Okay on GATT
Jude Wanniski
December 1, 1994


My major GATT concerns have been considerably relieved in the last 24 hours by two speeches on the Senate floor. If Senate Minority Leader Bob Dole is persuasive in his wrap-up statement of support prior to the voting this evening, the agreement will be adopted by a comfortable margin, avoiding the need to push it into the 104th Congress.

The two persuasive speeches were by Sen. Hank Brown [R-CO] in opposition to and     by Sen. Bob Packwood [R-OR] in support of GATT passage. Brown's speech was important because it did not measure up to its advertisements. Brown, a free-trader, had taken the trouble to read the 4,000-page agreement during the last five weeks, taking up the challenge of Ralph Nader who argued the agreement was replete with dangerous infringements on U.S. sovereignty. In his presentation yesterday, Brown went from page to page reading incriminating evidence in the fine print and footnotes. The language he cited, however, merely indicated that the United States would bear a greater burden in liberalizing its trade barriers than others, particularly the developing nations. So what's new? A classical free-trader in the 19th century British tradition (me) supports unilateral lifting of trade barriers if bilateral agreements are unavailable. I'd thought Brown may have stumbled onto loopholes serving illiberal causes. In that sense, his probing of the agreement for weaknesses served a useful purpose in persuading me that the agreement is stronger than I'd feared.

Packwood's floor statement early yesterday evening took my breath away with its brilliance. Speaking without notes and roaming casually from his desk to the well and back, the man who will chair the Senate Finance Committee next year showed a mastery of the economics in the debate that I did not know he possessed. He addressed all the concerns that have been raised about GATT's impact on low-income industries in a way that assured me he will deliver an indexed capital gains tax cut early next year -- with the help of New York's Democratic Senator Pat Moynihan, who will be ranking member on the Finance Committee. Indeed, in addressing the key question before the Senate on the budget rule (which requires 60 votes to waive), Packwood explained the connection between capital gains and GATT in a way that Bob Dole could not manage -- discussing the "archaic" scoring methods the Republican Congress will attempt to change next year. If Dole today can extend the logic developed by Packwood, it will be a clear signal to the White House that he means to win on this issue and will expect the support of the President when he asks for it.

With so many Senators keeping their own counsel, waiting to see how the debate plays out today, GATT is still not quite in the bag. Dole, who returned from London late last night, will first have to assess the state of play before deciding on last minute strategy. Sen. Trent Lott [R-MS], a key player who had been leaning against GATT, is still on the fence, presumably trying to see how much leverage he may have in wringing more concessions from the administration in exchange for the votes he might swing. If you have a chance to get away early this afternoon and home in time to catch the last few hours of floor debate, try to do it. The legislative history it will envelop may actually help make history.

A CLIENT'S REQUEST for more information to support our November 29 comment ("GATT Concerns") that "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," elicited this response:

The Dow Jones Industrial Average -- as a proxy for the value of the nation's capital stock -- quintupled between 1920 and 1929 while the gold price remained constant at $20.67 per ounce. That is, in terms of gold the value of the capital stock quintupled. Farm population plummeted as machinery replaced stoop labor, and manufacturing jobs exploded, mopping up the surplus farm labor. Real wages climbed steadily during the decade. There was no unemployment beyond frictional joblessness and even the black population made sharp advances in living standards. Smoot Hawley was actually a response to Big Business not wanting to share this explosive domestic market with the rest of the world.

In the last generation: In 1966, the DJIA hit 1000 with gold at $35 per ounce. The DJIA is now at 3500 with gold at $385 per ounce. In this 28-year period, by the rough proxy of capital stock valued in gold, capital has declined by two-thirds. The DJIA would have to be over 10,000 to equilibrate with 1966. Whatever other measures you might use, the U.S. capital stock has declined. The only break in the 28-year-period was in the Reagan years, when the DJIA tripled as gold fell from $600 to $350. The Bush years were flat. Clinton's two years have seen a decline in capital stock valued in gold, with gold up 10% and the broad equity market measures up just a tad.

GATT is not the answer to this U.S. capital contraction, but it would help if, because of it, Dole can next year deliver a retroactive indexed capgains with a 50% exclusion. The next step is to fix the gold price. By the end of the decade, we'd be looking at a 10,000 DJIA at constant gold. (JW)