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.