Power Game

by Hedrick Smith

  Most importantly, Stockman’s pretested budget gave Reagan a chance to move with incredible speed to impose retroactive cuts on Carter’s 1981 budget and to revamp Carter’s 1982 budget. To Reagan’s top advisers, speed was crucial, but it was an abstraction; to Stockman, speed meant concrete timetables and proposals. To feed the political stampede, Stockman and Kemp had written an alarmist memo warning that the nation, then in mild recession, faced an “economic Dunkirk.” Once inside the Reagan team, Stockman spurred it on.

  Stockman was named budget director on December 11, 1980, and impatiently dismissed Meese’s preliminary budget work as inadequate. (Stockman confessed he was stunned by the “low level of fiscal literacy” of Reagan, Bush, Meese, and others.) Five days later, he told Baker that time was already running out because Reagan would have to put his stamp on the 1982 budget by the first week of February, two weeks after inauguration. “Let me game it out for you,” Stockman advised. “By January 7, we need to have a rough idea what the plan looks like: budget, tax, and some other issues.… We’ve got to get Meese committed to it. We’ve got to get Reagan committed to it.”23

  Fixing the Action Sequence

  Ideally, a president’s legislative agenda must be plotted like a military campaign. For all the seeming unanimity in Reagan’s top echelon, the commander and his key lieutenants could not agree on what to assault first: tax cuts or budget cuts. The action sequence was crucial to Reagan’s political success. Reagan and his California advisers leaned toward starting with tax cuts. Stockman, appalled by the worsening economy, tried to stun them into starting with massive budget cuts. Since September, he told them at a meeting in early January, the likely deficit for Carter’s departing 1981 budget had shot up from $20 billion to $58 billion, and by 1984, it would take $75 billion in cuts (later $130 billion) to produce the balanced budget Reagan had promised. Reagan missed Stockman’s message; he suspected political sabotage.24

  Baker and Wirthlin raised warning flags about the dangers of promising too much. They pushed for a combination of budget and tax cuts, with Baker arguing that it would be politically easier to take budget cuts ahead of tax cuts; Wirthlin, an economist by trade, worried that a tax cut first would widen the deficit. Both disputed, as impossibly optimistic, estimates by Stockman and Martin Anderson, Meese’s aide, that Reagan policies would bring a five-percent economic growth rate.

  Their warnings were on the mark but brushed aside by Reagan, who liked the sunny optimism of five-percent growth.

  “All right, we’ve heard this argument,” he said, looking around the table. “Does anyone else feel strongly about it?” No one else spoke up. “Well,” the president-elect concluded, “we’re going to go for tax cuts, first and foremost.”25

  As often happens with presidents, that decision did not stick. Pressures were building on Wall Street for postponing the tax cut for six months and for attacking the deficit first. Those sentiments were echoed by leading Senate Republicans such as Budget Committee Chairman Pete Domenici, Finance Committee Chairman Robert Dole, and Majority Leader Howard Baker. The legislative calendar, especially an early vote to increase the national debt, seemed to dictate budget cuts first. Because the White House needed the Senate leaders to put Reagan’s proposals on the legislative calendar, their voices had weight at the White House. They reinforced Stockman’s arguments and a consensus formed at the White House.

  “A plan to permanently reduce the size of the federal budget must be launched within two or three weeks of the Inauguration and must be the lead element [emphasis added] in the total economic package,” Wirthlin wrote in the initial action plan for Reagan. “Professional economic opinion and Wall Street sentiment could run against a major tax cut in the absence of real spending restraint.” Moreover, Wirthlin told Reagan, opinion polling showed that the public “much preferred” cutting federal spending to cutting taxes. There is “strong” fear, he added, that tax cuts without “significant” budget cuts “will accelerate the rate of inflation.”26

  Ramming the Stockman budget cuts through the cabinet caused grumbling but was relatively easy because none of the new cabinet officers knew his department’s programs well enough to defend them against Stockman, and only the Pentagon was exempt from Reagan’s guillotine. The cabinet’s period of innocence was an ideal moment for Stockman to strike, forcing cabinet secretaries to swallow $40 billion in cuts that Reagan sanctioned for his game plan.

