Reagan: The Life (40 page)

The crisis now facing America did not require the degree of sacrifice made by Martin Treptow, Reagan said. “It does require, however, our best effort and our willingness to believe in ourselves and to believe in our capacity to perform great deeds, to believe that together with God’s help we can and will resolve the problems which now confront us. And, after all, why shouldn’t we believe that? We are Americans.”

D
AVID
S
TOCKMAN HADN
’
T
expected to join the shock troops of the Reagan revolution. “
Ronald Reagan?!” he spluttered when his political mentor
Jack Kemp, Republican congressman from New York, said he was not going to run for president in 1980 but instead was joining the Reagan team. “Jack, I can’t believe you’re hooking up with Reagan.” Stockman later explained his astonishment: “The man was more ancient ideologically than he was in years. I considered him a cranky obscurantist whose political base was barnacled with every kook and fringe group that inhabited the vasty deep of American politics.”

Stockman, like many other
neoconservatives, had commenced public life in the tall grass on the radical left of American politics; like them he cared little for the social issues that inspired much of the Republican right. “I didn’t give two hoots for the
Moral Majority, the threat of unisex toilets, the school prayer amendment, and the rest of the New Right litany,” he said. These distracted from the overriding dual issue of the time: “How do you get a prosperous economy and hold off the Russians?” In fact, the social issues were worse than a distraction; they were a contradiction. “I didn’t believe in economic regulation and I didn’t believe in moral regulation.”

Neither did Kemp, Stockman knew. This was what made his association with Reagan so shocking. “He was aligning himself with
Jerry Falwell, the anti–gun control nuts, the Bible-thumping creationists, the anti-Communist witch-hunters, and the small-minded Hollywood millionaires to whom ‘supply side’ meant one more Mercedes. So there I was, thinking, ‘How is this antediluvian going to help us? He’s
exactly
what the establishment needs to discredit our ideas.’ ”

The establishment, the nexus of Washington insiders and crony capital, was, to Stockman and his fellow supply-side theorists, the enemy of America’s regeneration.
Supply-side economics defined itself in opposition to the demand-side economics of
John Maynard Keynes and of the American government during much of the period since the 1930s. The demand-siders contended that ensuring sufficient demand would keep the economy growing and the country prosperous. When private demand fell short, as during the
Great Depression, the government should step in with public demand. The supply-siders said this approach was bound to fail, for the country inevitably became addicted to government spending. As with other addictions, they asserted, government spending had to be administered in ever larger doses to prevent withdrawal. The supply-siders’ evidence was the economy’s recent and present abysmal performance, with its record
inflation and almost unprecedented unemployment.

The solution, the supply-siders said, was to focus on the other half of the supply-demand equation. The supply-siders rejected the Keynesian contention that capitalist economies inherently experience booms and busts; they blamed depressions and other ills on the meddling of government. The answer was not to create artificial demand but to ensure soundness on the supply side. As Stockman delineated the supply-side agenda, “The establishment had to be taught that you couldn’t stop inflation with wage and price controls; you had to stop printing money. It had to be taught that you couldn’t create economic growth by expanding the welfare state; you needed to start dismantling it and cutting taxes.”

Stockman knew Reagan merely by reputation, and he couldn’t imagine that the former actor grasped the essentials of supply-side economics. But Kemp said he did. “Reagan had been successfully ‘converted,’ ” Stockman recounted. “There had been a powwow out in California on the eve of the day-to-day primary campaigning. Ed Meese decided the governor should be drilled on supply side—so he’d get the basic message down.” Kemp arranged for Reagan to meet supply-siders
Jude Wanniski and
Art Laffer. “According to Jack, they’d spent days out there with Reagan, discussing the gold standard, the tax cut, supply-side theory, economic growth, the whole enchilada. And Governor Reagan had responded enthusiastically. Kemp said he had an intuitive ‘feel’ for the Laffer curve”—a theoretical graph showing that reducing tax rates could increase tax revenues by stimulating economic activity. “ ‘He’s ninety percent with us,’ Kemp enthused.”

