Howard Baker Jude Wanniski March 3, 1987

Our instant reaction to Howard Baker as chief of staff was vaguely negative, concern that he is so different in outlook from President Reagan that the last Reagan years could see an unraveling of the agenda that has advanced to date. But I spent Monday in Washington, meeting with senior administration people who I respect, and calling others outside the administration who are knowledgeable. My reaction is now vaguely positive, with more upside potential than I'd felt was possible with, say, Drew Lewis. I've known Baker since 1967, when he was a freshman senator, and recall being awed by his ability to absorb masses of detail. But he is not an advocate, does not conceptualize, and limits his vision to the horizon. In many ways he is like James Baker III, without an agenda of his own, which suggests this will not be the "Baker Regency" that worries The Wall Street Journal. Not a risk taker, it was HB who characterized Kemp-Roth as a "riverboat gamble," rather than snake oil or voodoo. All this is fine in a chief of staff in a RR White House. He has great political maturity, which leads me to think he will not feel threatened by over-the-horizon ideas. At best, he may permit new, young Reaganites into the West Wing; at the least he will permit outside ideas to flow through to the President. Conservatives fear that he will trim the President's commitment to the Strategic Defense Initiative in order to do the arms control deal with the Soviets that Nancy wants. But Gregory Fossedal, a leading SDI strategist at the Hoover Institution, told me he was actually "ecstatic" at HB's appointment, persuaded that he is a true agnostic on SDI, which is perfect for the C-of-S slot. Now that Gorbachev has agreed to separate the Euromissiles from Star Wars, there can be an arms control deal without infringing on SDI. There will almost certainly be an RR-Gorby summit late this year to nail down the Euromissiles. I'm not quite as sanguine as Fossedal, but some of his optimism is based on pre-Reykjavik dealings he had with Howard Baker's staff on the SDI issue — and he is right about HB's agnosticism. There's also been concern about Baker's economic tastes turning toward tax hikes and such. But this is of much less concern to me as long as JBIII remains at Treasury and Jim Miller, who has been a superb OMB director, stays too. HB, as Senate Majority Leader in RR's first term, never actually joined the Domenici-Dole austerity team, but helped the President in the riverboat gamble. The Wall Street Journal identified him as being closest to Alan Greenspan, which would be worrisome if true. But HB is now more inclined to accept the fact that the riverboat gamble paid off for Reagan, and his views are more supply-side than the WSJ indicated, about on the level of Martin Anderson, who he was close to in the first Reagan term. He's likely to back Jim Miller's budget maneuverings with Congress (Miller is very enthused about the appointment). And the protectionist threat will now be worked by a chief-of-staff who knows both the people and the mechanisms of power on Capitol Hill with unmatched sophistication. The economic climate will also be favorable, especially with the success of Jim Baker at the Paris G-5 meeting on Feb. 21. (The Baker-Darman "riverboat gamble" with exchange rates paid off when both Germany and Japan agreed to greater fiscal stimulation than expected in exchange for a serious commitment to hold the dollar from a further slide. A sizeable "war chest" has been assembled, we think, to defend the dollar against speculative flows.)

Our biggest concern with Baker remains an uncertainty about the personnel he will bring in; his key staff people are extensions of his personality, and he could use a spark of vitality around him. The departure of Donald Regan means the end of speculation about Beryl Sprinkel as Fed chairman, but we now must worry that Volcker will not want a third term and Baker will in fact lean toward Greenspan. Of course, we're rooting for Volcker, whose remaining problem with the administration is his opposition to bank deregulation. But overall, we're moderately encouraged by the Baker appointment as chief of staff, but will watch closely for signs of trouble.