The Business of America/Save Us From the Reregulators
Stelzer, Irwin M.
Congress to subordinate its historic role as legislator to that of overseer of the executive branch. In this capacity, Congress tries to administer the executive branch, a task that of course...
...One would think the economy was in crisis, that some latter-day Franklin Roosevelt was needed to save it, and that increased regulation and spending Irwin M Stelzer is director of the Energy and Environmental Policy Center of the John F. Kennedy School, Harvard University, and an American correspondent for the London Sunday Times...
...For these men, pragmatism is all...
...O n November 10, the Post's Style section published something called "Quayle Watch...
...And his new team of Bushmen will be glad to help him down that path...
...This man, Style told readers, had eaten "pancakes for breakfast on his first day as the man soon to be a mere brain wave away from leadership of the Free World...
...26 THE AMERICAN SPECTATOR FEBRUARY 1989...
...Danforth Quayle...
...The New York Times quotes New York Democratic Senator Pat Moynihan as saying, "There is not the enthusiasm for deregulation that there once was...
...My guess is that Beckwith is taking infield practice in the Vice President's office (just as Fitzwater once did...
...I ndeed, one hopes that Bush will 1. adopt a much-derided, but highly effective Reagan policy: "Don't just do something, stand there...
...That's how I and many other readers took it...
...Reserve judgment on this latter point: Gorbachev's unilateral cuts, announced at the U.N...
...There is also good reason to be similarly sanguine about the nation's trade deficit...
...With the recession having given way to a boom, and the military buildup largely accomplished, the budget deficit can now decline...
...On November 11 and 12, the Style section continued the lampoon...
...maintains a strong investment climate and secure property rights, and imposes no restrictions on the repatriation of profits, foreigners will want dollar assets...
...Yet I think the Post writer who described the item to me as "a catty little, smirky little thing" had it about right...
...The deficit is falling, as the growth in exports outstrips growth in imports...
...That program, known as the "flexible freeze," involves keeping total expenses constant in real terms—if spending on one program goes up, spending on some other must come down...
...Personally, I have little hope that Bush will draw these fine lines and stand firm against the reregulators...
...were the instruments best suited to the job...
...Beckwith had covered the White House during the Reagan years and Bush during the campaign...
...T he budget deficit, it should be I noted, is coming down, perhaps absolutely and certainly in relation to the size of the economy...
...Martin Feldstein has got it pretty much right: continued merchandise trade deficits, augmented by an outflow of dollars to pay dividends 'See Friedman's Day of Reckoning, Random House, $19.95...
...Let's hope he does it again...
...Style editor Mary Hadar said "Quayle Watch" was "temporarily suspended" after a meeting she had with managing editor Leonard Downie...
...Cartoons belong on the editorial page, and surely they ought to be signed...
...After all, our defense buildup showed the Soviets that we meant to match theirs, and that their economy simply could not sustain such a competition...
...With expenditures constant and revenues up, the deficit falls...
...This is rather like accusing a father of impoverishing his son by leaving him a $100,000 house because it bears a $25,000 mortgage...
...And, in all likelihood, a petulant one...
...But regulations that require polluters to curb costly emissions, using the most efficient pollution abatement techniques, are something else again...
...Secretary of State Baker has already demonstrated a willingness to meddle in currency markets if he doesn't approve of the ongoing auction for dollars...
...Indeed, while no trend lasts forever, there are few signs that the record Reagan expansion will soon come to a halt without grievous policyerrors...
...After all, the user of the offending product will then face a price that fully reflects the cost of the resource he consumes—the cost of the clean air as well as the coal, of the clean water as well as the chemical raw materials...
...Meanwhile, a growing economy will throw off increasing tax revenues...
...and interest on the investments foreigners have made in the U.S., will increase the supply of dollars we want foreigners to buy...
...There is no question that the economy is in generally good shape, and certainly so by comparison with the mess inherited from Jimmy Carter...
...For they never distinguished clearly between the economic regulation they should oppose and the social regulation they should favor...
...In addition, we hear about a host of new spending programs, all of them urgently required to make up for the so-called neglect of the Reagan years...
...And it is doing just that...
...volatility...
...That's a great relief to the liberal press, but a danger signal for those who hope Bush will continue sensible deregulation...
...In this capacity, Congress tries to administer the executive branch, a task that of course entails "influencing the transition...
