When Ross Perot first began running for the Presidency, the Wall Street Journal suggested some possible movie models for the campaign. One was the simple-minded gardener in "Being There" who becomes a presidential contender by uttering platitudes that sound deep but say nothing. Another was Jimmy Stewart in "Mr. Smith Goes to Washington," the pure idealist who triumphs over corrupt insiders. Or perhaps, given his penchant for finding anti-Perot plotters everywhere, Captain Queeg in "The Caine Mutiny."
But after Clinton's first 200 days, with Perot still in continuous campaign mode, the aptest cinematic model of all appears to be "The Treasure of the Sierra Madre." Perot's wealth has been recently estimated at anywhere from $2.4 to $3.5 billion. The most common figure cited is $3.2 billion. However many billions Ross really owns, he has made a staggering amount of money--probably more than $250 million--as a giant dividend from his campaigning. And that's just the amount he's earned since the November election.
How does Perot turn the straw of political rhetoric into the gold of financial net worth? Perot's far-from-simpleminded strategy transforms the conventional plutocratic obsession with deficit reduction into a campaign for national sacrifice. It was to save America for our grandchildren, he says, that he decided to use his fortune in an unprecedented independent run for the Presidency. Then, refusing to drop his heavy burden of concern for the nation's future, Perot continued the fight against Clinton, becoming the Administration's most formidable political opponent.
Last fall, many Perot detractors saw the $65 million he spent on his campaign as a colossal vanity, a billionaire's self-indulgence. Now, along with the grass roots "United We Stand, America" movement, it turns out to have been a kind of prudent portfolio insurance--one that's paid off wildly.
To figure out Perot's game, though, you have to understand what chips he's playing with. Bonds. Most probably, Ross Perot owns more bonds than any individual in America. Simply put, his politics are about preserving and augmenting the value of his billions in bonds.
In May of 1992, Perot filed history's hugest financial disclosure report to the Federal Election Commission--123 pages more appropriate to a mutual fund than a man. What surprised some, beyond the sheer size of Perot's assets, was their make-up: the prophet of American industrial revival was betting heavily it would never happen.
According to Citizens for Tax Justice's Robert McIntyre, only about eight percent of Perot's holdings were held in any U.S. common stocks at all. Over three-quarters were invested in bonds, mostly tax-free municipals. Surprised commentators for the Wall Street Journal and The New York Times questioned Perot's top-heavy emphasis on bonds, especially tax-exempts. But as Howard Stein, chairman of Dreyfus Corporation, said at the time, "If you had a couple of billion dollars, you'd do the same thing--a lot of tax free income, rest and relax."
Two worries, however, keep giant bond-holders from relaxing completely: economic growth and budget deficits. Both create a demand for credit. More borrowing sends interest rates up and bond prices down.
Clinton's commitment during the presidential campaign to a big economic stimulus program must have scared Ross. By creating a new, well-defined swing vote constituency for a Herbert Hoover-style deficit reduction program, Perot's faux populist campaign helped turned the Clinton Administration away from its early economic growth agenda. With Perot battering away on the outside, and Wall Street figures like Economic Counselor Robert E. Rubin and Deputy Treasury Secretary Roger Altman applying pressure from the inside, the $20 billion stimulus package proposed by Clinton in February kept shrinking until it had been transformed into a $500 billion deficit reduction program.
The bond markets, as Clinton kept telling us, were ecstatic with the change in direction. As yields dropped, bond prices reached all-time highs. According to Fidelity Fund's Virginia Marans, municipal bonds have grown in value at an annual rate of 13 percent. Perot holds about $2 billion worth. If you take the appreciation in their value since November, when bonds began to rally, he's made 12 percent, or $240 million alone. Add the gains from Ross's approximately $360 million in taxable bonds--about 11 percent of his $3.2 billion portfolio. The Lehman Brothers Treasury Index has gone up more than 20 percent since the election, so that would add another $70 million to Ross's pot. His approximately quarter-billion dollars worth of stocks would have appreciated about 14 percent--tack on another $40 million. Which leaves the 11 percent of his portfolio invested in real estate. Real estate is down--let's say he's lost exactly what he has gained from his investments in everything but municipal bonds. Ross would still be about a quarter billion ahead.
Of course, it's conceivable that Perot has drastically changed his investment strategy, liquidating his two billion in tax-exempt municipal bonds and pouring the money into industrial America. But, if he has done this, there is no evidence for it. When asked for clarification, Sharon Holman, Perot's spokeswoman, said, "I have no knowledge of Mr. Perot's finances."
