Wall Street Week with Louis Rukeyser; 2420; What to Make of the Election Results

While Street Week With Louis Rukeyser is made possible by the Corporation for Public Broadcasting and by the annual financial support from viewers like you by the travelers insurance companies over 30 million Americans benefit from our insurance financial services and managed health care. The Travelers Insurance companies by NF s and FS helping huge will find that institutional investors achieve their financial goals since 1924 and by for eventual securities with more than fifty six hundred financial advisers nationwide Prudential Securities can help you invest your money wisely. Produce Friday November 11 tonight special guests arm out the mass Forbes Jr. President CEO and editor in chief of Forbes Hobart Rowan economics columnist for The Washington Post. Walter is a Williams professor of economics at George Mason University and Mortimer B Zuckerman. I'm an

editor in chief U.S. News and World Report. Good evening I'm Louis Rukeyser This is Wall Street Week. Welcome back. Well let's shake things up a little bit doesn't it. The earthquake that hit American politics this week is still being pooh poohed by those who conspicuously failed to forecast it. But the aftershocks are transforming the economic landscape. And we tonight are here to tell you how. With the help of four of the most powerful voices in American communications I'm here to ask the questions and with any luck get the answers. That will take you and your family's finances far beyond the superficial. Who struck Bill you've been getting elsewhere. You When Your interest come front and center here as always. And who deserves it more. As for my own analysis I think there were three main points worth making in that will have significance. Long after this weeks progress and rhetoric on both sides has subsided. First

this was not as the losers traditionally say and as many of their tame media acolytes have been echoing so loudly this year the dirtiest election in history. But in fact the remarkably issue oriented mid-term election. It wasn't in the end mindlessly anti incumbent. Indeed not a single sitting Republican senator or representative was defeated. Nor did voters ignore some of the more truly disturbing character questions as losers as diverse as Oliver North and Dan Rostenkowski sadly discovered. But the bottom line on policy is clear. Even if many who didn't want to read it first and I did and now abysmally saying that it doesn't really mean anything different for the future. I suspect they're going to be wrong twice. In reality a disillusioned American electorate quite plainly sternly reassess the empty promises of 1992 and concluded unmistakably that the incumbent administration not only had presented itself in false economic colors as

something new rather than an all too familiar throwback to the 1960s but had been seriously off base and way out of touch with the changing times. By trying to solve virtually every policy problem from the budget to healthcare through one form or another of even greater income redistribution coupled with even greater government intervention into people's lives. Bill Clinton has been campaigning from the start against the 1980s. This week the eighties won. The reality is so often forgotten by those in Washington and those who cover them. Is it the president never did have his claimed mandate for leftwing change. Indeed he seemed to sense the underlying situation better while running skillfully for the nomination. Presenting himself effectively as a centrist outsider who would provide a modern alternative to conventional Washington and Democratic big government thinking in the general election scarcely provided any reason to revise this scenario. Indeed even as Clinton presented himself as an up to date non

ideological centrist candidates even further to the fiscal right actually won 57 percent of the vote. Now the effort in two successive administrations one of each party to in effect reverse Reaganomics. Has produced an astonishing if still widely unrecognized result. The repudiation of two presidents in two years. The new Congress is not likely to forget that overriding and fascinating fact. The second key point worth making is that no sensible person of any persuasion should now expect miracles of economic change simply because the Republicans have now taken control of both houses of Congress for the first time in 40 years. History tells us that the reality in such matters is that party labels can be woefully unreliable guides to economic policy. Remember that it was Democrat Jack Kennedy who touched off a sustained boom by cutting taxes. And it was Republican Richard Nixon who helped pave the way for an explosion of inflation

by diverting public attention with ever phony wage and price controls. Even today no Republican leader in the new Congress has promised even just to roll back or the counterproductive tax increases of the 1990s. And in the Senate. The record suggests that the authentic tax cutting credentials of a Bob Dole would have to travel to become even faintly discernible. But third Having said this at least some significant changes in economic policy seem to be definitely in the cards. Remember Bill Clinton rammed through his so successful tax bill last year. With only one vote margin in each house of Congress. And in such a historically partisan fashion that he did not get even a single Republican vote. Partisanship did not begin with this year's political campaign. That one sided 1993 budget bill it now seems unmistakably clear would not have passed even in 1994 with the

old Congress let alone in 1995 with the new. So the likelihood is for a less redistributionist more growth oriented tax legislation possibly even including that less the capital gains reduction that members of both parties have favored and that retiring Senate Leader George Mitchell had blocked for so long. And for a far more modest and better targeted approach to a few specific problems in private health care. Rather than for a European style government steamroller over the world's most successful medical delivery system. In short it should be a lively and historic two years for the American economy. So stay tuned. First though let's see how the ballots were cast in Wall Street in the week has passed. And as the Dow Jones Industrial Average indicates after a notably short burst of euphoria traders decided that in the short run which is always their favorite distance the more important vote is that which the Federal Reserve will take next

