Power Game (62 page)

What gave force and legitimacy to the Reagan claim was the dramatic Republican takeover of the Senate for the first time since 1954. A stunning Republican net gain of twelve seats in the Senate and thirty-three in the House filled the air with Republican talk of a grand political realignment: the Republican dream of replacing the Democrats as the nation’s majority party. The Democrats, although still clinging to a fifty-one-vote majority in the House, were shattered and confused; they were in no frame of mind to dispute Reagan’s claim of a political mandate.

Republican control of the Senate was vital, moreover, to Reagan’s agenda game. Other recent Republican presidents had lacked that advantage. In the late 1950s, Eisenhower had to bargain with Democratic congressional leaders in order to get his proposals moving in Congress. In 1969, Nixon had trouble moving his congressional agenda largely because the Democrats controlled both Senate and House, and
they opposed Nixon. Without the political anchor of a Republican Senate, the Reagan team could have organized the administration and then found itself at the mercy of a Democratic Congress. The president could have bills landing on his desk for signature or veto at the whim of the opposition and not according to his timing. Congress would dominate the agenda. The media would cover not a dominant president but a rebellious Congress, as it had under President Ford. With the Senate in Republican hands, the White House could develop timetables with Senate Majority Leader Howard Baker for its priorities and force the Democrats in the House to respond.

What is more, the political setting favored Reagan’s boldness. The powers of the presidency seemed at low ebb, and the nation yearned for a strong leader. The wellsprings of public confidence in government had nearly run dry. Across the land, there was a palpable longing for America to regain control of its destiny. For a decade, the seemingly endless agony of Vietnam had sapped the nation’s vitality and morale. Iran’s seizure of fifty-two American hostages had sharpened the pain of national humiliation; the hostages became a concrete metaphor for the nation’s sense of impotence.

Watergate had undermined public confidence in politics, and congressional assertiveness had thrown the presidency on the defensive. Some people were saying the government was in such trouble that the American political system had to be changed. Former Treasury Secretary John Connally proposed a six-year term to strengthen the president’s hand. Lloyd Cutler, Carter’s White House Counsel, urged that the president, vice president, and House members run on a “team ticket” in order to provide a more unified government. Some commentators worried that power had become so fragmented, and special interests so powerful, that the nation had become ungovernable. People wanted strong leadership.

Finally, Reagan was able to claim a mandate because the intellectual initiative had passed from the Democrats to the Republicans—and specifically to conservatives. Ideas
do
matter in politics. Commanding the intellectual initiative was a central source of political strength for Reagan. Conservative think tanks such as the American Enterprise Institute for Public Policy Research and the Heritage Foundation, both in Washington, and the Hoover Institution in Stanford, California, had been pouring out policy prescriptions and policymakers for the new administration. Young Turk Republicans, such as Representative Jack Kemp of Buffalo and David Stockman, were preaching a new economic gospel.

In short, Reaganism profited from an intellectual vaccuum in Washington. There was a general loss of faith in the old assumptions and the old political prescriptions. Deficit-spending Keynesian economics had been politically discredited; so had the big-government approach of Lyndon Johnson’s Great Society programs. American politics seemed to have gone off track, its direction no longer clear. Three presidents had ventured forth to do battle with the twin-headed monster of inflation and stagnant growth—nicknamed stagflation—and had ultimately been devoured by that dragon. The nation sickly careened from one malaise to the other. America’s aging industrial plants and stodgy managerial habits were losing out to foreign competitors.

The country and many politicians were ready to try new answers. The rumble of new thunder had come in 1978 with California’s tax revolt. A popular referendum passed Proposition Thirteen, slashing state property taxes in half. A year or two before Reagan arrived in the White House, the power game in Washington began to shift. Even traditional Democrats such as House Speaker Tip O’Neill and Senate Majority Leader Robert Byrd had pressed multibillion-dollar budget cuts on President Carter in 1980, feeling Carter’s budget cutting was inadequate. Shrinking government, or rather slowing its growth, was fashionable.

And on national-security issues, the relentless Soviet strategic buildup during the 1970s had created a strong prodefense mood; many politicians feared the Kremlin was aiming for nuclear superiority. With the Soviet invasion of Afghanistan in 1979, Carter began pushing his own strategic buildup. The political climate was receptive to Reagan’s message.

