The President and His Advisers

The incoming administration's strategy depended on how it resolved the tensions in its agenda: build up the military, reduce social spending, "ease the burden" of government regulation of industry, cut taxes, and balance the budget. Both the tax cut and military buildup could make it hard to balance the budget. To say that social spending should be cut was insufficient; specific programs had to be targeted, which meant that specific constituencies had to be angered. Whatever policy mix was adopted would have to convince those jittery financial markets that better times were coming. Reagan's program had to portray both credible economic theory and something Congress would accept—a combination Carter had not achieved.

Round One, the Campaign

Reagan had strong biases; he wanted both to limit government's role in the economy and to drastically reduce tax rates. Given his lack of interest in or knowledge about many details, however, often the judgments of his subordinates were necessary to translate those biases into

action. The president knew where he wanted to go; their job was to help him get there.

Ronald Reagan did not like the domestic federal government. Although he had toned down his rhetoric during his campaigns, he had long objected to not only the Great Society welfare programs but also the New Deal employment programs and the progressive income tax. As far back as the 1950s, while lecturing General Electric employees, Reagan had castigated

the myth that our graduated income tax has any resemblance to proportionate taxation. The entire structure was created by Karl Marx. It simply is a penalty on the individual who can improve his own lot; it takes his earnings from him and redistributes them to people who are incapable of earning as much as he can.^[19]

He viewed taxes and the welfare state as impositions upon a suffering public by Washington bureaucrats. His attitude is shown in how he explained the decline of the Republican party:

One reason came out of the Great Depression. There was a loss of confidence in the system itself. Democrats came in on the great surge of 1932 and they embarked on the great social reforms and so forth. If you look back in hindsight, you find that these social reforms really didn't work. They didn't cure unemployment, they didn't solve the social problems. But what came from that was a group of people … entrenched in government in the permanent structure, who wanted social reforms just for the sake of the social reforms. They didn't see them as temporary medicine as most people saw them, to cure the ills of the Depression. They saw them as a permanent way of life…. Now peacetime came and there was no question about the Democratic party having solidified its hold on the people.^[20]

In this view, much of the welfare state was essentially a scam. Unfortunately many people had been duped, yet Reagan knew better than to base a campaign on assaulting the progressive tax or the New Deal. He would attack taxes as too high rather than as too redistributive, and he would condemn government as wasteful and arrogant rather than denounce social security as bad in itself. However, the ability to temporize, to compromise for the moment, or to adjust one's rhetoric to the audience should not be confused with moderating goals.

It is difficult even now to judge what Reagan understood about the economy he wished to revitalize. His understanding of such institutional aspects as the role of the Federal Reserve Board was limited. Reagan once wondered to his aides why the Board didn't just lower the prime rate, which in fact it does not set.^[21] What he knew, he was certain about: government spending and taxes weakened the personal initiative that made capitalism a great engine of prosperity. When his own marginal

income tax rate as a movie star reached 90 percent, Reagan had seen no point in working more; from that extreme case, he concluded that people would work harder at lower levels of taxation. Disputes over timing of policies, effects on markets, and plausibility of forecasts would not shake Reagan's preferences; his decisions would be guided far more by the implications of each option for his overall agenda than by the disputed details.

The great contradiction in his own agenda involved the balanced budget. Reagan had preached against deficits for years, asserting flatly that they were the cause of inflation. How, then, was he to rationalize a Kemp-Roth style tax cut? His advisers helped confirm his belief that the problem could be managed.

In his major Chicago campaign speech on the economy, Reagan urged his audience not to "just take my word for it. I have discussed this with any number of distinguished economists and businessmen, including such men as George Shultz, William Simon, Alan Greenspan, Charls Walker, and James Lynn." All these men, former high officials in Republican administrations, made careers of influencing the policy of whichever Republican was in office. One of them, who had supported another candidate before 1980, recalled that Reagan's "fiscal policy left a lot to be desired—cut taxes and stand back, watch the Laffer Curve work. I let it be known that I was willing to help." Soon he was among the candidate's economic policy advisers. These establishment Republicans, whom we have dubbed neoclassicist, were just as convinced as Reagan that Democratic policies were in error, and in all the same ways: taxes, spending, and deficits were all too high; regulation was too intrusive; money was too loose. In spite of all the publicity for "supply-side" and "Kemp-Roth," Reaganomics, as one participant put it, "came out of the heart of the Republican establishment."^[22]

