Character on the Laffer Curve Jude Wanniski March 6, 1998

Supply-Side University Economics Lesson #8

Memo To: Supply-Side Students
From: Jude Wanniski
Re: Character on the Laffer Curve

The question that perplexes so many political observers in this time of Monica Lewinsky and Paula Jones is how President Bill Clinton can get such a high approval rating at the same time the polls indicate the electorate believes he has not only had a sexual relationship with Monica, and lied under oath about it, but also that he is generally a man with fundamental character flaws. When I was growing up in Brooklyn, N.Y. in the 1940s and 1950s, I had learned in the news media that a divorced man would have serious problems being elected President of the United States. In 1952, as a 16-year-old going door-to-door handing out leaflets for Adlai Stevenson, I knew that to some degree he was burdened by his divorce in his presidential race against Dwight Eisenhower. If he can't keep his own family together, how can he keep together the national family? That's what I heard. And when he lost, the Democrats who had nominated Adlai explained at least part of his loss on the divorce.

In the years since, I've come to believe that the divorce may have played a very small part in Stevenson's loss, in that some people who voted for Eisenhower may have taken into account the divorce, but not enough to make any difference considering the size of Ike's victories in 1952 and 1956. When people are in knife-edge balance between two candidates, a vote on character may tip the vote to the candidate who has the better record as a family man and churchgoer. The Zeitgeist, or spirit of the times, may also work in the opposite direction, however. The electorate may tilt toward a leader who can empathize with human weakness. It counts in every assessment, but which way? With Ronald Reagan, it clearly helped that his modest background, his alcoholic father, his Hollywood divorce, strengthened his appeal to an electorate that was going through one of the worst patches in American history in 1980. It may count in a different way when the economy is working at the peak of efficiency and the nation is at peace. The electorate then has the luxury of attempting to have some influence on the culture, by choosing men and women for leadership positions who reflect the ideals of conventional wisdom at the time.

This is why Clinton may have more trouble hanging on to the "mandate of heaven," as the Chinese call it, when the extent of his prevarications unfolds. We learned yesterday in the Evans&Novak column that House Judiciary Chairman Henry Hyde believes impeachment hearings are now 100% certain if Special Prosecutor Kenneth Starr turns what evidence he has over to Hyde. The 73-year-old chairman, among the most respected in Congress, is not anxious to undertake the assignment, but says the constitutional mechanics leave him no other choice. He believes it unlikely that there would be an impeachment, because it could not occur with fairly broad bipartisan support. The problem for the President will become magnified if the electorate assesses the evidence with greater weight given the President's word. Aristotle is credited with the saying: "Liars when they speak the truth are not believed."

Yet in this instance, the success the President has had in doing his job to the electorate's satisfaction — plus the fact that the lies we assume he told were not meant to cover up criminal acts, but private sins — will weigh in his favor. Except for a few religious leaders who are active politically, the Rev. Jerry Falwell for example, the nation's priests, ministers and rabbis have been staying mum on the subject. Indeed, Nation of Islam leader Louis Farrakhan, who has opposed the President on policy and publicly stated he did not vote for his re-election, has been outspoken in support of the President on this matter. At a Chicago press conference two weeks ago, when he returned from his 37-nation friendship tour, Min. Farrakhan essentially said that the people of the United States knew Bill Clinton had this weakness when they voted for him in 1992 and 1996, and no ordinary person should expect that he would tell the truth when asked questions about his fidelity. Yes these are sins, but they belong in a private realm, he says, to be dealt with on the church side of the division between church and state. The Nation of Islam is as tough on sin as any church. Members who are found to engage in premarital sex are suspended from favor for one year or two, as a way of underlining the disapproval of the community. In today's (March 6) New York Times, we learn that Billy Graham, the Christian evangelist, has "forgiven" the President: "Because I know the frailty of human nature," he said, adding: "He has such a tremendous personality that I think the ladies just go wild over him." The quote appears in a story about how the Rev. Jesse Jackson, once a nemesis to Clinton, has now become a spiritual advisor to him.

