New Economic Team, Old Ideas Jude Wanniski December 9, 2002

When President Bush fired Treasury Secretary Paul O’Neill and chief White House economist Larry Lindsey, we were bombarded with questions about where things would go from here.  Now that we know the two key replacements, John Snow at Treasury, Stephen Friedman at the National Economic Council, it is evident this will be a Big Business team as it is almost impossible to get perspectives as distant from entrepreneurial capitalism as Snow and Friedman. They are mega-corporatists whose views on the way the world works reflect the business circles they have traveled in during their careers. Snow, chairman of the giant CSX railroad company since 1991, was also chairman of the Business Roundtable for several years. The Roundtable is the purest distillation of Top-Down capitalism, a determined foe of supply-side economics in general and a lower capital-gains tax in particular. Friedman was co-chairman of Goldman, Sachs with President Clinton’s Bob Rubin, and Goldman of course stands at the tippy top of the investment banks that see to the care and feeding of the Business Roundtable. Someone close to the President obviously thinks there is something in the water coolers at Goldman, Sachs. Rubin still does not know why the economy expanded while he watched from his office and we can be sure Friedman, Rubin’s GOP partner, does not know either.  

President Bush chose poorly in picking O’Neill and Lindsey, as neither showed any interest in either entrepreneurial capitalism, supply-side economics or diagnosing the monetary deflation that afflicts the economy. There was no reason to think he would choose wisely in naming their replacements. If you have watched the weekend talk shows, you may have noted that the only person who made any sense at all in analyzing the weakness of the economy and how to cure it was Steve Forbes. He was supply-side perfect in his advocacy of genuine supply-side tax cuts instead of the Keynesian junk devised by Lindsey, and a shift in Fed policy away from interest-rate cuts to liquidity expansion. As the new Bush team will not be completed until we see who is appointed to the secondary posts, there is always the possibility the White House will realize how top-heavy the administration has become with the Old Boy network. 

In 1977, when I was a fellow at the American Enterprise Institute, researching and writing The Way the World Works, my little office adjoined Snow’s little office, both just down the hall from the office of former President Gerald Ford. AEI, then as now the “think tank” that serves the corporate establishment, let me in through the good graces of Irving Kristol, a resident AEI scholar, because I was associate editor of The Wall Street Journal on a leave of absence. Snow, who had been deputy transportation secretary, was among a dozen expatriates from the Ford administration at AEI, in decompression mode. A pleasant, courtly fellow, as many corporate chiefs tend to be, Snow had a PhD in economics, but never seemed much interested in the macro work I was developing and defending at the frequent in-house lunches. I would joke that I could hold forth on any subject except railroad law, which was all he seemed interested in, so we never had a disagreement. We can be sure Snow will never make an off-hand comment that might embarrass the administration, a la O’Neill’s many curious observations. He will be dull and boring, as safe as is humanly possible. His job will be to sell an economic “stimulus” package that is already shaping up along Business Round Table lines. We’ll wait to see who he gets as his deputy. 

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I’m more optimistic on Iraq after Baghdad dropped 12,000 pages of data on the UN inspection team. The national news media is still behind the curve, thinking the President will be able to pull the trigger when he finds a “material breach” in paragraph four of page 9,569. In order to pull the trigger, Mr. Bush must now jump all the hurdles he had to agree to jump in order to get congressional and United Nations approval of his demand for the use of force. He is absolutely, positively not going to “go-it-alone,” thanks to Secretary of State Colin Powell. Where last week the plan seemed to be withholding insider intelligence until the Pentagon hawks could examine the declaration for holes in a zero-tolerance game of “Gotcha,” the hawks are now stalled by the decision of Hans Blix to withhold some of the documents until they can be studied by the inspectors. The hawks who insist they have intelligence proving Iraq is hiding WMD need all the documents to make sure Iraq has not put them in the declaration. 

The President now confronts a political challenge of his presidency from Al Gore, who was letter perfect this weekend on ABC’s "This Week." Gore praised the President for what he has done thus far, brushing off suggestions (from Senator John Kerry of Massachusetts) that Mr. Bush pumped up war talk for the midterm elections. But he was emphatic in saying that if Hans Blix and his inspectors actually do find weapons of mass destruction, force should be used to destroy the weapons, not to start bombing Baghdad. The President will clearly have a huge fight on his hands if he decides to invade Iraq without evidence solid enough to persuade the Security Council that Saddam has an ongoing WMD program. 

Gore was more impressive Sunday than I have ever seen him, clearly shed of the Clinton skin he carried with him into the 2000 election. Gore still does not have a top-notch economic advisor, and flounders on the those issues, but if he locates one who can fill the vacuum on entrepreneurial capitalism, he would be formidable. I’d wondered how he could get away with offering a single-payer health-care system, a la Canada’s, as a platform plank, which he did a few week’s back, but in his Sunday appearance he made it clear this is a work in progress. He also shied from saying what he would do on tax policy, saying he would present a plan of his own in January. 

The Louisiana Senate race, won by Democratic incumbent Mary Landrieu in Saturday’s run-off, must now be considered a victory for the anti-war forces. She was supposed to be a sure loser after her 20-point lead melted as she promoted herself as a Bush supporter. She did not run against the war, but President Bush and Vice President Cheney spent enough time in Louisiana beating the tom-toms that the black vote came out of the woodwork in opposition once Landrieu switched to criticism of Bush. Northern Republican political operatives still assume that Southerners will support any old war. The Congressional Black Caucus sent several anti-war members to help in the Landrieu race and in a congressional run-off that was also supposed to be won by the Republican but went to the Democratic challenger. 

Wall Street’s reaction today is clearly to the disappointment in the new economic team, just as Friday’s 120-point upward swing followed enthusiasm with the news that there would be a new economic team. Personnel is policy, most especially when it comes to finance and economics. Wall Street may now have to await yet another shake-up in the Bush administration or sit back and await a Gore or Kerry administration.