The most thorough rationale for Reaganomics was provided by economist and policy analyst Martin C. Anderson, who was Reagan's chief adviser on domestic policy. Anderson's job was to turn Reagan's ideas into defensible proposals.^[23] His "Policy Memorandum No. 1," dated August 1979, outlined the Reaganomics they were to follow throughout the campaign and Reagan's presidency.

The memorandum denied that "any attempt to increase employment would lead to more inflation, and that any attempt to reduce inflation would result in more unemployment." Doubts about the "iron law" relating the two, wrote Anderson, had recently "blossomed into rampant skepticism and full disbelief, even among economists." He cited a 1978 Federal Reserve Bank of Minneapolis study in saying it was "possible to reduce inflation and stimulate economic growth without having an economic bellyache, recession, or depression."

The memo blamed inflation, the economy's greatest problem, on the "massive, continuing budget deficit of the federal government." But the deficit was a function of revenue and expenditures, so the most effective way to reduce the deficit was "to reduce the rate of growth of federal expenditures and to simultaneously stimulate the economy so as to increase revenues in such a way that the private share grows proportionately more than the government share." Economic growth could be stimulated by reducing taxes, which were "stifling the incentive for individuals to earn, save, and invest." Growth could also be stimulated by an income tax cut of the Kemp-Roth type, with lower top marginal rates and lower capital gains and corporate income taxes. Then the tax code should be indexed to prevent the "insidious" effects of bracket creep. The last part of this supply-side stimulus package would be extensive deregulation. Anderson cited Washington University economist Murray Weidenbaum's estimate that federal regulations cost business over $75 billion in 1977—and that those costs were passed on to the consumer in higher prices.

As the economy was stimulated without increasing inflation, given a supply-side rather than a demand-side analysis, federal spending would be controlled. "It is not necessary to cut federal spending from its current levels," Anderson told his candidate, "but it is necessary to reduce the rate of increase in federal spending." That rate would be reduced first by attacking the "legendary" amount of "fraud, waste, and extravagance in federal programs." Anderson's own best-known work on urban renewal enabled him to believe that some programs were wasteful and extravagant in the sense that they did not provide sufficient benefits for the money. Citing an OMB estimate that annual waste might be as high as $50 billion, he suggested citizen task forces, as Reagan had used in California, to search out waste in all programs. Anderson also recommended a transfer of programs back to the states, eliminating one layer of administrative costs, and concluded that the recommended steps could bring the budget to balance. Then balance should be locked in with a constitutional amendment that might also include other procedural proposals, such as a line-item veto and super-majorities (three-fifths or two-thirds) for new spending, in an economic bill of rights.

Anderson's memo became an internal working document. We can see much later policy—choices, justifications, even what others considered diversionary tactics like the item veto—in that paper. It shows that Reaganomics was not something Jack Kemp and David Stockman sold the president. Absent were numbers: an argument that the whole thing could add up over a period of years.

The campaign's economic and political advisers recognized that media attacks on the program's plausibility had to be blunted. Alan Greenspan,

for example, predicted in a letter to Anderson on June 10, 1980, that Reagan would face "a degree of scrutiny to the details not accorded other presidential candidates of recent years" and suggested that the campaign should develop budget plans with detail comparable to budget resolutions. Credibility might have been pursued by changing some premises. Reagan, however, would not budge on defense increases or tax cuts. Defense was more important than the budget; "nothing was so vital, in Reagan's thinking, as the strengthening of United States defense capabilities."^[24] Reagan was adamant about tax cuts. When told by some advisers that the tax cut would be easier in five years, the candidate reportedly replied, "I don't care." Because they were not allowed to change the premises (and not all of them wanted to), the advisers had to find another way to make the program add up. They solved their problem (sort of) with help from Democrats.

