Mexico/Fox Jude Wanniski October 23, 2000

From: "Bartley, Bob" <Bob.Bartley@wsj.com>
To: "'Jude Wanniski'" <jwanniski@polyconomics.com>
Subject: RE: Mexico/Fox
Date: Mon, 23 Oct 2000 15:28:45 -0400

we'll miss you election night. I've started to write about Mexico twice now for my column, but decided U.S. campaign was more important. Maybe after election but before inaguration, though I had been thinking of taking some time off.

-----Original Message-----
From: Jude Wanniski [mailto:jwanniski@polyconomics.com]
Sent: Monday, October 23, 2000 3:02 PM
To: Bartley, Bob
Subject: Mexico/Fox

I can't begin to tell you how depressed I get when I read dispatches out of Mexico City about Vicente Fox and his fiscal plans. I think he needs some words of advice from the editor of the Wall Street Journal, Bob. You really should make a note to write a lead editorial that will get Fox's attention prior to the December 1 inauguration. The Bolsa had done so well in anticipation of his election, but as in so many other cases we've seen throughout history, as soon as he was elected, he forgot about cutting
taxes for growth and began planning for tax increases and austerity. I shudder when I think of Richard Nixon running against the Vietnam war tax in 1968, getting elected, and then raising the capital gains tax instead. That incredibly bad move led step by step to the end of the gold standard and runaway inflation, plus the collapse of the stock market, the economy and Nixon's impeachment. (I still think Nixon would have survived if the economy were expanding at the time.) If you have not noticed, the Bolsa is down 25% in dollar terms from its peak at his election, which in itself is forecasting a slower economy path that will yield lower revenues. Fox no doubt thinks he is being courageous in proposing bitter medicine when he is doing worse than Zedillo and the PRI. Of course, it is not too late to turn him around. 

Look at the Journal story today about his plan to extend the 15% VAT to food and medicine. Fox has got it in his head that a consumption tax is a good tax. Nobody has told him about the wedge model. Yes, he talks about collecting so much revenue from it that he can eventually bring marginal income tax rates down. This is not Ronald Reagan. It is Richard Nixon and Gerald R. Ford at their worst. Your column several weeks ago told about how wonderful the fellow is, but he needs more than a pat on the back from you. He should be eliminating the capital gains tax on ordinary people, which he can probably do by executive order. That alone would get the Bolsa on the move again. If Mexico is to ever grow fast enough to catch up with the
United States, it has to begin thinking of getting rid of the VAT, which punishes new growth. As it is, Fox seems to be putting Mexico on a path that will cause it to fall even further behind.

P.S. Tell Edie we will not be able to make the Election Night party this time around. Patricia informs me we already have commitments to come into NYC on Monday night and Thursday night for other functions. I do appreciate the invitation, though. We are having our fall client dinner at the Yale Club Thursday night, with Bob Novak our speaker. If you can make it, please do.