Twelve
Economics as Moral Theory:
Volckernomics, Reaganomics, and the Balanced Budget Amendment

Long awaited, yet unexpected, the market boom finally came as Ronald Reagan was fighting for a tax increase. Business seemingly celebrated as its taxes were raised. What did it all mean?

Throughout the battle of the budget the participants responded to or invoked notions of how their actions would affect the economy. We have emphasized that a budget is many things, and fiscal policy is but one. Yet even those most skeptical of government intervention in the economy, including Ronald Reagan, judge economic performance to be the key criterion of political performance. Are you better off today than you were four years ago? was not merely Reagan's tactic for attacking Jimmy Carter; according to most students of politics, it is the most important question in any election. Encouraging the nation's productive forces—whether by directing them or by leaving them alone—is a primary responsibility of our elected officials.

Consensus on that responsibility gives economists their power, yet consensus on the economy per se is more rare. Throughout this narrative we have traced disjunctions among aspects of economic policy making. Not only did schools of economic thought proceed from different premises and advocate different solutions, but also, as times changed, individuals (and groups) made radically inconsistent arguments. The administration's arguments for a tax increase were but one example of such inconsistency; the turn in 1980 of such eminent figures as Paul Volcker to the "logic" of expectations was another.

Much about the economy was simply unknown or unknowable. To this day we cannot say what caused the decline of productivity; if anything, the puzzle has increased with time.^[1] Action often reflected no one's intent. The battles of 1981 produced a policy that was neither supply-side (too little stimulus, early) nor Keynesian (too much stimulus,

late). As we saw in 1980, our governors had a hard enough time figuring out what the economy was doing at the time when they were looking at—never mind knowing—either what would happen next or what to do about it.

Trying to govern by one set of theories, politicians were forced to compromise with others who held different theories; the result was policy that fit no theory. Hardly anyone anticipated what actually happened to the economy, but everyone at the time interpreted it with overconfident vigor.

Because the stakes were so high and arguments about economic effect so pervasive, we must try to explain what was happening in the economy. We cannot settle these issues. Even if we were right, we could not prove it, and, right or not, many might disagree. The absence of correct answers is part of our point; we must look for meaning outside the terms used in much economic debate. Rather we will ask about the ways of life that participants believed in and hoped to preserve; about the groups that they identified with and wanted to favor; and about the primary terms of economic thought (labor, capital) that are part of not only economic analysis but the economy as power relationships. We must appreciate how much—for economists, business interests, and politicians—economic philosophy is another form of political philosophy. The October House debate on budget balance is the most obvious case of melding political and economic philosophy.

First we ask, What was driving the economy? It is time to focus on not budget politics but Volckernomics. What was the difference, we ask, between Volckernomics and Reaganomics? We move, then, from observed events in the stock market to their possible causes: a banking crisis, the actions of the Federal Reserve, and the beliefs and acts of Ronald Reagan and his supporters. Finally, we look at the debate over budget balance in which the principles of constitutional design mix with group interest.

The Stock Market

By August 12, 1982, the Dow Jones average of 30 industrial stocks had slid from 822 to 777. On the 13th it climbed to 788, on the 16th to 792. On Tuesday, August 17, the market suddenly leaped upward by a then-all-time record of 38.81 points (with a near-record 93 million shares traded). The next morning, the rally continued with 37 million shares traded in one hour as the Dow soared by another 18 points.

Wednesday and Thursday were roller-coaster days: a sharp rally followed by profit taking and an all-time record 133 million shares traded

on Wednesday; a rally, fall (over rumors about banks and Mexican debt), and finally a nine-point gain on Thursday. On Friday, after the tax bill passed, the Dow leaped ahead by nearly thirty-one points.^[2]

The stock market frenzy continued during the following week, with 550 million shares—a daily average of 17 million more than the previous record—traded. The rally continued until it finally leveled off in April 1983, with the Dow hovering around 1200.^[3]

What did it all mean, and who deserved the credit? With the November election approaching, would the stock market rally support what Time called a "strong new hope that Reaganomics might work to pull the American economy out of stagnation"?^[4] As a matter of logic, both questions depended on whether whatever caused the stock market upswing was part of Reaganomics. As a matter of electoral politics, Reaganomics might be seen as whatever happened during the Reagan administration, whether Reagan was responsible or not. However, logic and politics were not the same.

Secretary of the Treasury Donald Regan declared, "The market forces are beginning to believe our resolve in redirecting the economy. Perhaps it took something like the tax bill to convince people that we're serious about fiscal responsibility." By his account, there was no difference between the tax bill and Reaganomics, which was finally paying its expected dividends. Others thought that the administration was a late convert to "fiscal responsibility."^[5] If Reaganomics represented supply-side economics, then the tax bill reversed policy, as Jack Kemp claimed, and the market rally could not be credited to the original policy's wisdom. A third possibility was that the rally had less to do with the tax bill, whether Reaganomics or not, than with monetary policy and hence "Volckernomics."

We lean toward the third position, but we can never know what the markets are thinking because markets do not think. The overall trend of a market results from uncoordinated individual hunches and guesses. Individuals consider not only the economy but also many other things: How will companies perform financially, and thus what will be the dividend or capital appreciation on investment? What else could people do with their money, comparing the return on equities to, say, Treasury bills? And, hardest of all, what will other actors do? Consequently, political interpretations of stock market behavior are more important for their effects than for their validity.

Conceivably, the stock market rallied at this time because the economy was such a disaster. Why were investors suddenly willing to pay more for stocks (and therefore, in percentage terms, receive smaller dividends) than they had before? The most obvious explanation in August 1982 was an expected decline in return on other investments due to a drop

in interest rates. Lower interest rates might mean greater corporate profitability. Stocks and old bonds would become more attractive as alternatives to new bonds and savings of various sorts.

Let us go back to Wall Street the week the rally began and reconsider the reporting of Time's enthusiastic correspondents.