After estimates using CBO's economic forecast showed that the package would not balance the budget before 1985—and that assumed a smaller defense buildup and smaller corporate tax cut than eventually occurred, together with a 6 percent cut from "waste, fraud, and abuse"—the Senate Budget Committee, fortuitously, came out with its more optimistic economic estimates. Reagan advisers adopted these numbers that the Democrats could hardly attack. The Senate numbers on defense were nearly what Anderson had projected anyway; by accepting them and assuming slightly higher "waste" savings, Reagan's advisers fixed it so that the basic plan would yield a surplus by FY83.

Reagan's Chicago statement added one element to Anderson's year-old memo: a sound, stable, and predictable monetary policy. No one said much about the possibility that monetary restraint could knock the economy for a loop: supply-siders believed the tax cut would overcome the monetary squeeze; neoclassicists were more worried about inflation; and Democrats thought Carter's chairman of the Federal Reserve supposedly was pursuing the same policy as the neoclassicists. In drafting the speech, the various constitutional proposals of Anderson's economic bill of rights were removed; the point of the speech was to defuse, not provoke, controversy. Proposals unlikely to pass would not convince a skeptical public that the Republicans had a practical plan.

The September 9 plan promised "waste" savings of 7 percent (2 percent in FY81, 2 percent in FY82, and 1 percent each following year) by the end of FY85. Beyond the promise, the plan announced an even more optimistic "goal" of 10 percent savings. "If these goals are reached the efforts will be redoubled, because certainly more than 10 percent of the money the federal government spends every year is misspent."^[25] How would this waste be found? By appointing administrators who shared Reagan's philosophy of spending control; freezing federal employment

(which actually had not grown in years); creating citizen task forces; and having a special transition team, directed by former OMB Director Caspar Weinberger, find "specific ways to search out and eliminate waste and extravagance." There was no word about the exact programs.

Who believed this? Clearly Anderson believed some of it, but the new goal went beyond his original caution. The candidate believed it. When we asked if anyone believed in the waste-fraud-and-abuse, a mainstream adviser replied, "They believed it's there, they didn't believe there was much money in it. The president still believes it. It was a political thing in the September speech, the only way to get balance in the plan." The speech in fact took most of the budget off the table:

This strategy for growth does not require altering or taking back necessary entitlements already granted to the American people. The integrity of the Social Security system will be defended…. This strategy does require restraining the congressional desire to "add on" to every old program and to create new programs funded by deficits.^[26]

Unless inflation adjustments were defined as "adding on" to old programs, any plausible interpretation of "entitlements already granted," added to defense, meant that Reagan's 10 percent cut from waste was more like taking 30 percent from what was left.

The September 9 package nevertheless did dampen some skepticism. Although the numbers really did not look plausible, they were not impossible; the press at least did not mock the spending projections. The trouble was that to make all of Reaganomics work part of Reaganomics had to fail. Its first point was to stop inflation, but the economic projections assumed inflation would drive revenues up enough to compensate for the tax cut. Herbert Stein put the case well:

There was one major flaw in this picture. The economic assumptions used … implied 8.7 percent per year annual inflation from 1980 to 1985. This was inconsistent with the Reagan promises for conquering inflation, but it was a major source of revenue. Basically, their forecasts abstained from the supply-siders' unrealistic estimates of the revenue-raising effects of a tax cut and relied instead on the revenue-raising effects of an all-too-realistic, but undesired, inflation. The argument was as unrealistic as the supply-side argument, but it was unrealistic in a more conventional way.^[27]

In other words, a policy that promised to balance the budget in order to reduce inflation was going to attain budget balance by assuming the very inflation that balance was supposed to eliminate!

The funny numbers on September 9, 1980, put into perspective David Stockman's later mea culpas about unrealistic forecasts. Not only Reaganomics but also the willingness to fudge in order to attain the good

things in the package, worrying later how it would add up, "came from the heart of the Republican establishment"—the advisers who cleared that speech. The best that can be said in their defense is that the Federal Reserve got the price level to drop a lot faster than anyone thought. A substantial part of the Reagan deficit came from the lack of revenues premised upon the effects of bracket creep no one, in or out of the Reagan camp, expected to drop so suddenly.

