Four Days in Washington Jude Wanniski November 19, 2001

My four days in DC last week were the most depressing I have felt going back to 1965 when I first arrived there as a journalist. The security in the federal triangle is so tight I sometimes felt as if I were in prison. In and around the government buildings, the White House and the Capitol, a visitor is stopped by a cop almost every 50 yards and checked for a photo I.D. In 1965, there were no barricades or metal detectors, but there is now enough concrete in the barriers blocking traffic everywhere to build a new Capitol building. At the National Press Club banquet for Robert Novak Thursday night, one of the "roasters" said it was an indication of Novak's importance that the banquet room was the only one in town without a metal detector.

There were several uplifting moments during my visits with members of Congress of both parties, key staff people in Congress, senior White House people, and several journalists of the front rank. And there were some that weren’t. I'll not name them directly in this report, but will rather convey impressions on the key topics I wished to address: taxes, monetary deflation, terrorism and the prospects for a broader war in the Middle East. I did try to see Fed Chairman Alan Greenspan, with whom I have not spoken since the summer of 1997 when he broke contact over my deflation arguments. He was "not available."

In my last DC visit in late March, when I warned that the negatives of monetary deflation would offset any tax cuts or interest-rate cuts, it was clear to me that policymakers would have to see the administration program fail before there was any chance of dealing with the deflation. This time, there was much more receptivity to the arguments, mainly because negative numbers have been appearing in the price indices. A number of economists in the GOP leadership offices hearing I was going to be in town, asked if I would brief them on the deflation and I did. A relatively important administration economist told me he had been reading my material these last several months and that he understood and agreed with the analysis. He gave me the impression there have been or would be high-level discussions about the concepts involved sooner or later. I'm asked everywhere if the fix can be done without gold, and I point out that gold is at least the barometer -- which Greenspan should understand better than anyone at any high-level discussions.

I've been encouraging folks in the leadership to consider bringing Sen. Phil Gramm [R-TX] into discussions, as he easily knows more about monetary deflation than anyone else in Congress. He was tied up on the Senate floor maneuvering successfully on the "stimulus package," but an aide gave me a 1974 paper he had written on deflation when he was a Texas A&M economics professor. It is only slightly out of date regarding theory and at the time, when we first met by telephone, it was almost entirely supply-side in its orientation. While I was in Gramm's office, I watched him on the closed-circuit tv killing the Democratic "spending plan" with a parliamentary maneuver that is probably the reason the stock market has been rallying these last few days. As a result of Gramm’s success, the stimulus legislation is open for back-room discussion again. With President Bush high in the polls because of his masterful handling of the war in Afghanistan, the Senate Democrats are finding it more difficult to hold ranks on economics. I was assured there would be supply-side tax cuts in the legislation the President eventually signs. If you notice, the gold price continues its recent slide, to $272 today, which reflects both lower risks to capital from terrorism and more rewards to risk on the financial front. House Ways&Means Chairman Bill Thomas [R-CA] clearly understands the importance of lower capital gains taxation and practically promised the rate would be cut to 18% in conference, if it can ever get to a Senate-House conference.

The risks on the terrorist front are still there, I believe. There is not much upside left in equities on that account and plenty of downside. The market's sharp slide last Monday when the American Airlines jet crashed on takeoff from JFK sent the DJIA down 200 points, with recovery coming only as officials concluded it was mechanical failure of some sort, not something sinister. A friend who is expert in such things sent me an e-mail on September 30 worrying that if there were Stinger missiles floating about, it would be relatively easy for a couple of serious terrorists to use one at the end of a major airport runway, firing the Stinger at close range as a plane took off or landed, and scoot. I thought this when I heard of the crash at JFK and he did too. He now says that if the first engine that dropped were not damaged internally, it could not have been a missile. Still, those risks remain. The Mujahadin used these hand-held missiles to win the war against the Russians, knocking down 600 Soviet aircraft with fewer than 1200 Stingers, and I'm told a great many are unaccounted for and that they are now made cheaply in Pakistan and China.

For this reason I spent much time advising folks on this visit that our objective should not be to get Bin Laden or Saddam Hussein, but to end political terrorism. Of course, if getting Bin Laden or Saddam Hussein will end political terrorism from the Islamic world, those tactical moves should be made. Thus far, President Bush has been successful in the Taliban campaign because he has the whole world on his side, including Iraq, one of the earliest diplomatic supporters of the Northern Alliance. There is the depressing possibility, though, that the War Party -- which is located mainly in Republican ranks, but also includes Democratic friends of Israel such as Senator Joe Lieberman of Connecticut -- think now that our blood is up, we should shift gears as soon as we polish off Bin Laden and "go after" Saddam. Tom Friedman of the NYTimes, normally a cool head in his Middle East analysis, now argues that if we make a serious military effort, the people of Iraq will rise up and treat our boys as "liberators," as the people of Afghanistan opened their arms to the Northern Alliance.

Of the several members of the War Party to whom I talked, almost all followed the intellectual leader of the War Party, Richard Perle, in saying we do not need any evidence connecting Saddam Hussein to September 11. We already know he is evil. This is actually the stated position of the President's National Security Advisor, Condaleezza Rice, who knows almost nothing about Iraq and scatters canards like pearls on the Sunday talk shows. (She now says Iraq does not even recognize Kuwait's right to exist, while Iraq had formally done so in 1994 when it gave up its historic claims.) Having Rice join the War Party when she is so close to the President tells us how close this battle will be. Fortunately, as eager as he is to take on Iraq, Senate Minority Leader Trent Lott insists there must be a smoking gun connecting Saddam to the WTC attack. Of course, if a credible smoking gun were produced, we would all be ready to take on Saddam, including the global coalition assembled against the Taliban. The best news I came away with was the fairly widespread assurance that Mr. Bush will not take on Iraq without a smoking gun, which nobody now can produce, because he would have to do so without any coalition -- even Great Britain demurring.