I soon discovered that it would be up to me to design the Reagan Revolution. December brought hints, suggestions, and circumstantial evidence that the Californians -- including the most crucial Californian -- were neither equipped nor inclined to launch the kind of sweeping anti-statist revolution implied in the supply-side platform.
Ed Meese was clearly in charge, and was doggedly pursuing a dawn-to-dusk schedule of meetings, events, and endless "planning" sessions.
By Christmas I had realized that all the frantic motion and organization was just a screen. The Californians had no strategic plan for launching their government, to say nothing of a "Reagan Revolution."
It was evident that Meese was the acting President. But it was also obvious that the Lilliputians already had him tied down on the mat. They had him thrashing around with everything.
There was one other troubling sign.
We had had a few informal sessions with the President-elect, during which he simply listened, nodded, and smiled. "We have a great task ahead of us," he would presently say, but he never finished the sentence. He gave no orders, no commands; asked for no information; expressed no urgency. This was startling to me. All my mentors and rabbis had been intellectual powerhouses: the Rev. Truman Morrison, pastor of a liberal church near Michigan State University and my intellectual father; Daniel Patrick Moynihan; John Anderson; Jack Kemp. They had all burned with ideas, curiosity.
Now my greatest rabbi of all, the President-elect of the United States, seemed so serene and passive. He conveyed the impression that since we all knew what needed to be done, we should simply get on with the job. Since I did know what to do, I took his quiet message of confidence to be a mandate. If the others weren't going to get his administration's act together, I would.
On December 19, I wrote a memo to Ed Meese and Jim Baker. It began: "Our enemy is time." I sketched out an action plan for launching the entire Reagan Revolution for economic recovery within a few weeks of the inauguration. To my surprise, they both agreed with it.
Now I had the ball. I began a backbreaking day-and-night stint that would be as frantic and exhausting as baling the hay before the rain in the years of my youth. But with the revolution at hand, I could do no less.
The feverish work of January and early February 1981 was not policymaking, at least in the normal sense. No basic policy options were appraised, discussed, or debated.
I wanted the President and his advisers to know from the start that we would be working toward a huge spending cut total, at least by all prior standards. Raging political controversies and allegations that millions of people would be impacted or "hurt" had to be expected.
The Reagan economic policy revolution would not be a simple matter of "limiting the rate of increase in federal spending," as Meese kept phrasing it. It would involve drastic reductions in dozens of programs. It amounted to a substantial retraction of welfare state benefits that people had come to feel "entitled" to receive.
I was relieved to find almost no resistance to my proposals on the part of the President and his advisers, even after I emphasized that these cuts would cause dramatic legislative battles. Reagan paid close attention to the discussions. He was surprised when I told him, among other things, that college students were able to invade the Social Security trust fund; and that some laid-off workers were getting nearly two years' worth of handouts from the federal government.
Reagan's body of knowledge is primarily impressionistic: He registers anecdotes rather than concepts. I soon learned that it made less sense to tell him that you were eligible for a 35-cents-a-meal lunch subsidy if your income was above 190 percent of the poverty line than to tell him, "The kids of cabinet officers qualify." He was not surprised by these revelations; they conformed to his a priori understanding of what outrages the federal government was capable of perpetrating.
Still, these simplifications undoubtedly had a cost that I didn't recognize at the time. They made the impending bruising political battle to shrink welfare state spending sound too much like nostrums about fraud, waste, and abuse. It wasn't the same thing at all.
By the end of the last session, the President-elect had approved, with only minor modifications, all of my dozen big ticket proposals. That included the elimination of the CETA public jobs program, two special categories of Social Security benefits for college students and those with minimal earnings, as well as several other items.
Only later would I appreciate the vast web of confusion and self-delusion I was creating. I instilled so much confidence by appearing to know all the answers, but I was just beginning to understand the true complexities and mysteries of the federal budget.
Yet the blistering pace gave me no time to absorb the lessons I was learning. More importantly, I had no time to teach the others what I did know.
At the heart of the matter was a startling equation. We were taking the budget we inherited, raising defense and cutting taxes on a multi-year basis. When fully implemented several years later, these changes would amount to over 6 percent of GNP. How much of the 15 percent of GNP that went to inherited domestic spending had to be shrunk so that the defense increase and tax cuts wouldn't swell the deficit?
