What to Expect from L.A. Jude Wanniski May 6, 1992

The Wall Street Journal observed Monday that the Los Angeles riots "did not come during the Reagan economic boom but after a lingering recession." This suggests we might blame the riots on the Bush Administration, which should be blamed for the recession, except the Journal really went on to blame the riots on the social engineering of the Great Society. The only economic policy advice the editorial offered was elimination of the minimum wage, a hoary right-wing nostrum that sees the inner-city problem as a surplus of labor rather than a scarcity of capital. It's easy to see Marlin Fitzwater, along with the White House staff, reading the editorial and, later in the morning, announcing that the riots were caused by programs designed a long time ago, not in the Bush Administration. From the moment the L.A. fires began, the bankrupt Ruling Class has been thoroughly occupied blaming each other for the problems of the inner city. Only Housing Secretary Jack Kemp has tried to resist finger pointing, instead urging action on the Enterprise Zone plan he has been flogging for a dozen years. 

The Watts riots of 1965, as we remember, came not after a lingering recession, but in the midst of the great boom that followed the 1964 tax cuts. The irritation that lit the fire was blatant racial bias in employment. The emerging boom was a white boom! To capture the profit opportunities, white employers were hiring like crazy, but hired "Negroes" only as a last resort. I was a columnist for the Las Vegas Review Journal at the time, in a city that was really booming. The casinos were advertising for white dealers all over the Southwest. Not a single black worked in a Nevada casino at the time, except with mops and brooms, but after the Watts fires spread to the Las Vegas Westside, the NAACP negotiated the first black dealer jobs on the Strip. The Watts riots were of incredible importance in breaking through all the Jim Crow laws and practices. Prior to the riots, it was commonplace for white adults to assume that Negroes were culturally passive. ("That's the way they prefer to live.") There was no doubt that the riots of 1965, which began in February and carried through the summer, demolished that myth.

The WSJ is of course wrong in now suggesting that if the recession had not lingered, or if the Rodney King verdict had occurred during the Reagan years, Los Angeles would have remained at peace. As long as the Ruling Class does not get the message, we must assume that the L.A. riots were only a drum roll for a long hot summer of '92. The message, as in 1965, is that Americans at the bottom of the pyramid are not happy to have been left behind during the Reagan-Bush years. While employed workers moving up through the ranks gained strongly during the 1980s, pre-tax wages of entry level workers actually fell between 1982 and 1989, the trough and peak years of the Reagan boom. A disproportionate number of these entry level workers are minorities, of course. There is still a "credit crunch" throughout the United States that makes life uncomfortable for professional white males. But the inner cities are absolutely starved for capital. Eliminating the minimum wage is not the answer. When there is no capital available, the price of labor must drop to uncivilized lows to clear competitive levels. (In Russia, where the people have no capital because the state possesses it all, "freeing prices" would force the wage rate to a few dollars per month!) The only capital available in American inner cities is that which Asian migrants bring with them to set up their shops. Most of the money capital made available to black enterprise from white America in the 1980s came from Drexel Burnham Lambert, at the instigation of Michael Milken, who can no longer serve that function. It is the Junk People of the inner cities who are shouting at us. 

Kemp has been bold in arguing that the answer to the inner cities is the elimination of the capital gains tax in  designated Enterprise Zones. The national press corps doesn't want to hear that answer because it is inconvenient. Everyone knows by now that eliminating capgains benefits the rich and is unfair to the poor. How can Kemp be saying it is the answer to the L.A. riots? On the "Larry King Live" show last Thursday, Kemp appeared with Rep. Charles Rangel, a black liberal Democrat who represents the South Bronx and is the chief Democratic sponsor of Kemp's Enterprise Zone legislation. Indeed, early in 1989 Rangel insisted that then House Speaker Jim Wright include Enterprise Zones on the Democratic agenda, including the zero capgains provision. When Kemp made his point to Larry King about the importance of capgains, Rangel got uncomfortable and said he didn't think it would do that much good. Still, he was in a position to say he supported Kemp, but that President Bush really did not have his heart in it. The legislation did, after all, get passed by Congress this year, as part of the Democratic growth package. Rangel pointed this out and said the President had vetoed it. He didn't say, as Kemp should have, that the Democratic leadership could pass Enterprise Zones knowing it would be vetoed because of the other tax-increase provisions of their cynical legislation. 

Amazingly, Ross Perot was asked on "Meet the Press" Sunday if he supported Kemp's Enterprise Zones. Perot said if somebody explained to him what was in the legislation, he would probably support it, an indirect expression of his confidence in Kemp. Then, when asked what his solution was, Perot said he would eliminate the capital gains tax! He said because investments were much riskier in the inner cities, the rewards for success must be much greater. When the gross is the net, that's a powerful inducement to invest, he said. Hallelujah! He gets it! The press panelists were dumbfounded by his answer, which was not supposed to come from a Rockefeller Republican. Having demanded specifics from him, they finally got a whale of a specific and chose to ignore it. The New York Times on Monday reported Perot had no specifics. 

What can we expect, though? Will there be Enterprise Zone legislation this year? On Capitol Hill, as far as I can tell from soundings, the expectation is that nothing serious will happen, unless there are more riots. The assumption has already settled in that L.A. was a blip, an isolated case associated with the Rodney King verdict, and that it will soon blow away. In GOP circles in Congress and around the White House, there remains the view that nothing really has changed, and if the President asks for legislation, it will be larded up with the same old social pork, tax increases on the "rich," and enough foo-foo to demand a veto. Rep. Maxine Waters, the Democrat from the L.A. district that rioted, is adamantly opposed to any form of capitalism for her constituents, opposes Enterprise Zones, and will be happy with nothing less than Marshall Plan cash handouts for one and all.

What should happen? The President should do what Rep. Vin Weber recommended two years ago: declare a conservative war on poverty! Weber is now recommending the President demand that Congress pass his legislative growth agenda by July 4. He thinks the climate is such that Congress might actually pass a positive package. It's ironic, he says, but the Rodney King verdict might be the best thing that happened to the country this year. It's the only event that has moved the White House and Congress out of their torpor to focus on real issues -- instead of the House bank, pay raises, and freebie travel tickets.

My guess is that the President will at least reject the advice of Treasury Secretary Nick Brady and attempt to work on an action plan. We'll see a flurry of action rhetoric. It's so hard to do anything as President when your Treasury Secretary is working against you, though, so there will be no cutting edge to the Administration program. Without any such encumbrance, Ross Perot may continue to work his methodical way into the hearts of his countrymen, steadily climbing in the polls to a point where it will be evident he can be elected President. This may be the most we can expect from the L.A. riots. It may be quite enough.