Could Perot's perpetual campaign have anything to do with the bond market's year-long celebration? "Oh hell yes," says, John Collins, research analyst at the Washington-based Investment Company Institute, the mutual fund industry's main trade group. "When Ross buys TV time, he's talking up the [bond] market. He's pretty shrewd."
To argue that Perot's deficit reduction campaign made Clinton flinch and sent the bond market soaring is to assume that domestic fiscal policy makes a difference to the bond market. Nowadays, Republicans are saying no. They have a partisan interest in denying that Clinton's strikingly conservative fiscal policy has helped their natural constituency--Wall Street investors. Interest rates have gone down everywhere, they point out. Not true. In Japan, after the announcement of a big government spending initiative, interest rates turned up sharply this spring. In August, French money market rates rose from 8.5 to 9.25 percent. Spain, Denmark and Portugal have all seen rates go up and bond prices go down.
If Clinton had been a conventional Democrat, if he'd stuck with his February stimulus program, or more dramatically, the plan he outlined in "Putting People First," his campaign manifesto, for $41.9 billion in new spending--interest rates would have probably risen here too. Certainly financial writers wouldn't be talking about "euphoria" and "buying panics" in the bond market, or worrying about investors "herd mentality" as they gobble up hundreds of billions in new bond offerings. Instead of being a couple of hundred million ahead, Perot could have easily lost a couple of hundred million.
Fortress Ross
Given Perot's position as the nation's number one deficit hawk, his famous charts illustrating imminent fiscal Gotterdamerung, his choice of John White, Carter's conservative budget director as his principle economic advisor, and Warren Rudman, the Senate's chief deficit basher, as the first name to surface publicly as his possible running mate, you could be forgiven for interpreting the entire campaign as a budget reduction scheme. This would be wrong. Perot cares about taxes too. After all, what benefitteth a man by capital appreciation if he loseth it to higher marginal income tax rates?
Perot's position in tax-exempt municipal bonds provides a mighty fortress against any imaginable tax scheme. But there are a couple of undefended turrets. The interest income from the two billion in municipals is completely sheltered. But the remaining billion stands vulnerable. This is where national sacrifice for the rest of us looms large.
Does Perot suggest that the sacrifice be offered chiefly in the form of higher marginal income tax rates? Noooooo. He's for truly national sacrifice. All Americans should sacrifice by paying across-the-board sales and energy taxes. In United We Stand, Perot recommended a 50-cent a gallon, $158 billion gas tax (phased in 10 cents a year over five years)--far more than the 4 cent a gallon tax passed by the Congress. And while it's true that higher gas taxes will make Perot's cigarette racing boats more expensive to operate, obviously higher tax rates on the upper brackets would impact his billions more damagingly. Sharon Holman, Perot's spokeswoman, insists however that Ross is ready for sacrifice. "He's willing to give up his Social Security benefits," she told me.
The tax plan finally passed by Clinton does nick upper income people an extra five percent. (Perot suggested raising top rates only two percent.) So the individual with a taxable income of $115,000 will now pay a 36 percent tax instead of 31 percent. Families that make more than $250,000 have to pay an additional 10 percent surcharge over that. And Perot? Robert McIntyre of Citizens for Tax Justice estimates that Perot's effective rate will go up only from 6.8 percent to 8.5 percent.
Sheep or Pilot Fish?
In Robert Altman's Nashville, still another possible cinematic model for Perot's campaign, the mysterious candidate Hal Phillip Walker manipulates his followers with his humble origins and homespun soundbites. Has Perot also acquired a following of sheep-like disciples too simple to figure out where they're being led?
No doubt some are lost in the tall grass of Ross's metaphors. He excites their herd instinct with descriptions of the sharp teeth of dangerous predators--the wily Japanese, the D.C. lobbyist, the Mexican worker. But for a substantial number, a better zoological image might be the schools of pilot fish that swim in the wake of giant sharks, catching the smaller morsels that fall from their jaws.
Nowadays, bonds are no longer just for insurance companies, bank trust departments and the super-rich. The burgeoning mutual fund industry has democratized these markets for securities that once were typically sold only at a face value amounts of $10,000 each. The Investment Company Institute estimates that there were well over 38 million Americans holding shares in mutual funds--together amounting to 1.8 trillion dollars in assets.
Since 1990, the fall in interest rates on money market funds has launched a great migration into mutual funds. Investors crowded into the stock market. But the rush into bond funds was even bigger. Reporting recently about the bond binge, the Wall Street Journal noted that bond funds have grown nearly $100 billion this year, to a record $673 billion.