Making Policy

Ronald Reagan's election changed the decision-making process within his coalition because the decisions now meant something different: instead of campaign stances, they would be the "president's program." His defense advisers, no longer letting election worries restrain their arguments for a massive buildup, emphasized their vision of military needs. In response to their briefings, one close aide reports, Reagan "continually upped in his mind the need for spending more."

Economic advisers were organized into a series of task forces to define the program more precisely.^[28] The tax policy task force "tried to put together a program which expressed what the President wanted, a marriage of the capital formation and the populist people." With Charls Walker as chairman, capital formation, represented by the "10-5-3" depreciation plan wed individual tax-cutting populism, the Kemp-Roth plan at a meeting of Reagan's Economic Policy Coordinating Committee on November 15. "You would have liked it," a participant told us academics, "the notes were taken by a Nobel prize-winning economist, Milton Friedman." Both the higher defense spending and bigger tax cuts meant that balancing the budget, still a key and publicized part of the economic package, would be more difficult.

Reagan and most of his advisers did not really ask whether the conflict could be resolved; instead they asked how it might be resolved. They developed a laundry list of reasons; if any were true, the tax cut would work. The reasons contradicted each other; political argument, however, is not validated by logical consistency. Coalitions for any policy, such as the 1974 Budget Act, usually involve groups with different purposes and ideas about how it will work out. A member of a coalition need not care why others are his allies, so long as he believes his own reason for supporting the bill.

By one argument, Kemp-Roth was nowhere near as big as it looked. Because inflation would drive up peoples' taxes during the years to come, most of Kemp-Roth would merely keep taxes from reflecting the rise. The issue then was not how to balance the budget but what to do with the huge, expected tax increases—fund more government spending, or give money back to the people. This argument would prove misleading

given flaws in the economic projections, but at the time no one could have known that. The real difficulty was that if Kemp-Roth were not much of a tax cut, it would do little to relieve the economic disaster that Reagan and much of the public perceived. But it also would do little harm.

Supply-siders claimed that their tax cut would produce so much economic growth that revenues on the increment of growth would exceed the loss from lower tax rates. Based on intuition and his own experience, Reagan agreed. He would tell visitors, for example, that every other modern tax cut had resulted in the government ending up with more revenues that it started out with, and "we're just convinced" that it would happen again. Aides said Reagan really did believe it, but many advisers did not.^[29] The campaign's projections always assumed an overall revenue loss. Still Reagan spoke of dramatic economic change, which required a real policy change, and therefore contradicted the first argument.

The third argument, the "children's allowance theory," received less attention than it deserved in 1981. Reagan expressed it best himself in his February 5, 1981, address to the nation on the state of the economy:

Over the past decades we've talked of curtailing Government 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 simply by reducing their allowance.^[30]

Taxes would be cut first. Only by using deficits as pressure to reduce spending could spending be reduced enough to reduce deficits.^[31]

The Republicans' natural good-thing-for-people, lower taxes, was foreclosed by the need to cut spending first lest the deficit rise. Cutting taxes first would reverse the political dynamic that had frustrated Republicans for years. The Democrats, until Carter, had something to offer people—spending programs. Now the Republicans could offer tax cuts.

Reagan's characterization of politicians as children or as irresponsible "spenders" neatly fit his distrust of domestic government and therefore was easily accepted by many of his allies. The argument did, however, contradict the supply-side: if tax cuts raised revenue, they did not reduce the allowance.

All three arguments—it was not really much of a tax cut; it was a dramatic change that would create enough economic growth to pay for itself; it would create deficits, but deficits themselves would restrain spending and thus eventually deficits—were blithely employed by the administration, often by the same people and even at the same time. The best way to justify the tax cut, for the many people who believe in

budget balance, however, was to translate rhetoric about waste, fraud, abuse, and extravagance into spending cuts. Enter David Stockman.

Stockman

Stockman, who became Reagan's director of the Office of Management and Budget, was the point man in enacting Reaganomics. He also became the president's harshest critic. In spite of these disagreements, he stayed longer than any budget director since the Second World War.