Tuesday when it is expected to raise interest rates for the sixth time this year. This view was not changed even by the second straight month of a larger than expected declines in producer prices. A report that was seen as top heavy with suspicious seasonal adjustments. And so the Dow backed off six points to thirty eight zero one point forty seven its lowest in more than a month and all the broader market indexes except the S&P 500 joined the mild retreat in both stocks and bonds. Our elves continued to vote their party lines unmoved for the third straight week at a bearish minus 3 on the technical outlook for the next six months. And while some alleged experts have been forecasting trouble for the dollar if the president were roundly repudiated in a midterm election foreign investors actually smiled on the change and the greenback gained against every other major currency. While the conventional media are still wrestling with personality problems

how is Mrs. Clinton going to take the rejection. Well Newt Gingrich transmogrify into Dale Carnegie. It's our job tonight to take you past the partisan confrontations and figure out where the country and its economy really are heading. And I've got just a guise of what I know. Since 1990 Malcolm S. Ford Jr. whose friends call him Steve has carried on the legacy of his grandfather and his father as president and editor in chief of Forbes magazine. Mort Zuckerman is a publishing triple threat chairman and editor in chief of U.S. News and World Report. Chairman of the Atlantic magazine and owner of the New York Daily News. Hobart Rohan the veteran economic columnist for The Washington Post is perhaps the most influential business writer based in the nation's capital. Columnist Walter Williams has distinguished himself not only as a professor of economics at George Mason University but as one of the country's most outspoken conservative voices on economic and social issues. Gentlemen before we get to what you think this election means. Let me ask you to look

in the mirror. How good or bad a job that America's news media do in covering the 1994 campaign Steve. I think overall it was a pretty poor job with some notable exceptions. They first try to portray it as an anti-incumbent mood that the electorate was too stupid to realize how good things were under Bill Clinton not giving them enough credit. They really didn't realize that there was a fundamental change in the electorates mood that they wanted real change real tax cuts real economic opportunity and they were going to go with those who provided it whether it was incumbent governors or outside Republicans challenge incumbent Democrats. So it was a good election but poorly covered. More True Grit. Well certainly the majority of the American people I think or at least the largest number 43 percent blame the media for the tenor of the campaign but I think that's a little bit unfair even though I think the media does tend to concentrate on the motivations and the attitudes of the different contestants rather than on the substance of what they're about giving the tinge of self-interest and political aspirations rather than policy concerns. The one

thing that I think sort of characterizes where these negative TV ads and that was coming through television and so in a sense it gave the impression that the media was creating this atmosphere to that extent I think it was unfair. You bring the people who bought the ads more than the news. I have never seen such a vicious negative series of television ads in virtually every campaign in the country and I think it is because the inclination is that people believe the worst about politicians or negative ads. In a sense have credibility but it sure is demean the whole political process. Bro you've been on the front frontlines in those numbers from. I'm with you. Well I tend to agree more or less that we didn't do a very good job with with with some exceptions. I think the main problem is we tend to follow the polls instead of getting out there and reporting in the boonies. We take a poll and we write the poll up and then we write the next poll up and as a result for a long time we began to say overall I'm not talking about any individual magazine or paper we began to

say that there was a Republican trend and then toward the end we began to say oh wait a minute. Bill Clinton's out there campaigning is catching up the lead is narrowing. We play it like a horse race or a football game we try to look at polarized results instead of reporting. I think we have to do a lot better job and as Mort suggested try to ignore the commercials that float on television. Even in that superficial horse race sense though the polls didn't tell us the strength of the surge to them. No they didn't. They they missed the magnitude but then everybody did I mean you can't just say the the press I think if you look at market analysts or anybody else was following the election. I think everybody must. I'm certainly not here to defend them. WALTER WILLIAMS What you have you. Well. I think that. The media and politicians in general they seriously underestimate the level of anger in our country. The you know we have we have states we have people in Montana and Louisiana large groups of respectable people not kooks they're

talking about secession. The media didn't pick up the there's a 10th Amendment movement there. Their people movement has been crippled by this election. No I don't because I suspect that the Republicans. Maybe they're going to have some shark shortfalls. But I think that this but this may indeed be the last chance to spare our country from a lot of chaos. And if the Republicans don't get government off our backs we're going to have chaos because and in places like New Mexico citizens law abiding citizens they're confronting with arms the U.S. Forest Service for running roughshod over their property rights. Let's let's get to the meat of the policy. What in the economic policy is this Congress capable of what do you think is the most likely result. Steve I think it's going to do some good although it's not going to as you say have a B of miraculous Congress but I think they will make a serious effort to cut the capital gains tax and some other