The first hint that something extraordinary was about to unfold came on Monday morning. The First Boston investment firm announced that Albert Wojnilower, its chief economist, had revised his economic forecast. After warning for months that the huge federal budget deficit could send interest rates shooting back up again, Wojnilower now admitted that the cost of money would probably continue to decline over the next year. On Tuesday morning, rumors whirled through Wall Street that Henry Kaufman, chief economist of the Salomon Bros. investment house, had also changed his mind on interest rates. Word that these two gurus, known on the Street as Dr. Doom and Dr. Gloom, had reversed themselves electrified the stock exchange…. Because few portfolio managers were willing to risk missing a major market rally, a buying panic quickly built up.^[6]

Newsweek told a similar story. Lower interest rates could mean that recovery and higher profits were on the way. But Kaufman forecast lower rates because the economy was so sluggish that demand for credit would be weak. Kaufman was right. Capital investment, the engine of recovery according to supply-side doctrine, did not begin to increase until summer 1983. Businesses were hunkered down to wait out the recession. Throughout the first half of 1982, as businesses had scaled back on capital investment, analysts had looked to the second installment of the income tax cut to spur consumer demand and economic recovery.^[7] As the magic date approached, however, no surges occurred in either demand or supply.^[8] The demand side of high interest rates was diminishing. The governors of the Federal Reserve joined Dr. Doom and Dr. Gloom in observing that trend. They, however, saw a particular kind of gloom and doom in the trends—a debt problem far worse than the federal deficit. As the demand for money slowed, the Fed decided to increase the supply.

The Federal Reserve and the Banks

Chairman Volcker and his colleagues faced an extremely delicate choice. Over two years, beginning in October 1979, the Board had reduced inflation through an unprecedented squeeze on the money supply. On the few occasions, when the monetary aggregate figures had suggested some loosening of the grip, commentators had raised the alarm of runaway inflation. The rest of the time, the Federal Reserve had to listen

to screams of pain from the interest-sensitive sectors of the economy. Throughout this period, the Fed's governors felt their only choice was to squeeze hard because any loosening might drive up interest rates as panicky investors predicted worse inflation. By July 1982, M-1, the basic measure of the money supply, had risen barely 4 percent in fifteen months; unemployment and bankruptcies were climbing steadily toward heights last reached in the Great Depression. Yet neither investors and business interests nor the public at large seemed to believe, in spite of the real reduction in inflation, that prices would stay under control. In June, for example, a Business Week poll of 600 top corporate executives found that 53 percent expected inflation to take flight again within a year.^[9] If the Fed loosened its grip on the money supply, inflation fears might keep interest rates high, no recovery would follow, and the hard-won progress against inflation would be lost. But if the Fed did not loosen, interest rates certainly would remain high. Talk about Representative McDade's no money for anything.

Not only was the American economy choking, but the recession was equally bad in Europe, with prospects there even bleaker. High American interest rates and worldwide political worries strengthened the dollar dramatically against foreign currencies. To prevent an even greater outflow of their capital to the safe, high-interest United States, European finance ministers raised their own interest rates, and in turn those rates crippled European economies. As unemployment rose in Europe and America, consumer demand accordingly stagnated or fell. The world economy entered a classic downward spiral.

If Europe and America were in trouble, the struggling nations of the second (communist) and third worlds were, literally, on the verge of bankruptcy. The strong dollar meant that these nations had to exchange more of their products for fewer dollars, reducing both American inflation and Mexican, Polish, and Brazilian incomes. Dollars could barely be earned and only dearly borrowed. Yet dollars were needed, for the nations of the world owed hundreds of billions of dollars to American and European banks.

We have been talking throughout this book about the Federal Reserve as an institution for economic management. Fundamentally, however, the Fed is a bank—a rather big and unusual one (serving only other banks, not individuals or businesses) but a bank nonetheless. Its bedrock responsibility is not economic growth but the banking system's health—on the well-grounded assumption that a sick banking system will infect the whole economy. By a banking system, we do not mean simply a place for people to put money and have it safe. Rather, we mean a system for creating money and credit, for ensuring the flow of that very peculiar commodity that is the means of payment for all other commodities.

In June 1982, the Board's governors saw the economy doing rather worse than was tolerable. The Board also saw many foreign loans on the banks' balance sheets. Perhaps some of those nations would default. If they did, the debtors might take the banking system with them into bankruptcy.

The massive international debt crisis that reached public attention in late summer 1982 had been building since 1971, the year when OPEC discovered its strength in negotiations with the big oil companies. In October 1973, OPEC raised oil prices unilaterally, and the price held. A few months later, the price more than doubled again. The greatest transfer of wealth in the history of the world had begun. The world's rich nations suddenly were paying tribute to less-developed ones. Those envious of the West might have been happy for a moment; economic writer George Goodman (aka "Adam Smith"), with nice irony, described

a feeling of jubilation in all those countries of Asia and Africa. What an upset! Ragheads, 66; Giants, O! … So much for the imperialist exploiters who wanted us to be a nation of busboys!

And then somebody—maybe the financial people … would say, "But now we have to pay four times as much for the oil, and we have no oil. Where do we get the money?"^[10]

More or less fortunately, there was yet another problem: What on earth would OPEC countries, particularly the sparsely populated Arab states, do with the money? They put it in banks, and the banks lent it all over the world. Many loans were less than wise, but this recycling of the OPEC surplus through the banking system prevented the oil price hike from generating a massive worldwide slump. The cycle repeated after 1979.

In late 1981, Mexico owed various banks $56.9 billion, of which half was due in 1982. Brazil owed $52.7 billion, a third due that year. Venezuela, Argentina, South Korea, and Poland all owed more than $15 billion.^[11] To make matters worse, throughout this period, the banks—competing with each other for the international loan business—had expanded their loan/reserve ratios. Thus, the banks were at great risk if defaults occurred.

In all the strife about the budget and the economy little had been heard about third world loans. But to bankers and policy makers of the international financial system the problem loomed ever larger and more menacing. A big default might start a process in which the flow of money and credit that is the lifeblood of the world's economy collapsed like a row of dominoes. Warning signs abounded: a large government securities trading company went under in May and a medium-sized bank in

July; the entire savings and loan industry was in trouble. As August approached, Mexico neared default.^[12]

A number of lines of defense against a chain of defaults spread from some weak link across the banking system. First, debtors and creditors negotiated to reschedule the debt; that defense was crumbling as creditors demanded higher interest rates for greater risks. Next came the International Monetary Fund (IMF); third parties could guarantee loans, or offer them, in return for policy changes that would make repayment by the debtor nation more credible. But IMF conditions for loans might be too tough for recipient governments to accept and still survive politically while IMF reserves themselves were limited.

Within each country the national central banks themselves would be "lenders of last resort" to their respective private banks. If a major American bank was about to collapse, the Federal Reserve might provide loans to tide the bank over the crisis or allow some other, profitable bank to assume the liabilities (and assets) of the collapsing institution, thereby protecting its creditors. The Bundesbank in Germany, the Bank of England, and other central banks would try to do the same in their own financial systems.

