As Ronald Reagan conferred in Los Angeles with his economic advisers, congressional Republicans warned that early catastrophe awaits him unless he adopts a radical budget policy from Day One of his presidency.
Several confidential memos and papers prepared for Reagan are designed to push him toward this policy: appointment of Rep. David Stockman of Michigan as director of the Office of Management and Budget; immediate reforms to strengthen OMB's control over the runaway budget; dramatic proposals to cut back this year's federal outlays and stunt their future growth.
This conflicts with the talk by many Reagan economic advisers of "gradualism" -- a word redolent of the failed Nixonomics of a decade ago. They seem unaware that the federal budget is careening off the tracks and that money markets are dangerously disoriented. Hyperinflation could end dreams for the new Reaganite coalition before it fairly starts.
In truth, Reagan encounters a rare instance where governmental reality is worse than was depicted in his campaign rhetoric. November spending estimates for the present fiscal year defy credulity, showing runaway growth of $157 billion in just 13 months. Since Congress passed its budget resolution in June, spending has leaped $36 billion, most of it not subject to President Carter's discretion.
The cause is in no small part what Stockman described to us as "an automatic coast-to-coast soup line" -- spending legally triggered by the economic downturn. Just since June, trade adjustment assistance for laid-off workers has automatically leaped from $400 million to $2.5 billion. For the same period, unemployment pay cost an extra $4.7 billion.
If Reagan adopts wait-and-see gradualism on the budget, inflationary expectations are bound to escalate. One astute Wall Street financier told his colleagues after the election to expect hyperinflation around 25 percent by 1982. Reagan's deep tax cuts -- intended to restore incentive and growth -- would be blamed and probably curtailed, as Reagan's men fought with each other.
That is why conservatives on Capitol Hill pass transcontinental advice to Reagan to press the panic button. They want him to sculpt his hundred days, buttressing tax reduction and regulatory relaxation with budget reform.
This would rule out old-school ties from the budget bureau (such as paper company vice president Paul O'Neill, President Ford's deputy OMB director and a candidate to be Reagan's director). To stave off a business-as-usual appointment, prominent Republicans in the House and Senate have launced a campaign for 34-year-old Rep. Stockman, viewed by many colleagues as one of the party's most innovative figures.
Only OMB would tempt Stockman to give up both a safe congressional seat and a chance at the Senate in 1982. This one-time divinity student and aide to Rep. John Anderson impressed Reagan by playing the roles of Anderson and later Jimmy Carter in debate rehearsals. He is a persuasive advocate of supply-side economics, seeking to restore incentive through steady tax reduction.
Stockman is what the Heritage Foundation, a conservative think tank, has in mind in its job description for Reagan's OMB director: "More important than any issue, the new director must have an unwavering commitment to the substantial reduction of marginal tax rates for both individuals and business." s
Simultaneously, the Heritage Report (prepared for Reagan by Republican Hill staffers) wants Reagan to reduce OMB's management functions and make it his chief policy arm. Specifically, that would enlarge presidential authority to reduce the budget.
Another paper, this one unsigned and not dealing with the OMB directorship, was submitted last week to Reagan by Capitol Hill Republicans who warned of an "economic Dunkirk" for Reagan unless he frontally attacks the budget. It talks of "full-scale financial panic and unprecedented global monetary turbulence."
That points to a Reagan emergency budget effort far exceeding the efforts of the three previous Republican presidents -- Eisenhower, Nixon and Ford -- who failed to master their first budgets in far less critical situations. Reagan is being implored to defer and reduce federal grants and subsidies to local government and private business, with least possible impact on federal help for the poor.
The goal: reduction of federal outlays by around $25 billion this year, with a cutback for each of the following two fiscal years of $30 billion to $50 billion. That is not gradualism. The word from Captiol Hill is that nothing less will suffice if Ronald Reagan is to save his tax cut, his economic program and perhaps even his presidency.