An American Life

by Ronald Reagan

  A few economists call this principle supply-side economics. I just call it common sense.

  I have always thought of government as a kind of organism with an insatiable appetite for money, whose natural state is to grow forever unless you do something to starve it. By cutting taxes, I wanted not only to stimulate the economy but to curb the growth of government and reduce its intrusion into the economic life of the country.

  By the way, that philosopher, Khaldoon, and I weren’t alone in believing lower tax rates result in higher revenues for government. In 1962, President John F. Kennedy said, “Our true choice is not between tax reduction on the one hand and avoidance of large federal deficits on the other; it is increasingly clear that no matter what party is in power, as long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance the budget—just as it will never produce enough jobs or enough profits. In short, the paradoxical truth is that the tax rates are too high today and tax revenues are too low and the soundest way to raise revenues in the long run is to cut rates now.”

  Fortunately, our party won a majority in the Senate in the 1980 election. But I knew we faced a Democratic majority in the House of Representatives that had a very different view about cutting the tax rates and reducing the role of government.

  In Sacramento, I learned through experience that it was important to develop an effective working relationship with my opponents in the legislature, our political disagreements notwithstanding. A few days after the inauguration, I invited Tip O’Neill, the Speaker of the House, over to see me in the White House.

  He was full of Irish warmth, a great storyteller, and I liked him. But it was evident he had come to the Oval Office to set me straight on how things operated in Washington.

  “You’re in the big leagues now,” he said.

  I felt that my eight years as governor of one of the largest states in the union hadn’t exactly been the minor leagues. I told him I thought I’d been in the big leagues for quite a while.

  We agreed that since we were going to have to do business with each other, we should try our best to get along. Still, Tip didn’t try to hide the fact that he thought I had come to Washington to dismantle everything he believed in—things he and other liberals had spent decades fighting for, starting with the New Deal.

  As far as he was concerned, I was the enemy. I guess from his point of view, he was right.

  My experience in Sacramento taught me that many liberal legislators believed in their cause with an almost religious zeal and were prepared to play hardball—and other games—to further it. It was no different in Washington. I’d only been in the Oval Office a few days when I became embroiled in a fight in which I had to persuade Congress to raise the ceiling on the national debt. Because of the spending excesses of the past, everyone in Washington knew the ceiling had to be raised—otherwise, the country would be broke and not able to pay its bills. But in an example of the games I later learned they played all the time, many of the Democrats tried to make it appear to the public that the first thing the new guy in the White House wanted to do after campaigning in favor of cutting the federal deficit was to raise the national debt. It was another example of the Congress flexing its muscles at the new boy in town. With a great show of reluctance, the Democrats finally relented and voted to raise the debt ceiling. Later, I learned a similar scenario played out every year: Congress approved appropriations that sent the federal deficit through the roof, then opposed raising the debt ceiling. They wanted to make the public think it was the Republican president, not Congress, who wanted higher spending.

  In Sacramento, the most important lesson I learned was the value of making an end run around the legislature by going directly to the people; on television or radio, I’d lay out the problems we faced and ask their help to persuade the legislators to vote as they wanted, not in the way special-interest groups did. As president, I intended to do the same thing. It had worked in Sacramento and I thought it would work in Washington.

  In early February, in a national television broadcast, I told the people that solving problems that had accumulated over decades would take time, but that all of us working together could do it: “We must realize there is no quick fix . . . but we cannot delay in implementing an economic program aimed at both reducing tax rates to stimulate productivity and reducing the growth in government spending to reduce unemployment and inflation.”

  I sent to Congress a bill calling for an across-the-board thirty-percent tax cut over three years. Meanwhile, we launched a program under Vice-President Bush to reduce unnecessary government regulation of the economy. After the broadcast, Tip O’Neill and other tax-and-spenders in Congress let out a howl and I knew we were in for a battle. A few days later, we unveiled a plan to cut billions of federal expenditures by eliminating needless boards, agencies, and programs—a start at reducing the $80 billion budget deficit the federal government faced that year—and the Democrats let out another howl and proposed drastic cuts in defense spending. Well, I was determined to increase military spending to reverse the effects of years of neglect of our armed services.

  Pentagon leaders told me appalling stories of how the Soviets were gaining on us militarily, both in nuclear and conventional forces; they were spending fifty percent more each year on weapons than we were; meanwhile, in our armed forces, the paychecks were so small that some married enlisted men and women were eligible for welfare benefits; many military personnel were so ashamed of being in the service that as soon as they left their posts, they put on civilian clothes.

  I told the Joint Chiefs of Staff that I wanted to do whatever it took to make our men and women proud to wear their uniforms again. I also asked them to tell me what new weapons they needed to achieve military superiority over our potential enemies. I knew reversing the effects of years of neglect would be expensive and difficult. But during the campaign, the people of America had told me nothing mattered more to them than national security. Time and again, when I went around the country calling for a balanced budget, I’d get this question: “But what if it comes down to a choice between national security and the deficit?”