What if none of that were enough? What if the doomsday scenario occurred, and the dollars could not be found to stem the chain reaction of collapse? Well, only one organization in the world could invent the necessary dollars. The dollar is the world's currency; the system of money and credit for the world, not just the United States, ultimately is the responsibility of America's central bank. The Federal Reserve is the lender of last resort for the world.

In 1981, at the height of concern with hyperinflation, George Goodman reported a conversation with his understandably anonymous "banker mentor." "Where will the Federal Reserve get the money?" Goodman asked. "It will print it," the banker replied. But that, said Goodman, is superinflation, too many dollars chasing goods. Perhaps, his banker replied, but there was no choice:

The System must survive. A burst of liquidity at the right time can save the System and buy time to solve the problems. Otherwise we will have a massive depression, and the Western nations will battle one another for the scraps, as they did in the Depression…. We hope that a burst of liquidity, properly handled, would restore confidence, not destroy it…. Remember, there is nowhere else to go.^[13]

This is melodrama but melodrama with a point. In July of 1982, the crisis was uncomfortably close; the Fed's governors knew it. They knew one more thing: an ounce of prevention is worth a pound of cure. The time for a "burst of liquidity" was before panic set in.

Yet the Fed's governors worried that if they loosened, those with money to lend, attending to monetarist theory rather than deep recession reality, might fear future inflation and keep interest rates high. The Fed, therefore, had to loosen while maintaining its reputation for tightness. As Volcker told the story,^[14] the board merely decided to let monetary growth move from the low end to the high end of the year's target range. In fact, M-1 overshot its 1982 target by three points as the Fed jammed the monetary accelerator through the first half of 1983. The money shortage was met by a large infusion of cash. Simultaneously the Board embarked on a publicity campaign, reiterating both its determination to prevent inflation and its contention that inflation was finally under control. Board governors gave rare public interviews. Volcker stoutly resisted congressional pressure to "loosen up" while doing exactly that. Expectations were confronted with rhetoric.

"In just one week," Chase Manhattan Bank economist Richard Benson asserted, "they [the Federal Reserve] did a coupon pass [bought Treasury notes on the open market], a bill pass [bought T-bills] and a system repo [borrowed securities from a bank or broker for cash] five days running."^[15] In August, both before and during the stock market rally, the Fed cut the discount rate three more times, down to 10 percent. Short-term interest rates fell, the stock market boomed, but long-term rates remained sticky; the economy did not recover. The Mexican crisis was postponed but not resolved.

Monetarist logic about the relation between the money supply and prices was being invalidated, as Volcker argued, by an unprecedented, since the depression, reduction in the velocity of money. Instead of spending and circulating it, people and businesses were holding on to cash, anticipating even harder times. Keynes had a name for this: he called it a "liquidity trap," in which nervous people clung to liquid assets; that unwillingness to spend or invest made their fears for the economy self-fulfilling. It was the exact opposite of the burst in velocity needed to make the Rosy Scenario come true. Volcker's version was understated: because standard relationships "over time between the monetary and credit aggregates and the variables we really care about—output, employment and prices … did not hold in 1982," M-1 targets had to be overshot because "that policy, in practical effect, would otherwise have been appreciably more restrictive than intended in setting the targets."^[16]

On October 5, 1982, the Federal Open Market Committee met again. In spite of the market rally, economic conditions remained parlous. Describing conditions in the most gloomy of terms, the chairman led his colleagues in deciding to loosen further, formally abandoning monetarist money-targeting procedures adopted in October 1979. In an unusual

step meant to reassure market participants that the Fed wanted interest rates down, Volcker publicly announced the change on October 9.^[17]

Would beliefs about the catastrophic effects of deficits overcome the real effects of greater supply and slack demand for money? No; nominal interest rates did come down. The prime interest rate, having slid three points in July and August, declined three more points, to 10.5 percent in February. Other short-term interest rates dropped accordingly. Long-term rates, more influenced by expectations and less by the immediate money supply, fell more slowly. But they, too, dropped three points by November. As money expanded and interest rates fell, prices were steady. The Consumer Price Index (CPI) rose only 2 percent from July 1982 through June 1983. Real interest rates thus were extremely high and in some ways crippling. Yet for investors who had to put their money somewhere, lower nominal rates made stocks more attractive.

We can say now that in August 1982 the Fed, for the time being, had won its battle against inflation; a 13 percent increase in M-1 over the next year did not reignite the fire. Volcker's gamble worked. For quite a while the economy remained in miserable shape; unemployment rose into double digits in September and stayed there until June 1983. In spring 1983, however, a robust recovery began.^[18]

We have come a long way from the stock market, but we can now draw a few conclusions. The decline of interest rates, the need of large institutions to invest somewhere, and the dynamics of a buying surge among a small group of actors^[19] —rather than optimism about the economy or confidence in Reaganomics—fueled the market rally. Even if investors expected further inflation, declining short-term interest rates justified moving funds into stocks. Businessmen were not confident, as long-term rates showed, that the battle against inflation had been won. Business investment did not lead the nation out of the recession. But the economy had passed a watershed; whether or not anyone believed it, the recession had killed inflation.

Volckernomics

Businesses were too scared to raise prices; labor was too scared to demand higher wages. Slumps in demand and increases in production depressed the prices of crucial commodities, especially agricultural and petroleum products. High mortgage costs terminated the boom in housing prices. Across the economy, people did not demand higher payments because they were afraid of losing the sale or their job.

That, at its heart, was Volckernomics. In spite of the fanfare that accompanied the Fed's alleged conversion to monetarism on October 6,

1979—when the Board announced it would focus on monetary targets and ignore the interest rate results—that decision had been mostly public relations. But the Board had a majority that believed inflation had become so debilitating that it had to be wrung out of the economy even at a very high price. Monetarism provided a convenient rationale for letting interest rates rise, thereby decreasing demand and investment.

