`A Supply-Sider With a Heart`
Jude Wanniski
December 15, 1999


Memo To: Richard W. Stevenson
From: Jude Wanniski
Re: Bush's economist, Larry Lindsey

There was lots to read in your Lindsey piece in Sunday's NYTimes Business Section, "At Bush's Ear, a Supply-Sider With a Heart," but it would have been more useful if you had called a few supply-siders to find out why they are not that keen on him. I give you a ** rating when with just a little more effort it could have been ****. You may know my view, that he is a fake supply-sider, just as Marty Feldstein was in the Reagan administration. But that's no reason for not calling me. I would have given you some quotes to balance the warm and fuzzy picture you paint, not exactly a PUFF piece, because you do put in some of the warts. What you could have conveyed to your readers is that Lindsey's analytical framework is dominated by Keynes and Friedman. In addition to Lindsey, the George W team is the same bunch that dominated the Dole campaign in 1996 -- Michael Boskin, John Taylor & Co. If you haven't noticed, his foreign policy team is also the same as Dole's and his Daddy's: Richard Perle, Paul Wolfowitz, Don Rumsfeld, Bill Schneider, Conda Rice, George Shultz. George W is an empty suit who has collected around him a team that will turn him into Bob Dole with a smile.

The idea of a Fed Governor running around shedding tears in the nation's housing projects and then holding a hammer over selected banks unless they loaned out money to uncollateralized borrowers is my idea of Great Society do-gooders. A supply-sider would say if you want to get capital into the hands of those who do not have it, cut the capital-gains tax and people who have it will invest it in those who do not have it. Lindsey celebrates the free market, then throws his considerable weight around to get banks to allocate capital where the market does not take them. The fact that he wants to reappoint Alan Greenspan and that Steve Forbes is now blasting Greenspan, for equating prosperity with inflation -- Forbes wants to appoint Jack Kemp or the head of the Dallas Fed to the Fed chairmanship -- should have given you a teeny clue that Lindsey might not be a supply-sider.

To your credit, Rick, you did point out that "Lindsey is an odd choice as a top aide to any presidential candidate, especially the congenitally upbeat Mr. Bush. Mr. Lindsey is renowned for his bearish views on the stock market and his consistent predictions that the strong economy is on the verge of a painful downturn, positions that raise questions about his skills as a forecaster. Eighteen months ago, when the Dow Jones Industrial Average was at 8,500, he said publicly that stock prices were overvalued and that he had sold all his equity holdings so he could sleep better at night. The Dow closed on Friday at 11,224.70. And with the current business expansion just months from becoming the longest in the nation's history, Mr. Lindsey warned recently that a downturn in the business cycle was near."

An economist who cannot forecast should go into another business. Lindsey's analytical framework is worthless, or he would not have made the errors he did in seeing economic decline. A president's economist who cannot forecast is a threat to the nation. When Marty Feldstein was chairman of the CEA in the Reagan administration, he was constantly kvetching about bubbles in the market and doom just around the corner because of the deficits, even as interest rates declined. Fortunately, Reagan paid no attention to him. The reason Feldstein was brought in was that his Patron was the Vice President, George Bush. Of all the presidential contenders, the one who has the best analytical framework is Steve Forbes, who several years running won the Crystal Owl award for the best economic forecast of the economy among business journalists. That doesn't mean he would make the best President. It means he would make a good CEA Chairman and probably a terrific Treasury Secretary. Steve knew more about the workings of the international economy 20 years ago than Lindsey, Boskin & Co. know today.

Alas, I have to confess I am mostly to blame for Lindsey going to the Fed from the White House, having proposed his name when Jim Baker asked me to come up with one. (Baker had some confidence in me and pushed through Robert Heller when I proposed him for the Fed.) I'll show you the memos. Indeed, it took longer than a year to get Lindsey confirmed, because he was not in an eligible district. We had to work around Jesse Helms, who you may remember is a gold guy. In his favor, Lindsey at first questioned his own credentials, because he knew nothing about monetary policy. Like most Harvard Keynesian, he concentrated on fiscal policy, the way a medical student will concentrate on one part of the body and leave the rest to others. I assured Larry we would teach him all he needed to know, especially about the importance of gold.

That never happened. He quickly was captured by the Fed's staff and I spent the remainder of his tenure thinking the longer he lasted, the less he knew. Once installed, he got worse after Wayne Angell left the scene. Now he even agrees with the idea that prosperity causes inflation. He thinks a 20% capital gains tax is peachy. He wants to cut marginal rates by a piddly amount, not rolling them back to where they were in the Reagan years. Lindsey, Boskin and the rest of this Establishment team also will do everything they can to protect and preserve the IMF, which is a major source of evil in the developing world. I cringe when I think of the damage George W. Bush could do with these noodle heads around him. What good does it do to have a heart when you don't have a head? I'm beginning to see a whole army of empty suits in Austin. If you had put more of this material in the piece, at least George W. Bush would have seen it and maybe wondered what he is getting himself into. Now, you have reassured him that he has the best that money can buy. If you happened to watch Bush in the Iowa debate Monday night, you may have noted he is all the way back into the Old Time Religion of the Republican Party. Tax cuts are no longer designed to expand the economy, but to contract government spending.