Government IV/Fedwatch
Jude Wanniski and David Gitlitz
January 22, 1997


GINGRICH: We observed in our last Clinton-Lott letter of January 8 that Newt Gingrich would survive attempts to unseat him as long as he did not respond to Democratic attempts to goad him into the kind of angry outburst that the country has come to associate him with. Bless his heart, he has been sweet and kind throughout his ordeal, which essentially ended when he was punished this week with a reprimand and a $300,000 restitution. There were expectations among conservatives that Democratic liberals would not relent and would keep up attacks on Newt until they found a way to drive him from office. House Minority Leader Richard Gephardt, who may run for President someday, wisely gathered his flock early this week and asked that they consider the case closed. House Minority Whip David Bonior, who supposedly “hates, loathes and despises” Newt, but who I believe is merely an effective and conscientious leader, yesterday issued a statement saying he was closing the book and urged other Democrats to do the same. This does not mean the Gingrich partisans and the Bonior partisans will not continue to circle each other warily for signs of bad faith on either side. It now is more likely, however, that Gingrich will thank his lucky stars that he escaped, learn from his experience, and go on “to rebuild himself as a wise and powerful Speaker instead of an imperiously powerful Speaker,” as I put it in my January 8 letter. Gingrich can cement his new lease on political life by insisting on paying a portion of the $300,000 out of his own pocket even though he can make a respectable case that it should be paid out of campaign funds. Some significant fraction of the total, perhaps $50,000, would persuade public opinion that he has actually paid a penance, one that hurt enough to make him behave.

CLINTON: The President’s second inaugural address was not what one might call majestic. Historian Stephen Ambrose likened it to Warren Harding’s 1921 inaugural address, which William McAdoo said appeared to be “an army of platitudes marching in search of an idea.” In my quick reading of it on the Internet about an hour after it was delivered, I thought the same, except for the few lines about ending the partisanship and working together -- which the NYTimes chose as its headline: “Clinton, Sworn In For 2nd Term, Assails ‘Bickering and Extreme Partisanship.’” The President, after all, did not campaign on behalf of a majestic agenda. He won by telling the American people he would protect them against the excesses of the Republicans. The Republicans have the ideological mandate and the Democrats know it. The President’s line about “government” neither being the cause of our problems, nor the solution to them, mystified Stephen Ambrose and most others who heard it. My reading was that Mr. Clinton, at the top of the power pyramid and knowing much more now than he did four years ago, looks down and sees the same  conceptual “government” that Lincoln saw, that the Roosevelts saw, that Reagan saw, but that the people who comprise government, especially the previous one, seem to have a mindset that discourages bipartisan harmony. In his newsletter today, on the other hand, Robert Novak reports that at his Tuesday speech to the Democratic National Committee, Clinton was as partisan as he was in the ‘96 campaign -- flailing Republicans for supply-side economics and denouncing the GOP for saying government is the problem. But hey, we should not be surprised if the President makes partisan speeches when he is speaking to his partisans -- and supply-siders don’t mind being kicked around. There was nobody better at it than Bob Dole.

LOTT: Senate Majority Leader Trent Lott continues to cruise along in a cloud of amiability, confidence, competence, and authority. While he remains respectfully deferential to President Clinton, there is an edge to him that scares Democrats more than Newt ever did -- precisely because it flashes out of such a soft-spoken fellow. On "Meet the Press" Sunday, Lott 1) Swiped at Treasury Secretary Bob Rubin for sounding like “Chicken Little” on the Balanced Budget Amendment: “He really was hysterical.” Rubin has not been treated like that before; 2) Trashed outgoing White House Chief-of-Staff Leon Panetta: “a fine man...who was not a positive force... advocating old policies, worn-out policies.”; 3) Praised to the skies incoming White House Chief- of-Staff Erskine Bowles, for his willingness to work with the GOP; 4) Took a tiny, delicious bite out of President Clinton when asked about an alleged report that Clinton last year said something mean about him: “What it was -- [Clinton] was trying to get me to do some things that I didn’t agree with and I couldn’t do, quite frankly, as the majority leader in the Senate. The President, I think, sometimes gets a little excited when he doesn’t get his way.” A bravura performance.

KEMP: Finally “skied out,” after several weeks at his condo in Vail, Jack Kemp is getting back into action. He’s filed the necessary papers forming his own Political Action Committee, with John Sears doing the lawyering. Fundraising will presumably crank up at the Superbowl, which Kemp annually attends with 200 of his closest friends. He will make his first tv appearance since the November elections on "Fox Sunday Morning" with Tony Snow. On ABC’s "This Week" talk show last Sunday, Dick Morris, the political wizard who got Bill Clinton re-elected, said that in 2000 Vice President Gore will be the Demo nominee, that Kemp and Colin Powell will fight it out for the GOP nomination, that Kemp would win, and possibly ask Powell to join him on the ticket.

 Jude Wanniski

FEDWATCH: At his Senate Budget Committee hearing yesterday, Fed Chairman Alan Greenspan was single-handedly responsible for the run-up in stocks and bonds. He was better than ever in explaining why the capital gains tax should be zero. He took another swipe at the idea of a constitutional amendment to balance the budget. Even better, for the first time, Greenspan ridiculed the idea that the Fed might be guided by the notion of an optimal or “natural” rate of joblessness. This was in response to a question from Sen. Spencer Abraham (R-MI) about Fed Gov. Laurence Meyer’s remarks last week which strongly suggested that a further reduction in unemployment would be inflationary. According to Meyer, a devoted adherent to the half-baked Phillips Curve-derived NAIRU (Non-Accelerating Inflation Rate of Unemployment) theory, the current 5.3% rate of joblessness represents “full employment,” and any further reduction could well be met with a rate hike. Greenspan stated that while NAIRU may be useful as a statistical modeling concept, “I am very dubious” about its real-world applicability. It might be possible, Greenspan added, to observe behavior consistent with the natural rate in individual regional markets. But he is “highly skeptical” that an aggregated national average would have any usefullness. As he answered the question, the 30-year Treasury climbed from minus three to plus four ticks, en route to a half point gain for the day. None of the press accounts we saw seemed to grasp the importance of his comments, however. It also was disappointing to see Greenspan discuss “asset price inflation,” in response to questions about the boom on Wall Street, without being asked if he thinks the recent $30 decline in the gold price could be consistent with an asset-price inflation. He certainly would have answered NO and explained why, which surely would have led to much bigger gains in bonds. He will no doubt get such questions next month when he does his Humphrey-Hawkins testimony before the banking committees, although good questions on monetary policy have always been hard to come by in Congress.

David Gitlitz