taxes which will be good. I think that will be a very serious effort on welfare reform. And I think you're going to start to see real hearings on the most exciting tax proposal. Dick Armey who will become the majority leader in the house for a flat tax 17 percent rate no tax on dividends interest capital gains or estates. And for a family of four thirty six thousand dollars of tax free income that's going to send the economy off like a rocket. And I think it'll happen after the 96 elections. You like that proposal I like that proposal but I didn't even find that in the Republican contract. It wasn't because they couldn't get all hundred seventy eight Republicans to agree to it. It was a watered down contract even though the Democrats attacked it is was the work of the devil. But I think you will start to see serious proposals and discussions and hearings on it. Even Bill Archer who's going to take over the Ways and Means Committee is talking about substantially simplifying the tax code. And whenever it was used on the stump by Dick Armey and others it had a very good response people are very excited about it.

Let me not being a devil's advocate. Democrats advocate here. I'm sure that sometimes of the same amount of theologians but. Surely the response to this on the other side will be that it is regress of help the wealthy hurt the poor. I was going to be overcome politically. Well you just give it to the people who realize that millions of people will be taken off the tax rolls because you have these very generous personal allowances and the fact of the matter is as you know from history when tax rates are reduced the rich end up paying more not only more money but a greater proportion of the taxes paid if you want to fleece the rich lower the tax rates and they'll pay more and all be better off. More you were for Bill Clinton 2 years ago. They still form. Well I have a lot more reservations I think he has done some good things but I think there is some curious quality that is missing in terms of his ability to establish himself as a president. He just does not have the command presence or the sense of authority and I think the worst thing that he did was a health care program because that was exactly the wrong thing

at the wrong time with the wrong focus and really gave the entire country the sense that he was a throwback to the liberal policies that were really rejected by the country. That to me was the absolute worst political mistake he made and policy mistake that he made. He's not a dumb man he's one of the smartest political figures we've had in these times. Where we hear less from Mrs. Clinton. Yes and you know in the poll which U.S. News took she had a 48 percent negative rating in a 44 percent positive ratings the first time a first lady has ever had a negative net rating probably since these polls have been taken I think she has been very badly wounded politically and my assessment of it it's not so much that she got involved as an advocate of health care. It's when she crossed over the line and got involved in real partisan politics attacking the drug companies the insurance companies that somehow or other that was felt to be out of line for a first lady was not exactly the role that the country sort of saw for a first lady even a woman who sort of was sort of pursuing your own career as sort of

an independent woman. Do you see us moving toward the kind of major tax change that Steve Forbes just outlined. Well I think. The regulations require that if you're going to have tax cuts you have to have corresponding reductions in expenditures. Now if we have I think substantial tax cuts and substantial expenditure reduction I think this will be a very progressive step forward in this new Congress. But if you have tax cuts which with phony cuts in expenditures then I think you will begin once again to increase the deficit and the markets began to react immediately to that concern. The bond market began to sink and I think the stock market began to sing. If we really get into a serious problem where we run up deficits again on a very large scale then I think we'll run into very serious economic problems because we're starting this time on like nine thousand eighty with a 4 trillion dollar deficit not with a trillion dollar deficit and with the dollar at 95 or 96 to the dollar instead of 240 into the also both the dollar and the debt load that we carry make it much more difficult for those polls

can emerge in a Congress under either party's control doing phony I think it's an appalling situation. But Rohan is a pie in the sky to talk about this kind of tactic. Yeah I think it is and let me say either is the devil's advocate or a Democrat that I think a flat tax is a terrible idea. It's regressive. There's practically no way of making it a fair tax and there are lots of other ways of making the tax system fair. And as Mort just said if you look at the entire set of promises that the Gingrich Contract with America promised on taxes you have a huge several hundred billion dollars worth of tax cuts with no proposals to compensate under the budget law for how to pay for them and I think what we all should look forward to if the Republicans really can organize themselves and there's no certainty that the House and the Senate can agree on what to do. But if they do organize themselves I think what we all have to look forward to is a steady increase in the total deficit and debt. And surely that's not what the