Stockman impressed a series of influential elders who helped him in his career. They included Daniel Patrick Moynihan, then a counselor to President Nixon and later Democratic senator from New York; David Broder, dean of the nation's political columnists; and Representative John Anderson (R-Ill.), chairman of the House Republican caucus. When Stockman was twenty-five, Anderson made him executive director of the Republican Conference, the House Republicans' organ for developing new party positions. There Stockman became a true-blue believer in the gospel of the free market.

After serving Anderson for four years, Stockman decided to run for Congress in his rural Michigan home district against incumbent Republican Ed Hutchinson. A staffer challenging an incumbent is, as Stockman notes, "the ultimate sin in Congress…. There would be absolute havoc with it; congressmen would be looking over their shoulders every minute."^[32] Although smart enough to see the institutional stakes, Stockman ignored them—believing he was far more able than Hutchinson—for his ambition was overwhelming. Hutchinson bowed out rather than face a tough primary, so Stockman triumphed easily in that bedrock Republican district. In Congress, Stockman quickly became a conservative leader on economic policy. The Almanac of American Politics noted that he had "provided congressional conservatives with some of their freshest thinking and strongest advocacy in some time."^[33] He dramatized his allegiance to free-market principles as the only representative from Michigan to vote against the 1979 federal bail-out of the Chrysler Corporation. He also became a member of the small group of supply-side theorists clustered around Jack Kemp. And, working with Phil Gramm (D-Tex.), he became a leader of budget cutters in the House.

By 1980, when just thirty-four, Stockman was a congressional veteran who, at least technically, understood how the House worked, knew the budget far better than most, commanded respect for his talent and energy, and dedicated himself to all aspects of Reaganomics—cutting taxes, building the military, deregulating, cutting domestic spending, establishing stable money, and balancing budgets. Yet he was no Reaganite. Here is Stockman's account of his reaction when told by Jack Kemp that

Kemp had negotiated a role for the supply-side clique in the Reagan campaign:

After I hung up the phone, I didn't know whether to giggle or kick the side of my desk.

Ronald Reagan?

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 nasty deep of American politics.

So there I was, thinking, "How is this antediluvian going to help us? He's exactly what the establishment needs to discredit our ideas."^[34]

Stockman was a newcomer to the Reaganites and therefore not a member of the inner circle. He did not understand that he and Caspar Weinberger, or Ed Meese, or Martin Anderson, or even James Baker were not on equal terms before the president. They had proved themselves before he came on the scene. Nor did he see the president's deep commitment to tax cuts and the ways that eminent advisers such as Greenspan and Shultz reinforced Reagan's preferences.

Traditional Republicans preferred markets to government on principle and distrusted government power as a threat to private enterprise (or power, depending on your own ideology). Stockman's real objection to government programs was moral: they embodied no principle of justice, whether equity or people meriting what they earned. He saw the federal government as distributing its benefits according to power and greed rather than need. Traditional Republicans found the government alien; Stockman thought it corrupt. Because his position was based on ideas rather than a sense of "us" and "them," his loyalties were less solid than, for instance, those of the corps of economists who had served Republican administrations for a generation.

Stockman's critique of politics resembled, as he notes, one of the most influential polemics in the academic literature, Theodore Lowi's The End of Liberalism . Lowi argued that the "public philosophy" of the post-New Deal state was something called "interest group liberalism," which combined nineteenth-century fear of governmental power and twentieth-century practical need for government action, by having government cooperate with interest groups. Because groups existed to represent their members, their involvement in legislation, particularly administration, could be called democratic, and government would not be seen as coercing anybody. The problem, Lowi wrote, was that the acceptance of groups in a process of normless, endless bargaining left the political process adrift; without standards, authority could never be legitimate, for it would be arbitrary. "In such departments as Agriculture, Labor,

and Commerce, delegation of power has become alienation of public domain—the gift of sovereignty to private satrapies.^[35] There are no clear rules or processes, just endless bargaining, the results of which are determined by group power.^[36]

We shall return to his themes. Here, we care about what Stockman did with Lowi. His critique of the process looks a lot like that of liberal George Miller in defending reconciliation, an accusation that interest-group games overwhelmed politics of principle: "Might had become Right."^[37]

In early 1975 Stockman had published a well-received article, "The Social Pork Barrel," in which he argued that

The vast increase in social welfare outlays … has created in its wake a political maintenance system based in no small part on the cooptation and incorporation of Congress itself. If members were ever legislators and statesmen, they have more and more taken on the characteristics of constituency ombudsmen and grant brokers.

