Notes on the Revolution V
Jude Wanniski
February 6, 1995


MEXICO: Senate Majority Leader Bob Dole on Meet the Press Sunday reaffirmed his commitment to restoring the peso to 3.5 to the dollar, where it was before the December 21 devaluation. He appears now to believe this is a matter of principle, which it is. Sen. Bob Bennett [R-UT], whom Dole had designated his “agent” on the Mexico matter, has been making this argument privately to other Senators and to officials of the Mexican government. The point is simply that 3.5 is necessary to secure NAFTA, as the free-trade zone cannot survive competitive, “beggar thy neighbor” currency devaluations. Dole and Bennett now have to make it clear to Treasury that the $20 billion from the exchange stabilization fund cannot be used to engage in the long-term refinancing of Mexico’s national debt. The wires this morning indicate Mexico plans to use US taxpayer funds to do exactly that, to buy cetes and tesebonos in order to extend the maturities of its debt. This would be a complete misuse of the fund and would only deepen the scandal that has enveloped the IMF. Mexico’s Finance Minister Guillermo Ortiz may try to say he will only use IMF funds for long-term refinance, and use US taxpayer funds to buy pesos. If this is so, then the pesos acquired by our government should be used to buy cetes and tesebonos from the Bank of Mexico, which we can either retain in the Fed’s portfolio of assets after the peso returns to its 3.5 rate, or sell at a profit. In either case, with Alan Greenspan in control, it would be clear we will not be entering another endless pit, comparable to the S&L crisis. Otherwise, our tax dollars are being put at risk to turn a profit for the IMF, with no assurance that we will get to 3.5. Unless some agency starts taking pesos off the market, the crisis will not go away. At the current rate of 5.3, the Mexican economy is grinding to a halt. My sense is that Dole now understands how Wall Street has been “feasting” on these IMF-inspired devaluations around the world for some time. His designated watchdog is that eminent Rotweiler, Sen. Al D’Amato, chairman of the Senate Banking Committee. Unless D’Amato gets this squared away with Greenspan pronto, the brewing IMF scandal will claim new victims. 

DOLE: If you did not catch the David Frost interview of Bob Dole on Friday night I can assure you it was marvelous. We will get a transcript for our Recommended Readings this month, but so much of the hour-long conversation was in facial expressions and body language that the transcript will give you only a portion of this man’s depth. New York Times columnist William Safire is making a campaign out of Dole’s penchant for “dealmaking,” as if this disqualifies him for the presidency. What I learned most from Dole in that hour is his profound appreciation of the two-party system as a mechanism for Democrats and Republicans making deals with each other on behalf of their constituents. When asked by Frost if he would be happy if President Clinton bought the entire Republican agenda, he was emphatic in saying that would hurt both Clinton and himself, the Democrats and the Republicans. Dole understands the process as do I, that Clinton must represent his party’s base constituents and fight for their interests tooth and nail, and that he must do the same. As in a family unit, it does not help the husband when his wife capitulates to all his demands. It hurts them both when she does not take her own part. Co-operation occurs around common interests, but legislation that guides public policy is shaped by debate and amendment. I wrote Dole a note after the interview in which I said I could not disagree with one word of his presentation, the best I’ve ever heard from him, although I of course have differences of opinion and emphasis on some of his policy conclusions. Most of the attention he received for the weekend was from his appearance on the David Letterman show later Friday night, which displayed his congeniality as most of us have seen it before. The Frost interview persuaded me to a new level of appreciation that Dole is the best we have on the Republican side. 

BALANCED BUDGET AMENDMENT: It will take several weeks to debate the BBA, with Sen. Robert Byrd [D-WV] making the best arguments against it. Dole is in favor of it on the grounds that 80% of the American people favor it in the opinion polls. I’m happy to have the issue alive, but oppose the idea of actually amending the Constitution, believing the American people merely want the question seriously addressed. Byrd is correctly horrified at the idea of altering the nation’s organic charter for something as potentially mischievous as the BBA. He will make sure its problems are developed to a depth that was not possible in the House, which whisked it through on Newt’s Contract. I believe the American people are smart enough, in aggregate, to send to Washington a contingent of representatives that will tax and spend in roughly the required amounts. The BBA is rooted in the Country Club GOP idea that the people are too stupid to understand that they should not elect Democrats, who “spend like drunken sailors.” To those Senators who ask, my advice is that if they can’t make up their minds whether the electorate is smart or stupid: Vote for the BBA and send it to the states, 37 of which will have to approve it. Quite a few Republicans who thought the voters dumb prior to November 8 are now wondering if maybe they are really smart, having elected a GOP Congress. If you saw Byrd of West Virginia on Meet the Press Sunday, prior to Dole, you can appreciate all the arguments against term limits that are now taking on greater weight. Like Dole, in Congress for 34 years, Byrd is a national treasure with his 37 years. He has an institutional memory, which he worries is in short supply on Capitol Hill. He is a wise man, as evidenced by his appreciation of the long run. It takes all kinds in a democracy. My guess is that in the next several weeks Byrd’s arguments will prevail and the BBA will go down by one vote, to spare the electorate the task of debating it in 50 states for the next few years, when there is much more important work to do. 

LINE-ITEM VETO: Once again, we have a quick fix here, rooted in the Country Club GOP idea that the voters send dopes to Congress who are eager to loot the national treasury. Again, Bobby Byrd is absolutely correct in his argument that it will cause a fundamental shift in the balance of power between the executive and legislative branches. If it passes into law, it will shrink the influence of those members of Congress who represent the people at the bottom of the pile and increase the power of those who sit at the top. This means it will be more difficult in 1996 for the Republicans to win the White House, as the only choice the poor people have left is to elect a more liberal Democrat to the presidency -- one who will use his/her line-item-veto pen to strip out corporate socialism and strip in populism. I would emphatically vote against the line item veto if only because it dilutes the influence of black and Hispanic Americans, who at least have a shot at winning some crumbs for their people in Congress, and are pushed deeper into the plantation by having to satisfy the Master in the Big White House. More fundamentally, as a political scientist, I prefer to have 535 men and women make the 500,000 local and regional decisions that go into the federal budget, and have the one person in the Oval Office make the five or six big decisions each year that reflect the national interest. The line-item veto does not give the President too much power. He doesn’t have the time to make five or six big decisions, let alone 500,000. They will be made in the bureaucracy, by people not elected, but whose careers outside government will be enhanced if they veto the correct lines and leave the others.

CAPGAINS/MINWAGE DEAL: The idea is now definitely in play. On the Capital Gang Saturday night Sen. Bill Bradley [D-NJ] was asked by Bob Novak if he would go for a swap -- capgains for the GOP, a $5 minimum wage for the Democrats. He brushed off the deal with the line that the Republicans wouldn’t go for it because they wanted to win on both. On Meet the Press, Novak asked Dole about a swap, and Dole said it sounded like it might be a good deal to him. House Majority Leader Dick Armey says it would happen over his lifeless form, but he may not have thought of it in these terms. If I were Armey, I would block it only if I could not get retroactive indexation, which goes beyond the Contract With America. In any event, now that the idea is in play, we can begin to see its potential. I will be testifying February 15 before the full Senate Finance Committee on capital gains. I will be testifying this Friday at 1 p.m. on Mexico, before the full House Banking Committee.