I recently read The Education of David Stockman and Other Americans by William Greider (revised ed., 1986).  It was originally published as an interview in The Atlantic in December 1981 and received a lot of attention because of the outrageous glimpse of chaos and deceit David Stockman, in his own words, portrayed as having taken place during the creation of the Reagan administration’s first budget.

To briefly put things historically in context, Keynesian economics dominated the US economic system after WWII.  The economy grew at a steady rate, there was widely shared prosperity, and instability was held at an acceptable level.  But because of the trouble Keynesian economists had dealing with unemployment, inflation, and oil prices in the 1970’s, there was a political opening for new economic ideas.  And, more generally for most Americans, the experiences of the 1970’s (Watergate, Vietnam, Church hearings, Iran hostage crisis, stagflation, and oil crises, to name a few), were cause for a view toward something new.  With Reagan’s election, the hitherto fringe Law and Economics movement of supply-side economists and thinkers took advantage of the opportunity.   Stockman, a former congressman, was appointed the Office of Management and Budget Director under Reagan and was one of a handful of such thinkers who were swept into power with Reagan’s election.  With drastically lowered taxes and massive cuts to the budget, the economy would rebound, they maintained.  This is essentially the beginning of small government conservatism in the US on a large scale, which maintains that government is bad and needs to be limited, while also focusing on regressive tax policy.

Of course, the reality is that government spending under such conservatives, beginning under Reagan, and continuing through Bush I and II, ballooned unlike the spending of any previous administration in US history.  (Reagan literally ran up the deficit more than all the previous presidents in American history combined, tripling the deficit.)  Also, modern conservatism has hacked away at social welfare programs but left mostly untouched the business subsidies and corporate welfare, and thrown all the money it plausibly could politically at the Defense Department.  During the budgetary deliberations which Stockman discusses with Greider, we learn that Reagan planned to add 7% a year or $1.6 trillion over 5 years to defense, doubling the Pentagon’s budget.  And, despite the inflationary deficits that were apparent by early 1982, Reagan got most of what he wanted for Defense.

Stockman’s honesty in this interview is rare for someone at the higher reaches of American politics, and he repeatedly says things that are harmful to his own party’s, indeed his own administration’s, interests.  He was tasked initially with the daunting responsibility of cutting $40 billion from a US budget of $700 billion (without touching Defense or Social Security), making it work in tandem with the massive Kemp-Roth tax cut, and still working toward bringing the deficit down.  Not an economist by training, he admits that when his team was initially planning the budget and plugging the numbers into a computer to see how his budget would result, he had to artificially lower prices and interest rates to get the results he was wanting.  Secondly, Greider writes, Stockman used creative accounting to come up with numbers that “fundamentally did not add up” (savings he could fudge but that would not really be there and, hence, be added to the budget deficit).  “None of us really knows what’s going on with all these numbers”, Stockman famously explained.  To an extent, because the budget has so many interlocking, sliding parts that may or may not work out depending on the budget committees’ work, it is understandable that there was some ambiguity regarding the numbers.  Having said that, the reality that the deficits produced by Reagan’s 1981 tax cuts and budget were a direct consequence of such obfuscatory tactics is damning.  Stockman goes on to relate a story Senator Howard Baker of the Senate Budget Committee labeling the strategy of quelling congressmen’s fears of future deficits by pointing to not yet negotiated cuts in the budget as “the magic asterisk”.    “The ‘magic asterisk’ would blithely denote all of the future deficit problems that were to be taken care of with additional budget reductions, to be announced by the President at a later date.”

But worst of all is what Stockman says about “supply-side economics” and the motivations behind Reaganomics.  Before most of the budgetary battles had been fought, in August 1981 Reagan was able to pass the Kemp-Roth tax bill, which cut the top tax bracket down from 70% to 50%, amongst other things.  Stockman called Kemp-Roth and the arguments used by the Reagan administration to pass it a “Trojan horse” used to “bring down the top rate”.  In other words, “supply-side economics” was just a new type of packaging Republicans were using to sell their trickle-down style economics, which mainly helped the wealthy.  Stockman went on to explain, “It’s kind of hard to sell ‘trickle down’, so the supply-side formula was the only way to get a  tax policy that was really ‘trickle down’.  Supply-side is ‘trickle-down’ theory”.

Surprisingly, Stockman also comes across as a sympathetic figure who apparently wanted to pare down government for the powerful and the weak alike, but was troubled by the ingrained ability of special interests and the congressmen, Republican and Democratic alike, who represent them to fend off his attempts to cut beneficial programs.  “We are going to attack weak claims, not weak clients”, Stockman asserts.  Indeed, Stockman details his efforts, however unsuccessful, to eliminate the oil depletion allowance, ceilings on home mortgage deductions, and $752 million from the Export-Import Bank, which are all about as business/wealth-friendly programs as could be imagined.  But despite his apparent naivete and innocence, Stockman should have seen that all the numbers he was looking at did not add up.  The Reagan administration simply could not have left Medicare and Social Security untouched, had a massive defense buildup while passing Kemp-Roth and not having massive deficits.

Further reading:

The Triumph of Politics:  Why the Reagan Revolution Failed by David Stockman

The Politics of Rich and Poor:  Wealth and the American Electorate in the Reagan Aftermath by Kevin Phillips

The Culture of Contentment by John Kenneth Galbraith

The Conscience of a Liberal by Paul Krugman

The Wrecking Crew by Thomas Frank