Are the 19.7 million Perot voters disproportionately into bonds? There's no sure way to tell. But information supplied by the Roper Center suggests that voters who prefer Perot have an economic profile that fits the pattern of Bush voters much more closely than Clinton voters. Less than a quarter make under $25,000. More than a quarter make over $50,000.
Perot partisans are also far less likely than Clinton supporters to be the beneficiaries of the social programs Perot wants cut--his $141 billion in Medicare and Medicaid reductions; the $30 billion in taxes on Social Security benefits; the $57 billion in taxes on employer-paid health plans. So when the old software salesman talks about leaving something for America's grandchildren, at least the upper bracket of his supporters know whose grandchildren Ross is talking about.
H. (for Herbert) Ross Perot?
Still, given how the gravity of the deficit problem has been nailed into our heads, many will be inclined to ask, "What's so bad about a little self-serving hypocrisy, if the cause--reducing the deficit--is truly just?" Doesn't the national need to service the $4 trillion debt keep interest rates high and choke off economic recovery? If Ross can solve the deficit problem shouldn't we be grateful instead of spiteful? Maybe, like the Dana Carvey sketch on Saturday Night Live, he deserves a couple of hundred million dollars commission for his troubles.
The deficit is a worrisome problem, but it's not clear that cutting the budget and raising taxes, during what may turn out to be the deepest downturn since the great depression, represents a wise solution. Government spending cuts on top of downsizings at IBM, General Motors, Eastman Kodak, Westinghouse, G.E. et. al. can only reduce consumer demand further. It would take an annual growth rate of four percent all through the rest of Clinton's term to make up for the 3.5 million jobs lost since the recession started. Deficit reduction insures this will never happen. No wonder Nobel Prize-winning economist Paul Samuelson likens the whole exercise to starving the patient to death to get rid of his tapeworm.
If low interest rates were really the secret to economic growth, historians would look back fondly at the Depression years. In the 1930s, government bonds paid one percent interest. The prime rate--the interest rate banks charged their best customers--was only slightly higher. Business still wouldn't invest. During the Depression, John Maynard Keynes invented the term "liquidity trap" to describe the situation: return on investment was so low, capital had no reason not to stay "liquid."
Indeed, what is scariest about the Perot phenomenon is how he has popularized the principal economic strategies of Herbert Hoover. In 1932, running for re-election after the crash of the stock market and amidst record high unemployment, Hoover campaigned in support of his three main initiatives--deficit reduction, a national sales tax, and defense of the protectionist Smoot-Hawley tariff. In other words, Hoover's three principle issues are Perot's chief issues. A striking coincidence?
A karmic interpretation would suggest that Perot is an avatar of Hoover. Herbert has simply come back re-incarnated as Ross. After all, both were rich, charismatic businessmen. Neither had been elected to anything before running for President. But both had become famous for feats of derring-do in communist countries. (Hoover for delivering food to starving people in revolutionary Russia; Perot for his attempts to deliver aid to American POWs in North Vietnam.) Both computer exec Ross and engineer Herbert claimed to have achieved a higher form of consciousness from their wealth-earning experiences.
A more materialistic explanation would stress that when the economy turns down sharply, the very rich, the banks and the corporations all have similar interests that they promote. Banks don't lend. Corporations don't invest in new factories. The rich don't want to risk their capital on new investments. Instead of lending, banks take depositors' money and put it in government bonds. Instead of hiring, corporations use low interest rates to re-finance their debt. Instead of taking risks, the very rich buy bonds, and in Dreyfus Chairman Howard Stein's words, "rest and relax." Budget cutting and shifting taxes onto the proles masquerades as a recovery plan. A true recovery plan is what Hoover's avatars fear most.
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced." These days Perot likes to include that admonition in his speeches, always hastening to add, "These are not my words. Cicero spoke these words 2,000 years ago."
True, and Cicero spoke them as a member of the Roman equestrian order. While Senators, as land owners and public officials, were the Roman Empire's most aristocratic order, the equestrians formed the business class, the money lenders and tax gatherers. They were the people who lent money to the state, and got contracts to collect taxes in the provinces. Few were richer than Cicero, one of whose town houses cost 3.5 million sesterces. As major creditors of the state, the equestrians naturally insisted on balanced budgets too. So, from the karmic standpoint, perhaps it is wrong to see Perot simply as an reincarnation of Hoover. Both are avatars of Cicero.
Robert Fitch is a New York City-based writer whose new book The Assassination of New York (Verso) is coming out in November. As an editor of Ramparts magazine in 1971, he wrote the first investigative article examining the roots of Perot's fortune, entitled "H. Ross Perot: America's First Welfare Billionaire."