For three decades, as a conservative crusader, Reagan had been preaching about less government and lower taxes. For years, he had been attacking Washington and the “puzzle palaces on the Potomac” as obstacles to the individual and the free market. He had romanticized the role of the business entrepreneur. As governor of California, he had actually taken some liberal actions—raising taxes, imposing tax withholding, giving cost-of-living increases to welfare recipients—but those had been lost in the contagion of his rhetorical blasts at big government.

Reagan’s deep antitax instincts got intellectual underpinning from the new gospel of supply-side economics. Shrewdly, Reagan and the Republican New Right dressed up supply side as a radical innovation, but actually the idea was a throwback to classical economics, a nostalgic return to the laissez-faire probusiness politics of Calvin Coolidge.

As a theory, Reaganomics deliberately stood Keynesian economics on its head. Keynes had argued that demand, the purchasing power of consumers, was what drove the economy; when demand was insufficient, factories were idle, masses of workers were unemployed, and the government had to pump-prime the economy with deficit spending to create new jobs. The supply-side theology took the opposite tack. It reached back to one of the teachings of Jean-Baptiste Say, a nineteenth-century French economist and follower of Adam Smith: “Supply creates its own demand.” In other words, production (supply) drives the economy, generating appetites among consumers. Hence the nickname supply-siders, coined by Herbert Stein, formerly chairman of Nixon’s Council of Economic Advisers. The role of government, in the modern supply-side version of University of Southern California economist Arthur Laffer, is to free entrepreneurs from the burden of taxes and regulations, to let business innovate and produce.

This supply-side approach was an economic theology well suited to Reagan. It fit the classical, pre-Keynesian economics Reagan had studied at Eureka College in 1928-32, and it meshed with his sunny optimism. Supply-side economics explicitly rejected the pessimistic 1970s vogue of “limits to growth.” With the magic of the marketplace free to operate, supply-siders said, growth would be unbounded.
¹⁵

There were two other attractions for Reagan, important ingredients for his message and his agenda. One was known as the Laffer Curve. Arthur Laffer asserted that under certain conditions cutting tax
rates
could actually increase government tax
revenues
by giving people more incentive to work. With more work and more production to be taxed, there would be more taxes to collect. Laffer told Reagan that the natural expansion of the American economy was being constricted by the wasteful welfare state. It was music to Reagan’s ears.

The other concept came from Columbia University economist Robert Mundell, who asserted that it was possible to have both tight money policies to check inflation and the fiscal stimulus of tax reduction to spur economic growth. Most economists and policymakers contended that monetary and fiscal policies have to be used together, against either inflation or unemployment. But Mundell said they could be used separately, one to slay inflation and the other to lick unemployment. Again, Mundell’s argument was music to Reagan. A few advisers warned him that Mundell’s approach would not work, could not work—indeed, Reagan’s own experience would prove that in 1982-83. But Reagan bought Mundell’s theory anyway, for it told Reagan what
he wanted to believe: that you could cut taxes, cut inflation, have economic growth, and balance the budget all at the same time.

The main outlines of the supply-side gospel were infused into Reagan’s political bloodstream during an all-day seminar at the swank Beverly Wilshire Hotel in Beverly Hills in January 1980. Reagan’s economic tutors were an inner core of supply-siders: Jack Kemp, Arthur Laffer, and Jude Wanninski, a former editorial writer for
The Wall Street Journal
.
¹⁶
Banking on their theory, Reagan committed himself to Kemp’s pet idea: a ten-percent-per-year cut in individual tax rates over three years, thirty percent in all. That was a critical step in setting Reagan’s future presidential agenda. Other economic planks were added later.

During the 1980 campaign, Reagan’s rivals cautioned the country not to buy the supply-side mirage. George Bush warned that the Kemp-Laffer-Mundell ideas were “voodoo economics.” John Anderson, the independent third-party candidate, quipped prophetically that it would take “blue smoke and mirrors” for Reagan’s economic policies to work, especially with a costly military buildup. But voters ignored such warnings, and Reagan nursed his impossible dream.