Once a program was started, the "money sluice" would never be closed. Even Republicans were locked into programs as their constituents began to receive benefits and the programs were diverted from their original radical purposes, as with the Community Action Program. In the end, liberal programs were not serving liberal ends, but government grew, draining society nonetheless.^[38]

Stockman's particular dislike of social programs had three related consequences. First, Stockman was far more willing to cut business subsidies and other advantages for the middle-class and wealthy than were most of Reagan's advisers except Anderson. Second, Stockman thought he could explain and justify his position to some liberals—most consequentially, William Greider of the Washington Post in interviews that would cause a great stir at the end of 1981.

Stockman's version of the Reaganrevolution was far more radical than Reagan's: Stockman wanted to change the very way that government functioned, replacing politics with justice. To change the processes, however, Stockman had to work through them; in order to push Reagan's proposals, Stockman had to play the game of assembling coalitions. Stockman had to sin in order to win the kingdom of virtue; therefore, the third consequence, he was trapped by a contradiction far more implacable than those of Reaganomics. Reagan could function without inner conflict, for the means fit his ends. Stockman would feel his ideology was more pure; yet, since he was down in the ditch making compromises, Stockman knew he too was covered in mud. That led to the agony, anger, and cynicism revealed in the book he wrote after his resignation.

Stockman believed that for supply-side policy to work it had to be

logically valid in a way demonstrable to the establishment. To Stockman that meant explaining the chain of events that led to the desired end. Because he posited a means-end chain, his theory could be falsified; because it could be falsified, he could imagine—indeed he would have—a moral duty to change his mind. Most Republican economists would settle for the right kind of policy operated by their guys; they did not insist on coherent argument about how the economy would get from the inflation and stagnation of 1980 to the growth and stable prices Reagan promised. Stockman misjudged the establishment and, like all of us, understood less than he believed about macroeconomics. But he stuck to his model, so that, when a part of it was falsified, Stockman lost faith in the whole structure.

Stockman elaborated his economic vision in an extraordinary memo, "Avoiding an Economic Dunkirk," that he and Jack Kemp sent to the president-elect in November 1980. The memo was written in order to convince Reagan to appoint Stockman OMB director.^[39] The "President," the memo began, "will inherit thoroughly disordered credit and capital markets, punishingly high interest rates, and hair-trigger market psychology poised to respond strongly to early economic policy signals in either favorable or unfavorable ways." The key to favorable expectations was "decisive, credible" cuts in outlays, removing the specter of deficits.

But, covering some of the same ground covered by Anderson over a year before, Stockman wrote:

Achieving fiscal controls over outlays and Treasury borrowing cannot be conducted as an accounting exercise or exclusively through legislated spending cuts in the orthodox sense . Only a comprehensive economic package that spurs output and employment growth and lowers inflation expectations and interest rates has any hope of stopping the present hemorrhage.^[40]

Any dilution of the Kemp-Roth tax cut for short-term outlay gains would be, in the long run, counterproductive. Or so Stockman then thought.

At the same time, markets had to be convinced that the tax cut did not mean long-term inflation. In order to show that the money supply would not accommodate inflation, thereby reducing expectations, Stockman recommended that Volcker and Reagan should meet, with Reagan stoutly endorsing a tight money policy. If the budget could be shown to be on a path that would within a reasonable time remove both the deficit and money growth as causes of inflation, investors would adjust their long-term expectations accordingly.

As a start toward credible long-term spending control, Stockman suggested at least $25 billion in FY82 spending cuts, essentially along the lines of the defeated House Republican alternatives in 1980. Stockman's

sense of urgency was shared by the rest of Reagan's team, though they saw no need to be so dramatic.

