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Sentimental Education

The Education of David Stockman and Other Americans

by William Greider
Dutton, 159 pp., $9.25; $5.95 (paper)

Almost anything other than maybe an indiscreet quotation or expression or metaphor that was contained in that article basically reflects things that I had been saying in our private deliberations as well as in public comments over the last nine months.

—David Stockman at a press conference after William Greider’s article
on him in the Atlantic was first released to the press last autumn

William Greider starts his book by echoing Stockman’s surprise that their famous Atlantic article—reprinted here in full, and taking nearly one half the book—caused the furor it did. After all Stockman was not saying anything that was not common knowledge around Washington—or anything about Reaganomics that had not been said by others. Nearly a year later what he was saying clearly became true. The deficits have been getting bigger and bigger and bigger.

True enough. But language and source make a difference. Suppose I had condensed the Greider-Stockman article, using Stockman quotations in the following ways: “Supply-side [economics] is ‘trickle down’ theory.” “Kemp-Roth was always a Trojan horse to bring down the top [income tax] rate.” Because there were “no real conservatives” among the Republican members of Congress but only “piranha,” the “hogs were really feeding. The greed level…just got out of control.” They turned the president’s tax cut into “a Christmas tree bill” of benefits for the powerful. But “no one of us really understood what’s going on with all of these numbers” anyway. “Hell, I think there’s a kind of a swamp of $10 to $20 to $30 billion worth of waste that can be ferreted out” of the president’s favorite programs at the Defense Department.

Can anyone really believe that the press wouldn’t reduce the article to that paragraph or that the paragraph wouldn’t cause a furor? Strip the article of those colorful quotations and it would have lost, say, 70 percent of its impact.

But there is something else besides language. In the story where the little boy mentions that the emperor is wearing no clothes, everyone, including the emperor, instantly knows that the little boy is speaking the truth. In real life it would have happened very differently. The little boy’s observations would have gone unnoticed, he would have been hushed, or he would have been “taken to the woodshed,” in the words of David Stockman, to correct his behavior in front of his betters. It is news, however, when a member of the emperor’s cabinet says that the emperor is wearing no clothes. It is shocking in the same sense that someone collapsing drunk into their food at a fancy dinner party is shocking. But in both cases, after the initial furor, everyone goes on as if nothing had happened.

In the end the article made no real difference. Reaganomics proceeded as it had been proceeding. Greider’s book follows the inexorable steps by which taxes were cut, deficits and interest rates mounted, and the administration found itself in a deepening recession which it pretended would soon come to an end. Instead of rushing to put on his economic clothes as the mythical emperor did, our emperor continued his naked horseback ride into the future. We saw less of David Stockman, but even so he is still budget director.

Perhaps Stockman and Greider both really believed that the article would not be a bombshell, but that is difficult to believe. If so, it merely emphasizes how insiders can start to see things in such a different light that they cannot predict what will happen when the normal light of day shines on what they do. In any case the reasons for their surprise are not terribly important.

If the country is to extract itself from the economic disaster now under way and to avoid future bouts of naked economics, it is important, however, to understand how Reaganomics came to be the law of the land and why it is still the law of the land despite its evident failure. We are going to have to extract ourselves from Reaganomics even though we cannot extract ourselves from President Reagan, since it is doubtful that the economy will survive two more years of Reagonomics in view of what has happened in the first two years.

When it comes to analyzing how Reaganomics came into being (the second half of the book), Greider has got the story right. The strong sense of disappointment with Jimmy Carter pulled the Democratic Party down with him.

When orthodoxy fails, the political effects are destabilizing. Washington was weary and frustrated by the erratic policymaking, epitomized most dramatically by Jimmy Carter’s last year in office when he seemed to change direction every other month (and managed to combine both a recession and double-digit inflation). Carter’s Council of Economic Advisers, dominated by middle-of-the-road Keynesians, had been wrong every quarter for four years in its prognosis and predictions. If the old expertise was wrong, then perhaps it was time for new experts.

Before new ideas can take over, old ideas have to rot.