The government, the state, public laws and regulations are very recent political mechanisms that have evolved out of the development of community needs. The private culture is constantly in flux, in search of balance, a general equilibrium that suits the needs of entire polity — not just part of it. It's always hard to tell what people are thinking simply by asking them what they think, because those kinds of snapshots are ephemeral and imponderable. When I was a young journalist, I remember asking my grandmother who she would vote for in the New York mayor's race. She told me she was voting for John Lindsay, the Republican. I was taken aback, because my  maternal grandparents were both as far left in their politics as they could get without announcing their communist leanings. Lindsay, a Republican?? Yes a liberal Republican, but still it was hard to believe. Grandmom explained that NYC needed a handsome man as mayor, and John Lindsay was very handsome. Her explanation threw me for a loop. I wondered how democracy could work if it could turn on such matters. A few years later, though, when I asked her who she was voting for in the mayor's race, she replied instantly: "Abe Beame." But grandmom, I said, nobody would say Abe Beame is good looking. The Republican this time out, John Marchi, is even better looking than Lindsay. Why are you voting for Beame? What a silly question, she practically said, Abe Beame is opposed to an increase in the subway fare!! Of course, that explains everything.

This experience went into my writing of The Way the World Works. In my simple politicmodel of chicken-duck-parrot, which I developed a bit in Lesson #4 the electorate knows exactly what it wants in a candidate for a political post. The campaign is like a game of charades, where the candidates try to guess what the voters want. If the voters want chicken and by election day the candidates have only partly groped their way there — one thinks "duck" and the other "parrot" — the voters will conclude that duck is closer to chicken and will settle on the "duck" candidate — hoping it might be able to find post-election ways to nudge it closer to "chicken." I then went on to expand the problem the voters face when electing a President. A candidate may be closer to chicken on domestic policy, but on foreign policy, where the voters are looking for "eagle" or "dove," he may be closer to "turkey" or "vulture." The voters have even greater problems if they observe the candidate who seems to be closer to "chicken" and "eagle" also has a well known reputation for not keeping campaign promises. That is, "Read my lips, I am chicken and eagle," only to switch policy in midstream to "parrot" and "turkey." In these considerations, the electorate may in fact choose the candidate with the more trustworthy character even though he or she loses on points on domestic and foreign policy matters.

I've written before about a conversation I had with Richard Nixon about 15 years ago, in the office he kept in the federal building on Foley Square in Manhatten. I'd written a letter to the WSJournal defending him on a point of history, and his aide called me and asked if I would like to visit with him. We spent more than two hours talking, and in the course of the talk I asked him if he ever considered that he might not have been impeached by the House if he had not closed the gold window. Without registering any surprise at the question, he said: "It's true, it is very rare in history for a political leader to be touched by scandal and brought down in an expanding economy." With the economy in sharp decline in 1974 because of the inflation unleashed by his closing of the gold window at the Treasury, Nixon was swimming against the tide everywhere. The "tax" of bad  news followed more and more bad news up the Laffer Curve, into the prohibitive range. When it became clear to Nixon that history would judge him more harshly if he insisted on fighting the impeachment through a Senate trial, he resigned. That is what the mandate of heaven is all about.

History suggests that the corpus of the community, the electorate — as opposed to the nation/state — gives the leader that has risen from its ranks more leeway in matters of sin. We want our children to have the best possible role models as they are being molded into citizens. Yet we know as soon as they hit puberty they will begin to be tempted away from the Ten Commandments, and hope they can hang on and still get passing grades in the school of hard knocks, life itself. The leader is the one person chosen to stand on top of the entire pyramid, where he is the only one of the electorate who has a 360-degree view of the landscape. If he must bend the rules or break the commandments, because of what he sees that nobody else can see in its entirety, the electorate will forgive him, as long as it becomes apparent why it was necessary.