His outline, however, had a few revealing holes. One was defense spending, which he did not consider. Another was excluding some real big programs, like social security and the Veterans' Administration. But the real difficulty was Stockman's reliance on changing long-term expectations before any change in performance. Herbert Stein has nicely summarized the extent to which the policy adopted, basically following Stockman's line, was like the house that Jack built:

Thus the parts of the programs were tied together not only in the sense that all the parts had to be put into place but also in the sense that they all had to work. The announcement of the program had to have the desired effect on expectations. Otherwise, the monetary restraint would cause an economic contraction, which would, among other things, keep the budget from coming into balance, and that would impair the growth of production and productivity, further affecting the revenue and deficit and so on in a general unraveling. Similarly the tax rate cuts had to have the promised effects on the supply of output on the desired scale and time schedule. If they didn't the budget would not come into balance, investment would be held back, productivity growth would be sluggish, the monetary restraint would cause unemployment and the whole scenario would unravel from a different direction.^[41]

Stockman understood all this. When the markets did not behave as he had hoped, he began to doubt his theory. Other advisers' rationales for supporting the president were less elaborate, less easily falsified, and thus more solid.

Appointments besides Stockman's would shape budget politics. For our purposes, the key appointees were Cap Weinberger at the Defense Department and Donald Regan at the Treasury Department.

Ironically, Weinberger's appointment drew cries of dismay from the Pentagon and its supporters. Tough talk in previous stints at OMB and HEW had brought him the nickname, "Cap the knife," though those who worked with him at OMB knew better. Accordingly, many took his appointment as a sign that the Pentagon buildup would receive skeptical review in the office of the secretary of Defense. Yet Weinberger discussed the budget in terms of defense "need," not deficits, and saw defense as a far more fundamental reponsibility of the federal government than social spending.^[42] No one knew, however, what Weinberger thought the needs might be. An enemy of a strong defense, Weinberger certainly was not.

Donald Regan at the Treasury would be the point man for tax-cutting efforts; as such, his role was as crucial as Stockman's at OMB. Regan was

viewed as a man experienced in the financial markets but relatively inexperienced in Washington. Yet, Regan was no political novice. As president of Merrill Lynch, the nation's largest brokerage house, he had been a leader of the very political revolution, during the 1970s, in the financial services industry.^[43] A businessman rather than an economist, Regan had spoken out little about economic theory. Supply-siders were uneasy about him, so Kemp and his allies arranged to surround Regan with assistants—strict monetarist Beryl Sprinkel (under secretary for monetary policy), Norman Ture (under secretary for tax policy), and the Wall Street Journal's Paul Craig Roberts (assistant secretary for economic policy)—who would, they hoped, guide their boss in the right direction. And Regan certainly was sympathetic to individual rate cuts. Echoing the attitude held by the president-elect, Regan believed that "the only argument against reducing the top marginal tax rate is that it would remove a penalty for being successful."^[44]

Along with Regan and Stockman, the third member of the economic troika was Murray Weidenbaum as chairman of the Council of Economic Advisers. As the first microeconomist (his specialty was regulation) chosen to head the CEA, his appointment showed the new government's interest in making economic arguments to reduce government interference in the market. It also showed Reagan's disrespect for the economic fine-tuning under which traditional macroeconomists had been trying to manage the economy.

Nevertheless, Weidenbaum would have to sign off on the economic forecast, which meant making macroeconomic judgments. In that he was essentially a neoclassicist.^[45] Bearing no direct policy responsibility, Weidenbaum would be less influential than Regan or Stockman. Even for a microeconomist, representing the economics profession within the Reagan administration would not be one of the world's more rewarding jobs.

The most important advisers are those closest to the president: leaders of the White House staff. Their job, as they saw it, was to help Ronald Reagan be a successful president. "It was not our role," an official later commented, "to go in there and try to reshape the President's policies."^[46] But they would watch for danger signals in the economy, which could have dangerous political consequences. Because they were selected more for political than policy skills, the chief staffers were not all totally committed to Reagan's vision, though all, as Republicans, leaned that way. Ironically, in dealings with the media and Congress, the more centrist views of some of Reagan's aides may have given an impression that if things went wrong the administration was more flexible than the president in fact proved to be.

