 24 hours is the conversion of Sen. Hank Brown [R-CO], a man who is respected by his colleagues for his intellectual integrity and rigor, who has impeccable credentials as a free trader, and who has now decided after spending the last five weeks reading the GATT documents that it can only be fixed in the new Congress. Senator Brown actually accepted the challenge laid down by Ralph Nader, who posed ten simple questions about GATT that could only be answered by actually reading its 4,000 pages. Having done so, Brown decided Nader is right and the United States is giving away much too much to the new international bureaucracy. This rigorous exercise not only gives Brown enhanced authority among his Senate colleagues on this issue. It also enables him to re-open the discussion with Senate Minority Leader Bob Dole, who believed he had fixed the sovereignty problem before departing for Europe to study the Bosnia problem.
The Brown conversion came at exactly the right time, as Sen. Phil Gramm [R-TX] was going in the opposite direction -- announcing his support not only for the GATT vote itself, but also for the waiver of the budget rule -- on the grounds that the new Congress will cut so much spending that it will easily make up GATT's revenue losses. I think that Gramm, in so doing, shot himself in the foot, his principles shifting too quickly for a serious presidential contender. Where there had been speculation that Gramm's conversion would tilt the decision of Sen. Trent Lott [R-MS] in the same direction, Brown's conversion makes it more likely that Lott will lead the fight to postpone GATT. Lott's decision, which will not be clear until tomorrow, is key, as he is engaged in a career-shaping contest for Senate Majority Whip with the current GOP whip, Sen. Alan Simpson of Wyoming. The man who wins would be favored to succeed Dole as Majority Leader when Dole runs for President. If Lott were to lead and win on a GATT deferral, he'd almost certainly sew up the whip post, as Simpson, who is backed by Dole, supports GATT passage as is.
If Lott were to proceed along these lines, he might first attempt to get from the White House the clear commitment on capital gains that eluded Dole last week. In many ways this is shaping up as a struggle between the Northeast and Midwest against the South and West. The Business Roundtable's interest in GATT follows from the fact that the agreement especially benefits mature industry, which will export more of its mature product as a result of the deal. It can only export if the United States imports, and the imports will put low wage and fledgling industry at a comparative disadvantage. The comparisons of GATT's problems with the Smoot-Hawley Tariff Act of 1930 are upside down: Smoot-Hawley passed as a Big Business scheme after a Roaring Twenties decade of capital expansion; GATT is presented as a Big Business panacea after a generation of capital contraction. In both cases, the little guys pay the bills. The New York Times this morning announced editorially that the good things GATT does will more than offset all the textile jobs that are lost in the South! The capgains agreement Lott would seek would offset the loss of competitiveness to low-wage industry by increasing its competitiveness via cheaper capital. This is what The Wall Street Journal meant by the symmetry of the Dole initiative to swap one for the other.
What would Dole do when he returns from Europe tomorrow in time for Thursday's debate if he found GATT still in trouble? My guess is that he will tell Treasury Secretary Lloyd Bentsen: "Lloyd, if you had given me what I asked for to begin with, this would not have happened." Otherwise, he can remain above the fray in order to assure the world that if GATT has to be dealt with in the 104th Congress, he will make sure it is done to the satisfaction of all concerned. If Dole were to return and take full responsibility for collecting GOP votes for Clinton, putting out the Lott-Brown fire, he would first have to revisit his deal with Lloyd Bentsen. Otherwise, he would simply win another trip to the Rose Garden and more accolades from The New York Times.