  Every time, I answered: “I’d have to come down on the side of national defense.” And every time I did, the audience roared. Nobody wanted a second-class army, navy, or air force defending our country.

  I wanted a balanced budget. But I also wanted peace through strength. My faith was in those tax reforms, and I believed we could have a balanced budget within two or three years—by 1984 at the latest.

  38

  A WEEK AFTER THE INAUGURATION, we held a ceremony on the South Lawn of the White House welcoming home the fifty-two hostages who, thank God, had finally been freed from their long captivity in Iran. Also present were relatives of the eight men who had lost their lives during the unsuccessful attempt to rescue the hostages during the previous administration; one courageous couple had lost their only son, and as I looked into their faces I had difficulty finding the words to lessen their terrible sense of grief.

  For the rest of the day, I carried around a lump in my throat as big as a mountain. Unfortunately, it would not be the last time I would have to try to console the relatives of men and women who died in the service of our country. That morning, I was introduced to the worst part of my new job.

  The Algerian and Swiss go-betweens who represented us during the hostage negotiations with the Iranians said that the final weeks of negotiations had been dominated by a concern among Iranian officials that they would have to do business with the new administration. In the weeks leading up to the inauguration, I had gone out of my way to say some nasty things in public about the Ayatollah Khomeini, hoping it would encourage him to expedite the negotiations before we arrived in Washington. I referred to them at one time as barbarians. Whether this had anything to do with the hostages’ release on inauguration day, I don’t know, but the job wasn’t complete. An American writer had gone to
Iran shortly before the hostages were freed and had been arrested upon her arrival in Teheran; she had been charged with being a spy and thrown in jail.

  When the other hostages were released, I checked and found out that she wasn’t among them, and I asked the State Department to ask the Algerian and Swiss diplomats to do one more errand for us, suggesting that they hint to the Iranians that the new administration would be much more likely to implement the Carter administration agreement to free Iranian funds held in American banks in exchange for the hostages’ release if she was freed first. We never said anything about it publicly. Several days later, she was released.

  Long before I ever entered the Oval Office, I had adopted a very simple philosophy regarding the question of what we as a nation should do if an American was held captive abroad against his or her will. I believed that whenever one of our citizens, even the least among us, through no fault of his or her own, was denied the right to life, liberty, and the pursuit of happiness, it was up to the rest of us to do everything we could to restore those rights, wherever it took us, anywhere in the world that person was. It was a policy I followed for eight years as president.

  During the campaign, I’d been given classified briefings on various problems facing our country internationally, but as president I began to receive much more detailed briefings each morning on the state of the world, and they introduced me to new problems and great opportunities for the country.

  I learned the Soviet economy was in even worse shape than I’d realized. I had always believed that, as an economic system, Communism was doomed. Not only was it lacking in the free market incentives that motivated people to work hard and excel—the economic propulsion that had brought such prosperity to America—but history was full of examples showing that any totalitarian state that deprived its people of liberty and freedom of choice was ultimately doomed. The Bolshevik revolution had simply replaced an inherited aristocracy with a self-appointed one, the Soviet leadership, and it, like its predecessor, could not survive against the inherent drive of all men and women to be free.

  Now, the economic statistics and intelligence reports I was getting during my daily National Security Council briefings were revealing tangible evidence that Communism as we knew it was approaching the brink of collapse, not only in the Soviet Union but throughout the Eastern bloc. The Soviet economy was being held together with baling wire; it was a basket case, partly because of massive spending on armaments. In Poland and other Eastern-bloc countries, the economies were also a mess, and there were rumblings of nationalistic fervor within the captive Soviet empire.

  You had to wonder how long the Soviets could keep their empire intact. If they didn’t make some changes, it seemed clear to me that in time Communism would collapse of its own weight, and I wondered how we as a nation could use these cracks in the Soviet system to accelerate the process of collapse.

  Responding to the Soviet invasion of Afghanistan, Jimmy Carter had imposed an embargo on the shipment of American grain to the Soviet Union. Although I supported the idea of sending a strong message of disapproval to Moscow, I suspected the embargo had probably hurt our farmers more than it hurt the Russians, because some of our allies had simply come in and filled the breach and supplied the grain that the Soviet Union needed. I was inclined to lift the embargo to help our farmers, but it wasn’t an easy decision; I didn’t want to send a message that we approved of what the Russians were doing. In theory, expanding trade was supposed to make the Soviets more moderate, but as far as I could tell, it had simply allowed them to spend fewer resources on agriculture and consumer goods and more on armaments.

  Lifting the embargo would be a big boost to our farmers and help our economy at a time when it needed help, but should we do it if it helped extend the life of Communism? It was a dilemma I had to deal with during my first months in the White House.

  We were also faced by another serious dilemma: How do we stop the advance of Communism in Latin America without making the people of Latin America think Uncle Sam is a bigger threat to them than the Communists?