This wouldn’t have been such a revelation had Stockman or Kemp bothered to read what Reagan had been saying and writing for decades.
Reagan wasn’t a goldbug, but he had long preached the virtues of smaller government and lower tax rates, not simply for individual liberty, but also for economic growth.

Whether or not he should have been surprised at Reagan’s endorsement of ideas held by the supply-siders, Stockman was thrilled when Reagan, after the election, invited him to head the Office of Management and Budget. Kemp, who had recommended Stockman to the president-elect, told him that a telephone call would be coming. “
I’d worked out a little script with some clever lines,” Stockman recounted. But the call was delayed, and his wit vanished. “When the phone finally rang, my hands were trembling. It was the first time I had ever spoken to a president. All that came out was a flat midwestern ‘Haallo?’ ” Reagan didn’t notice. “As I would learn again and again, Ronald Reagan had the gift of setting you utterly at ease. ‘Dave, I’ve been thinking,’ he said in a relaxed, melodious voice, ‘about how to get even with you for that thrashing you gave me in the debate rehearsals. So I’m going to send you to OMB.’ ”

D
ONALD
R
EGAN WAS
less starstruck than David Stockman at the opportunity to shape the economic policy of the new administration. And he was definitely less taken with supply-side economics. Regan was a Harvard graduate, which impressed Reagan a little; a former marine, which impressed him more; head of Wall Street’s Merrill Lynch, which seemed good training for the Treasury Department; and a fellow Irishman, which prompted Reagan to affect an affinity for Regan the latter never entirely reciprocated. Reagan was certain they shared ancestry, despite the difference in pronunciation of their names (Regan was
Ree
gan). Reagan liked to tell a story on himself that almost made him part of Regan’s branch of the extended tree. In the story Reagan was to be the guest of honor at a luncheon in Los Angeles shortly after his election as governor. The master of ceremonies had seen Reagan’s name printed but unaccountably had never heard it pronounced. He didn’t know if it was
Ray
gan or
Ree
gan. Amid his perplexity he took a walk through Beverly Hills and met a man walking a dog. Thinking the man might know the answer, the emcee asked him how the new governor pronounced his name. The man said, “
It’s Raygan.” The emcee asked him if he was sure. “Believe me, it’s
Ray
gan,” the man repeated. “I’ve known the guy for years.” The emcee expressed relief and thanked the man for solving his problem. “By the way,” he said, “that’s a nice dog. What breed is it?” “A bagel,” the man replied.

Regan had met Reagan a couple of times before the campaign of 1980. He encountered him again after
William Casey suggested that Regan, as a good Republican and well-connected Wall Streeter, organize a fund-raiser. Regan did so, and he spent a few minutes discussing the economy with the candidate after the event. “He said nothing remarkable, but he seemed to have had sound economic advice,” Regan recalled.

Regan heard rumors after the election that he was being considered for Treasury secretary. Yet he discounted the rumors because
William Simon was said to be the first choice. Then Simon declined, and Reagan called to offer him the job. “Thank you very much,” Regan replied. “I accept.” Reagan seemed surprised. Didn’t Regan have to think it over, perhaps talk to his wife? “Mr. President, what is there to think over?” Regan answered. “How could any American say no when asked to serve by the president-elect? If you’ve selected me, it’s my duty to say yes.” Reagan expressed satisfaction. Regan would be hearing from members of the White House staff. “I’ll see you in Washington,” Reagan said.

In fact Reagan did
not
see Regan in Washington, at least not very often. Eight weeks into the president’s first term, Regan jotted a memo to himself. “
To this day I have never had so much as one minute alone with Ronald Reagan!” he wrote, mystified. “Never has he, or anyone else, sat down in private to explain what is expected of me, what goals he would like to see me accomplish, what results he wants.” Regan’s experience of the business world had caused him to embrace written, measurable objectives. He found their absence in Washington—under Reagan, at any rate—disconcerting. “How can one do a job if the job is not defined? I have been struggling to do what I consider the job to be, and let others tell me if I’m wrong, or not doing the right thing.” So far no one had. He couldn’t help thinking this absence of guidance was fraught with peril.