Reagan has a political genius for selling his message—like the genius of Franklin Roosevelt. His secret is his mastery of political shorthand. He knows how to make ideas accessible and popular. They became powerful political tools in Reagan’s hands because of his ability to simplify, to project themes, to limn gossamer vistas of “a rising tide that will lift all boats” (a phrase borrowed from Kennedy). In an age of thirty-second television sound bites, politics lives by shorthand communication. Politicians and voters depend on labels, slogans, quick-stick, fast-fix clichés immediately recognizable to millions (though vaguely understood): Communists, welfare cheats, bureaucrats, New Right, New Deal, Star Wars, deficit spenders, supply-side, tax reform, evil empire. Reagan has a knack for coining phrases that tap into reservoirs of popular feeling—like his refrain to “get government off your back”—without having to explain what he means in policy terms, what his ideas will cost, or whom they will hurt. He is a master at using symbols that convey broad intention and leave him free later to interpret their meaning.

This political shorthand helped Reagan frame the political agenda, for when he entered the White House, people felt they knew what Reaganism meant. That gave Reagan a distinct advantage over Carter and Nixon, in the essential tasks of setting the battle plan and rallying the troops.
The most important axiom of the agenda game is to keep the focus on your main priorities; don’t get led astray. Any president is constantly buffeted by events and torn by conflicting advice. It is easy for him to lose his compass. For policy-making is a battle for a president’s mind among rival factions, and Reagan’s administration was faction ridden. Reagan had cast out the bait of many campaign pledges to lure his fifty-one-percent majority, and by the time he had won the White House, he had plenty of rival constituencies to satisfy—all with different agendas.

At the core, his movement embraced ideologues and pragmatists; an old-boy California network and new boys from the Bush and Ford camps; traditional Republicans and the New Right; the “Market Right,” whose main agenda was laissez-faire economics; and the “Moralistic Right,” whose priorities were outlawing abortion and restoring school prayer.
¹⁷
There were orthodox budget-balancing economists (Alan Greenspan and George Shultz), money-managing monetarists (Milton Friedman), and tax-cutting supply-siders (Paul Craig Roberts and Norman Ture). It was no easy trick to weld them together.

As Reagan’s first term began, some supporters had to take a back seat if economic policy was to be given clear priority. The Moralistic Right, led by senators Jesse Helms of North Carolina and James McClure of Idaho, had to be told their social agenda of prayer in schools and battling abortion was going on the back burner. Then Reagan had to slough off his campaign pledges to eliminate the departments of Energy and Education. (Actually, he did ask Congress for authority to reorganize the executive branch but did not follow up.) Reagan also put off promised efforts to seek the power of line-item veto for himself and to pass a constitutional amendment requiring a balanced budget. Only one other priority stood on a par with his economic program: the defense buildup. That produced a conflict in priorities, a conflict that was ignored for several months.

In the critical early weeks, Secretary of State Alexander Haig nearly upset the Reagan applecart by taking attention away from economic policy and shifting it to foreign policy. Haig made Central America a dramatic, visible, and controversial issue. Taking his cue from Reagan’s stridently anti-Communist campaign, Haig issued a State Department white paper on Soviet, Cuban, and Nicaraguan aid to leftist guerrillas
in El Salvador and talked of escalating Central America into a global confrontation with Moscow.

By early March, Haig was getting almost daily front-page headlines, upstaging Reagan’s desired focus on economic policy. Among a list of action options on Central America for Reagan, Haig proposed “going to the source”—meaning Cuba. State Department leaks indicated that Haig wanted to beef up American forces in the Caribbean and take some action against Cuba, possibly a naval quarantine. House Speaker Tip O’Neill quoted Haig as saying U.S. troops would have to be used in Nicaragua.
¹⁸
At a National Security Council meeting in March 1981, Haig pushed Reagan to be bold in El Salvador: “This is one you can win, Mr. President.” After that session, one well-placed White House aide told me, Haig stunned Baker and Deaver with brash talk about bombing Cuba: “We can make that fucking place look like a parking lot!” On March 23, by Haig’s account, he told Edwin Meese that action in the Caribbean had to get under way within ten days. But neither Defense Secretary Caspar Weinberger nor the Joint Chiefs of Staff favored military actions. Moreover, Haig’s menacing talk had raised alarms in Congress and revived public worries about Reagan’s warmonger image.