Reading the Papers Today Jude Wanniski July 16, 1997

Some instant reactions to stories in today’s papers:

CHINA: The Senate hearings that are supposed to show the Chinese government approved a plan to funnel money into the U.S. election process last year are headed for failure. The “proof” involves some money drawn against the Bank of China, which is a commercial bank as close to the Politburo as the Bank of America is to Uncle Sam, and partial Chinese government ownership of a company alleged to be involved in shady dealings. There is no smoking gun, as evidenced by the dispute among Senators who got a briefing from the FBI yesterday on whether or not there was even a Chinese “plan” that was never carried out [“Senate Panel Is Told Huang Kept Ties to Company Linked to China,” NYT page one]. An editorial, page A18, “Open the China File,” asks for release of the disputed material so we can judge for ourselves. On page A3 of the NYT: “Economic Reformer Likely to Be Premier of China,” i.e., Zhu Rongji. Marvelous news! Zhu, 69, is as close as you can get to a supply-side Jack Kemp in China. On page one of the WSJ, “China Is Encouraging Private Home Buying, And it Is Rising Fast.” We learned this from Ambassador Li Daoyu at our Boca Raton conference in February. Imagine vast suburban tracts housing 1.2 billion people, with two-car garages and white picket fences. No kidding.

THE RICH AND TAXES: The “Tax Report” on page one of the WSJ says that in 1994 the top 1% of income earners paid 28% of income taxes, the top 5% paid 47% of the taxes, and the top 10% paid 59% of the taxes. On the NYT op-ed, p. A19, a rich guy named Peter Salwyn, who has a PR company, boasts that he pays high taxes and is proud of it, and wishes Washington wouldn’t cut taxes. Sorry, Peter, the decision to cut or raise tax rates has to do with finding optimum rates that would help the low-income classes enter the higher income classes, where they might start their own PR firm in competition with yours.

CURRENCY FLUX: The WSJ lead editorial, p. A22, “Devaluing Southeast Asia,” is hopelessly confused, as are the other related articles, “Currency Turmoil Derails Brazil’s Market,” p. A18,” and “Primed for a Selloff, Brazil Stocks Plunge on Currency Fears,” p. D1, NYT, which relates the Brazilian stock selloff to speculation of a devaluation of the real following recent devaluations in Thailand, Malaysia and the Philippines. All the world’s currencies are coming under pressure to one degree or another because of the decline in the dollar price of gold, to around $320 from $383 last November, and the yen price of gold, to ¥37000 from ¥44000. The “devaluations” of small-country currencies are more in the nature of readjustments to the U.S. deflation. The WSJ editorial, which meanders without a dollar/gold or Fed focus, is probably a reprint from the Asian edition. If it were written in New York, it probably would have been more useful.

DOOM: Tongue in cheek, William Safire warns in his NYT column, “Good News Is Big News,” p. A19, that the current general euphoria is about to end: “You see this article in Foreign Affairs titled ‘The End of the Business Cycle?’ and assuring baby boomers no babybust is ahead? I say hogwash. You’re going to see a correction one of these days that will curl your hair, followed by a year in the doldrums before the next recovery. Those of us now conservatively 5 percent in cash will laugh.”

BOOM: Jack Kemp met with President Clinton in the Oval Office yesterday, urging him to index the capital gains tax retroactively. Treasury Secretary Bob Rubin peed on the idea, although Kemp came away thinking Clinton would love to do it, except for his knucklehead Treasury Secretary -- who is leaving in December, ha ha. Now, there would be a boom!