Critical Economic Policy Meeting Jude Wanniski September 26, 1991

Tomorrow (Friday's) economic policy committee meeting at the White House is assuming critical importance as the result of a private White House public opinion poll. The poll, discussed Wednesday morning with the President and GOP congressional leaders, indicates 62% of those responding believe the country is on "the wrong track." This is the most closely watched poll at the White House, because it most clearly illuminates the President's potential re-election problems. In late September 1983, when Ronald Reagan was at this point in his tenure, facing re-election in 1984, the poll reported 65% of those responding believed the country was on the "right track." The GOP congressional leaders are all urging a "growth package" to get the economy out of the recession in more decisive fashion. The folks around the President who gave us the Budget Agreement -- Brady, Darman, Boskin — have no choice but to point to Alan Greenspan as the continuing cause of the economy's difficulties, and they point to selected statistics that indicate "Prosperity Is Just Around the Corner." Politicians may listen to that baloney, but not when the track poll comes in at minus 62. The President could still win re-election with that kind of number, but only if the Democrats nominate someone who would clearly put the country on an even worse track.

For one hour tomorrow, Greenspan will have the President's undivided attention. Or vice versa. Fed by Michael Boskin's M-2 numbers, the President will want to know from Greenspan why he cannot get the money supply up. President Nixon, who worried about his track poll in 1971, used to do this routinely to Arthur Burns, who would rush back to the Fed and persuade his fellow governors to do what he would never have recommended as a professor, far from the Potomac. Burns should have told President Nixon he should not have allowed his White House advisors to talk him into doubling the capital gains tax. There is no record Burns did so. The result, though, was the collapse of Bretton Woods and the greatest inflation in U.S. history.

Back when he was Chairman of the Council of Economic Advisors to Presidents Nixon and Ford, in 1974 after the damage had been done, Greenspan routinely caved in to nonsense he would never have advised as a private economist: WIN buttons, an income-tax surcharge, and an even easier monetary policy. Tomorrow, a more seasoned Greenspan goes into this political lion's den. His only defense is the argument for a capital gains tax cut, which he favors of course, and which the President favors. When Greenspan brings it up, as he almost certainly will, the President will say, "Yes, yes, but what about the money supply?" Greenspan's optimum response should be, "Mr. President, only a cut in the capital gains tax can get this country back on track. Money supply will automatically increase as profit opportunities expand. Trying to increase money supply in the absence of new profit opportunities will only scare the government's creditors, the bond market." Which is what we'd expect would happen if Greenspan loses this encounter, emerging from the Oval Office wondering how he's going to talk his fellow Fed governors into more M-2.

My guess is he will do all right. Which is not to say we'll get a more aggressive posture from the White House on capital gains. There are plenty of folks around the Oval Office who think the track poll will improve if the President embraces their particular pet project. And the Budget Agreement hasn't cracked yet. But something or someone should crack tomorrow.