State of the Union Jude Wanniski January 28, 1998

When John F. Kennedy was assassinated on November 22, 1963, the Dow Jones Industrial Average fell 22 points, the equivalent of 220 points today. In the first hours, the market could not ascertain whether it was an isolated event or a conspiracy that would undermine the foundation of the nation and the economy. After President Lyndon Johnson was sworn in, his first words to the nation five days later discussed the tax-cut proposal JFK had made the previous June. “No act of ours,” he told Congress, “could more fittingly continue the work of President Kennedy than the early passage of the tax cut bill for which he fought all this long year. This is a bill designed to increase our national income and Federal revenues, and to provide insurance against recession.” The tax bill had been stuck in Congress as GOP fiscal conservatives led by Sen. Barry Goldwater of Arizona argued the budget had to first be balanced. The day before LBJ addressed Congress, as word of the tax cut was leaked to the press, the DJIA rose 33 points. After LBJ made the above remarks, the DJIA rose another 9, the total wiping out the 22-point loss and adding 20 of its own, a swing comparable to 440 points today. 

It is worth reviewing this history at the moment because there is so much heavy breathing coming from financial pundits connecting any down-drafts in stocks or bonds to the Clinton scandals. As we noted Monday in the FedWatch report of David Gitlitz, there may be inverse political risk associated with a potential Clinton resignation. Power has already shifted from the White House to the Republican Congress, the kind that shifted from the 104th Congress to the President during the two government shutdowns orchestrated by House Speaker Newt Gingrich. To hear the President fantasize last night about his Big Government wish list and then hear Senate Majority Leader Trent Lott outline the Republican themes of tax simplification and devolution of power from Washington to the family, it seems more likely the President’s troubles will not hurt the markets or the economy. It remains my belief that Bill Clinton will be forced to resign within the next few months. This will occur as the unfolding cascade of sordid stuff that lies ahead will lead the power brokers of the Democratic Party to conclude that the electorate this November will take out its anger and resentment on their candidates at the federal, state, and local level. Politics is about power and about money. If the Democrats believed they would be crippled even more by a Clinton resignation, they might rally around and keep him in place. In advancing to the presidency, Vice President Al Gore would do just as well in keeping the Republican Congress from going overboard in downsizing government faster than the private economy can take up the slack.

 
This is now the advice of former White House chief of staff Leon Panetta, who still was in the White House when Monica Lewinsky was having her “special” relationship with the President. Of all the comments I’ve heard, Panetta’s was the most pregnant. It had to be Panetta’s decision before he resigned to have Ms. Lewinsky transferred to the Pentagon to get her out of the President’s lap. Until a week ago, I never believed the President’s problems with Whitewater or Paula Jones would undo him, and I frankly hoped that they would not. The only rationale now for having him continue is that it is perfectly proper for him to compartmentalize his life, the exemplary chief executive in one role, his extracurricular activities in another. This does not work if it is now demonstrated persuasively that he has carried on in the Oval Office. It is not enough for Hillary to forgive him, once again. The nation’s culture will be changed for the worse if the President has been carrying on in the Oval Office with a young girl or girls while his daughter was in the other room. If anyone is a cultural role model for the young, it is the President. He would have to be punished and once the extent of his prevarications is known, there may not be fit punishment short of resignation. He could be forgiven later for his indiscretion and recklessness, after his penance. 

That’s one fellow’s opinion and of course I may be wrong, but I hope I’m not, always excepting the slight possibility that he is telling the truth given what is on the record already. Watching him last night in his State of the Union speech, it was hard to imagine he had a problem in the world. The stream of new government projects and entitlements that issued from him -- the piles of cash that he was flinging around the vast room -- was reminiscent of the State of the Union speeches of his youth. He wants to make everyone as happy as he can and he wants to believe all the good things he has done as President will make the people excuse him for the bad. But there is fantasy there too. The balanced budget and the slowly expanding economy he extolled as the product of his work are the fruits of the Reagan administration, when all the important policy seeds were planted. The President continues to delude himself into thinking his magic touch did the trick, when his primary accomplishment was in outwitting Newt Gingrich in the conduct of the 104th Congress. His 1996 re-election was solely predicated on his promise to protect the needy from Newt in the 105th. He asked for no other specific agenda and now has no mandate. If there was some small chance he could persuade Congress to enact the new Medicare and child-care entitlements he dreamed up a few weeks ago, they are now dashed. 

What continues to worry me are his threats against Iraq, which provides a foreign policy parallel to what he did in domestic policy in outwitting the Republicans in 1995. When he said last night that everyone in this room supports him in his desire to finish off Saddam Hussein, I thought how he has it in his mind that he can make everyone happy by doing so. The President has learned the art of the denial. He has also learned the triangulation of his former counselor Dick Morris, who taught him to stay just one step to the left of the GOP at all times. As Newt moved further and further right in 1995, always the President was one step to his left. When Newt arrived at the right-wing, kamikaze precipice of irresponsibility -- shutting down the government and threatening default on the national debt -- the President was still there, nudging Newt over the cliff and waving bye-bye. 

That’s what scares me about Iraq. The GOP is a party of warriors, not to be outdone by the Democrats in their ferocity. Where Clinton is now talking about bombing Iraq into submission, the Republicans are now talking invasion. We are getting closer and closer to the precipice, but now in the absence of meaningful debate, the two political parties might jump together. We would do so without the support of the United Nations General Assembly, or the Security Council, or our allies in the Gulf War, but unilaterally. And the unilateral action would amount to a declaration of war against the Islamic world. There are 1.4 billion Muslims in the world, including a significant fraction of hotheads that already are certain they are dealing with a Great Satan in the United States. The royal elites in the Gulf states would certainly be delighted to see Saddam hit by a truck, but the Islamic masses and their religious leaders would not be so happy if more innocent Iraqis were annihilated in order to satisfy the American warrior class and push Monica and Paula off the front page.

If we can find a way around the Iraq problem, there should not be any difficulty in getting through the next three years with a President Gore. The Democratic Party would first have to go into deep retreat to try to understand what role it is going to have to play in this new political world. The Republicans stumbled in the 104th Congress, but if they can learn from their mistakes -- as Trent Lott last night promised -- they will be able to direct the essential oversights from Capitol Hill until there is a real mandate for fundamental reform produced in the 2000 elections. We note that Mr. Clinton had really removed himself from any major constructive role in this second term by telling friends he hoped to be able to break President Eisenhower’s record of 100 rounds of golf in one year. There is no political risk he would be missed on Wall Street, and if he leaves soon enough, he could get in 200 rounds before the end of the year.