  A few days after the inauguration, our intelligence agents obtained firm and incontrovertible evidence that the Marxist government of Nicaragua was transferring hundreds of tons of Soviet arms from Cuba to rebel groups in El Salvador. Although El Salvador was the immediate target, the evidence showed that the Soviets and Fidel Castro were targeting all of Central America for a Communist takeover. El Salvador and Nicaragua were only a down payment. Honduras, Guatemala, and Costa Rica were next, and then would come Mexico.

  The plans had been in the archives of Communism for a long time. I had been told that Lenin once said, “First, we will take Eastern Europe, then we will organize the hordes of Asia . . . then we will move on to Latin America; once we have Latin America, we won’t have to take the United States, the last bastion of capitalism, because it will fall into our outstretched hands like overripe fruit.”

  We had already lost Cuba to Communism. I was determined the Free World was not going to lose Central America or more of the Caribbean to the Communists, but we had to tread softly. In the minds of many people in Latin America, the United States was the “Great Colossus of the North” that in the past had been too willing to send in the marines and interfere with their governments. The prospect of American troops being dispatched across their borders to fight Communism was abhorrent to these people. And after Vietnam, I knew that Americans would be just as reluctant to send their sons to fight in Central America, and I had no intention of asking them to do that.

  Besides, I knew that simply sending our troops into Central America wouldn’t end the threat of Communist subversion. There were formidable economic and political problems in many of these countries that made them fertile ground for Castro’s revolutionary guerrillas, and these problems had to be dealt with. Millions of people in Latin America lived under terrible conditions of bleak poverty, and close to ninety percent of them lived under governments that were virtual dictatorships. Sure, we could send in the troops, but the threat of Communism wouldn’t diminish until the people’s standard of living was improved and the totalitarian countries of Latin America gave them more freedom.

  Franklin D. Roosevelt, John F. Kennedy, and other American presidents had introduced a variety of plans aimed at dealing with the economic, social, and political imbalances that made Latin America so ripe for revolution, but none had succeeded; the Latin American countries always saw the “Great Colossus” coming down from the north with a blueprint to impose on them against their will.

  Yet something had to be done. I asked David Rockefeller to see if he could help develop a plan to improve the economies of the Latin countries that they would not construe as another attempt by the “Great Colossus” to tell them what to do.

  In the final analysis, I realized that the problems of Latin America would have to be solved by the Latin American countries themselves, but I had believed for many years (in fact I’d opened my 1980 presidential campaign with a speech on the theme) that the largest countries of North America—Canada, Mexico, and the United States—should forge a closer alliance and become more of a power in the world and help with the problems. Not only would it be to our mutual economic benefit—I thought that working together, those of us in North America might be able to help the Latin American countries help themselves.

  On my first trip out of the country as president, a get-acquainted meeting in Ottawa with Canadian Prime Minister Pierre Trudeau, I found that he agreed; then President José López Portillo of Mexico said he would work with Venezuela and other Latin American countries to help negotiate an end to the shipment of Communist arms from Cuba into El Salvador. The policy had gotten off to a good start. Through diplomatic channels, I sent word to our friends south of the border: “We’ll help you do the things you need to do, but we won’t come in and try to do them for you.”

  39

  IN THE WINTER OF 1981, the automobile industry was suffering more than any other segme
nt of our economy. Car sales had never fully rebounded from the effects of the Arab oil embargo, and showrooms were flooded with unsold cars; Detroit and its suppliers had furloughed thousands of workers around the country and, in the industrial heart of America, countless communities that relied on a healthy auto industry for their economic sustenance were in trouble.

  Japan was landing more and more cars on our soil, and many people in Detroit wanted to make the Japanese the scapegoat for all their problems. As a result, strong sentiment was building in Congress and in the capitals of many industrial states to impose quotas on Japanese imports.

  I am a free-trader. I firmly opposed import quotas. I believed that the new competition Detroit faced, like all competition, was good for it and good for consumers—a spur that would motivate our auto industry to produce better cars. That’s how the free enterprise system works. I believed that once we started down the road to protectionism, there would be no way to turn back, no way of telling where it would end.

  I’d learned that during the Great Depression, when Congress passed the Smoot-Hawley Tariff Act. This law imposed the stiffest tariffs in our history in an effort to protect American farmers from foreign imports. But it backfired and ended up hurting the farmers —and much of American industry—because other nations promptly levied their own tariffs, which resulted in our farmers and manufacturers selling fewer products abroad. The Smoot-Hawley Act touched off an international trade war that prolonged the Depression and brought on a worldwide plague of economic nationalism. I always agreed with FDR when he said in 1933: “The only practicable way to assure American trade of protection against injurious trade barriers in foreign countries is to join with these countries in concerted efforts to reduce excessive trade restrictions and to reestablish commercial relations on a nondiscriminatory basis.”