The money supply, however, was never the real target of Fed action.^[20] A target is what you try to hit; you score your effort by some measure on the target. In that sense there were a number of targets. Perhaps the most important was the rate of increase in prices, but the rate of increase in wages ran a close second. Volcker and company in essence agreed with Carter's economists who had sought to reduce core inflation by restraining wages. Consider these excerpts from the Federal Reserve's report to Congress on monetary policy at the beginning of 1983:

In many ways the slowing of inflation this past year has reflected the pervasive influence of the recession on product and labor markets…. The wage-price interactions that served to perpetuate inflation through the 1970s appear to have lost much of their momentum. Workers generally are agreeing to smaller pay increase[s] than in earlier years, and in some sectors in which long-term wage agreements are prevalent, the settlements concluded in 1982 will help ensure diminished labor cost pressures in coming years. Lower labor costs are relieving pressures on prices, and, in turn, an improved price performance is reducing expectations of inflation and thus leading to a further slowing of labor costs.^[21]

Lower wages were good news. This is not to say Board members were "capitalists" out to crush "workers." Smaller wage hikes did not necessarily hurt the interests of workers—if prices rose more slowly. In fact, wages went up faster than prices in 1982 for the first time since 1978—if you were working.

Yet the recession fundamentally changed business and labor behavior, to labor's disadvantage. Previous recessions had been viewed by most participants as normal, if unpleasant, swings of the business cycle. When the recession was over, things would return to an acceptable level; companies interested in the long term would try to maintain a stable labor force, minimizing the dislocations caused by large layoffs. Output would fall more quickly than employment, so productivity statistics would decline.

For two reasons, 1982 was different. First, the high interest rates meant that the debt portion of companies' fixed costs had grown; thus, worries about financing the debt made companies more willing to cut other costs. Second, fear of diminishing competitiveness of American industries left companies less confident about regaining their markets

when the recession ended. In steel, autos, and many other industries, managers felt that costs had to be reduced sometime to meet foreign competition. The recession, when there were few customers anyway, was the right time to shed unnecessary labor. That is what companies did; employment declined more, relative to production, than in previous slumps. High unemployment meant that workers in manufacturing industries had nowhere to go. If they struck, companies that were losing money anyway might close down. As the balance of power between business and labor shifted, the wage-price spiral flattened.

Although Volcker regretted the pain of recession, he believed he had no choice. The war against inflation came first. The chairman put the Fed's case in his March 8, 1983, testimony to the House Budget Committee, replying to Representative Bill Hefner (D-N.C.):

Mr. Hefner : … you can't have it both ways. If monetary policy is responsible for inflation coming down, monetary policy has to be responsible for some of the interest rates being high and unemployment setting records….

Mr. Volcker : … We have had a recession; there is no question that that has helped importantly in precipitating lower inflation…. I don't think we had an either/or choice, that we could do something about it or not; I think economic performance would have been unsatisfactory—ultimately more unsatisfactory—if we hadn't through monetary policy very largely, coped with the inflation problem.^[22]

Mr. Volcker's remarks may be simply summarized: Yes, we beat down inflation with unemployment, and we did it on purpose. There was no alternative.

The taming of inflation became the great achievement claimed for Reaganomics. Reagan's real contribution was that by proclaiming hope in the face of the grim task of Volckernomics, he allowed the Fed to do its nasty job. How did Reaganomics allow Reagan not to flinch—and his political supporters to stay with him?

Reaganomics as a Moral Economy

Reaganomics was a political, not an economic, philosophy. The solution to the deficit problem, for example, was always seen as a matter not of calculation but of conviction: If everybody practiced capitalism, there would be a recovery, and then—shazam!—their wish would come true. Stockman's position in the Dunkirk memo—that the very change in policy would alter expectations so dramatically that a surge in investment could revitalize the economy—was merely the most detailed statement of the administration's reliance on self-fulfilling prophecy. What unified

Reaganomics, and its fractious proponents, was not what was included but who was included and what was excluded. Reaganomics excluded demand, that is, ensuring a market, as an object of policy. Supply-siders and monetarists ignored demand because their basic models emphasized different factors. In 1980–1981, due to spiraling inflation, the last thing neoclassicists were worried about was ensuring demand.

Each part of Reaganomics had particular attractions for business. Deregulation, personal tax cuts, and business tax reductions provided direct benefits. These policies also reduced the size and influence of an organization, the federal government, which many businesses viewed with suspicion as, a rival to their power and a threat to their independence.^[23] Spending cuts, particularly in the Gramm-Latta package, barely touched business. A balanced budget, if attained, would mean less government borrowing and, other things being equal, lower interest rates. It would also symbolize restraint on the alien power of the politicians. Most important, given what actually occurred, businesses were willing to accept the monetary squeeze. They accepted it in part because the uncertainty associated with inflation was so disorienting. They accepted it also because, like Chairman Volcker and the neoclassical economists, businesses believed that the squeeze could help them regain control of wages so as to adjust their operations for international competition.

Policy to restrain wages was more extensive than we have shown because what did not happen was significant. There was neither a rise in the minimum wage nor the usual long-term extension of unemployment benefits during the recession. It also is impossible to estimate the impact of the administration's hard line in the face of an air traffic controllers' strike; breaking their union in 1981 symbolized the new pattern of labor relations.

Because they liked specific provisions of Reaganomics and could accept the recession, business stayed loyal to the president even when the economy turned down. Thus, while the general public was far more negative, businesses endorsed Reaganomics by large margins in spring and summer 1982. Yet these same business interests were very pessimistic about the economy. In early spring only 23 percent of Business Week's executive sample said that the Reagan package encouraged them to expand capital spending, and half expected no economic upturn before winter; meanwhile the administration and some economists predicted recovery in the summer.^[24] After a long period of economic bad news, practical people demand premiums against risk. Most likely, they assume, the future will look like the past; that is the normal logic of expectations. "We're betting on the downside," said the chairman of Boeing Aircraft Corporation. "If we bet on a fast recovery and it didn't happen, we could be in real trouble."^[25]Business Week reported that, as the Federal Reserve

also noted, three-quarters of its sample was planning to "utilized labor more efficiently" because of the recession.^[26] Here was the paradox of encouraging business with policies: it won political support, but businesses' economic behavior still responded to their judgment of economic conditions.

Reaganomics as a probusiness worldview helps explain why the pain of Volckernomics did not turn business against Reagan. What about other people? Why would they support something very like Republican "old-time religion" with a charming new preacher? Was it just, as Greider got Stockman to say, "trickle-down" disguised as a new "supply-side" theory?

Actually, much of Reaganomics was rejected. The political system delayed and reduced the first year of tax reduction. Although some deregulation occurred, administration efforts frequently bogged down as the courts and Congress demanded that the laws be enforced more strictly. Initiatives, such as the subminimum wage for teenagers and further taxation of unemployment benefits, were blocked. Yet polls kept showing support for Reagan's policies in general.

