Washington is a city at the center of its own universe. It moves to its own rhythms, according to its own imperatives, toward its own reality. Events do occasionally imping, as in the case of elections, wars, and catastrophes, but only rarely, and then only to the degree that they figure into some preexisting Washington agenda.
To some, the stock market crash of this past October looked to be an event of such moment that Washington would be forced to bend to realities outside its control. The instant analysis was that it was Washington that was most responsible for the loss of a trillion dollars in national net worth -- Washington with its persistent budget deficit, Washington that had never come up with a trade policy, Washington that, in the throes of deregulation, let the equity markets fall into the hands of monopolizers and speculators. How would Washington respond to the challenge?
October 29. It is 10 days after Black Monday and 58 years to the day since the great crash of 1929. Although today's newspapers are full of parallels between that earlier crisis and this one, the sense of collective shock and fear has already begun to dissipate.
On this day, the House passes by one vote, 206 to 205, a budget bill that would commit Congress to increasing federal taxes by $12 billion per year. Included in the package is a new provision to deny corporations the customary tax deduction for interest on loans taken to finance corporate takeovers. Wall Street interests have already succeeded in convincing a press hungry to find culprits that the mere consideration of the tax change was a principal cause of the market decline. Congressman Dan Rostenkowski of Illinois, chairman of the House's tax-writing committee, concedes today that maybe this is one provision that could be further reviewed as the budget measure makes its way through the Senate. It is one of many signs that Washington still prefers to respond to the demands of interest groups rather than to the demands of a sound economy.
Two other things are noteworthy about this House action.
The first is how little enthusiasm even a Democratic House has for raising broad-based taxes. In addition to the antitakeover tax, this budget bill would raise revenue from Kuwaitis for the privilege of having their tankers escorted in the Persian Gulf, extend the federal tax on telephone service, and close a few loopholes enjoyed by Defense contractors and owners of million-dollar houses. Tax rates, however, both for individuals and corporations, would remain unchanged. No hard choices here.
Actually, the process by which this bill is passed seems to attract more attention than its content. Speaker Jim Wright has held open the voting on the bill beyond the usual 15 minutes -- long enough for his aides to locate Jim Chapman, a fellow Texas Democrat who relies on the Speaker for campaign help, and hustle him onto the House floor. As Chapman switches his vote from nay to yea, the one-vote margin of defeat is turned into a one-vote margin of victory for the new Speaker, who promptly gavels the vote closed. So upset are some members over Wright's cheap parliamentary stunt that the House chamber erupts into boos and catcalls. An editorial in the November 2 Washington Post calls the episode a "feast for cynics."
It is easy to be cynical about Jim Wright. "He used the crash as an opportunity to further his agenda," one business lobbyist explains after the day's events. "He wants to attack the deficit by raising revenue to prove that the Reagan tax cuts were wrong -- and that he was right."
Meanwhile, at the other end of Pennsylvania Avenue, Beryl Sprinkel, chairman of the president's three-member Council of Economic Advisors, quietly withdraws his resignation and is elevated to Cabinet rank. Sprinkel will now have a chair in the Cabinet Room with a brass market on the back engraved with his name. It is doubtful, however, that he will have any more influence on the President, whose economics remain firmly grounded in supply-side fantasy.
October 30. The crash has sparked a series of hastily called hearings in Congress, most of which seem designed to create the impression that Washington is on top of the crisis. On this day, the Joint Economic Committee, which has no power to report legislation, has convened in the Dirksen Senate Office Building to examine the long-term costs of soaring U.S. trade deficits. It was the trade deficit figures from August that seemed to stampede the Wall Street bulls into retreat earlier in the month.
Chairing the hearing is Senator Paul Sarbanes of Maryland, a former Rhodes scholar respected among his colleagues for being thoughtful and serious. Opposite him at the witness table is Anthony Solomon, who has been a powerful player on the financial scene, as undersecretary of the Treasury in the Carter Administration, president of the Federal Reserve Bank of New York, and now chairman of a Wall Street investment house, S.G. Warburg (U.S.A.) Inc.
"You people have quite a problem on your hands," Solomon says of the $156-billion annual trade deficit. "We have had banana-republic economic policies. [Now,] you have a clear responsibility to get that [trade] deficit down."
Solomon, no protectionist, sees a fundamental international imbalance generating much of the trade imbalance. Some of our biggest and richest trading partners, most notably Japan and Germany, refuse to stimulate their economies in ways that would increase purchases of U.S. goods and services. Solomon suggests we coax their cooperation by threatening to reduce the $280 billion a year spent by the Pentagon that goes, directly or indirectly, toward defending our allies. The suggestion echoes something that one hears so frequently in Washington now: that the most profound implication of America's financial decline may be a radical reordering of military and political alliances.
Before long, the conversation turns from international issues and the trade deficit to the federal budget deficit, which is Washington's newest numbers game. How much reduction will be needed, Sarbanes asks, before Wall Street is satisfied? Will the $23 billion in cuts required by Gramm-Rudman be sufficient? Solomon thinks not, and essentially ups the ante to $50 billion. It is an extraordinary exchange -- the investment banker, undoubtedly fresh from some unproductive paper shuffling on Wall Street, dictating budget policy to a U.S. senator whose interest seems to be focused on placating the investment community rather than on dealing fundamentally with what ails the American economy.
November 1. For the past two weeks, the Sunday papers have been filled with ominous economic news and analysis, and on each of the succeeding Mondays, the stock market has taken a dive. Today's editions augur for a third bad Monday.
Running off the front page of the Sunday Post is a story by political reporter Haynes Johnson, reporting from New York City. Johnson quotes Arthur Levitt Jr., chairman of the American Stock Exchange, who says that the stock market crash is the result of "the first global election" in which the world has given "a very significant massive vote of no confidence in our Congress and in our administration."
