The Laffer-Curve Crew Reunites for Steve Forbes at Treasury!

Did anyone catch a glimpse of Steve Forbes at the Republican National Convention in Philadelphia? He was there, all right-but nowhere near the First Union Center. Instead, he dropped by the Union League Club across town one morning to headline a sparsely attended breakfast meeting hosted by the supply-side political action committee Club for Growth.

The attendees were mostly movement conservatives: economist Arthur Laffer, economist and media personality Larry Kudlow, Wall Street macher Dick Gilder and other old-guard veterans. Mr. Forbes went through his usual spiel: We need a flat-tax now, and give the surplus back to the taxpayers. Then Mr. Forbes’ speech was done. It was time for Q.&A. From the back of the room, up jumped Jack Kemp, the old N.F.L. quarterback, Presidential candidate and Vice Presidential nominee.

Instead of a question, though, came a rallying cry: “As supply-siders, we need to do all that we can to make Steve Forbes Treasury Secretary,” Mr. Kemp announced in his excitable rasp.

The applause was nothing more than polite, but the seed had been sown. The supply-side battle for hearts and minds would go on.

Is it morning again in America? A small cadre of supply-side true believers certainly seems to think so. Jude Wanniski, Jack Kemp, Richard Gilder and Larry Kudlow are all showing a bit more spring to their step these days.

And who can blame them? The exuberant, tax-slashing optimism of George W. Bush smacks eerily of another happy-go-lucky governor from a big sunny state who was vague on the details but stubborn on the message. Now they want to lock in their gains by getting their man named Treasury Secretary.

And what a man it is: Steve Forbes.

A done deal, though, it is not. The Bush folks may be returning their phone calls, and Larry Lindsey, Governor Bush’s chief economic adviser, does indeed have impeccable supply-side credentials (his 1990 The Growth Experiment was an important validating text for the model). But first things first: These guys need to start getting along. Years of internecine policy and personal disputes have left the supply-side movement in tatters, its influence at a low ebb. Now comes the catalyst for its comeback: Mr. Forbes.

And where would its headquarters be? A small brown house on a quiet street in Morristown, N. J. It’s where Jude Wanniski, editorial bomb thrower for the Wall Street Journal in the early 1970’s, holds court these days. In his prime-with his 117 editorial-page missives a year from the conservative front-Mr. Wanniski popularized supply-side economics for the masses and also served as philosophical muse for the likes of Ronald Reagan, Mr. Kemp and Mr. Forbes. Now he runs a small consultancy, Polyconomics, and oversees a supply-side mini-university on his Web site. He is 64 years old, his preaching days for the most part done. But there is one more mission to run: Get Mr. Forbes appointed as Treasury Secretary.

He owes it to Steve, after all. It was Mr. Wanniski’s eight-page memo, hammered out on a laptop in Hawaii in 1995, that lured Mr. Forbes from horse-country privacy into the glare and humiliation of two failed Presidential campaigns. Mr. Wanniski needed a supply-side warrior to enter the 1996 Presidential race, and the Forbes magazine publisher was more than ready to throw himself upon that sword. Sure, Mr. Forbes and Mr. Wanniski have had their ups and downs, but in the end Mr. Forbes was a true believer. And now, with Dick Cheney as Vice President, there would be someone in Washington who would read Mr. Wanniski’s goddamn memos again.

Voila! The Curve!

Mr. Wanniski met Mr. Cheney in 1974, in the cocktail lounge of the Hotel Washington, with Arthur Laffer, a then-obscure technocrat-economist in the private sector who had been chief economist at the Office of Management and Budget in 1971 under Richard Nixon. Mr. Cheney, then 33, was with his boss, Donald Rumsfeld, chief of staff to President Gerald Ford. The Republicans had just been creamed in the mid-term elections. Mr. Wanniski and Mr. Laffer were trying to get the message across: Cut taxes. Mr. Cheney and Mr. Rumsfeld were not getting it. Worried about inflation, the Ford administration’s economists were pushing for a tax surcharge. Frustrated, Mr. Laffer started scribbling on a napkin: a scrawl of lines and axes. The more you raise taxes, the less revenue you will take in. The law of diminishing returns. The Laffer curve. For the first time, it was out of the classroom and in political play.

Twenty-six years later, Mr. Wanniski sat in his modest office and remembered:

“When I saw the curve, I said, ‘Wow. This is it; I can make this happen.’ The supply-side revolution was left for me to promote.”

But President Ford wimped out on the tax cut, pushing through a heretical demand-side tax rebate instead. In came Jimmy Carter and oblivion. But in 1979, Mr. Wanniski’s cause became the Reagan economic plan.

Mr. Wanniski, however, was frozen out, seen by the Reagan campaign as too ideological, too pure even for that group.