The Republican campaign for the 1982 congressional elections called for the country to "Stay the Course." The imagery was obvious: the ship battered by storms, the skipper standing tall by the wheel, steering against the gale, sure of his direction. The sense of purpose and command that Reagan worked so hard to project was a bulwark of his political popularity. So also was the public belief that the previous skipper and his mates had led the nation into the storm. Reagan did his best to encourage that memory, referring over and over, inaccurately, to the "depression" conditions prevailing when he took over.

Reagan's view of economics was not a set of theories about the effect on outputs of a particular structure and process of inputs. He could sound like a monetarist, a neoclassicist, or a supply-sider, depending on the subject and his political needs. When he made policy, however, he chose not by inference about how some balance of policies would affect economic outputs but by reference to core principles, mediated by political philosophy. Those principles—reduce government, encourage profit, support individualism—included, but were not limited to, the interest in production and therefore producers ("suppliers," if you will) that united those economic schools allied with the administration.

Stockman's book is filled with examples of what he sees as decisions to fund business at the expense of individualistic principle. Thus, Reagan defended the oil-depletion allowance, subsidies for the nuclear industry, synfuels, and auto import quotas.^[27] For each action, however, the president found an individualistic reason: taxes were too high anyway, or nuclear and auto industries were crippled by regulation, or "we can't

cause an honest business to lose money." Even if the president were just rationalizing the politically necessary, the form of rationalization reveals the ideology. Others might have admitted the political pressure for import quotas or said that national security required energy subsidies; Reagan found ways to blame government.

Reagan's individualism was moral and personalistic. He opposed high taxes because of his own wartime experience; he identified with the browbeaten business interest. The exceptions, when he opposed business, proved the rule that his attitudes essentially involved beliefs about individual reward for behavior: he supported tax-compliance measures, such as interest withholding, because they were posed as issues of obeying the law.

When Reagan's ideas broadened to the system level, he blamed government for removing the moral basis of a healthy economy. He believed the New Deal to have been a scam; the postwar economy was not an unprecedented boom but an escalator ride to perdition. On July 28, 1982, Reagan told a press conference that all the previous recessions

have been ended by a quick fix, a flooding of money into the market, temporary spending, artificially stimulating the economy which resulted in high inflation but did give you a kind of quick fever that seemed like prosperity. And the next recession came usually about two years later. We're trying to restore the economy. To get back to a growth economy that will be based on solid principles.

The language used—"solid principles," "artificially stimulating," a "quick fever" of unreal prosperity—expressed his moral view as a proponent of private, not public, enterprise.^[28]

From an economic standpoint, federal spending and deficits are different problems; both might be bad, but spending matched by taxes creates one set of problems and deficit spending creates another. For Reagan, the two problems were one; even when it seemed in his interest to disentangle them, his heart seems not to have been in it because "deficit" and "spending" fit together in his own head so neatly. The deficit was the token of irresponsibility, excess, and corruption caused by spending (remember, he assumed that there was great waste). Deficits opposed self-reliance, the moral uprightness that Reagan saw threatened in modern America by Big Government. When people relied on government, instead of on themselves, bad things would happen: recessions, inflation, a loss of precious freedom.

This attitude toward deficits lived deep within American society as well as Ronald Reagan. It shared with supply-side promotionalism the emphasis on individual responsibility and initiative. But true-blue supply-siders did not care much about deficits; to them, deficits were something

to outgrow. Free individual energies, proclaimed the supply-siders, offer a big price for winning; then the growth generated by peoples' striving will overcome all other problems. Ultimately, this was part of a tradition—of a "Don't tread on me!" frontier individualism that resisted regulation of all sorts. Ronald Reagan had some of this frontier individualism in his style, his imagery, indeed his life. But he appealed as well to another strain in the American character, the disposition that Max Weber called the Protestant Ethic, which joins moral constraint to economic liberty. The tradeoff is explicit, its logic strong: If you behave properly, strive hard, work, and save, you will be rewarded with success. In this view, good things come as a consequence of right action; therefore, the community has a right to enforce values by restraining social behavior. That activity does not contradict but rather reinforces the laissez-faire economic policy. Social restraints reinforce economic competition. Too frequently people point to the supposed contradiction between social regulation and economic deregulation in Reaganism without realizing these two ideas have been linked, for good reason, throughout American history.^[29]

Reagan's Reaganomics may be called a "moral economy." At its heart, it was a set of beliefs about how people should live together. Like other visions of the good life, it could be invalidated by nothing short of a cataclysm. Short-term results were something to be explained away or manipulated in behalf of the larger goal of preserving or extending the way of life. Those who suffer in such a system are searched for defects; the system, if humane, will allow compensation for accidents or bad luck (the "truly needy") but will never accept the blame for peoples' pain. The "system," the American way, is good for you. From this springs the Reaganite attitude toward welfare, the continual separation of the helpless unfortunate from those who could help themselves.

The president's denial that his package could possibly hurt anyone has the same root: right action cannot hurt any but the immoral. Thus, unlike many Republicans in the Senate and some of his own staff, the president worried little about fairness. To Reagan, fairness meant people getting what they deserved. He replied to criticism with stories about cheating: the welfare queen in Chicago or the food stamps used to purchase vodka. He worried mainly about finding a moral ground because moral principles are not so easily turned aside as statements about matters of fact.

Now the moral leader in an immoral world knows that he must meet the unconverted halfway; but he also believes that continual witnessing of the Word will eventually win the day. Strong in a faith that is bigger than the leader, the leader then communicates that belief to the citizenry. This certitude need not appear as the deadly cold fanaticism of a Robespierre.

Nor need it be the strictness of a Cotton Mather or a John Calvin. A moral leader can forgive the sinners, like a Stockman after the Atlantic article or Jack Kemp after the 1982 tax-hike battle, by recognizing that the world is a difficult place in which to live. The Lord himself forgave Nineveh (much to Jonah's disgust). The Lord even forgave Jonah. Reagan acted as a moral leader first, a policy maker second. Recall that when Ronald Reagan at the last minute in early 1982 rejected his advisers' tax plans—it felt so wrong—he reacted physically to the idea.

The believers in the vision, like their president, would not abandon it because of a few bad months. What Reaganomics offered was a chance to believe, a chance to have their country, for a while, pursue their vision.

Herbert Stein has written that, with the breakdown of the Keynesian consensus, Americans have no theory for fiscal policy. What we wish to add is that Ronald Reagan wanted no fiscal theory; he was quite satisfied with the moral economy (some call it capitalism) he already knew. Nor could economists guarantee that their theories would work better than his.