  Selling such a package to the nation and to the Washington community takes place on several levels. As a pair of supersalesmen, Reagan and Stockman were irresistible, working in tandem. On television and addressing joint sessions of Congress, Reagan gave the broad sweep and created an air of economic crisis that impelled fast action. Stockman, the wunderkind numbers cruncher, was the vital persuader of senators, congressmen, staff aides, and journalists who fancied themselves as budget specialists. He bedazzled both allies and adversaries with the razzle-dazzle of budget arithmetic. He gave rationales for Reagan’s visions and protected Reagan and his agenda from the flak of technical arguments. Like a child prodigy chess champion playing fifty matches at once, Stockman answered every query, parried every countermove, checked every challenge. Congress was mesmerized. Even Speaker Tip O’Neill spoke in wonder of the economic whiz kid, a farm boy not yet nine years out of Michigan State University with a slide rule for a brain.

  Stockman was a Washington phenomenon: an ambitious, politically canny operator with the cachet of factual knowledge as his armament. Most politicians deal in bromides, platitudes, and spongy generalities; they are drawn to—and often awed by—the precision of experts who deal in hard numbers and stick decimal points in the bottom line, even if the numbers can really be no more than rough guesstimates. Numbers smack of certitude to a world that lives on speculation; their appeal is that they sound concrete. Stockman on the budget was like Kennedy’s defense secretary, Robert S. McNamara, with his reams of statistics showing how the Vietnam War was being won.

  In early 1981, the Reagan economic agenda was aided by what the English poet Samuel Taylor Coleridge once called a “willing suspension of disbelief.” Skepticism was way below normal. The novelty of Stockman’s numbers helped to sell them. With the economy skidding around dangerously and inflation sky high, most Republicans and many Democrats wanted to believe that someone had the answers. They, like Reagan, were willing to invest Stockman with that authority. Stockman added a factual monopoly to the administration’s intellectual initiative, at least temporarily. He spoke with such cocky self-assurance—arrogance, some said—rattling off his budget catechism, that he instilled a false confidence that the Reagan team knew exactly where it was going and how things would work out. Stockman’s version of reality sold famously, while he himself was developing doubts.

  “Even the appearance of being an expert is self-validating,” Stockman confessed five years later. “I didn’t know much about budgets but I knew more than the rest of them.”27

  The political game plan succeeded brilliantly for Ronald Reagan. It gave him the most stunning legislative victories that Congress had seen since the wizardry of Lyndon Johnson in the mid-1960s. The Reagan agenda prevailed: bigger budget cuts than anyone had previously imagined, the biggest cash flow into defense ever seen, and by far the largest tax cut in American history—a string of unbelievable legislative victories.

  The fast, sure opening made it possible. Lyndon Johnson’s political logic had been sound: Get all you can in the first year; later, it’s impossible. Reagan’s first budget was the only one that Congress passed virtually intact. In 1982, he had to backtrack and accept a whopping tax increase; after that, he had to compromise, or was simply ignored. But in the flush of Republican supply-side euphoria in 1981, Congress bowed to the Reagan-Stockman logic and bent to the swift-moving Reagan agenda. Reagan won his first budget victory in the House on May 7—just 108 days after his inauguration.

  Damage Control: Protecting the Game Plan

  Once the action
is moving, the most important rule of the agenda game for any administration is not to step on its own parade or let secondary events derail the agenda. The keys to the opening phase of the agenda game are speed, a mandate, a game plan, and clear, focused priorities. In the next phase, the key to controlling the agenda is what White House strategists call effective damage control.

  No presidency is free of accidents or events exploding unpredictably: terrorist attacks, shipjackings, unrest in South Africa or the Philippines, a contra plane shot down over Nicaragua, or political scandals over toxic waste, the price of Pentagon spare parts, or the actions of cabinet members. Like fire fighters, the president’s inner circle battle the political blaze—first, to keep it from politically burning the president, and second, to keep it from consuming his game plan.