...No cost is too high to avoid a death or prevent a very brief period of smog...
...And—here's a prediction to do John McLaughlin proud—at some point within the next year or two, upon Fitzwater's retirement, Beckwith will be elevated to the presidential league, to take questions for the left-hander...
...To some conservatives, every regulation is anathema, another instance of the government riding the backs of the people and stifling business initiative...
...If that is true, conservatives have themselves to blame...
...From between 5 and 6 percent of GNP a few years ago, it has dropped to 3 percent today—about the same as Japan's...
...First, the economy...
...So, press reports to the contrary, Reagan is not bequeathing to his successor an economy in crisis...
...Such regulations, if drawn so as to ensure that the benefits in improved health exceed the costs of implementation, make markets work better...
...Those who pushed to get the government out of the business of setting fares and determining which airline might fly where never suggested that the regulation of safety be abandoned...
...The Cato Institute's William Niskanen, who served on Reagan's Council of Economic Advisers, recently told a meeting sponsored by his institute and the Institute of Economic Affairs (a London think tank), "There is no cliff out there...
...Beckwith didn't know Quayle...
...Unfortunately, many liberals and conservatives find such policies unacceptable...
...Knowing they are buying a currency that will be worth less to them in a few years, foreigners will demand higher returns on their investments...
...This produced, to the benefit of future generations, a willingness by the Soviets to agree to reductions in nuclear weapons and perhaps even in conventional forces...
...Early in the Reagan years, the government ran large deficits as a consequence of the recession that seemed necessary to wring almost runaway inflation out of the economy...
...More important for the long term, business investment is rising smartly, productivity seems to be picking up a bit, and America's unit labor costs now are more or less competitive with those of its trading partners...
...Indeed, Bush and the designated chairman of his Council of Economic Advisers have already laid out a broad program to cut the deficit, gradually...
...And it did not accept many of the recommendations, made by panic-stricken commentators on the October stock market "crash," that it attempt to reduce "excessive volatility...
...and (2) three short paragraphs on Quayle's November 9activities, the idea being to keep watch on this particular, well, bird...
...More text of this kind followed...
...In order to protect investors, in other words, he would at times make it impossible for them to sell their assets, thereby temporarily reducing the value of those assets to zero...
...Indeed, as the financial markets signaled immediately after the election, Bush will have to attend to America's budget and trade deficits...
...that airline schedules should be regulated to eliminate delays...
...Even Reaganomics' severest critics agree that those deficits were both inevitable and good economic policy...
...The anonymous, boxed offering consisted of (1) a photo showing the Quayles at Andrews AFB, with their hands cupped over their ears, presumably because of the noise from Air Force TWo, George Bush's plane...
...Quayle Watch" should be permanently suspended...
...e peaking of Quayle, Time cone-I...3 spondent David Beckwith is the Vice President's press secretary...
...It is in the less closely watched and less clearly understood world of the microeconomy—the markets in which prices are set, business decisions made—that we may soon be saying, "Reaganomics, RIP...
...Bush will have to be more precise and distinguish between regulations that impede the functioning of markets and regulations that improve it...
...For a good part of the Reagan success story consists of what his administration didn't do...
...It did not attempt to prevent the restructuring of American industry by so-called predators, arrivistes who took over companies, dismissed sleepy managements, and took apart conglomerates, the separate parts of which were worth more than the whole...
...We are told that financial markets should be regulated to avoid excessive price volatility...
...Quayle Watch" drew some newsroom critics who thought that the featuretrivialized the office of Vice President, that it was unfair to Quayle, and that, in any event, it couldn't be sustained on an everyday basis...
...So is mandating prices above those that would prevail if Adam Smith's invisible hand were permitted to replace the long arm of government...
...What happened...
...To get them to take those dollars, we must lower the price...
...The press is filled with story after story about the need for expanding the government's role in the economy...
...True believers in markets are likely to be converted from a vanguard into a rearguard...
...And it is likely to continue falling, so long as Bush's team resists importunings to attempt to shore up the dollar...
...But policies to reduce both are clearly taking shape, and they need not involve the courses of action being pressed on Bush by an by Irwin M. Stelzer assortment of congressional leaders (an oxymoron if ever there was one) and media pundits...
