Notes on Campaign '96 II/Fedwatch
Jude Wanniski and David Gitlitz
September 13, 1996


BARE KNUCKLES: Prodded by The Wall Street Journal and Rush Limbaugh, the Dole campaign has decided to take off the gloves and tear into President Clinton. We had hoped the new Dole media team of Paul Manafort and Rick Davis, which arrived last week, would begin to march through the hole the President left the Dole/Kemp campaign. The temptation to slug it out has proved to be too difficult to resist. Dole and Kemp should be using paid media as well as free media to ridicule Clinton for his insistence that the economy is in great shape. Instead of peddling the 15% tax cut, which is small change, it should be challenging Clinton to match its commitment to tear out the existing tax code "root and branch," as it is the source of most of the corruption at the nation's center. It should be tearing Clinton apart for bombing Iraq without consulting a single member of Congress or foreign leader. Negative ads should whack at Clinton's real weaknesses, not those weaknesses they imagine can be blamed for the nation's moral decline. All this self-righteousness only compounds Dole's problems with the majority of Americans who are already worried about the return of Newt Gingrich. The point man is former drug czar, Bill Bennett (who is traveling with Dole), offering the kind of self-righteous moralizing that has become his political trademark. It is strictly Old Testament eye-for-an-eye. Dole was at his best in the primary season when the other Bennett, Senator Bob Bennett of Utah, a soft-spoken, forgive-them-for-they-know-not-what-they-do kind of guy, sat next to Dole on the campaign plane. The bare-knuckle boys want to keep Dole and Kemp on separate planes, to protect Dole from Kemp's optimism. They are also making sure there are bad vibes at campaign HQ about Bob Bennett.

DOLE: Dole's stump speech in Connecticut yesterday, delivered off-the-cuff, was the best yet on the economy. He still emphasized the 15% tax cut instead of bolder reforms, but the context correctly identified him with the interests of ordinary people, those who are dropping out of the work force because they can't find any jobs that pay enough over the minimum to offset their losses in welfare benefits. He's obviously benefitting from Kemp's counseling as well as the backup from Don Rumsfeld's economic unit. On the Jim Lehrer "NewsHour" last night, Dole economic advisor John Taylor more than held his own intellectually with Clinton advisor Laura Tyson in making growth arguments she just could not handle. These developments bode well for the presidential debate, which conventional wisdom had assumed would heavily favor Clinton.

IRAQ: There are threats in the air of another bombing over the weekend, "disproportionate" punishment of Saddam, says Defense Secretary Bill Perry. My guess is that unless Saddam Hussein forces such an event that the President will pull back. Dole has called for a top-to-bottom review of the Iraq problem, which bodes well for caution. A New York Times editorial yesterday wisely counseled caution, as did General Colin Powell in a speech last night at Drew University in nearby Madison, N. J. Powell said Saddam is a bad guy and has to be watched, but that he is no longer a military threat to the region an obvious truth, although not one that we are hearing from the bombers in both political parties: "If there was a major provocation where for some idiotic reason Saddam would dare try to invade one of his neighbors again, I'm positive that the coalition will snap right back into action." Sen. John Glenn [D-OH] is only one of many in Congress who continue to repeat the preposterous idea that we have to guard against Saddam taking over 70% of the world's known oil reserves. Should we doubt that Colin Powell finds that amusing? The most hawkish of the bunch is Sea John McCain [R-AZ], who practically is advocating carpet bombing of Iraq to punish Saddam. On our website today, we're running a memo I wrote to McCain last night, along with our client letter of October 11, 1994, "Iraq: Send for Colin Powell," in which I warned that as long as we were trying to starve Saddam and the people of Iraq into submission we had to expect him to act up.

CLINTON: At this stage of the campaign, the President is practically irrelevant. He sits on a big lead in the polls, but his options have been frozen into the run-out-the-clock strategy he adopted in Chicago. As Iraq indicates, he will have his hands full trying to keep from making mistakes. Dole and Kemp have all the flexibility they need to catch him before the clock runs out.

KEMP: Kemp continues to pound away in every stump speech at the nation's racial divide, quoting Martin Luther King even before all-white South Carolina audiences. He has been beaten up in several newspaper columns for having said a good word about Louis Farrakhan's self-help speech at the Million Man March. Most of the press corps seems to be giving Kemp the benefit of the doubt on this, watching to see what develops. In today's USA Today, columnist Walter Shapiro is the first Jewish journalist to praise Kemp for his courage in trying to find a democratic solution to the gulf between blacks and Jews. The Rev. Farrakhan, traveling in the Caribbean since the flap developed, has yet to be heard from.

Jude Wanniski

FEDWATCH: There is no economic reason why today's benign CPI report, or yesterday's benign PPI reading, should influence the FOMC meeting on September 24, the last before the November 5 election. Prices registered now by these indices reflect monetary policy at least a year old. Making policy on the basis of such an information lag would be a recipe for disaster, a fact recognized even by the Fed's most dyed-in-the-wool fine-tuners. It is political reasoning that prompted the financial markets today into a huge sigh of relief, with the 30-year Treasury up nearly a point and a half, its yield tumbling back below 7%, and the DJIA breaking into record territory. Had the PPI and CPI appeared troublesome, the perception that the Fed had to hike rates before the election in order to avoid losing a measure of credibility particularly for Clinton appointees Laurence Meyer and Janet Yellen would have been strong. The benign price indices have removed this consideration. The bears who would like the Fed to find incipient inflation in the unemployment and wage data will, of course, not be mollified. If the nation's creditors perceived a real inflation threat that required Fed tightening, though, we would not see long-term rates falling on news that suggests reduced pressure for a rate hike. The $2 drop in the gold price this week, to $383, is the best indication that monetary confidence has been strengthening, not weakening, in the face of declining prospects for Fed action. At $383 gold, we think Fed Chairman Greenspan would find a way to give cover to Governors Meyer and Yellen even if the CPI were not so benign. As the risk of a Fed move has been the major factor keeping the 30-year bond yield above 6.75% for weeks, we expect that gap to continue narrowing.

David Gitlitz