The three top White House aides were Presidential Counselor Edwin

Meese, Chief of Staff James Baker, and Deputy Chief of Staff Michael Deaver. Although Meese had cabinet rank, there was no clear hierarchy.

Formerly Reagan's chief of staff in Sacramento, Meese was close to the new president in ideology and many personal attitudes. He commanded the White House policy staffs, prepared the agenda for cabinet meetings, and coordinated cabinet councils. He was supposed to reconcile differences in the cabinet, that is, to get disputes into a shape that would either allow presidential decision or, better yet, make it unnecessary. Though his authority reached into all areas of policy, Meese was more a guardian of Reagan's general ideology than an architect of new initiatives.

Mike Deaver was personally close to both Ronald and Nancy Reagan. He went to work for them in 1966; over the years he became the man, more than any other, who took care of Ronald Reagan's image. To do this he had to submerge whatever policy preferences he had; otherwise he would have been suspected of having hidden agendas. Because most Americans, indeed most of the world, were to the left of Reagan, keeping him popular meant going where the voters and opinion were.^[47] Deaver knew his man well enough to judge what situations were trouble and what were opportunity. In the White House, his office adjoined the Oval Office.

Chief of Staff James Baker was an anomaly: unlike Meese or Deaver, he had no past background with Reagan. He had been Ford's campaign manager (against Reagan) in 1976 and George Bush's campaign manager in 1980. Born to the law in Houston, a successful attorney who moved easily in all the right Texas circles, from the boardroom to fishing in the salt marshes, Jim Baker was chosen chief of staff because of the skill he had displayed in various campaigns. Baker was an extremely good administrator, bargainer, and tactician. He was responsible for the political, as distinguished from policy, side of the White House—negotiations with Congress and other political actors. He would prove a master at appraising the political climate and using this understanding to promote the president's program.

A number of other aides had independent responsibility as well as close association with this threesome. Although Vice President George Bush had once labeled the Reagan program "voodoo economics," he worked diligently for the Reagan program and proved an effective lobbyist. Bush was a man of generally conservative values with a long record of service and total loyalty in important jobs, from head of the Republican National Committee to director of the CIA. Max L. Friedersdorf and his deputy, Kenneth Duberstein, were experienced congressional liaisons (the lack thereof had been a real weakness in the Carter administration).

Richard Wirthlin, the president's pollster, had no official position, but his soundings of the public pulse helped shape the presentation of policy. Staff director David Gergen, another aide in charge of making the president look good, had been a speechwriter for Nixon, directed Ford's office of communications, and was well-connected throughout both the Republican and wider Washington intellectual and media establishments (he became editor of U.S. News and World Report after leaving the White House).

Richard Darman, Baker's assistant, had the seemingly uninteresting job of ensuring that policy papers destined for the president were fully and fairly staffed. Yet, with Baker's backing, he would become a most influential presidential aide. The thirty-seven-year-old Darman was not only not a Reaganaut but a living, breathing liberal Republican, a protégé of Elliot Richardson, with experience in four departments. "His dirty little secret," writes Barrett, "was that he believed in government, including the federal government."^[48] Like Baker, Darman was an incorrigible centrist whose self-assumed task was to make government work. Darman's main interest was problem solving for its own sake. Darman suggested creating the Legislative Strategy Group, cochaired by Meese and Baker, which coordinated the efforts of White House, OMB, and Treasury lobbyists and over the long months to follow directed the negotiations that led to Reagan's victories. That group enhanced Darman's influence, and he—the closest to Stockman in age and brilliance, if not in temperament—would become the budget director's closest ally in the coming internal administration battles over the shape of the economic plan.

As assistant to the president for policy development, Martin Anderson reprised his campaign role with greater resources. His forty-one-member staff included the executive secretaries of each of the five cabinet councils. Although off the lobbying track, Anderson could intervene in internal White House decision making where he saw a need.^[49]

On the whole, Reagan had assembled a generally conservative and politically sophisticated staff.