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The Initiative Shifts toward Senate Republicans

In December only 36 percent of voters said they were better off than a year before; 59 percent felt they were not.[1] In January a Gallup poll reported that 53 percent wanted Democrats to win their congressional district, compared to 41 percent for Republicans. The public still approved Reagan's performance but by the lowest marginal percentage ever after one year of a presidency (52 to 38). On any particular issue—the tax cut, greater emphasis on inflation than on jobs, effectiveness on inflation—narrow margins continued to endorse Reagan. But that seemed, as Gallup's president put it, "hope—not conviction."[2]

The voters distrusted the Democrats even more than Reagan; one-quarter had "a lot of confidence" in his ability to solve the nation's economic problems, while only one-tenth had confidence in the Democrats. In the abstract, people favored "greater cuts in government spending." They also opposed higher income or gas taxes. Unfortunately for Reagan, there was little support for cutting specific programs. A plurality wanted to reduce defense.[3]

The economy continued to slide. Unemployment rose to 9.8 percent by July and 10.8 percent in November. Gross private domestic investment fell by more than 20 percent between the third quarters of 1981 and 1982. By December 1982, industrial production fell to the level of


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1977. Supply-siders had argued Americans would work harder because of lower marginal tax rates. However, there were many implicit qualifications; for example, a sufficient supply of money should manifest this incentive, and the cuts should be not merely anticipated but actually effected. But no one was hiring.[4]

As the recession deepened, so did public skepticism about Reagan's leadership, the military buildup, and scheduled tax cuts.[5] Strong majorities opposed further cuts in aid to the poor. In March the most popular option for reducing the deficit, by a 5 to 3 margin, was eliminating the July 1982 tax cut.[6] There would be far less support for raising taxes once people had the cut in their pocket.

Unlike other presidents, however, Reagan's support would not go into a free-fall. By July the decline had halted, even though the economic slump intensified further. His hard core of supporters, present since early in his administration, held firm at around 40 percent of the electorate. Thus, he would not feel as pressured as Carter; yet he also could not rally public support behind him.

Public opinion encouraged stalemate. So did economic logic: massive deficits fueled calls for budget restraint, but the recession provided a strong argument against spending cuts or tax increases. Both concerns, deficit reduction and the recession, lessened the confidence of Reagan's original supporters. "We really believed—and still do—that what we did was right," said boll weevil Billy Lee Evans of Georgia. "All of us would just like to see some indication that these things are working."[7] Donald Regan argued the program had not gone far enough; if the tax cut had been 10 percent in July, none of this bad news would be happening. This classical argument to do more—equally applicable to bombing North Vietnam or spending money on poverty programs—was drowned in a sea of economists condemning the deficit. Of course, as the early December meeting of Time 's Board of Economists revealed, the economists differed widely about both the relevant evils and their solutions.[8]

Elite opinion was revealed most clearly when CEA member William Niskanen, on December 8, told a seminar at the American Enterprise Institute that, according to his research, "there is no direct or indirect connection between deficits and inflation."[9] Niskanen had resigned from the Ford Motor Company because he refused to offer arguments contrary to his personal beliefs in regard to the undesirability of restricting foreign competition. On this occasion, Niskanen had correlated size of deficit with all manner of bad things and had found no relationship. So, as usual, he told the world what he thought. Niskanen was immediately blasted by all the organs of "responsibility," such as Time and Newsweek . "It was a 'How I Learned to Stop Worrying and Love the Deficit' performance that stunned me nearly speechless," said Republican and former


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OMB chief economist Rudolph Penner (who in 1983 would replace Alice Rivlin as CBO director).[10] The spiraling deficit numbers made it easy to accuse the administration of trying to slough off responsibility.

"Responsible opinion," with its horror of deficits, was deeply entrenched in the White House itself. It just didn't include the president, who identified deficits only with deficit spending. He wanted to cut spending, but, if he could not, Reagan would live with the contradiction between his present results and his past efforts as the scourge of budget deficits. The Economist expressed the divisions within the administration very nicely at the end of 1981:

"We stick with our tax programme," Mr. Reagan told his news conference on December 17th. "We go forward with the reduction in tax rates. I have no plans for increasing taxes in any way." Both in the White House and at the treasury his advisers are divided about the extent to which the president means what he says. Those who doubt the magical revenue-yielding properties of supply-side economics think he is going to have to ask for some new taxes sooner or later, and so they explain that when he says "taxes" he only means income tax, he is not ruling out the customs or the excise. Their only ground for this contention is that, if it is not so, the budget prospect becomes too horrible to contemplate. Mr. Reagan has given no sign at all that he shares their alarm. Unlike the Democratic economists, he does not see a remission of tax as an expenditure; to him it is a beneficent shrinkage of government interference in the life of man.[11]

Both sides were correct: the president did not accept his aides' logic, but he was going to be forced to raise taxes anyway. He was determined, but the pressure was intense—and his credibility was reduced as the economy went to hell in a handbasket.[12] Like Carter in 1980, Reagan would be pressed to "do something."

Reagan did want to balance the budget, but he didn't want to give up the rest of his program to do it. Far better, in his view, he strove to make deficit reduction compatible with his preference for smaller domestic government. Reagan so disliked domestic government programs that he could give a little on taxes and defense to get some social-spending reduction. The difficulty was that Reagan's idea of compromise—given his rather extreme position relative to other politicians on most of these issues—might not look like much of a deal to others. Still, the bounds of negotiation could be revealed only by experience. If some package could win the president's approval, he might, in turn, be able to help it pass in Congress.

From that day to this, the search has been on for a formula to compel Congress and the president to do right, that is, to balance the budget quickly and sensibly. Senate Republicans played the central role in the


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search for this formula-to-end-all-formulas because they cared the most about balance. Liberal House Democrats and conservative Republicans in the administration cared about deficits as well. We will see why the Democrats became even more interested in balance than they had been in Carter's time. Yet the two wings stood for other things as well. The right was against domestic government and taxes and for a strong defense. The left was for domestic government and its efforts to provide social security in the widest sense. The center, however, stood for balance above all; balance as proof that the system was working, that they as politicians and the nation as a community were responsible, that they could govern. At times, Senate Republicans had help from these moderate Democrats. Hollings, and later Lawton Chiles (D-Fla.), led Democratic budget balancers. The great organs of opinion—New York Times, Washington Post, and the newsweeklies—also led demands for action against the deficit. Mainstream economists found certainty again and joined the chorus. Still, the protagonists of that period from August 1981 through December 1982 would be Senate Republicans, continually searching for a position on which they could unite and to which they could win over the president.

Senate leaders (Howard Baker, Robert Dole, Pete Domenici, and Appropriations Chairman Mark Hatfield) had made clear all along they were worried about deficits but thought that a new Republican president should be given a chance. When the economy began to deteriorate, they could argue for modifications in the program, suggesting alternatives, without seeming to abandon either principle or the constituents who elected them.

Selling a deficit package to all the other factions in the government would not be easy, for Ronald Reagan's victories obscured many divisions within Congress.


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