The Reagan administration would feel pressures to reduce the deficit and thereby interest rates, or even to pump up the economy with further tax cuts. But this administration, far more than most, because of its leader, would accept the painful present. Ronald Reagan would campaign to stay the course because he was strong in his own beliefs. Virtue, his version, surely would be rewarded in the end.

Should Spending Be Limited by Constitutional Amendment?

As the midterm elections approached, the overriding concern was whether a public attracted to Reagan's moral economy, but bowled over by the economic gale, would maintain the Republican de facto majorities in Congress. If not, then Republicans had to find some other appeal to help GOP legislators stay in office. What do you do about Reaganomics if your constituents need help now? One response was focusing attention on their strong moral grounds rather than the short-term economic disaster. Hence the Republicans pushed for a constitutional amendment to require a balanced budget. The proposed balanced budget, spending limit amendment was criticized as irrelevant to the existing deficit, but that, we believe, was neither the moral nor the political point.

An amendment to the Constitution that called for balancing the budget and limiting government spending had gathered support slowly since the mid-1970s. Two issue groups, the National Taxpayers Union and the National Tax Limitation Committee, provided most of the lobbying effort. Although balancing the budget was the more politically popular theme, these groups were more interested in limiting government spending

balance at high levels of taxing and spending would be a defeat. Eventually a coalition of legislators and other interested parties formed to push a version of the amendment that would make unbalancing the budget difficult; spending cuts would become the most likely means to achieve budget balance.

Amendment proponents began with little hope of winning the two-thirds of each house necessary to submit an amendment to the states for ratification. Democratic legislators thought it was a bad idea, and their control of procedure, especially in the House, enabled them to keep the issue off the agenda. Amendment proponents, therefore, worked to build pressure on Congress by proceeding on the never-used second route to a constitutional amendment. If two-thirds (thirty-four) of the states so requested, Congress would have to call a new constitutional convention to propose amendments that would, in turn, be submitted to the states for ratification.

No one knew exactly how such a convention would work: who would participate in it, whether its actions could really be limited to balanced budget matters—and so on through a litany of uncertainty. Some argued that a convention might "run away" and radically alter the Constitution. Not likely: getting people to alter a body of law that we have all learned is nearly sacred, and then getting three-quarters of state legislatures to agree, seems wildly improbable.^[30] The prospect however, served as a double-edged scare tactic. Although the specter of a "runaway" convention gave them fits because it was hard to prove a negative—a stick-to-the-budget convention—the amendment's advocates felt that these uncertainties added to the appeal of their strategy. They hoped that fear of a convention would cause Congress to act preemptively, that is, to submit an amendment to the states rather than open that Pandora's box.

Balanced budgets are very popular, in the abstract, with the American public. Spending limits are not necessarily so popular, but, because the amendment was presented as a budget-balancing effort and because the polls asked questions accordingly, its advocates could demonstrate overwhelming support for the idea. The amendment was far more popular, just like the balanced budget, than was any particular action to achieve its goal.

On January 31, 1982, Alaska became the thirty-first state to endorse the call. The mushrooming federal deficit strongly encouraged the amendment, for the cries of woe from all sides, liberals included, about interest rates and other supposedly deficit-related evils made action to restrain deficits seem more important, while the failures of first Carter and then Reagan to balance the budget encouraged the belief that only powerful medicine would cure the deficit disease. In American political thinking, a constitutional amendment is the most powerful medicine of

all. With the tally of states nearing the magic thirty-four, and with deficits mushrooming, the amendment movement in Congress grew stronger.

A constitutional amendment to enforce any particular budgeting result takes to an extreme, but hardly unprecedented, point a common political tactic: shaping decisions by changing the rules for deciding. The budget acts of 1921, 1974, and 1985 (Gramm-Rudman-Hollings) were, at least in part, efforts by factions to change budget results by changing procedures. State constitutions include many provisions—such as balanced budget requirements, item vetoes, and limits on how a legislature can alter a governor's budget—designed to ensure balance.^[31] The U.S. Constitution is amended far less frequently than are state charters; both the presumption against elevating policy to fundamental law and the difficulty of amendments are greater at the national level. Yet the Constitution itself had emerged from particular concerns, not just abstract principles of governance; the evils of the Articles of Confederation, after all, were more evident to creditors than debtors. The Federalist Papers remains the classic text on how rules may shape results.

Martin Anderson's "Policy Memorandum No. 1" (August 1979) proposed a menu of constitutional changes that include "a constitutional limitation on the percentage of the people's earnings that can be taken and spent by the federal government," a line-item veto, and a balanced budget amendment. These proposals were downplayed in Reagan's campaign because they did not respond to the immediate budget problem; therefore, they could easily be attacked as grandstanding.

Early in the administration, efforts were focused on more direct attacks on the deficit and domestic spending. CEA Chairman Weidenbaum was able to declare:

The President's economic program would accomplish all of the objectives that are sought in the many proposals to balance the budget via Constitutional change. But it would do so without the many drawbacks, such as encumbering the Constitution with matters that more appropriately belong in the policy arena or attempting to rule on matters of technical fiscal administration.^[32]

By early March 1982, attacks for grandstanding were still more plausible, but the administration had less to lose by pursuing the constitutional agenda. Getting tough on spending was wearing them down. "We have a lot of Republicans, not to mention Democrats, who absolutely are not going to vote for the size deficits that we face if they can't see a balanced budget at the end of the tunnel," Newsweek quoted a "senior Administration official." "What's more reassuring than an honest-to-God constitutional amendment?"^[33] Weidenbaum and Regan issued statements of qualified support. The cabinet met to consider a formal endorsement.

Senate Republicans moved a version of the amendment out of their Judiciary Committee on July 10, 1981. As 1982 began, this version, S.J.Res. 58, had not been brought to the floor. A House companion, H.J.Res. 350, was buried in House Judiciary. The House committee had held hearings but had taken no action.

If it were passed and worked, the amendment would help to entrench the Reagan agenda of a smaller role for government in American society. By backing the amendment, the president also could testify to his support for the balanced budget. More important, he could embarrass the Democrats who had been beating him over the head with his own balanced budget rhetoric and big deficits. Some of them, like James Jones, might be as committed to a balanced budget as Reagan himself, but even those believers would resist the amendment as it was structured. Let them try to explain either that they objected to the text because it was antispending as well as probalance or that a balanced budget was fine but not appropriate for enshrining in the Constitution. When Reagan endorsed the amendment at his March 31, 1982, press conference, he could be accused of hypocrisy for supporting it while simultaneously proposing wildly unbalanced budgets. "It was almost as if the nation's leading distiller," Time commented acidly, "had suddenly come out in favor of Prohibition."^[34] But the White House was facing those attacks anyway and would, with at least equal logic, scorn its opponents who denounced both unbalanced budgets and the amendment. Insofar as the amendment was basically about spending and revenue limits, moreover, the president agreed entirely with it.