This analysis is confirmed if one looks abroad. Incumbent governments have been delivering economic failure and as a result they have been everywhere rejected by the voters. In each case the voters did not necessarily believe that the new guys had the answers, but they knew that the old guys did not have the answers and that it was time to try something radically different. In Britain a moderate left-wing government was thrown out and replaced with a government of the far right. In Greece a government of the far right was thrown out and replaced by one of the far left. In France the left replaces the right. In Sweden and Norway middle-of-the-road governments replace left-wing governments. In Germany a right-wing government threatens the existence of a left-wing government. Failure deserves to be punished. It has been.

As this foreign picture indicates, one should be very careful before proclaiming a conservative revolution in the United States. Perhaps France will make a decisive permanent move to the left while the United States is making a sharp move to the right, but both are more likely temporary aberrations caused by the economic and other failures of the previous governments.

If Reaganomics had worked, a revolution might have taken place. But Reaganomics has not worked and it is highly unlikely that a revolution will now take place. The voters will simply go back to punishing those who fail and replacing them with something different. If you look at the recent Reagan appointments (George Shultz and Martin Feldstein), it seems clear that even the Reagan administration is trying to crawl back from its far-right-wing branches and get back to old Republican orthodoxies.

Reaganomics appealed not just because it was different, but because, as Greider points out, it was a cure with “no pain.” America’s economic problems could be cured with large tax cuts and the elimination of “waste, fraud, and abuse” in the federal budget. As everyone who works with the federal budget understands, there is very little “waste, fraud, and abuse.” There are programs that many of us don’t like, but each of these programs has supporters who believe that the program is essential. Most of us could easily find $100 billion worth of programs that we personally would be willing to cut. That isn’t the problem. The problem is to find a $100 billion in programs that we can collectively agree to cut. Sugar subsidies come as close as anything to waste, fraud, and abuse in the federal budget but they were preserved early on by the Reagan administration in a deal to get some key votes.

Stockman claimed to Greider that “we are interested in curtailing weak claims rather than weak clients.” “We are willing to attack powerful clients with weak claims.” After the fact it is clear that the “we” did not include the president. Perhaps Stockman tried to sell the president on protecting the strong claims of the politically weak, but the president did not buy. The weak have been systematically attacked; the strong have kept their expenditure programs and been given their “Christmas tree bill” of tax-cut goodies.

The same unwillingness to confront painful reality can be seen in the president’s endorsement of the constitutional amendment requiring a balanced budget. If the president wants a balanced budget and is willing to say where the budget should be balanced, he can have a balanced budget tomorrow by using his veto power. He doesn’t because he does not want to be the messenger of bad news—to play the bad guy. Yet that is to a great extent what we elect a president to do. He has to persuade us to do things that we really know we ought to do, but that are too unpleasant for us to want to do them.

Consider the need for more saving. With a personal savings rate that is less than half that of the next worst industrial country Americans need to be forced to save more. Yet in a no-growth economy it is a simple matter of arithmetic that more savings means less consumption. Someone will have to consume less. No one likes to consume less. Those companies that sell consumer goods will lobby against any real program for raising American savings rates, for example the elimination of the tax deductibility of consumer interest. It is the president’s job to persuade us to do what we know that we should do. But it is just such tough tasks that President Reagan has been ducking.

It would be so nice if Reaganomics could work. All of the country’s problems cured with no pain—except perhaps for that cheating welfare mother with a husband under the bed. Why not try? If it fails we can always go on to deal with the hard realities later on. But the “later on” is now.

Greider believes that it is possible to tell citizens the hard facts of life and get them to make sensible decisions. I think he is right, but doing that requires something that seems completely absent in the Reagan administration—a sense of fairness. Sacrifices can be handed out but only if they are handed out “fairly” so that no group feels that it is carrying more than its fair share of the load and so that no group seems to be unfairly benefiting from the sacrifices of others. But equity and fairness are words that do not even seem to be in the president’s vocabulary.