R
EGAN
’
S IMMEDIATE CONCERN
involved the budget the president was supposed to deliver to Congress soon. In the infancy and youth of the American republic the federal budget originated in Congress, as the framers of the Constitution intended. But during the twentieth century the initiative on the budget, as on many other aspects of national governance, shifted to the executive branch. The federal budget became the vehicle by which presidential promises were transmuted into public policy. In Reagan’s case, his budget proposal to Congress would indicate how his general calls for tax cuts and smaller government would take specific shape.

Two weeks into his presidency, Reagan launched his campaign for economic reform. He and his advisers had considered a formal State of the Union but opted instead for what he called “
a report on the state of our nation’s economy.” The economy’s state was not good, he said for the thousandth time. “We’re in the worst economic mess since the Great Depression.” Government was, as he had declared in his inaugural address, the heart of the problem. “The federal budget is out of control.” The
deficit for the current fiscal year would be nearly $80 billion. This was more than the entire federal budget a generation earlier. The federal payroll had quintupled in twenty years.
Interest rates were higher than at any time since World War I. The unemployed numbered seven million. “If they stood in a line, allowing three feet for each person, the line would reach from the coast of Maine to California.”

On the stump Reagan had often blamed malign intent, a bureaucratic will to power, for the growth of government. He took a different tack this evening. He pointed at the American people collectively. “We all had a hand in looking to government for benefits,” he said. For a time the benefits had appeared inexpensive. The nation’s income doubled in the generation after
World War II, and the economy sustained the burden of growing government without obvious difficulty. Inflation had risen, but not to alarming levels.

Yet Americans should have been paying closer attention, Reagan said. Some
had
been, though he didn’t identify himself by name. “If we look back at those golden years, we recall that even then voices had been raised, warning that inflation, like radioactivity, was cumulative, and that once started it could get out of control.” And so it had gotten out of control. Now it was ravaging the country, and it would continue to do so until the federal deficit was tamed.

The question was how. One way would be to raise taxes. But this had been tried and had failed utterly. “Prior to World War II, taxes were such that on the average we only had to work just a little over 1 month each year to pay our total federal, state, and local tax bill. Today we have to work 4 months to pay that bill.” Taxes had grown, but government had grown faster.

The solution was not to raise taxes but to cut them. This sounded paradoxical, for it appeared to aggravate the deficit problem. Yet it was the only way to get a grip on spending, the source of the problem. “Over the past decades we’ve talked of curtailing government spending so that we can then lower the tax burden. Sometimes we’ve even taken a run at doing
that. But there were always those who told us that taxes couldn’t be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance.”

Likely no one in Reagan’s audience recognized the significance of that last sentence. Reagan himself did not recognize it. But by putting tax cuts ahead of spending cuts, he proposed to lead America across an economic Rubicon. Republicans and conservatives had hitherto made
balanced budgets the touchstone of their fiscal philosophy. They sought to cut taxes, but not at the cost of increasing debt. They knew that cutting taxes is politically easy, because it makes constituents happy. Cutting spending is the hard part, for it causes constituents pain. Reagan proposed doing the easy part first. The hard part could wait.

Not that he ignored spending cuts. He explained that he had placed a freeze on federal hiring, ordered reductions in government travel, trimmed the number of consultants hired by the federal government, and canceled orders for new office equipment. This was just the beginning. More must be done. His administration would have a blueprint soon. “It will propose budget cuts in virtually every department of government.”

Yet against this unspecific promise of spending reductions, Reagan proposed very specific, and substantial, tax cuts. “I shall ask for a 10 percent reduction across the board in personal income tax rates for each of the next three years.”

Reagan pitched his package as the country’s last chance to reclaim prosperity and restore freedom from overweening government. “Over the years we’ve let negative economic forces run out of control. We stalled the judgment day, but we no longer have that luxury. We’re out of time.” Future generations would thank this one or condemn it. “We can leave our children with an unrepayable massive debt and a shattered economy, or we can leave them liberty in a land where every individual has the opportunity to be whatever God intended us to be.”