Memo To: Glenn Hubbard, Chairman, President's Council of Economic Advice
From: Jude Wanniski
Re: Back in April 1989
That's right, Glenn. I was with President Bush at Camp David, but a long time ago, on April 24, 1989, almost at the start of the first Bush administration. I'd practically forgotten about it, except I have a photo in my office of me and the President chatting during one of the coffee breaks, and a visitor saw it the other day and asked what we were talking about. Then I remembered I had written my clients about the day, who was there, what I had talked about, etc. Notice the CEA chair at the time, Michael Boskin, helped put the day together. Paul O'Neill was there and so was Brent Scowcroft. What is most interesting is the part where he asked all of those present what three things we would recommend to him that he do to have a successful economy, for as you see this was an economics gabfest. As you see, I said he should make sure he got his 15% capital gains tax, which he promised the voters. I said he should have a monetary reform to fix the dollar's value. And I said he should change the conditionality of the International Monetary Fund to help poor countries lower tax rates and stabilize their currencies. He didn't do any of these three things, of course, and he did not have a successful economy, or get re-elected. Isn't it interesting, Glenn, that if you arranged a similar get-together at Camp David for GWB, and he asked for my three recommendations, I would give him the same three that I gave his Dad. And if he followed my advice, he would have an economic success and so would the world.
FYI: CAMP DAVID
White House chief of staff John Sununu and CEA Chairman Michael Boskin invited a small group of economists to meet with the President at Camp David, Saturday morning through lunch, April 22. Also present were Treasury Secretary Brady, OMB Director Darman, NSC Director Scowcroft. The invitees included Paul Volcker, former CEA chairmen Herb Stein, Martin Feldstein, and Beryl Sprinkel, Richard Rahn, Art Laffer, and Kathy Eickhoff, John Akers of IBM and Paul O’Neill of Alcoa. I asked Dick Darman why I was invited and he smiled: “You are now part of the Bush establishment, and the nice thing is you haven’t had to change your views to get there. The establishment has moved to you.” Thanks, Dick.
Boskin set the ground rules to allow the participants to go on the record, as in this report, but only insofar as they characterize their own views and observations, not those of the other participants. The President did not offer opinions, but interjected questions frequently, inviting a difference of views and encouraging the spirited discussion that unfolded. The rustic, piney atmosphere and the Saturday sport clothes (Mr. Bush wore tennis shoes) contributed to a remarkably relaxed, informal free flow of views, loosely guided by Boskin. We sat in a cheerful, airy “boardroom,” at the table perhaps 30x8, the President at the midpoint. At noon we walked perhaps 300 yards to the residence cabin and for half an hour mixed and mingled on the patio, sipping sherry or warm cider, overlooking the greensward of the single golf green and pitching approach, the Potomac in the distant background, Millie and her pups cavorting on the fairway below. Here I had a chance to speak to the First Lady, reminiscing on when I’d met her husband in 1967 when they first arrived in Washington from Houston. Twice during the visit I spoke with the President during the breaks, offering him views on the Soviet economy, including data on the new income-tax system there that he had not been aware of; my concern is that the structure will hinder progress of Gorbachev’s perestroika and make him vulnerable to Old Guard opponents in the Kremlin. The President seemed genuinely appreciative for the information.
The supply-side analytical framework was very well represented in the discussions. I was delighted to hear so many spontaneous expressions of support for free trade and criticism of Japan bashing. It was also encouraging to hear optimism on the continued expansion of the economy. There was general support for current Fed policy with perhaps a tilt away from any further tightening at the moment. There were many recommendations that the President pursue a cut in the capital gains tax, with several suggestions that he accept a gasoline tax hike if necessary to get it (I reported on my Wednesday lunch with Senator Bentsen, that he’s open to capital gains discussion but does not want a gas-tax hike.) There were several recommendations that deeper budget cuts be pursued to bring a reduction in interest rates. There was general awareness expressed that the inflation statistics were oil-related and would not persist much longer.
At the conclusion of lunch, the President asked each of the guests to list three policy priorities they would recommend and we went around the table. My three were 1) Cut the capital gains tax to keep the economy rolling. 2) Establish an interagency task force chaired by Secretary Brady, to revive Jim Baker’s 1987 initiative on international monetary reform, the goal to reduce long-term interest rates to 6% before the end of the President’s first term. 3) Use the influence of the administration to change the conditionality of the IMF, to permit Third World countries to grow out of their debt problems instead of forcing to contract further.
In all, the group spent perhaps four hours total in discussions, the President participating in the last 2 ½ hours. I was extremely pleased with the tone of the meeting and came away believing that on the margin the President felt he had benefitted. We were advised that the meetings would be held periodically, but there would be rotation to bring others views into play.
Jude Wanniski April 24, 1989