On April 29, as part of his television address about the breakdown of negotiations in the Gang of 17, he declared:

Once we've created a balanced budget—and we will—I want to insure that we keep it for many long years after I've left office. And there's only one way to do that…. Only a constitutional amendment will do the job. We've tried the carrot [arguing that budget balance is good for the economy so that sacrifices will be repaid] and it failed. With the stick of a balanced budget amendment, we can stop the Government's squandering ways and save our economy.^[35]

The amendment would institutionalize the changes that Reagan wanted so they would live on after him.

In the House the amendment's chief sponsor, Barber Conable (with Ed Jenkins, D-Ga.), filed a discharge petition with the House clerk. If 218 members signed the petition, then the amendment could be forced out of House Judiciary over that body's opposition. Although the House version, H.J.Res. 350, had 221 sponsors, it remained to be seen whether

they would all choose to override the committee or whether some of them rather liked cosponsoring a bill that was safely buried.^[36]

On July 12 Howard Baker called up S.J.Res. 58 for Senate consideration. The Senate text provided:

On July 19 Reagan led a GOP rally on the steps of the Capitol in which he asked the familiar question about why the government could not be run like a family: "How can families and family values flourish, when big Government, with its power to tax, inflate and regulate, has absorbed their wealth, usurped their rights and too often crushed their spirit?" James Jones emphasized respect for institutions: "There can only be two results if the amendment is adopted. The most likely is that it will mirror Prohibition—a sham. A second possible result is that it will be enforced, and thus fundamentally change the checks and balances of

the three branches of the Federal Government."^[37] Policy, power, and political philosophy were all at stake.

The Senate debated the bill for two weeks and accepted two amendments. One, by Domenici, attempted to calm fears about impoundment; the other, an attempt by William Armstrong to ensure the amendment did its job, took all the slack out of the constitutional change. Armstrong proposed that an increase in the debt ceiling should also require a three-fifths vote. Therefore, if the president and Congress tried to ignore the amendment in the event of, say, increases in recession-related outlays, the debt limit would force action. Most Republicans thought it was trouble and opposed it 20 to 31. In a classic case of sabotage, Democrats, convinced Armstrong's modification would make the whole business less palatable, supported him 31 to 14. Nevertheless, the amendment passed the Senate by 69 to 31 (2 votes more than the 67 needed) as a number of senators, after voicing grave doubts, supported the amendment. The vote was as much regional as partisan. Republicans, who had to go on record, voted 47 to 7 for the amendment, southern Democrats 13 to 2 in favor, and northern Democrats 9 to 22 against.

The battle now shifted to the House, where no doubt some senators hoped the bill would be buried. Many Washington leaders doubted that the amendment, even if passed by Congress, would actually be ratified; signs at the state level suggested they might be right.^[38] But also they might be wrong, and House leaders were not about to take that chance. Their resistance meant proponents had to blow the amendment out of committee with a discharge petition. On September 29, after a last-minute drive led by Vice President Bush, Stockman, and House GOP leaders, proponents got the 218th signature.

Rather than let the issue sit for a couple of weeks at the height of election season—as standard procedure and Republican hopes prescribed—House leaders responded by bringing the amendment to the floor immediately. Their rule also allowed a substitute by Representative Bill Alexander (D-Ark.), heavily watered down. Alexander's proposal would provide political cover so that some members could vote against Conable-Jenkins yet still say they had voted for a balanced budget amendment.^[39]

At 10:00 a.m. on October 1, 1982, the House convened to debate and to vote on enshrining in the Constitution the balanced budget and spending limits. Congressmen pleaded with each other and played to the gallery, rising to impressive levels of rhetoric or descending to equally impressive depths of sophistry. We cannot capture all the arguments, but we can provide the flavor of the debate, a picture of the House at work during one of the rare times when the work really was done on the floor and the differences in political philosophy came to the fore.

Richard Bolling led the debate, professing a nonpartisan worry for the fate of the political process. He expressed sorrow that "the gentleman from New York (Mr. Conable) … has truly given up on the essential democratic process. He puts certain things in his resolution … which would require super majorities to decide that there will be an unbalanced budget."^[40] Conable replied:

We have already done irreparable damage to the Republic in seventeen of the eighteen years I have served here…. Congress should be a place of judgment. When judgment is not wisely exercised it is appropriate that we put some limitations on that exercise of judgment and that is what the Constitution does in many cases.^[41]

Delbert Latta scored the big spenders who wanted to grab tax money, spreading benefits now that would have to be paid for by their grandchildren. Where Latta saw spenders, David Obey saw cowards and hypocrites:

Mr. Speaker … this administration is giving hypocrisy a bad name. This administration pretends that it is fighting for a balanced budget. If it is losing that battle, it is losing that battle to itself….

I have talked to at least twenty members on that side of the aisle, and more members on this side of the aisle. I have asked them how they could sign this discharge petition and how they can vote for this today, including members of the Judiciary Committee. They have hung their heads, and they have said, "Well, I know, I hate to do it, but I just cannot go home and explain it to my people."

I would suggest that it goes with the territory…. If members are not willing to go home to their own districts and tell them what their honest beliefs are about something as crucial as this, then you do not belong here.^[42]

After the rule was passed, debate was controlled by the two leaders of the Judiciary Committee: Peter Rodino (D-N.J.) and Robert McClory (R-Ill.). McClory spoke to charges that the amendment would be ineffective.

I do not accept the notion that Congress will ignore the mandate of the Constitution if House Joint Resolution 350 is proposed and ratified. Congress has made good faith efforts to obey the Constitution throughout its history. While it may have been mistaken about the constitutionality of its legislation, I cannot accept that its errors were willful…. In fact, it is my observation that Members would prefer to be so constrained than to be free to be unduly pressured by special interests.^[43]

"Forced to be free" was a theme of the debate among those who responded to widespread concern about inability to govern effectively.