Why would people listen to him now?

Then there was Mr. Laffer. They had a falling out in the early 1980’s over fees in a short-lived consulting relationship. As Mr. Laffer told The Observer recently, “We drifted apart. Jude is Jude. He will always be banging tables. Indeed, if he was there when Mary was in the manger, he would have made sure it happened properly.”

Then, to a lesser extent, there was Robert Bartley, Mr. Wanniski’s former mentor at The Wall Street Journal , about whom he now says: “Bob Bartley is intellectually corrupt. He has squandered the last seven years by trying to put Clinton in jail.”

Next came trouble with Jack Kemp. Mr. Kemp was on CNBC a few months ago, talking up the Bush plan on Social Security and taxes. Mr. Wanniski couldn’t believe it; he screamed at the television set. Wahhhhhh .

“Jack has to know how horrified I am at his behavior,” Mr. Wanniski said.

“The Bush plan is sub-optimal. It has been designed by Daddy’s economists-Michael Boskin and Marty Feldstein. And there he is, throwing big wet kisses. Look, I know he wants to be loved, but if that is the case he should stay out of the arena. I’ m 64-I’m running out of time, and he is undermining all the work I’m doing through back channels.”

Mr. Wanniski fired off a stinging memo that very evening, on his laptop, while still in front of the TV. It was a nasty memo and feelings were hurt.

“We are not on speaking terms-he went over the edge,” said Mr. Kemp. “I don’t need Jude Wanniski telling me what to do.”

Well, what’s done is done. There is nothing more Mr. Wanniski can do for Mr. Kemp. Mr. Kemp is on the board of at least a dozen Internet companies, at last count. He has left the arena.

The Forbes Factor

But not Mr. Forbes. After spending $70 million on two failed campaigns, he’s still ready for the call. Mr. Wanniski was Mr. Forbes’ Svengali, same as with Mr. Kemp. In the late 70’s, the twentysomething Mr. Forbes would tag along for the supply-side confabs with Mr. Kemp and the gang in D.C. By the mid-80’s, Mr. Forbes’ chauffeur was dropping him off, on his way from Far Hills to his Manhattan office, for one-on-one breakfasts at the Madison Hotel in Convent Station, N.J., near Mr. Wanniski’s home. Mr. Forbes was eager to learn; he devoured the Wanniski canon and spit it right back out on the pages of Forbes.

So when Mr. Kemp pulled back in 1996, Mr. Forbes-now so ideologically buff-was ready to enter the Presidential race. But then came the mistakes: He spurned Reagan puppet-master John Sears for some Jesse Helms–affiliated campaign operatives from North Carolina, real killers, who let loose such a flood of negative campaign ads that he poisoned the very air around himself. The ugliness of his campaign tactics pissed off Mr. Kemp, too, who withheld his endorsement (he finally caved, when it was too late to help Mr. Forbes).

The upshot: Once again Mr. Wanniski couldn’t get his phone calls returned. So he fired off a memo to Mr. Forbes-vitriolic, personal.

“It was so harsh,” Mr. Wanniski recalled. “I threw everything at him but the kitchen sink. He said he could never forgive me, that I went over the top.”

Mr. Wanniski watched from afar as Mr. Forbes reprised his quixotic bid in a 2000 run. Poor Steve-for all his political failings, the guy was still a member of the faith. He would be the perfect Treasury Secretary. He might even drive the capital gains tax to zero. He would be such a superior choice to the Bush candidate du jour , Donald Marron of PaineWebber. Mr. Forbes is not a compromiser. But with so many bridges burned, how to make this appointment happen?

Mr. Wanniski went to Dick Gilder-the top supply-sider on Wall Street and an original Forbes supporter going back to 1996. Great idea, said Mr. Gilder.

Mr. Gilder also runs money for right-minded scribe Bob Novak. His libertarian impulses run deep; he was a founding trustee of the Central Park Conservancy and a vocal proponent for privatizing management of the park.

Mr. Wanniski’s approach to Mr. Gilder seemed to pay off. Before you knew it, supply-side columnist, economist and talking head Larry Kudlow was penning a “Where is Steve Forbes?” editorial for the National Review . A week later, in Philadelphia, Mr. Kemp got up and said the magic words.

“Forbes will make a great Treasury Secretary,” Mr. Gilder said from his sprawling, newly acquired oceanside spread in Islesboro, Me. “He has always talked about lower taxes.” As far as Mr. Gilder is concerned, the tax rate is an inverse indicator for the stock market: When the tax rate goes up, the market goes down, and vice versa.

ING Barings investment strategist Larry Kudlow also believes-and with the big-grinned ardor of one who has flown high and crashed, only to rise once again. In 1978 he was 30 years old, a zealous but unknown economist for PaineWebber penning arcane monetarist rants about the money supply and gold when Mr. Wanniski discovered him.

