Here Comes Congress Jude Wanniski January 21, 1998

Memo To: Dick Armey, House Majority Leader
From: Jude Wanniski
Re: Expanding Medicare

[I sent the following memo to Armey on January 12. As it really involves a GOP strategy for the congressional session that is now about to begin, it may help to post it here as well. Armey is one of my favorite members of Congress, by the way.]

On "FoxNewsSunday," January 11, Mara Liasson asked you if you were not afraid to oppose the President's proposal to expand Medicare coverage, because the polls show it is very popular. I thought your answer was correct, that it may not be so popular once people find out the details. Ms. Liasson also made the observation that the Republicans were damaged politically in 1995 by opposing Medicare. This is conventional wisdom in Washington, but I do not think it is correct. The President and the Democrats believe they can spook you and Newt and Trent and Republican backbenchers too. My years as a Big Government Democrat taught me that Republicans can be snookered by allowing Democrats to interpret electoral mandates. This is because the press corps will always help in the interpretation. As long as Republicans believe they suffered in 1995 over the issue of tax cuts versus Medicare cuts they can be rolled on child-care and Medicare this year, as Brit Hume put it during your interview.

Please remind your colleagues that House Republicans were damaged in 1995 because of the mishandling of the budget negotiations. Newt's biggest mistake was not only in threatening to shut down the government and doing so twice, but also in threatening to default on the national debt. If the electorate had wished an expansion of child-care and Medicare programs, it would have re-elected Clinton AND given the Democrats control of the House. The electoral mandate can most logically and reasonably be interpreted as instructions to the Republicans to go easier on the downsizing of government, but to continue in that direction. Clinton campaigned on one issue, to protect the people from the kind of assault on Big Government that they were seeing in the 104th Congress. Oh yes, he did promise a federal program to provide school uniforms for kiddies so those who can't afford designer jeans will not feel intimidated by those who do. Mao jackets?

In other words, there is no need to negotiate on any new initiative for which there is no clear presidential mandate. Republicans can reasonably and logically assume the voters do wish less government and lower tax rates. By the way, Bill Archer was excellent on "Meet the Press," challenging the idea of tax progressivity as a principle. This was one of the original concepts the supply-siders pushed 25 years ago, but which never really caught on with the GOP: That you do not want a system that punishes people for working, saving and investing more. Republicans can only feel comfortable making this argument from the production (supply) side.

My belief is that you can categorically reject the President's initiatives and not permit any leakage, as long as you stress the Republican desire to address the same problems by more rapid economic expansion. If you can put together a tax bill designed exclusively to produce non-inflationary economic expansion — no kiddie credits as a sop to the cultural conservatives ~ you can argue that the objective is to make it possible for men to make enough to support families, so there is no need for two-parent families parking their kid in a care center. The electorate will support a hard line against new federal programs where it will not support a shredding of the safety net. If a tax bill is sent to the President and he vetoes it on the grounds that you did not give him his initiatives, the voters will be in a position to increase your majorities in the House and Senate to produce an override. Knowing this, Democratic legislators will vote to override, to keep from being pitched out.

You were, though, wise to tell the Sunday audience that you would look at the President's proposals carefully. Archer did the same. Whatever screwball ideas the President proposes should be examined carefully. As long as you are in control of the government, which is what Congress is all about, you can be respectful to the suggestions of the minority party. If the President had actually asked the electorate for a mandate, it would be a different story. Because he is only in a position to protect the country from your excesses, you can send him legislation until it finally passes over his vetoes. I don't think he will veto any tax cuts.

You were not asked about the mushrooming economic crisis in Asia, but that is something which will occupy all of you in a way that could not have been anticipated in an electoral mandate. The administration is going to be asking for another big bag of taxpayer money for the International Monetary Fund and you should be prepared to tell it that there will be no further funding for the IMF, as its record does not warrant replenishment of its capital. They will attempt to scare you with tales of Global Depression if you do not come across, of course, but you need to tell the White House you will not stand for such tactics. The big problem on the GOP side may be Senator Al D'Amato, chairman of Senate Banking, who is likely to line up behind the big banks in yet another round of corporate socialism. Fortunately, the economy is strong enough here that the big banks can swallow loan losses in Asia and still thrive. Yet there need be no losses if the problem is addressed correctly. On Meet the Press, House Minority Leader Dick Gephardt was of course quick to say we had to give the IMF everything it wants, but he made the mistake of worrying about the tide of cheap goods that will be flowing here because of the Asian fire sale. Jack Kemp immediately crunched him by pointing out that Gephardt now supports the same institution that pushed the Asians into the tax increases and currency devaluations which have caused the fire sale. Gephardt looked like he was hit with a sledgehammer. What was he going to say?

As Kemp said, the answer is to help the Asians appreciate their currencies, which the IMF is in no position to do anyway. In the Mexico crisis of 1994, the peso was finally stabilized by the use of the administration's Exchange Stabilization Fund. The Clinton Treasury was supposed to have gone beyond stabilization of the peso and helped Mexico appreciate its currency to the pre-devaluation rate of 3.5, but as soon as Treasury got what it wanted, it reneged, leaving the people of Mexico impoverished. Don't make the same mistake twice. You are now in a position to do this right, getting a public commitment from the President to handle this matter not through the IMF, but through Treasury, in a way that forces the correct solution. Each of the countries involved can appreciate their currencies by announcing targets and withdrawing reserves from their banks. Speculators will do the rest as soon as they see the policy begin. Unless this is done, the devaluation will immediately shift the burden of their national debts to the backs of the Asian people, off the backs of their governments. For the IMF to require budget surplus in addition to the dissolution of national debt is of course ridiculous, but this is what the IMF is all about. Your Ph.D. in economics should come in handy here, as you will see there is no free lunch involved in this solution. We are simply restoring the status quo ante.

There is nothing difficult in this process. It is easy if you execute. Don't think about how difficult it is to turn conventional wisdom around or you will throw in the towel. The electorate put you in power because it is hoping you will begin acting like a majority. Republicans are in a position to make it happen because you have control of the government. As long as you remember that you are not the minority party, you can achieve enormous success. You can actually solve the Asian problem. That alone will secure your place in the history of the world!