My Reagan story bears repeating here, on how I wrote him a letter of support on November 15 1986, when the Iran-Contra scandal began breaking around his administration. His clandestine dealings with Iran, with proceeds of arms sales being funneled into central America, clearly got him into trouble with a Congress kept in the dark. I wrote:

I feel a profound sympathy with you on the Iranian issue. The heart of the matter is that hundreds of thousands of young men are dying each year and the Superpowers have done nothing to stop the carnage. When I heard that you had done SOMETHING, as offensive as it has seemed to so many people, left, right and center, I felt a sense of relief. I had been suppressing my anxieties about the Iranian-Iraqi war for years, but had done nothing about them, rationalizing that I don't really like either side much.

My 16-year-old son Matthew asked me about your position this afternoon, and I asked him to imagine the "bloody war" that you now speak about. I asked him to imagine that he and all his 16-year-old classmates were drafted and would be sent to fight and all would probably die, and I would never see him again. Superpowers can think of wars between nations, I said, but President Reagan thinks of wars between young men, which is why he insists on staying in contact with the families of the hostages. The war does not become remote to him, as it has to so many others, and now, because of this controversy, we are forced to think of Iran and Iraq, and how to help him end their war.

My idea, Mr. President, is that you propose a Peace Mission, perhaps led by Dr. Kissinger, to encourage an end to the war. It may be that the Peace Mission could include designates of General Secretary Gorbachev, since it seems the Soviets also do not really know who they prefer winning this bloody war. But Gorbachev may also feel as you do and wish to end the carnage.

Whatever your precise reasons, Mr. President, I believe you have shaken things sufficiently to force attention of the inhumanity of the Iran-Iraq war, and the many innocents — soldiers and hostages and their families — that suffer in it. We should put peace there among our highest priorities, as all other short-run objectives pale by comparison.

Reagan telephoned me on December 22, to thank me for the letter, which he said took a while to get to him, but that Pat Buchanan had passed on to him. By then, the controversy had boiled even hotter, with more revelations coming out about the degree to which various laws had been bent and broken in the process. I told the President my story about Nixon, and how he was forced out of office because everything was going against him. I told him he had nothing to worry about, because the stock market and the economy was booming because of his supply-side economic policies. To which the Gipper replied: "Yes, I take great comfort in the Dow Jones Industrial Average." There were those on the Reagan team who paid a price for the scandal, but the mandate of heaven was preserved for the President himself, and he left office at the peak of his popularity.

The highest priority of an institution or of a nation is its survival. An electorate that has a poor mechanism for producing leaders in a chaotic world will happily abandon the mechanism, even if it seems properly democratic, in favor of a dictator. Not any old dictator. But one who seems to be what the country needs at a particular time, but is not able to win power through the democratic mechanism. Here is Khadafy in Libya, Saddam Hussein in Iraq, Castro in Cuba, Assad in Syria. How come they have not lost the "mandate of heaven?" We are told by a variety of political commentators here in the United States that each of these heads of state would be thrown out of office if they had to face a popular election. Yet by impartial accounts, the people of these nation states are at least happy enough to keep them in office on the grounds that they do not know what would happen if they stormed the palaces and toppled the dictatorships. That they can do, but have not. In the same small way, I found myself hoping President Clinton would survive, when I learned that he had accepted  UN General Secretary Kofi Annan's deal with Baghdad. That is because I have a sense that Clinton really does worry that a bomb might blow up a real person, as I told my son Matthew in 1986 was my sense of Reagan. I don't have that same comfort level with Vice President Al Gore, who I suspect has in his brain a legal pigeonhole labeled "collateral damage," in which civilian casualties are filed.

When Clinton said he would never resign, the way he said it made me think he did not want to leave the country in the Vice President's hands because of what he had done with Lewinsky. He stressed that the people had elected ME to do a job, and he would see it through to completion. I'm sure he will try as hard as he can to help Gore win the nomination and presidency in 2000. But if Gore wins it on his own hook, the responsibility will be entirely the electorate's and not Clinton's. It is a difference the President would think about and no other. When Nixon resigned, he knew VP Gerald R. Ford, who he picked for the occasion when VP Spiro Agnew resigned under a cloud of his own, would be able to run things.