History cannot blame the President for not considering this crucial question; I never provided him with a single briefing on this.
There simply wasn't time, given all the dozens and dozens of individual line-item budget cuts I needed to get through. Instead of giving him a bird's-eye view of the budget, I gave him a worm's-eye view. We sat there happily hacking away at CETA and food stamps, $300 million here, $100 million there. That's all they saw.
What they didn't realize -- because I never made it clear -- was that we were working in only a small corner of the total budget. Those dozen "big ticket" items we cut in January came from only 12 percent of the total budget. We hadn't even looked at three giant programs that accounted for over half of the domestic budget: Social Security, veterans' benefits, and Medicare. Those three alone cost $250 billion per year. The programs we had cut saved $25 billion. The President and White House staff were seeing the tip of the budget iceberg, they weren't finding out about the huge mass which lurked below the waterline.
Meanwhile no one questioned the schedule. No one raised any questions about what wasn't being reviewed and what wasn't being learned. The fiscal and economic illiteracy among the core White House group was simply too great to have elicited any doubts. We thus recklessly charged ahead.
The economic forecast was in the end drastically changed -- and it did improve the budget numbers considerably. But it was the result of somebody trying to be "realistic," not deceptive. Enter Murray Weidenbaum.
"Nobody," he said, "is going to predict a 2 percent inflation on my watch. We'll be the laughingstock of the world." Ending the conversation on a professorial note, he announced, "Either we get this forecast mess cleaned up or I'm taking it straight to the President."
Passing the tin cup around the forecasting group eventually did not yield a high enough inflation number to satisfy Weidenbaum. So on February 7, three weeks after the inauguration, he came by my office and we made the worst possible bargain. If he'd agree to keep the real growth rate "reasonably high," I would go along with whatever inflation figure he thought he could live with as a professional economist.
Weidenbaum unfurled his scenario. There was a discontented rumbling from the monetarists and supply siders, accompanied by a few growls. Someone finally taunted the professor.
"What model did this come out of, Murray?"
Weidenbaum glared at his inquisitor a moment and said, "It came right out of here." With that he slapped his belly with both hands. "My visceral computer." He smiled.
My assistant, Larry Kudlow, had warned me that we were making an error by accommodating Weidenbaum's position. But I indicated that all the time for debate had ended. Weidenbaum's forecast was gaveled through.
Never before or since has a single belly-slap produced such devastating results. The new Weidenbaum forecast added $700 billion in money GNP over five years of our previous consensus forecast. Nearly $200 billion in phantom revenues tumbled into our budget computer in one fell swoop. The massive deficit inherent in the true supply-side fiscal equation was substantially covered up. Eventually it would become the belly-slap that was heard around the world.
It wasn't really Weidenbaum's fault, he'd have gladly knocked down the real growth numbers in order to make room for a "respectable" level of inflation. The starting deficit we had to contend with would then have been much higher and more realistic.
But all the rest of us knew better than the old graybeard from St. Louis. We insisted that we had found the economic Rosetta stone.
In all, it was an accidental case of double jeopardy. The Weidenbaum forecast's money GNP numbers were way too high for our theory and monetary policy; its real growth numbers were way too high for reality.
But both errors threw the budget numbers way out of whack. One inflated the revenue projections and the other deflated the spending projections. The eventual $200 billion annual deficits were buried in the resultant combination.
The February 1981 economic forecast eventually became known as "Rosy Scenario." Weidenbaum wrote the final, specific numbers. But its underlying architecture -- the push-pull hypothesis -- was ultimately the work of a small band of ideologues. Throughout the whole process, Jude Wanniski and Arthur Laffer, Jack Kemp and Lew Lehrman were close at hand, in constant communication with their allies inside the forecasting group.
By contrast, the newcomers to the supply-side revolution -- the President, the Secretary of the Treasury, and the White House senior staff -- were almost entirely innocent and uninformed. Fittingly, then, it was the revolutionaries, myself included, who made the forecast on which their supply-side policy revolution was launched. No one else can be blamed.
Copyright, 1986 by David A. Stockman. From the book "The Triumph of Politics: Why the Reagan Revolution Failed" by David A. Stockman. Published by Harper & Row, Publishers Inc. Distributed by Los Angeles Times Syndicate
Next: The Trip to the Woodshed