The Failure of the Reagan Revolution, 1986

From David A. Stockman. The Triumph of Politics, How the Reagan Revolution Failed. New York: Harper & Row, Publishers, 1986. 8-14.

Revolutions have to do with drastic, wrenching changes in an established regime. Causing such changes to happen was not Ronald Reagan's real agenda in the first place. It was mine, and that of a small cadre of supply-side intellectuals.

The Reagan Revolution, as I had defined it, required a frontal assault on the American welfare state. That was the only way to pay for the massive Kemp-Roth tax cut.

Accordingly, forty years' worth promises, subventions, entitlements, and safety nets issued by the federal government to every component and stratum of American society would have to scrapped or drastically modified. A true economic policy revolution meant risky and mortal political combat with all the mass constituencies of Washington's largesse-Social Security recipients, veterans, farmers, educators, state and local officials, the housing industry, and many more.

Behind the hoopla of the Kemp-Roth tax cut and my thick black books of budget cuts was the central idea of the Reagan Revolution. It was minimalist government--a spare and stingy creature, which offered evenhanded public justice, but no more. Its vision of the good society rested on the strength and productive potential of free men in free markets. It sought to encourage the unfettered production of capitalist wealth and the expansion of private welfare that automatically attends it. It envisioned a land the opposite of the coast-to-coast patchwork of dependencies, shelters, protections, and redistributions that the nation's politicians had brokered over the decades.

The true Reagan Revolution never had a chance. It defied all of the overwhelming forces, interests, and impulses of American democracy. Our Madisonian government of checks and balances, three branches, two legislative houses, and infinitely splintered power is conservative, not radical. It hugs powerfully to the history behind it. It shuffles into the future one step at a time. It cannot leap into revolutions without falling flat on its face. . . .

The fact was, due to the efforts of myself and my supply-side compatriots, Ronal Reagan had been made to stumble into the wrong camp on the eve of his final, successful quest for the presidency. He was a consensus politician, not an ideologue. He had no business trying to make a revolution because it wasn't in his bones.

He leaned to the right, there was no doubt about that. Yet his conservative vision was only a vision. He had a sense of ultimate values and a feel for long-term directions, but he had no blueprint for radical governance. He had no concrete program to dislocate and traumatize the here-and-now of American society.

I supplied the latter. Only the further tragedy was that he grasped just half of this revolutionary equation-owing to a fluke of experience. He embraced the huge Kemp-Roth tax cut because it seemed to be validated by an anecdote from his own personal history. But the anecdote was not applicable to his task of governance and he understood little of the blueprint's bone-jarring remainder.

Like all revolutionaries, we wanted to get our program out of the fringe cell group where it had been hatched and into the mainstream. The brave new world it promised was too good and urgent for its radiant light to be left under a bushel of ideological scribblings.

So we pitched it in tones that were music to every politician's ears. We highlighted the easy part--the giant tax cut. The side of the doctrine that had to do with giving to the electorate, not taking from it.

In January 1980, Governor Reagan's campaign managers had sent him to school for a few days to get brushed up on the national issues. There, Jack Kemp, Art Laffer and Jude Wanniski thoroughly hosed him down with supply-side doctrine.

They told him about the "Laffer curve." It set off a symphony in his ears. He knew instantly that it was true and would never doubt it a moment thereafter.

He had once been on the Laffer curve himself. "I came into the Big Money making pictures during World War II," he would always say. At that time the wartime income surtax hit 90 percent.

"You could only make four pictures and then you were in the top bracket," he would continue. "So we all quit working after four pictures and went off to the country."

High tax rates caused less work. Low tax rates caused more. His experience proved it. And stated that way, he was right.

But the Laffer curve was about government revenues, not making movies or widgets. It was an academic paradigm. Its translation into the real economic world of 1981 was complicated and slippery.

A tax cut will increase revenues only if you start in a zero inflation economy. Then, if more movies and widgets are made, you will get more GNP and more revenues. That is common sense.

But Ronald Reagan inherited an inflation-swollen economy. Prices were racing upward at 12 percent. There had been just one imperative: Stop the inflation. . . .

Yet when you pump the inflation out of the economy, something funny happens. The government's finances end up in the same boat with farmers', oil drillers', and commodity speculators'. All previous revenue projections collapse. The relationship between income and outgo suddenly goes haywire.

Stopping inflation means that you stop tax bracket creep, too. Compared to a high inflation economy, which automatically raises taxes by pushing people into higher tax brackets, a low inflation economy itself provides a huge "tax cut." It dramatically depletes the Treasury's inflation windfall. In fact, the latter was the only thing keeping the federal government even half solvent when Ronald Reagan took the oath of office.

His new radical economic program, therefore, embraced two tax cuts: an end to inflationary bracket creep and a 30 percent rate cut on top. The Laffer curve couldn't pay for both. Not even close. To keep the budget solvent required draconian reductions on the expenditure side--a substantial and politically painful shrinkage of the American welfare state.

My blueprint for sweeping, wrenching change in national economic governance would have hurt millions of people in the short run. It required abruptly severing the umbilical cords of dependency that ran from Washington to every nook and cranny of the nation. It required the ruthless dispensation of short-run pain in the name of long-run gain.

To make a revolution required defining fairness in terms of exacting, abstract principles--not human hard-luck stories. It meant complete elimination of subsidies to farmers and businesses. It required an immediate end to welfare for the able-bodied poor. It meant no right to draw more from the Social Security fund than retirees had actually contributed, which was a lot less than most were currently getting.

These principles everywhere clashed with the political reality. Over the decades, the politicians had lured tens of millions of citizens into milking...cows, food stamps, Social Security, the Veterans Hospitals, and much more. They were getting more than they deserved, needed, or were owed. For the Reagan Revolution to add up, they had to be cut off. The blueprint was thus riddled with the hardship and unfairness of unexpected change. Only an iron chancellor would have tried to make it stick. Ronal Reagan wasn't that by a long shot. . . .

By 1982, I knew the Reagan Revolution was impossible--it was a metaphor with no anchor in political and economic reality. I never gave up the supply-side ideology, however. I just put it in my safe, along with other intellectual valuables. It was simply not operationally relevant in the world of democratic fact where the politicians have the last and final say. . . .

In the final analysis, there has been no Reagan Revolution in national economic governance. All the umbilical cords of dependency still exist because the public elects politicians who want to preserve them. So they have to be paid for. That is the unyielding bottom line. Economic and financial disaster is the only alternative.