The Hole in JFK's Economic Team Jude Wanniski July 28, 2004

Memo To: Sen. John Kerry
From: Jude Wanniski
Re: What you are missing

I’ve been doing my best on this website to help you out, Senator, as I do hope you do well in November. I’ve even had private contact with some of your top advisors, who have at least expressed interest in my views on what the presidential race this year should accomplish in setting a new direction. So far, I have not seen any trace of my counsel, but I’m always hopeful that I might influence you to some degree, because there is a very good chance you will be the next President.

If that happens, it will for the most part be that the national electorate is unhappy with the decision-making process followed by President Bush as he took the nation to war with Iraq. Because nothing seems to have changed in that process, with the team he relied upon for sound advice still in place and likely to remain in place if Mr. Bush is re-elected, you may win by default on that issue alone. I’m not going to give you any advice on that score, except to repeat what I’ve said in this space before, i.e., that you should include Zbigniew Brzezinski in your inner circle of foreign policy advisors. I know he’s listed as one of many who you consult, but his experience as President Carter’s national security advisor in a difficult time contributed to the wisdom he now shows in his senior years.

It is on economic policy that I believe you need more help than you have been getting from the people I see on your team. It isn’t that you should scrap your team and bring a new bunch aboard, but that you at least diversify your portfolio. The economic team I do see is for the most part an extension of President Clinton’s team, and they bring with them a set of beliefs that the Clinton years were successful solely because of their views and their service to President Clinton. Of course the proof is in the pudding, but there were Republican hands involved in making the pudding as well as the Greenspan central bank that did more good than harm. The economy did begin to sour during the last months of 2000 and the new Bush administration was blind-sided by accumulated errors by the Federal Reserve in its management of the dollar. We’re just now beginning to recover from those errors.

The worst mistake you can make is assembling an economic team of like-minded men and women. You clearly do struggle in your own decision-making process, which in large part the reason you have the reputation of being a “flip-flopper” on issues. There is nothing wrong with flip-flopping as long as you are always moving in a better direction when you alter your view. Here are a few examples:

On the minimum wage, you have endorsed an increase to $7 per hour from the current $5.15 by 2007. It has been reported that in the past you have wondered if raising a minimum would reduce the number of jobs at the entry level. When it was last raised in 1997, I then advised Senate Majority Leader Trent Lott that it would not do much harm at that level because the market was already clearing at above $5 in most of the country. Lott wanted to make the concession to the Democrats in order to put together the tax package that really helped boom the economy in those last years of the Clinton administration. Unfortunately, when the monetary deflation that began in ’97 in the commodity sector caught up to the service sector in 2000, the higher minimum did cause job problems at the bottom of the income scale, at least in those parts of the country where wage and price levels are lower. Perhaps by 2007 the market will clear at $7 or close to it, depending on the level of inflation between now and then, but it is something that would cause concern in rural business communities that could be hammered at that high a number. It is a tricky issue, one that you may have to flip-flop on.

I’m not going to go down the list of your campaign promises in this brief memo, but I would point out that economists often do not think through the behavioral effects of policy decisions that seem so clear when run through a computer. You are getting lots of rhetorical mileage, for example, by promising to tax those “Benedict Arnold” American companies that “outsource” jobs abroad and reward those who invest at home. This sounds mathematically correct, but unless you are sure of what you are doing, those companies that cannot do stay in business without “outsourcing” will simply move abroad and avoid the regulations and burdens you moves will place upon them. There are much better ways to achieve what you intend by your campaign plank, but unless you have access to people who know the alternatives, you will never know what you missed, and the people who you wish to help will never know what they missed.

This, by the way, is not a bid on my part to join your economic team. I’m still basically an old Democrat who switched parties and became a Republican in 1978 when the Democrats were stuck in the mud with obsolete economic ideas. I’m still fond of the memories of John F. Kennedy’s economic policies, though, his supply-side commitment to the Bretton Woods gold standard on monetary policy, and his understanding that some tax rates were so unnecessarily high that they could be reduced and produce more revenue at the lower level. As far as I can tell, you do not have a JFK economist of that vintage on your team and I would recommend you get one. And by the way, I did send you an autographed copy of my 1978 book “The Way the World Works” and was told by your political team that they would get it to you. If so, you might find some spare time during the Republican convention to take a look at it. The section on the Kennedy tax cuts might even inspire you in ways you least expect.