In what would be the main opposition speech, Peter Rodino went step by step through the alleged uncertainties in the text—the inability to predict deficits, the antimajoritarian cast, the delegation of powers to the president or the courts. "What do the courts do then?" he asked, "Write the budget? Appropriate the money? Order arrests?" He concluded:

The proposal would demean the Constitution. The Constitution is a document that guarantees fundamental rights and freedoms and provides for the orderly operation of Government. This amendment is a constitutional guarantee of nothing. It provides a balanced budget—except sometimes: When three-fifths of Congress says otherwise; when revenues fall below estimates; in times of declared war; when Congress cannot agree on cutting spending; when Congress cannot agree on raising taxes. It could be an invitation to fiscal gimmickry or a prescription for paralysis of Government, for confrontation among the branches, for economic chaos.^[44]

The proposed amendment led the party of change to a more ardent defense of an unchanging Constitution than had been its custom.

Phil Gramm replied by describing the bias toward spending the amendment sought to correct:

In the last Congress, the average bill we worked on with amendments cost about $50 million. There are 100 million taxpayers. That is 50 cents a head. The average beneficiary got $500. You do not have to have studied economics at Texas A&M [where he had taught] to know that somebody is willing to do more to get $500 than somebody is willing to do to prevent spending 50 cents…. This is a perfect example of where a constitutional constraint on elected officials is required.^[45]

A leader of southern Republicans, Ed Bethune, made one of the most interesting arguments against the amendment. Conservatives, he declared, should be leading the opposition to such attempts to hamstring the play of political forces. The amendment would fail because it depended on the "fallacious assumption that budgeteers can accurately calculate one indispensable, exalted number—the deficit—which will tell us whether we are winning or losing the battle for a rational fiscal policy. Nothing could be further from the truth." Not only were estimates wildly unreliable, Bethune continued, but the spending figures did not "begin to reflect the many ways in which the Government can and does impact our nation's economy." The amendment would not deal with what he considered the real problem. The Senate Judiciary Committee, Bethune proclaimed,

published a wordy finding that Congress is plagued with an institutional "spending bias." They concluded that politicians will not cast "politically

disadvantageous votes" to restrain spending and that a constitutional amendment is the only way to overcome such a disease…. That may be so under the circumstances we can see today, but there is nothing new in the Senate findings. These same problems have plagued democratic governments since the origin of man. The strained analysis, however, basically comes down to a contention that the people at large are too stupid and indifferent to know how to correct the problem.

That attitude, Bethune argued, was wrong. The people had perceived and were correcting overspending. Conservatives were being elected to Congress, attitudes had changed, and "the politically disadvantageous vote in today's climate, contrary to the Senate's findings, is a vote for new spending or a vote which does nothing to restrain the growth of spending." New forces were forming; old actors were adjusting to new realities; old institutions, like Senate staffs, were transformed; and "the political parties are competing intensely on the basis that one is better equipped than the other to bring a balanced budget." Perhaps all that would come to nothing. But if the forces were not strong enough, a constitutional amendment would also fail. Although the people had little faith in men and parties, they did have faith in the Constitution. That trust should not be hazarded lightly.^[46]

California Republican Jerry Lewis returned to the mythology that surrounds and buttresses our political system: What, after all, would the hallowed Founders have said about this proposal? Where Rodino and Bethune had argued that their work should be left untouched, Lewis proclaimed:

The Founding Fathers were most reserved about the prospect of expanding central Government. They recognized that Government growth would require taxes and that to tax was to take people's property. Never in their wildest dreams would they have imagined that the Congress would come to the point where they were taking not only high percentages of the productive value of today's citizens—but placing in debt the property and productive potential of their children and grandchildren as well. Mr. Chairman, I suggest it is absolutely reasonable to let the people decide whether or not in the future there shall be required by the Constitution an extra majority of the Congress before it can budget beyond our means.^[47]

Lewis's side was invoking the majority's right to adopt an antimajoritarian provision (the people should decide whether to adopt the amendment) while his opponents ultimately were relying on an antimajoritarian procedure (the two-thirds requirement on amendments) in their fight against the antimajoritarian proposal. Ironic, yes, but nothing new. While we eschew the Spockian "mindlock" (recall "Star Trek") with the

framers others so easily achieve, the Founding Fathers so fervently invoked remain practical politicians, leaders who lived on the fine line between principle and expedience. Thus, Hamilton would inveigh against the debt if it helped him get the Constitution ratified, and Jefferson, the great apostle of limits on both executives and government itself, was actually the most dominant of presidents, purchasing Louisiana with absolutely no authority. Perhaps there were no Jeffersons or Hamiltons in the House on October 1, 1982, but the task and burden of the politician remained the same.

The Alexander substitute went down 77 to 346, but it provided cover for many southern Democrats who opposed the amendment but wanted to go on record in favor of balancing the budget. Then the balanced budget amendment fell short of the required two-thirds vote, with 236 yeas and 187 nays. Led by the former minority leader, Arizona's John Rhodes, Silvio Conte, Ed Bethune, and Jack Kemp, twenty Republicans opposed the president and their party.

"One way or another we're going to get this," Barber Conable declared. But the amendment did not take hold as an election issue, and 1982 was a bad year for Republicans. The proamendment forces, surveying the postelection wreckage, could see little hope in the states and none in the House.^[48] At this writing (summer 1988), it seems that the campaign for a constitutional amendment, after cresting on October 1, 1982, has receded; two states have reversed their support. But the effort to change the politics by changing the rules continues.

In this elevated conversation two truths compete: Efforts to thwart majority rule are likely to fail when people learn how to avoid, use, or circumvent any provision (our book has enough examples of gamesmanship to suit anyone). However, the rules of the game, including institutional biases, help determine the outcomes; this is the truth on which our constitutional structure, including the separation of powers, is based. Like the great constitutional debates of the past, the issues are illuminated but remain unresolved. An occasional conservative may argue in favor of allowing the balance that comes in shifts of public opinion to diminish the tendency to spend more and tax less. A liberal may accept the desirability of erecting institutional impediments to being overly generous, as Congress did when it erected obstacles in the path of new entitlements. On the whole, however, positions about rules followed from opinions about desirable outcomes—moderated by perceptions of constituency pressure. There had to be a moderate majority out there somewhere, or so the budget balancers hoped. TEFRA showed it. If only they could adjust the rules, so the moderates could govern again, then they might find the pony under all the dirty budget work.

Although the term moderate-extremist may appear to be an oxymoron, the passion of those committed to budget balance would grow in proportion as its realization declined. Then we would be treated to an unusual spectacle indeed: moderate defenders of responsible government violating its procedures in the name of a higher value—the ever-elusive balance.