President Bush's Press Conference Jude Wanniski November 5, 2004

How many times can we recall President Bush these last four years giving a press conference or making a speech and watching the stock market sag in response? In his first post-election press conference yesterday, we saw Wall Street cheer as he went through the questions about his domestic agenda with perfect ease, confidence, and a fresh commitment to bottom-up, entrepreneurial capitalism. Obviously, his clear re-election victory along with G.O.P. House and Senate gains has stoked his belief in the political powers of supply-side economics. We know he stressed tax reform, tort reform and Social Security reform in the closing days of his campaign, but to hear him forcefully announce that he would proceed immediately with plans on both was impressive now that he has the wind at his back.

While I did vote for Senator Kerry on the single issue of Iraq and foreign policy, I did remind myself while watching the press conference that, in a fairly conducted election, the best man always wins. There’s no doubt the electorate had everything it needed to know to make the right choice. When this is clear, I bow to the superior wisdom of the political market. The President helped yesterday in restating his commitment to a Palestinian state when it was pointed out that his chief ally in Iraq, British PM Tony Blair, has asked him to make the Middle East peace process his highest priority. The fact that the President has not really done much in that regard since he made the commitment to do so in 2002 is less important than the pressure on him now to deliver in his second term. The likely, imminent departure of Yasir Arafat at this critical juncture provides a new opportunity for a diplomatic breakthrough with a new Palestinian leader, but it is not clear that Mr. Bush will take the necessary steps with the Israelis to make that possible.

The Republican victory will make it much easier to tackle the economic issues on a growth track, especially with 55 G.O.P. Senators in place and Democrats pondering the defeat of their Senate leader, Tom Daschle, a fierce opponent of the conservative, supply-side agenda. A President Kerry would have pushed for the Kyoto Treaty on global warming, but that will be a dead letter now. Kerry had also pledged to nominate only High Court judges committed to Roe v Wade, which would have drained the energies of the Senate without let-up, probably for four years given the likelihood that several vacancies will occur. Mr. Bush has more wiggle room. Not having promised to nominate only judges opposed to Roe, he will be able to pick judges not openly declared on Roe. At his press conference, the President only committed himself to pick strict constructionists, not judges who want to legislate their personal opinions from the bench.

How likely will it be that he can produce the economic reforms in his ambitious agenda? The most likely success will be on tort reform, with the Senate taking note of the several ballot initiatives limiting medical malpractice awards passing by overwhelming margins.

On tax reform, the President yesterday indicated he would insist on “revenue neutral” legislation. This will make it more difficult to achieve, given the fact that when you move the furniture around in the process of simplification, there will be losers and winners. If the effort is going to be a serious one, we’ll have to see if the House, the Senate or the administration dominates the process. The 1986 Tax Reform Act, remember, was the product of a Senate compromise that lowered marginal income-tax rates and raised the capital-gains tax. We believe it led to the October 1987 stock-market crash, because the higher capgains rate – 28% instead of 20% -- was not indexed for inflation. Some of the loopholes closed to gain revenue on static analysis also battered commercial real estate and produced revenue losses. The net effect was to increase the complexity of the tax codes. Republicans have learned a thing or two since then and have a good shot at producing the kind of simplicity that sharply reduces the estimated $300 billion annual cost of tax preparation and collection. (Sarbanes-Oxley was not mentioned in the presidential campaign, but we note that in a speech in Reno two months ago, Treasury Secretary John Snow mentioned it with hints that it would be revisited in order to reduce the enormous regulatory costs it has placed on almost all American business.)

Will Snow remain at Treasury? Will there be any additions or subtractions from the Bush economic team? There is a need for some fresh faces on the White House staff and at Treasury and I seriously doubt the President will stray from the wide pool of supply-side talent available. Of course President Bush will get to name the next Fed chairman – and it won’t be former Treasury Secretary Bob Rubin or Princeton’s Alan Blinder – two possibilities that gave me heartburn when I cast my ballot for Kerry. There’s no point speculating on who it might be, in 2006. The more immediate issue is the worrisome creep in the price of gold, which will translate into higher inflation numbers sooner or later and perhaps spur increases in interest rates. There was not a murmur about monetary policy in the national elections – a lost opportunity for Kerry. The only way to reverse the process is to directly target gold/commodities, but there’s no talk of doing that either. All the other ambitious economic plans the President laid out yesterday could be threatened if the dollar gets away from us.

As for Iraq, there are no signs yet from the President that he understands he came close to losing Tuesday because of the war. In his press conference, he spoke of the broad coalition that supported the military intervention in Afghanistan, but was less cheerful in discussing the situation in Iraq. Indeed, when asked about the imminence on a major offensive against Falluja, he said: “In order to be a free country, those who are trying to stop the elections and stop a free society from emerging must be defeated… Now we will work closely with the government. It’s their government. We’re there at their invitation.”

Not exactly, given the fact that we removed a legitimate government by force and installed the Allawi government that invited us to stick around. I may be wrong, but if we proceed with an offensive against Falluja, a city of 300,000, we might have to level it in order to bring it freedom and democracy. The neo-con belief that runs through all the President’s Middle East policies is that “the Arabs only understand force,” and because of their religion and culture, democracy must be forced upon them. We’ll soon find out how long or short the honeymoon might be. Keep your fingers crossed.