Before he knew it, Mr. Kudlow was an economist at the Office of Management and Budget in Washington at the dawn of the Reagan era. Returning to Wall Street and Bear Stearns in the mid-80’s, he lived large and high as the street’s most prominent supply-side cheerleader, using the newly launched CNBC and other media to spread the word. Famously, he crashed in 1994, brought down by coke and booze.

Out of Hazleton in 1995, Mr. Kudlow did a year on bent knee working for Arthur Laffer’s consultancy in San Diego while recharging his spiritual and academic batteries as well.

In 1996, CNBC took him back. Now it’s Squawk Box once a month, speaking gigs, a column at the National Review , a seat on the Club for Growth board. “Getting back into the life is just so great. I have not had a drink or a snort in five years. People forget: In 1995, my life was over. I’d destroyed everything-I was missing TV shows, wasn’t filing columns. I’d stopped showing up for life. All of this now … it’s a miracle,” Mr. Kudlow said in his deep, made-for-radio voice, luxuriating in the plush leather of his company car.

These days, Mr. Kudlow says, he is getting his phone calls returned. “I’ve had no trouble getting my views across-my pals are John Cogan and Marty Anderson [Reagan-era policy wonks]. I’ve got access, and I’ve been pleasantly surprised as to how W. has stuck with his marginal-tax-reduction plan and in general touts Reagan.”

He, too, has been active in pushing for Mr. Forbes. “I raised it personally with Don Evans [Bush’s closest friend and chief fund-raiser] as well as Bush when I was in Philadelphia. ‘Don,’ I said, ‘you guys are going to be attacked on issues like Social Security and taxes. You need people from the outside, businessmen, to defend you. Reagan had Bill Simon, Clinton had Rubin. The question is: Who is your Bob Rubin going to be?’ My recommendation, of course, was Forbes.”

Later, on the air, Mr. Kudlow reacts to that old charge of “voodoo economics” with a there-you-go-again Reagan look.

“Look,” he said, his voice booming out in the empty studio, “when Bush wins and carries both houses with him, you are going to see an across-the-board marginal-tax-rate reduction. Forget about the lost revenue. You just don’t need it. Tax revenue is already rolling in at three to four times the inflation rate. And let me add this: If you lower tax rates, economic growth actually expands, and tax revenues go up as the rate goes down. It’s called the Laffer curve.”

The lights dim. The weekend is here and Mr. Kudlow is beaming. He had done it. “I can’t believe I actually got the Laffer curve in!” he crowed. The supply-siders are back. “We are tan, rested and ready,” he announced.

Back in Morristown, Mr. Wanniski is not tuning in-nor does he seem all that tan or rested. He and Mr. Kudlow are another ruptured relationship. They haven’t spoken in 10 years, despite the pivotal role that Mr. Wanniski played in launching Mr. Kudlow’s career. There have been disputes over deals gone bad in Russia and, more recently, some confusion as to who gets the credit for forecasting the Nasdaq correction last spring.

“I blew up at him. Sent him an e-mail,” Mr. Wanniski said. “E-mails are great. You can communicate with people you are not speaking with.”

There are no regrets, though. These days, Mr. Wanniski spends more of his time with Louis Farrakhan, the Nation of Islam leader who has become a willing audience for Mr. Wanniski’s proselytizing (“He says I’m the only white guy he trusts”) than he does with a newly ascendant Arthur Laffer, who is now being mooted to serve as George W.’s Council of Economic Advisers chair.

“I know I’ve had fallings-out with people,” Mr. Wanniski said. “But there are a lot of strange bedfellows in the supply-side revolution-a lot of prima donnas like me. But I am a theologian. This is a mission I have. There is a power moving me that I don’t quite understand. I truly believe that I can save people and that the supply-side revolution can save the world from decline, poverty, disease and war.”

What does Steve Forbes say about the latest tactic in Mr. Wanniski’s supply-side crusade? He is now back penning editorials for Forbes and seems a bit bemused by it all. And after more than three years of school-boy optimism about his political prospects, a bit of cold political realism seems to have set in.

“I don’t think it will be offered,” Mr. Forbes said a bit resignedly, when asked about the chances that he would become Treasury Secretary in the event of George W.’s election. “Others have a higher claim than I do. I’m flattered, but I am really not counting on it.”

And perhaps he shouldn’t. The Bush campaign today is all about occupying the soft, fuzzy middle, dulling the hard edges of ideology and Newt Gingrich-to say nothing of the residual bitterness of the Republican primary.

“It’s a long shot,” says one insider sympathetic to the Forbes push. “Forbes has had prickly relations with Bush. It’s a personal thing.