The Waco Factor Jude Wanniski April 20, 1993

If President Clinton had been at the edge of embarrassment last week -- with the Beltway Establishment wondering about his capacity to govern, as he promoted a laughable VAT tax at the worst possible moment — the tragedy in Waco yesterday pushed him over the brink. Attorney General Janet Reno manfully took complete responsibility for the decision to apply the full force of the federal government to a religious nut and his followers, as if he were Saddam Hussein. The President was less than macho, we all observed, in hastily advising the American people that it was not his decision. It was Ms. Reno's. The line of inquiry will now question the whole Politically Correct comedy of errors that put Ms. Reno into the position of having to prove her manhood -- as the first woman named the nation's chief law enforcement officer. The symbolism of having Mr. Clinton's first use of force as commander-in-chief result in the incineration of a Christian cult, as loony as its leader may have been, can only deepen the cultural divide that Bill and Hillary opened up with their gay military and federally financed abortions on demand. The nation's political leaders in Congress, Democratic and Republican, are now pondering how to deal with a White House that has this propensity to crash into territory without understanding the consequences.

We can already feel power shift from the White House to Capitol Hill as experienced hands decide enough is enough. At this rate, the President will rapidly become a figurehead, a ribbon-cutter unable to rally the American people behind any of his agenda. Paul Craig Roberts observes that we are getting close to parliamentary government, with Cabinet heads looking to the prime ministers of Congress for leadership. In their private newsletter today, Evans & Novak report: "His negatives are worse at this stage than any recorded since these measurements began to be kept. Democratic members of Congress from swing states and swing districts reported such negative feelings during their spring recess that the support level has continued to drop. Combinations of poor strategy, disorganization and just plain bad luck are conspiring to undermine the President's position."

The most important man in Washington at the moment is Senate Minority Leader Bob Dole, the leader of the Loyal Opposition in every sense of the term. Precisely because of the vacuum that has opened in the administration, Dole has been able to draw on his experience and refined political skills in a way that has amazingly united the entire Republican Party behind his generalship. I've known Bob Dole since 1969, when he first came to the Senate, and have since seen few who can equal him as a partisan. He has mellowed in recent years, since he married Elizabeth, but when he wants to, he can still be cutting, vicious and downright mean. This year, we've seen a new Dole completely, liberated for the first time in 12 years from having to carry the water for a Republican President. For the first time in his career, he is clearly the leader of the GOP. Instead of being narrowly partisan, though, he has carefully sensed the developing anxiety about the country's young, inexperienced President — and conveyed an impression of older and wiser national leadership.

Three weeks ago, I was quick to judge that Dole would cut a typical Beltway deal with Majority Leader George Mitchell on the President's "economic stimulus" legislation. My error was in forgetting that he does not have to follow the instructions of Treasury Secretary Nick Brady or White House Chief-of-Staff John Sununu, the folks who told him the Beltway deals he had to cut in the last four years. On "Meet the Press" last Sunday, Dole brushed aside the argument that Senate Republicans are to blame for the current gridlock, arguing the principle that it is their obligation to try to stop those policies which they believe are inimical to the interests of the nation. He also asserted that for four years, President Bush had attempted to cut the capital gains tax, and it was the Democrats in the Senate who blocked it. In that instant, it was clear Dole was not only reaching out to the growth wing of the GOP, but also that he would deliver on capital gains. He now has put all the pieces together, and his other contenders for party leadership — Senator Phil Gramm, Jack Kemp, Bill Weld, etc., have no choice but to publicly root for him.

The Senate Republicans are caucusing today. They will emerge not with a Beltway deal, I think, but with a battle plan to debate the issues along philosophical grounds. The Senate filibuster will end with Dole having re-established the principle that it is not the role of the federal government to tax citizens of South Dakota to build swimming pools in Missouri. He will also establish the predicate that will lead to action on capital gains when the appropriate legislation reaches the Senate -- that private initiative and investment can not be discouraged if we are to rebuild the foundations of entrepreneurial capitalism.

It will be not a moment too soon. The financial markets and the economy have been held together by Federal Reserve Chairman Alan Greenspan, who has built a protective wall around the Fed, thus far free from the kind of political interference he faced daily from the Brady Treasury. If Greenspan were to lose the protective cloak he has enjoyed from his ally, Treasury Secretary Lloyd Bentsen, we would no longer feel sanguine about the bond market, or any other dollar assets for that matter.

This is no sure thing. The White House has not only fumbled the pork portion of its "economic stimulus package." It has also found little support for its investment component, the ITC. Alan Blinder of the President's Council of Economic Advisors yesterday spoke at the American Enterprise Institute, complaining that with these elements gone, "there's no upward push from fiscal policy. You get fiscal contraction right off the bat," i.e, when the tax hikes show up. We can already imagine Blinder eyeballing the Fed, looking for Greenspan to take up the slack.

Similarly, the White House problems with Dole and the Republicans have pushed the President's economic team to look for an international solution. Last month we could still count on Treasury's Bentsen for providing some restraint on this score. No longer. The President has been egged into a fresh confrontation with Japan over the Japanese trade surplus and Bentsen has watched helplessly from the sidelines. On Friday, the President himself argued for an appreciation of the yen, which is only one step away from demanding a devaluation of the dollar. Even the Bank of Japan's chairman Yasushi Mieno is now ridiculing the notion that a stronger yen will decrease the trade surplus, saying it will increase it instead. This is the first time in 25 years we've seen a Japanese policymaker take this correct position in confrontation with our government.

Alan Greenspan, I'm sure, can feel the hot breath of a political inflation on his neck, which is why he was so firm last night in his address to the New York Economic Club. He is, he said, going to defend the dollar's value at home and abroad. He will even raise interest rates if necessary! As firmly as he can, he is advising the folks around the President that they can forget the Fed if they think he'll bail them out. It will not matter to the bond market, though, if the White House starts potshotting him. He can keep the dollar steady against gold for days and weeks, but he can't singlehandedly comfort holders of 30-year bonds if and when he is under attack by a President.

At some point, the older and wiser heads in Washington will take charge, but it is no longer certain that this will occur before the securities markets deliver a rebuke to the flailing Clinton White House. So far, Lloyd Bentsen's counsel has had insufficient weight in the Oval Office to prevent a run against the dollar, or the floating of a VAT, or alarming bungles in free trade negotiations with Mexico. Bentsen has succeeded, though, in making the President focus on long-term interest rates. All depends on which way the Clinton economic package falls. If the Senate Republicans simply use their leverage to humiliate the administration, the White House will be tempted to look elsewhere for a quick fix. If Dole exercises national rather than merely partisan leadership in the upcoming debate, all may turn out for the better.