  Often, the most disastrous political damage is caused not by some external explosion but by a self-inflicted wound. That happened to Reagan and the Republican party in 1981, the result of Reagan and Stockman’s overconfidence and overreaching. It was a joint Reagan-Stockman disaster on Social Security, and they nearly did it a second time, but they were stopped by Jim Baker, Howard Baker, and House Republican Leader Robert Michel.

  For years Reagan had urged that the Social Security system be made voluntary. Stockman knew that in order to curb runaway deficits, some adjustment had to be made in Social Security. Still, what Reagan and Stockman attempted was so inflammatory that they made Social Security the political “third rail” for Republicans—as fatal for them to touch as the middle rail of a subway line.

  The Reagan-Stockman blunder was strange because it was unnecessary. Although it was known to very few, Reagan had actually been offered an attractive bipartisan package on Social Security by several Senate Democrats in March 1981. Senator Fritz Hollings of South Carolina, a ranking Democrat on the Budget Committee and cosponsor of Reagan’s own budget package, had notified Committee Chairman Pete Domenici in early March that five of the committee’s ten Democrats were ready to vote for a budget-saving cut in the annual cost-of-living adjustment (COLA) for Social Security. Hollings reckoned his plan would save the government $38 billion over three years; Domenici figured the savings were somewhat less, but he and other Republicans were very enthusiastic. A bipartisan initiative on this ticklish issue would give political cover to Reagan and the Republicans, sparing them from taking all the political blame.

  When Reagan came to Capitol Hill on March 16 for a private session with Republican committee chairmen and budget committee members, Domenici made a pitch to freeze or modify the Social Security COLAs.

  Reagan replied that he had promised in his campaign not to cut Social Security benefits.

  “But you can keep your word and support a COLA freeze because a COLA is something which was never in the original law,” Domenici insisted. “We could put the [Social Security] fund on a sound basis and set this budget on a sound basis by either freezing or modifying the COLA.”28

  Bill Armstrong of Colorado, Slade Gorton of Washington, and others supported Domenici, but no one pushed the new president hard. James Baker had already counseled Reagan against taking the political risk of touching Social Security. Stockman opposed Domenici’s move because he had his own designs.

  “I am not going to support that,” Reagan told his Republicans, “and I really hope you don’t either.”

  Reagan’s reaction killed the idea.

  That also made it all the more stunning when in May, just two months later—and with no offer of Democratic partnership—Reagan gave his blessing to a far more controversial slash in actual Social Security benefits. The plan had been developed by Stockman, Secretary of Health and Human Services Richard Schweiker, and Martin Anderson. It made structural changes in the program, among them a cut in disability benefits and a thirty-five-percent cut in benefits for early retirement at sixty-two. To the dismay of Jim Baker and Dick Darman, who opposed it, Reagan approved the plan on the spot during a briefing on May 11. Evidently deluded by the ease of his first big budget victory in the House just four days before, Reagan thought he could get just about anything through Congress, but he was violating all the basic rules of smart legislative politics, for he had not checked out the proposal with his Republican legislative leaders before giving the go-ahead. Baker and Darman, convinced this move was political suicide, tried to distance Reagan from it. Schweiker was left to announce it the next day.

  The political cannonade was instantaneous. The main furor was over the cut in early-retirement benefits, to be effective the following January. Suddenly, people who had been counting on retiring at $470 a month would get only $311. “Despicable,” boomed House Speaker Tip O’Neill. “Cruel and insidious,” declaimed “Mr. Social Security”—septuagenarian Florida Democrat Claude Pepper. Republicans ran for cover. White House officials, seeking to dump blame elsewhere, anonymously derided it as Schweiker’s Folly. New York Democratic Senator Daniel Patrick Moynihan offered a stinging resolution to condemn Reagan’s “breach of faith” with millions of Americans approaching retirement; his resolution failed by one vote. In self-defense, Republican Robert Dole offered a milder substitute which sailed through, 96– o. The bloom was off the Reagan rose.

  Had it not been for Baker’s damage-control tactics, the Social Security blunder could have derailed Reagan’s economic package. But to keep the main agenda moving, Baker got Reagan and Stockman to get the issue out of the headlines by withdrawing the package.