The more I have studied Saddam Hussein and Fidel Castro, the more I have come to admire their ability to maintain the mandate of heaven for as long as they have. The Iraqi electorate, which knows Saddam better than we do, as it has lived with him since 1974, has observed him play the cards dealt him against an international backdrop of Cold War, soaring oil prices, booming economy, and inflation and crashing oil prices, economic distress and war against Iran. As a political theorist, I can go back to 1974 on rewind, and watch from my own perch atop the macroeconomic pyramid, and observe him in his day-to-day survival mode. I do not believe 90% of the propaganda that my government dishes out about Saddam, the fellow we armed with chemical weapons so that he could kill as many Iranians as fast as possible. It strikes me that the people of Iraq who watched him lead them in real time, not rewind, genuinely admire and respect Saddam. They might even judge that he has character.

In the same way, I do admire Fidel Castro, now coming up on 40 years in power. This does not mean I would not prefer to see a way found so that he could retire with honor. Those who hate him for being a survivor of course prefer to make life as miserable for the Cuban people as they can, hoping that mass misery which the Cubans see we are causing will make them love Fidel less. The people I admire least in the world are those who think nothing of creating anguish, suffering, disease, misery among the masses of ordinary people, because their leaders tell them it is a good thing to do. Where would Adolf Hitler have been without a rank-and-file willing to follow his lead? I'm constantly amazed to find people I've worked with over the years, defending their willingness to engage in genocide with the concept of moral equivalence. Which is to say, they argue that because we are on a higher moral plain in the United States than  Castro is in Cuba or Saddam Hussein is in Iraq, a double standard of morality is justified. God will permit us to terminate 1.4 million Iraqis by destroying their sanitation facilities and choking off their flow of calories because we are better than they are. I am not permitted to use moral equivalence to make my arguments against why this is not a nice thing to do. Our higher moral plain as Americans also permits us to use propaganda at will, to cover up enormous blunders by our leaders, to wink at the Constitution when we find it necessary to "take someone out." We can stockpile and use nuclear, chemical and biological weapons and so can our allies, but those who do not possess our degree of morality can be bombed back to the stone age if we even suspect they have something hidden away. In other words, those uncomfortable with the idea that Might Makes Right have decided that Right Makes Might Right and, by God, we are Right!

There is woven through this philosophy something other than the center of gravity in our culture. It is more attuned to the utilitarianism of Jeremy Bentham and those who espoused political systems that would produce the greatest good for the greatest number. Americans are automatically uncomfortable with this idea, I think, because it suggests a mathematical formula that would satisfy us if 90% of the people were intoxicated with happiness and 10% in abject despair. When he was still governor of New York, Mario Cuomo once told me the best line of The Way the World Works was the very last line. Here is the last paragraph:

More important than the Laffer Curve, after all, is the persistence of the global electorate in pushing toward concord. It will not for long permit the smallest part of its membership from being left behind, economically or politically, in this historic trek. For thousands of years, the world has been moving toward more, not less, democracy, and it will continue to do so. It will, as it always has, ultimately reject all systems that do not revolve around the individual, for the survival of all ultimately depends on the survival of the least of its members. In this sense, the global electorate is the good shepherd.

Because we decide from individual perspectives on how we feel about the weight character should be given in determining the fate of the presidency, mine is only one in the community at large. And it changes from week to week, because the world changes at least that often. In 1878, William James wrote to his wife on the subject and it seems to apply in this case: "I have often thought that the best way to define a man's character would be to seek out the particular mental or moral attitude in which, when it came upon him, he felt himself most deeply and intensely active and alive. At such moments there is a voice inside him which speaks and says, 'This is the real me!'" Bill  Clinton is trying to figure that out and so are we. At the moment, Fm with him, but I reserve the right to probe further before making a decision when time requires that we do.