Consider the program that has come to be President Reagan’s tar baby—Social Security. President Reagan would clearly like to kill Social Security, but since such a murder is politically impossible, he wants to perform some severe amputations to offset his tax cuts and increases in defense spending. Such cuts in Social Security are not going to happen. They wouldn’t be fair to the elderly and the American voter is not about to start being unfair to his own parents. But the president seemingly cannot understand why it is so hard to cut Social Security benefits. The problem, fairness, is a problem whose existence he cannot even recognize.

There is a case, based on fairness, however, for slowing down the rate of growth of Social Security benefits. Where the median per capita household income of the elderly was once far below that of the rest of the population, the Social Security system has by now succeeded in eliminating most of this gap. The cash per capita household income of the elderly has reached parity with that of younger people, and when health-care benefits are considered the total income of the elderly may even exceed that of the rest of the population. Clearly we do not have a social goal of making the elderly richer than any other group yet that is what the current structure of increases will lead to. To allow this to happen would be “unfair.” As a result the benefits in the Social Security system should be indexed to some general measure of national income growth, say the per capita GNP—a measure that reflects both real growth and inflation. If this had been done benefit checks would have gone up 4.6 percent rather than 7.4 percent this July. To make such a change, however, it is necessary to recognize that Social Security was established to create equity between the elderly and the nonelderly.

Whatever his verbiage President Reagan will never be able to make this case in a convincing way since he does not recognize the need to maintain equity among the generations. As a result it is highly unlikely that anything will be done to the structure of Social Security benefits under President Reagan. Whatever he proposes will be seen not as an attempt to save the system or to preserve fairness, but as an attack upon both. It will be seen that way because it is that way.

As Greider states, “a president is like an ancient king. If his magic fails and the prophecies do not come true, he will lose authority.” The magic has failed and the prophecies have not come true. Where the economy was supposed to be booming, it is now plunging. Where things were supposed to be getting better, they are rapidly getting worse.

In this case the Reagan administration was literally betting on black magic—its theory of expectations. Once the world recognized that the good men of Reaganomics were running the country and the tax cuts were enacted into law, favorable business expectations would send the economy soaring. But the economy is not the same as psychology even though there is an element of psychology in it.

The Reagan administration advocates what most businessmen tell each other on the golf course on Saturday morning, but they are smart enough to know that it isn’t really true when they go back to work on Monday morning. Their hearts are with Reaganomics, but their heads are with reality. And unfortunately for Reaganomics, businessmen’s acts are based on their heads and not their hearts.

From the beginning everyone knew, or should have known, that you could not put together huge tax cuts, gigantic increases in defense spending, a modest slowdown in the rate of growth of social welfare spending, and tight monetary policies without bringing on disaster. High interest rates had to throttle the economy and that is exactly what happened.

The problem is that there are still more than two years of Reaganomics left to go. Failure is upon us and the administration has abandoned its grand design for fire fighting. The deficit is being fought by raising bits and pieces of this or that tax, but a new, completely different, strategy is needed.

One of the wonders of Reaganomics is that it had no prepared position to fall back to if the game plan did not work. Recent cabinet appointments and this summer’s tax increase may indicate a retreat to Republican orthodoxy, but a “balance the budget” orthodoxy is not going to extract the American economy from its present crisis. We tried that once before between 1929 and 1932. It failed then; it will fail now.

In mid-August the two most prominent and influential interest-rate bears, Henry Kaufman of Salomon Brothers and Albert M. Wojnilower of First Boston Corporation, turned bullish, predicting falling interest rates. As a result, bond prices soared. The stock market recorded its largest one-day and one-week advance ever. While welcome, this advance is temporary at best. Kaufman and Wojnilower are bullish on interest rates because they are bearish on the GNP. The vigorous economic upturn—first predicted for the fall of 1981 and then for the fall of 1982—that was to have rescued the American economy is now receding out of view. A sinking economy is dragging interest rates down with it. Unemployment is rising above everyone’s expectations and is now virtually certain to enter the double digit range. The economy is unfortunately getting sicker even if the financial markets have a temporary glow of health.

To get out of the economic quick-sands in which we have become entangled is going to require a dramatic shift of strategy on the part of the Reagan administration. David Stockman may have been educated, but the real question remains. Has President Reagan been educated?

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