Things Are Better Than They Look Jude Wanniski November 11, 1988

The turmoil in the financial markets and the beating the dollar is taking are not as worrisome as they seem. In large part they reflect the temper tantrums that are being thrown by the various losers in the presidential contest: Senator Dole, Martin Feldstein, the Democratic establishment and their economists and agents in the press. Plus everyone else inside the Beltway who is furious at the voters for electing the new supply-side George Bush and who are using this lame duck period to try to set the agenda whether he likes it or not. It's the best time for these folks to try to pull this off, with President Reagan mentally back on the ranch, Bush unable to assert himself because he still isn't President, Jim Baker unable to assert himself because George Shultz is still SecState (and hating the idea of leaving), and Nick Brady a babe in the woods at Treasury, not having any idea of the power play underway. Gov. Dukakis, remember, campaigned on an economic policy mix of fiscal tightness, monetary ease, which is at the center of the power play — tax hikes "to prevent a catastrophic collapse of the dollar" (from Senator Dole and most of the Keynesian economists out of the Carter administration quoted daily by their pals in the press), plus a sinking of the dollar to reduce the trade deficit and thus avoid the need for a tax hike (by Feldstein and the same Keynesian economists out of the Carter administration).

For Brady to tell the financial press that Feldstein "is a good economist, but he speaks for himself" on sinking the dollar, only fueled the speculative fires that Brady, Bush & Baker really want the dollar pounded down during this lame-duck period. He should have blasted the whole idea, and would have if he had any real conviction on the subject, which he doesn't.

My strong sense remains that the Bush team will be stronger than it might seem once it is in place, that these temper tantrums will wear themselves out with no real affect on the policy course that will unfold early next year, that the dollar will rebound once this is apparent — with the Fed and other central banks reaffirming G-7's ranges, and with the Bush team settling down to sell a flexible freeze and no new taxes to Congress, although the forces of darkness (FoD) will gnash their teeth throughout.

Who gets chief of staff is still a bit of a worry. We don't agree with "conservative leaders" that NH Gov. Sununu is the right man, simply because he doesn't know the first thing about the power mechanisms of the executive branch and has never lived in DC, yet somehow thinks he can step right in. Craig Fuller or Bob Teeter would be better, Dick Darman best of all, although the press corps insists he's definite at OMB (probably because the FoD are alarmed that he'd be chief of staff). Darman hasn't yet been asked for anything, although I'm sure he will.

There's good news and bad news on one FoD we keep an eye on, Charles Dallara, one of JBIH's most unusual pals, a holdover from the Carter years who would be more comfortable with Dukakis, we think, than with Bush. Dallara, says the WSJ, will not be JBIII's econ undersec state (the good news), but will have "a major policy-making job" at Treasury. Dallara, who believes in tight-fiscal, easy-money, a protege of Fred Bergsten, a major foe of Reaganomics, is not the kind of help Brady needs. But as long as Brady gets some real help, which seems likely, Dallara's influence can be limited to minor sabotage. Chin up, it's only life as usual in our nation's capital.