Next week I'd like to discuss terrorism as a criminal political act. If you have anything on the subject you think worthwhile as reading material, please pass it along. Fm brooding on the subject. Following is a little extra reading on the subject of character and how it relates to political mechanisms. Our friend Reuven Brenner served it up in Chapter Six of Labyrinths of Prosperity, in suggesting national initiatives and referenda as a partial defense against bad character in our political class.

Jude Wanniski

The Politicians' Character and Ideas

Government remains the paramount field of unwisdom because it is there that men seek power over others — and lose it over themselves. —Barbara Tuchman

Why is the character of political leaders so important today? Why do people expect to solve many problems by electing strong leadership figures? Why did it matter that George Bush lacked "charisma" and Bill Clinton remained an "enigma" — to quote typical newspapers headlines of the 1992 elections?

Laws, constitutions, and federal structures serve as insurances against abuses of power, but they are not sufficient. Without tradition, laws and constitutions are little more than pieces of paper. However, even when traditions have been established, the recent decades have shown that parliaments, congresses, and presidents in Western democracies have found ways to circumvent laws and abuse their positions because the institutions responsible for taxing and spending were not separated. This experience has led during the recent decades to the public's intense and justified scrutiny of politicians' character. People expect that politicians with special skills are, to some extent, the answer to today's flawed political institutions, which are characterized by intense lobbying and strong bureaucracies driven by fads and ideologies.

Thus the scrutiny is justified, as is the public's cynicism. The cynical attitude is justified since today's political institutions cannot ensure that even strong and politically skilled people will succeed in withstanding lobbyists' pressures and preventing the persistence of mistaken policies. The scrutiny is justified since the public is aware that there are no institutions in place to ensure against persistence of erroneous policies. This explains why voters judge candidates by their strength, discipline, and willingness to accept responsibility. The leaders' views and character are a substitute and an assurance for better governments.

Referendum and initiative could provide a far better assurance by dissecting the elected politicians' ideas; by ensuring against the politicians' excessive ambitions, lust for power, and strongly held views; and by making the process far less personal. Consider the 1992 elections in the United States.

President Bush personally opposed abortion, except in cases of rape, incest, or when the life of the mother was at stake; Governor Clinton was pro-choice. On capital gains, Bush offered a tax rate of 15.4 percent on ail gains; Clinton advocated a 50 percent exclusion from taxation for long-term investment in new businesses only, but would not provide them for securities or other investments. Bush opposed industrial policies that promoted specific industries, whereas Clinton favored them. One can go on and describe their different ideas and positions on regulation, health care, environment, foreign policy, defense spending, welfare, and so forth. Voters had no other option but to buy a package deal and vote for either Bush or Clinton.

Consider now the option the voters would have if they could rely on the institutions of referendum and initiative. If a voter were pro-choice but favored low capital gains tax, and had no a priori objection to promoting particular industries, he could vote for either politician, since he could later express his view on each idea in separation and change either his views or the policy by starting an initiative. The voters' power is enhanced, whereas the politicians' is diminished. The politicians' particular ideas, their strength in opposing lobbying groups, and their ability to negotiate deals with the bureaucracy all become less relevant. Once the two institutions are firmly in place, the issue of politicians' character would diminish also, because people harboring excessive ambition and desire of power would not make politics their career choice but would turn their energies and ambitions to other fields.

Many of the problems we face today happen not because bad people are in charge or because "experts" come up with bad ideas. But today's political institutions have the capacity to turn virtues into vices, and fail to prevent persistence in error even on those rare occasions when the error is admitted. Bad ideas continue to be executed with impunity and escape the financial measuring stick. There are fewer occasions to reconsider, to weigh, to deliberate whether or not the expenditures made sense. Referendum and initiative would induce such debates, teach responsibility among  voters, prevent the persistence of error, and thus destroy some myths -- a condition to finding the ways to prosperity — and create new ones.
Whatever they turn out to be, they will not matter as much as myths  do today. There will be more faith in institutions and less in principles. Considering the disasters to which ages of faith in principles have led, an age of belief in both principles and institutions giving citizens more powers would be a relief.

Reuven Brenner