...Harvard's Benjamin Friedman, for example, accuses Reagan of violating "the basic moral THE AMERICAN SPECTATOR FEBRUARY 1989 25 principle that had bound each generation of Americans to the next," that principle being to leave each generation better off than its predecessor...
...So long as the U.S...
...This will keep interest rates up, reducing the level of economic activity a bit...
...Because other spending was not cut, deficits soared, even though government revenues continued to grow, despite (some would say because of) the Reagan tax cuts...
...It did not attempt to interfere with the development of new debt instruments, instruments that enabled new entrepreneurs to substitute cheaper debt for more expensive equity to break the commercial banks' stranglehold on access to credit and to restore the long-broken link between the ownership and management of American businesses...
...But the most common fear—that somewhere along the path to lower trade and budget deficits the rest of the world will simply stop buying dollars, creating financial panic and a recession—seems a bit overblown...
...His Republican colleague, Alfonse D'Amato, agrees: "I don't see deregulation as a driving force anymore...
...Bush likes Beckwith and considered hiring him as his press secretary but wound up retaining the White House incumbent, Marlin Fitzwater...
...Perhaps they are emboldened by the allegedly "pragmatic" team Bush has assembled into believing that the election was, after all, not about ideology...
...Treasury Secretary Nicholas Brady is already on record as favoring closing down securities markets if demand and supply produce unacceptable (to whom...
...But Bush has surprised us all before—most recently with a skillful campaign for the presidency...
...Yet conservatives never noticed that distinction, and began to wrap the "deregulation" banner around schemes to reduce regulation of environmental degradation and workplace safety...
...Quayle was referred to as, in that orotund manner that demeans, "J...
...But neither is he leaving him an economic utopia...
...and that corporate takeovers should be regulated to prevent excessive use of debt...
...Then came the defense buildup, a game of catch-up that even the departing Jimmy Carter, chastened by the Soviet invasion of Afghanistan, agreed had to be played...
...he got the job because he knew Bush...
...in December, may prove nothing more than a retreat from Afghanistan, a shifting of military construction personnel to civilian payrolls, and an elimination of some obsolete weaponry...
...The "flexible freeze" plan has been greeted with derision—no less an expert than Gary Hart told an assemblage of London financiers, at a Sunday Times forum, that it wouldn't work...
...By the end of 1988 the current account deficit, the broadest measure of trade performance, was at its lowest level in three years...
...But this is not to say that the deficit can be ignored...
...Had they abandoned rhetoric about "getting government off the backs of the people" and instead submitted such regulations to the hard test of whether their benefits exceeded their costs, they would have avoided the present backlash...
...There is, according to the Times—not previously known for its close affinity to coach-class air travelersan "outcry for renewed regulations...
...Refusal to allow a truck that carried a load from Chicago to Detroit to backhaul a load of goods in the opposite direction is economic regulation of the most wasteful sort...
...Real growth is in the 3.3 to 3.5 percent range, unemployment is low, new jobs are being added at an incredible rate, and prices are what passes for stable these days...
...You saw it here first...
...THE BUSINESS OF AMERICA SAVE US FROM THE REREGULATORS It is suddenly getting difficult to re- member that Mike Dukakis lost the election...
...This will not be a costless exercise...
...But if the economy continues to grow at its present pace, and if real spending can be contained—a big "ir— Bush should be able to bring the deficit down to close to zero by the mid-1990s—without across-the-board tax increases...
...Unless Bush can understand the distinction between wise and unwise regulation, he will be faced with making a series of unprincipled compromises with those who want to reregulate prices and those who quite sensibly want to regulate antisocial economic behavior...
...Given its initial causes, this is unsurprising...
...In short, the President-elect is being Bushwhacked by the media and the Democrats, both having forgotten that the late-confessing liberal candidate lost...
...Hadar defends "Quayle Watch" but says her newsroom colleagues misunderstood it...
...Then, without explanation, it disappeared...
...Reports out of Washington are ominous...
...But the economy is healthy, if not perfectly so, and indiscriminate regulation is likely to create more problems than it solves...
...Evidence suggests, then, that a deficit-reducing deal is quite within Bush's grasp...
...To liberals, human life and environmental quality are "priceless...
...S o Bush need not be panicked into abandoning the larger aspects of Reaganomics...
...This has led to the charge that Reagan has saddled future generations with enormous debts...
...And they will not demand a significant premium for holding them, according to Niskanen...
Vol. 22 • February 1989 • No. 2
