A Range of April Issues Jude Wanniski and Peter Signorelli April 28, 1999

BUDGET AND TAXES: The Senate Budget Committee last week reduced the chances of a tax cut this year by saying there would be no surprise in tax receipts when the Congressional Budget Office issues its revised budget projections in early July. They probably erred in jumping the gun, as fresh, unexpected receipts are showing up at Treasury this week. Tax-cutters at Senate Finance and House Ways&Means will know better by May 7 what the new surplus projections might look like. There should be enough to finance the bipartisan Coverdell-Torricelli proposal, which we think is the only shot at a supply-side tax cut this year. On the House side, Rep. Lindsey Graham [R-SC] is looking for a Democratic partner to do a match-up with the Senate. Given President Clinton's vehemence in stating there will be no tax cuts unless Social Security is reformed, the Coverdell-Torricelli approach may be the only horse Senate Majority Leader Trent Lott could get to the finish line with a Clinton signature -- which is why he has signed on as co-sponsor. It would enable Clinton to get in his 1992 promise of a "middle-class tax cut" under the wire. If the bill makes it to his desk, my guess is Bill Bradley will back it, and so will Vice President Gore. It is important there be a supply-side tax cut this year because there certainly won't be one next year, and every year without rate cuts where they are unnecessarily high makes it harder to solve the Social Security/Medicare/pension problem. The capital/labor ratio has to increase by 50% in 20 years, so the young can finance the elderly. The time that is lost is lost forever. (Jude Wanniski)

KOSOVO: The war on Yugoslavia really has boiled down to a question of NATO's credibility. The central question now is how can NATO disengage from this operation and still declare victory. The popular sentiment, let alone actual support, is not sufficiently there for a ground war operation. The Clinton Doctrine of war, to use superior electronic gadgetry to smash the enemy without taking any casualties on this side, has little credibility within the broad military establishment. Even as NATO continues its bombing runs over Yugoslavia, with "collateral damage" escalating, Clinton and company now have to find the means to enter into negotiations with Yugoslavia. The ground option is out, although one wrinkle could be an "invitation" from Montenegro for NATO troops to enter that republic to protect it from "Serb aggression." The latest overture from Yugoslavia, made by Minister-Without-Portfolio Goran Matic, acknowledges that NATO will have to be allowed to declare the outcome a victory. Matic only insists that Serbia not be compelled to permit the secession of any of its sovereign territory and that armed occupation troops (i.e., solely NATO forces) not be allowed into Kosovo. The last point is one in which Russian intercession is key. The Russian view is that an international military force in Kosovo likely will be necessary, that Russia ought to participate in it, but that it need not be under the aegis of NATO. Indications are that Serbia could find a way to accommodate that kind of presence. (Peter Signorelli)

THE BLAIR DOCTRINE: We originally hailed UK Prime Minister Tony Blair as a welcome change from a stultified Tory leadership given to inertia. Alas, he now has become insufferable, reveling in his role as fierce promoter of a "New Internationalism," putting forth what is being labeled "The Blair Doctrine." The doctrine rests upon a repudiation of the UN Charter and declares NATO's right to intervene in the internal affairs of any sovereign state, for a variety of objectives. Blair essentially offers the UK as Uncle Sam's junior partner in running the world. He currently presents himself as the most resolute spokesman on behalf of war. Like Clinton, he comes from the new generation of leaders who lack real-war experiences but are uncannily adept at political campaigning. While he is enjoying the foolish comparisons of his relationship with Clinton to that of Margaret Thatcher stiffening up a wobbly George Bush in the Gulf War, military thinking in Britain cannot see any victory in Yugoslavia without a ground war. Blair vows to fight to the end, no matter what the cost, but he is as avid a pollwatcher as is Clinton. He has to take note now that as Vietnam is the most used reference point in the U.S. for the war on Yugoslavia, the British press is raising concern that the UK is embarked on another Suez -- a model for ineptitude, lack of forethought, and a debacle. (PS)

YUGOSLAV ECONOMY:  The WSJournal today publishes a piece by Steve Hanke of Johns Hopkins, the economist who tries to sell currency boards to emerging countries. The headline, "Yugoslavia Destroyed its Own Economy," describes how the evil monster Slobodan Milosevic directed the Serbian parliament which he controlled to "secretly" steal US$1.4 billion in "credits" and hand them out to his pals. This supposedly triggered the great inflation that sent the federation into the abyss. The WSJ likes this phony story because it comports with its general propaganda line that insists we have to send ground troops into the Balkans to clean it out. Hanke's story begins in 1991 after the damage was done by the International Monetary Fund and the Bush Administration's Treasury Department, under the leadership of the worst Treasury Secretary in American history, Nick Brady. The IMF had persuaded Belgrade to devalue the dinar against oil, which triggered an inflation that caused a collapse of tax receipts. Milosevic then was cornered by the IMF to pay up, which sent Croatia and Slovenia into a secession mode. The Bush Administration helped out in December 1989 with a Nick Brady deal that gave Milosevic enough money to pay on the IMF debt, in exchange for another devaluation. I've told this story many times before and had a letter printed in the WSJ to that effect several years ago, but it is inconvenient to the editors. The Hanke op-ed piece is rubbish and it is sad to see the Wall Street Journal putting it out as if it were gospel. Click here for a more complete account of the economic history, one with which I agree for the most part. The author is Michel Chossudovsky of the University of Ottawa, a regular contributor to the International Herald Tribune and one of the few academics I see who understands the evil powers of the IMF. (JW)