country was looking for from conservative fiscal integrity Republicans. The only thing that would make that analysis. And correct would be if they really did make the meaningful spending cuts to achieve what just a little where that is. Is there any chance of that's going to happen in your judgment. Well I don't see it. Nobody has really been able to point to the meaningful spending cuts and that's been the major criticism of Gingrich's Contract with America they aren't specified. The only budget balancing element is the constitutional amendment. And that wouldn't take effect until the year 2002. Well let's hope we live that long. Walter Walter Williams What do you think is going to happen as opposed to what you would like to have happen in either want to more Americas. Well I I I I don't I don't know I think that I would love to see the Republicans get some courage and Bart was alluding to this and make some spending cuts. And I believe kind of a general program or our general menu or

guide for spending cuts excuse me is to ask let's cut those programs or let's look at those programs where the government confiscates that which rightfully belongs the one American and gives it to another American to whom it does not belong because we know that if we do this privately we go we go to jail we get arrested. And so it's an MRI activity and there are many many program at a fact two thirds of federal spending consists of programs where the government takes one person's earnings and gives it to another earning person that doesn't belong to we call it an entitlement. Income redistribution. Well you know when when you're robbed on the street. That's income redistribution to end and not a fact I think I'd feel better if a thief takes our money because a thief is just going to go about his business but a politician will stand there and bore you with the reasons why you should like it. Every one of the leaders in the Old and the new Congress up to and including Newt Gingrich has recoiled in horror at the suggestion that we might make changes in Social Security if we do not touch Social Security can we still solve these problems.

No we cannot any politician who does not talk about doing something with Social Security he is not serious. But politicians are afraid theres a group of people out there who have no interest in America in 2020 the reason why is that theyll be dead. But however this group of people they constitute a very very powerful voting constituency that is the members of AARP. And so what politicians in and their lack of courage and their lack of statesmanship. They are allowing a group of Americans to destroy the future of our country. We could talk in our need to these subjects but let's focus now on a couple of personalities. Bill Clinton and Alan Greenspan How does this election change the future for you to them. Well Bill Clinton is obviously in very serious trouble he's going to have scandal investigations this coming year. He's going to have to reestablish his authority and he's certainly probably going to be challenge in 1996 both from the left and the right of his party so he's got real troubles. Alan Greenspan is going to face a real problem in the sense that he's mismanaged the Federal Reserve in the

past year. He's raised interest rates but at the same time he's pumping money into the banking system something they haven't done since the 1970s it's like throwing water on a fire and then throwing gasoline on it. That's why long term interest rates have gone up just as much a short term interest rates. We're going to get real financial turbulence next year. The funny thing is Greenspan won't get blamed Bill Clinton will. What I mean I think at this point it's totally obvious that Bill Clinton is in the deepest political trouble. He's got two very serious problems his own political base is shrinking and the political base of the Republicans is obviously being expanded and all the initiative and all the public support is with the Republicans how he gets back the political initiative at this point is something I can't quite figure out I think is going to be in real difficulty right now of course the polls indicate it's Clinton running against Clinton who he runs again is going to be critical of Clinton Republicans actually have to nominate somebody actually they may do better if they don't nominate somebody certainly somebody who isn't

nominated would defeat Bill Clinton run at a time when you think about Spencer's hope his chance to get reappointed. No I don't think Alan Greenspan will be reappointed by Bill Clinton. I think that is definitely not going to happen. I do think he's got a very difficult balancing act here. The danger is that he will choke off. This expansion prematurely I think the notion of inflation is still an exaggerated notion at this point. But well as you know I've been critical of Greenspan in the way he's handled monetary policy but I tend to disagree with more I think the election more or less ensures that Greenspan will be reappointed that Clinton has almost no chance to be almost a revolution if in the latter stages of his decline and clearly Bill Clinton was terribly hurt he failed to reappoint Greenspan as chair of the Fed so I think he will reappoint Well first I think that the Democrats are going to find a substitute for Clinton. And so far as Alan Greenspan I can make a prediction. But I would hope that he nor any other board chairman would have a job I would hope that we wake up

and have sense that didn't get rid of the Federal Reserve Bank. I just see a big movement going on outside of my kind of. Don't Force One now. Thank you gentlemen for your usual inside full of diverse views on the nation's economic future. Thanks to do you hope you'll be back next week. Then we're going to go Christmas shopping with America's leading expert on what's in the stores. Joe Ellis who for an amazing 18 years running now has been voted the best retail industry analyst in the entire business. So to make sure you get what you want in your stocking get ready for the holidays with us. Meanwhile this has been Wall Street Week. I'm Louis Rukeyser. That eye wall Street Week With Louis Rukeyser is a production of Maryland Public Television made possible by the Corporation for Public Broadcasting. And by the annual financial support from viewers like you by the travelers insurance companies providing American business with insurance financial services and managed health care the travelers insurance companies

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