March Musings Jude Wanniski March 3, 2000

BUSH VS. GORE: We must assume John McCain [R-AZ] really did not want to be President, the way he kicked away the opportunities presented him by Texas Gov. George Bush. I wrote months ago that McCain has "a screw loose," which always leads him to prefer force over diplomacy. His attack on the Christian Coalition this week showed the mean streak his Senate colleagues have been telling reporters about "off the record" for several months. We are back to where we were at the beginning of the year, with Bush the "certain winner" in the GOP. The only change wrought by the campaign thus far has been the improvement in the campaign skills of both Bush and Vice President Al Gore. The thought of either as President for the next four years is almost depressing, but it is hard to be depressed for very long when we consider the positive developments in the world political economy. We may not need much more than caretakers in Washington, to hang on and enjoy the ride.

CHINA: The chances of China gaining entry into the World Trade Organization (WTO) appear close to zero at the moment, which Beijing seems to have calculated on its own. Our reading of China's white paper on Taiwan was far more positive than anything we've seen in the major media, which continue to insist Beijing has threatened force unless Taipei comes to terms on unification by some date certain. The paper was clear in stating that it would use force only if Taiwan said eventual unification were out of the question. The solid performance of the Hong Kong and mainland stock exchanges, relative to the Asian region, in advance of the March 18 presidential elections in Taiwan confirms our optimism. China would like to be in the WTO, but has no reason to be in a hurry. As in 1996, when Beijing rattled its sabers in advance of the Taiwan presidential elections, we expect the Hong Kong and the Asian markets to rise when the March 18 election is behind them.

REFORM PARTY: We have been engaged in discussion with Pat Buchanan for almost six months on the issue of international economics, particularly as it affects our relationship with China. In a National Press Club speech yesterday, which you can view at www.buchanan.org, Buchanan was as rabid as ever in his protectionist declamations. (I did not know he would give such a speech until an hour before it was delivered.) He opposes China's entry into the WTO, which is fine with me, but he would suspend MFN for a year until China does his bidding. As President, he would demand that China buy all its airplanes from Boeing and spend at least $20 billion a year on U.S. feed grains! This would be practically a declaration of war, I advised him afterward, and the disruption that would be wrought by a suspension of MFN, given the level of cross trade built up during the last several years, would cause a meltdown of equity markets. At this level of discourse, his candidacy would be at the Gary Bauer level of irritation to the major party candidates and put the Reform Party out of business. Would that prospect be enough to draw Ross Perot back into the race?

A SUPPLY-SIDE TAX CUT: The nicest thing Congress has done all year is repeal the earnings limitation on Social Security recipients between 65 and 70 years of age -- there had been no cap for seniors 70 and older. The unanimous vote in the House shows how popular the idea had become with unemployment rates at levels not seen in 30 years. The move is the equivalent of a huge cut in the marginal income tax rate for millions of seniors -- if they choose to work. A year ago, well before the current squeeze on available labor that causes the Fed so much concern, Gary and Aldona Robbins of the Institute for Policy Innovation estimated that the end of the cap would mean 63 million more hours worked by seniors, that it would add $19.5 billion to GDP by 2008, and that the capital stock would be $6.8 billion higher than otherwise. My estimate is that the numbers will be significantly higher, with the federal government recapturing estimated "revenue losses" within two years, and state and local governments benefiting immediately. The small, but significant decline in the gold price -- to $287 from $300 -- is consistent with our analytical framework, which posits that such a "tax cut" would increase the demand for liquidity at the margin.

IMF DIRECTOR: Treasury Secretary Larry Summers is working overtime to maneuver his pal Stanley Fischer into the IMF Director's job, now that Michel Camdessus is gone. The job is of course one of the most powerful in the world as the IMF operates the international slush fund for the multinational banks. Fischer, an academic economist from MIT, has been the #2 man at the IMF under Camdessus, a partner in crime so to speak. Traditionally, Europeans get the IMF job while the United States gets the World Bank presidency -- now held by Louis Wolfenson. Because France had the IMF during Camdessus's tenure, Germany figured now was its turn, and for several months has been promoting Caio Koch-Weser, a state secretary in the Finance Ministry. Summers does not want Koch-Weser to have the job, probably because the Ivy League academics believe a German would be more independent and not play ball with them. MIT's Paul Krugman, now a NYTimes columnist, has used his column to promote Fischer, who is as bad an economist as any of the obsolete Keynesians. My guess is that it also was Summers who talked several African countries into petitioning for Fischer, as if they really care which IMF chief manages their national economies. It really is a scandal that both political parties allow the IMF to soak the taxpayers on behalf of the multinational banks, but the Establishment assures itself that rank has its privileges. President Clinton now has announced he wants Europe to keep the IMF directorship, but that seems to be a Summers chess move, as a prelude to getting Fischer a two-year "interim appointment." The Europeans now are considering a shift in their support to a candidate more palatable to the U.S. than Koch-Weser.

POLYCONOMICS GLOBAL 2000: We have just sent out the first edition of a new quarterly product, the International Tax Scoreboard, to Global clients. The 30-page report details the tax systems of the world's 44 biggest economies, ranks them in terms of growth-friendliness, and highlights the major changes now in progress in Europe. Global recipients also will be receiving today an in-depth analysis of the transformation underway in the Korean equity market, where technology-focused, KOSDAQ-listed shares increasingly are overshadowing the traditional KOSPI-listed issues.