Notes on the Revolution XXXII Jude Wanniski March 29, 1996

LINE-ITEM VETO: Remember the line: “Be careful what you wish for, because you might just get it.” Well, country-club Republicans have for years advocated a presidential line-item veto, in the belief that Republican Presidents then could easily knock out pork-barrel spending by the irresponsible Democratic Congress, and thus balance the budget. They have succeeded now at the moment that we have a Democratic President and a GOP Congress. We have never liked the idea, believing it would simply shift power from the legislative branch, where that power belongs, to the executive, who is in no position to assess the practical and parochial interests of 435 congressional districts. The legislation going to the President takes effect in the 105th Congress, and will not enable him, whether Democrat or Republican, to do any serious whacking at entitlement programs anyway. All it would do is increase the ability of the Democrats to remind their constituent base that the voters would be foolish to put Bob Dole in the Oval Office, with the power to knock out the spending crumbs that enable the poorest communities to make ends meet. On the margin, the line-item veto would only make it a bit harder to elect Republican Presidents.

MINIMUM WAGE: Yes, yes, minimum wage legislation is economically inefficient. But so are all government interventions in the marketplace. From the perspective of the Democratic constituency, a phased-in increase in the minimum wage to $5.15/hr. from $4.25 increases the take-home pay of tens of millions of workers. Their employers don’t suffer serious competitive disadvantages because they all face the same higher domestic wage rates, which they can meet uniformly by raising the prices of their widgets. The $5.15 rate is not so high that it would reduce competitiveness against foreign traded goods, because most workers at these low wages are in untradable services. The minimum in the early 1950s of $1/hr. would have to be at least $10 today to produce the same purchasing power. The Republican leadership in Congress is too dense to figure out a way to give the Democrats an increase in the minimum for a cut in the capital gains tax, which is the perfect trade-off we have been advocating for as long as I can remember. The capgains cut would increase the demand for labor, making it almost impossible to find workers at $4.25 anyway. The Democratic push for the higher rate is part of their effort to roll back the GOP gains of 1994. The GOP has not yet developed a strategy to counter this, except to complain about the AFL-CIO soft-money political slush fund of $35 million.

HEALTH LEGISLATION: President Clinton threatens to veto the health-care legislation that has passed the House if it clears the Senate, and we would not mind a bit. As with practically everything else in the Contract With America, the House Republicans put the cart before the horse -- building their reform around Medical Savings Accounts in a way that benefits the middle class, but does nothing to fix the problem of the 47 million Americans who are not covered and couldn’t afford to contribute to the Medical Savings Accounts as designed. The health care problem really is not going to be resolved without tax reform that expands the economy fast enough to meet the concerns of the Democrat constituency. As long as the GOP pushes in this direction, it provides yet another reason for the national electorate to re-elect Bill Clinton and wait for a Republican leader who will put the horse before the cart.

DOLE’S VEEP: Bob Dole will make up his mind on his running mate the same way he makes all other political decisions -- by divining the establishment consensus. We note that Horace Busby, an Old Guard Beltway Democrat who once worked for Lyndon Johnson, writes in his political newsletter this week that the political chatter at Washington’s watering holes is focusing on Dole’s age. If Dole has a disabling stroke after the San Diego convention, Busby notes, Dole’s running mate would become the nominee. It’s trickier, he says, if Dole is put out of action prior to San Diego: “But, we understand, current thinking is that the convention would be presented with a consensus choice: Jack Kemp. Those who ran against Mr. Dole this year are thoroughly discredited, would receive no consideration.” As the party movers and shakers think about Dole’s age, the same rationale applies even if he remains in good health. The chance of death or disablement is high enough between age 73 and 77 to cause the consensus to add extra weight to the possibility that the Veep will become President. When New Jersey Gov. Christie Whitman called Dole this week to take herself out of contention, she did so with the almost certain knowledge that she would not be picked for a variety of reasons anyway. The biggest being that she is still only halfway through her first term as governor, with no assurance she is doing well enough to win re-election, let alone be prepared to assume the most important job on earth. We continue to believe that as Dole gets closer to San Diego, he will find the consensus forming around Kemp, the logical choice to unite the party and help the GOP win the blue-collar and black votes it would need to gain the White House and retain the Congress.

CHINA: In our "Global 2000 Emerging Markets Bulletin" produced last week on the Taiwan elections, Cheryl Hart observed: “Behind the scenes contacts on both sides of the Taiwan Strait suggest tensions will ease in coming weeks. We expect President Lee Teng-hui to win tomorrow’s vote by a substantial majority and military intimidation to come quietly to an end shortly thereafter.” As it happened, shortly thereafter turned out to be 24 hours. The China bashers in our press corps totally missed the point of China’s military maneuvers, thinking they were designed to discourage the Taiwanese from voting for Lee. From Beijing’s standpoint, the outcome was an enormous success, as it practically shattered Taiwan’s pro-independence Progressive Democratic Party. The live ammo also spoke directly to Washington about the seriousness of Beijing’s claim to Taiwan. Within 20 years, Taiwan will be as completely integrated as Hong Kong. The only way this would not happen is if China became economically destabilized to the point of fracturing into several pieces, as we saw in the USSR. This won’t happen because the Chinese capitalists of Hong Kong and Taiwan already are heavily into commercial integration of the economies. Democracy in Taiwan is an important laboratory for the mainland, which is moving in that direction even though we might not see it on the surface.

RUSSIA: As unpopular as he has been, and despite the endless series of economic blunders he has made as president, Boris Yeltsin still is closing the gap in the June elections with Gennadi Zyuganov, the Communist candidate. Zyuganov is making all the right promises about preserving the fragile democracy and the beginnings of a market economy -- even while bolstering the state enterprises. For a people who had 75 years of broken promises from the Communist Party, it would not be surprising to see Yeltsin pull out a victory at the last minute. The one thing he does have going for him is the stability of the ruble during the past several months, as Moscow has been learning how to ignore the International Monetary Fund nitwits on monetary policy and bond finance. By bringing back Anatoly Chubais, the reformer most responsible for the ruble stabilization, Yeltsin made the correct statement. Trouble is, the people have seen Yeltsin’s promises broken again and again, which could mean a ruble devaluation to benefit the corrupt state export industries as soon as he gets past the voters. There are no good track records on promises kept in Moscow.