  Reagan and Stockman retreated but they did not give up. Their original budget eliminated the guaranteed minimum benefit and student benefits under Social Security. Each nursed hopes for more cuts. Come September, with Reaganism at high tide, Stockman was privately assembling a new package of budget cuts, plus a $50 billion tax increase and a slower defense buildup. Once again, he pushed Reagan to try restructuring the Social Security system, as they had tried in May—and Reagan agreed. Convinced that he could make a persuasive case to voters, he drafted a speech one September weekend at Camp David and told White House aides he wanted to address the nation.29

  Sensing new political dynamite, Baker immediately began damage control. Needing powerful allies to dissuade Reagan, he alerted Howard Baker and Robert Michel, the two Republican leaders in Congress. Howard Baker told me he had called Michel.

  “Bob,” he asked, “can you pass that over in the House?”

  “God no,” Michel replied. “Can you pass it in the Senate?”

  “Not a prayer,” Baker replied.

  “Who’s going to tell the president?” Michel inquired.

  “I guess we are,” Baker said.30

  In about an hour, Jim Baker had assembled the two congressional leaders, himself, and Richard Darman in the Oval Office with the president. Howard Baker tried to warn Reagan that his plan didn’t stand a chance in Congress, but the president was very proud of his speech and wanted to read it to them—six or seven handwritten pages on a long yellow legal pad. Based on his mail and his sense of the country, he felt the public would accept his approach.

  For about ten minutes, Reagan read aloud, explaining to the nation why it was necessary to reform Social Security, although it might not be popular. He said he was worried about the system’s solvency. He thought younger people were angry at benefits being paid to older people and fearful they would not get their own. He laid out the rationale for the May package and defended canceling the minimum benefit (which Congress would later restore). Reagan argued that his reforms were fair and would save money. When he had finished reading, the president looked up and asked, “What do you think of that?”

  “I think that’s an awful good speech,” Howard Baker replied tactfully. “But I don’t think you’d better make it because we can’t pass that thing.”

  “Well, what are we going to do about it?” the president pressed earnestly. “It has to be dealt with. The whole issue of Social Security has to be dealt with.”

  Howard Baker made a suggestion.

  “I’ll tell
you what to do,” he said. “I served on the National Water Quality Commission that Nelson Rockefeller chaired, and it worked awfully well. It was a noncongressional group, bipartisan, with staff. And what I recommend is that you emulate that example—that you, by executive order, create this commission and then invite me and Bob Byrd to appoint some members, and Tip [O’Neill] and Bob Michel to appoint some, and you appoint some and the chairman. And they may or may not work anything out. But that’s going to at least put it over on another track, and I’m going to stop worrying about it for a while. And who knows? It might produce a result.”

  It was a classic damage-control maneuver. Presidential commissions have often been used to bury issues without resolving them. Plenty of political damage had already been done in May; Howard Baker’s idea was a way out of more trouble, and Reagan bent with the prevailing wind. On September 24, he made a televised address deploring the “pure demagoguery” of Democrats on Social Security. Rather inconsistently, Reagan asked Congress to restore the minimum benefit that he had once wanted cut but also defended his May appeal for broader cuts. He finished by announcing that “to remove Social Security once and for all from politics,” he was going to set up a bipartisan commission. Not until January 1983—after the next election—did it report. And it produced a modest, but successful bipartisan package.

  The second major incident that stepped on the Reagan parade in 1981, and nearly derailed it, was another self-inflicted wound, and it produced one of the most sophisticated damage-control operations I have seen in Washington. By August 1981, Stockman had become an intellectual defector from Reaganomics—no longer convinced that the original budget and tax package would work. He had taken to heart Reagan’s campaign pledge to balance the budget, and OMB’s economic forecasts by August persuaded him that Reagan’s deficits would soon double and triple those Reagan had inherited from Carter. Stockman also knew that his own budget calculations in early 1981 had been gravely inaccurate, that he had plastered together the superoptimism of the economic supply-siders (predicting five-percent real annual growth) and the high-inflation assumptions of other economists, to project artificially inflated estimates of government tax revenues in the coming years. Privately, Stockman later admitted to me that the success of Reaganomics had been based on a false “Rosy Scenario”—his own derisive term—which he had helped concoct.31