Supply-Side Blues

A MINOR LEGEND enshrouds the birth of what has come to be known as "supply-side economics"; few subjects have proven more reliable sources of popular folklore than the discovery of great scientific laws, and so it befits the hyperseriousness of the apostles of this creed to spread the influence of their theories. Joining the tales of Archimedes jumping up and down in his bathtub yelling "Eureka" and a prim and patrician Isaac Newton cursing the apple that hit him on the head is the fable of three men in business suits having dinner at a posh Washington restaurant. Arthur B. Laffer, an upstart economics professor from California, Louis Lehrman, and Wall Street Journal editorialist Jude Wanniski were finishing their drinks, as the story goes, when conversation shifted to one of their favorite topics, conservative economics. Wanniski (or was that Lehrman?), asked if it was possible for the federal government to cut taxes without losing money, and Laffer answered affirmatively. Taking out a pen and drawing some lines on a napkin, Laffer explained that federal revenues would actually increase with a large slash in taxes. With more incentive for people to work harder, changing expectations would being massive increases in productive investment, investment currently chased away by the stranglehold excessive taxation and regulation have on the economy.

The Laffer curve, they say, fell off the table and onto the lap of America. The details of that encounter grew larger than life, as Wanniski used the editorial pages of his newspaper to spread the doctrine of balancing the budget by cutting taxes. Laffer meanwhile became the guru of the cult--young and virile, he embodied the youthful energy that massive taxcuts and comprehensive deregulation could unleash, a spirit of enterprise and discipline that would signal the awakening of a new America. Crackpots, more conventional economists called them, but the three set their nets out and fished for disciples, drawing in with ease the school of neo-conservatives, ripe for policies that put to test their surmises that an unequal distribution of society's rewards best served its interests. Congressman Jack Kemp took off his football helmet and preached of his countrymen's spirit for hard work, one which the across-the-board tax cuts he proposed would no doubt sanctify. Contributing his Harvard pedigree to the cause of supply-side's credibility was Martin Feldstein. He designed models to prove that poor people save less than rich, while a college classmate of his, George Gilder, added new dimensions to the word "reactionary" with a primitive anthropology that explained why. The easiest convert was the old gunslinger himself--the untested theories gave presidential candidate Ronald Reagan more ground than the traditional hymns to patriotism and loyalty allowed him to stand on. But the most coveted was a young congressman from Michigan, a midwestern farmboy with strong sensibilities for justice and equity a college radical from the 60s whose ideological fervor refused to mellow into complacence but vented itself on the task of finding new solutions to the old problems.

Supply-side economics had the common-sense appeal of an old proverb, but nothing guaranteed it would work. Too much American dream, and not enough Studs Terkel, its ideal viewpoint pictured the sort of workplace the country could be, without the realities progress to that state would encounter. The numbers never did add up, and that's what made David Stockman so important. His mission as director of the Office of Management and Budget was to convince an incredulous public and Congress that the numbers would add up even if it didn't look that way. His responsibility clear from the outset, he had to subdue all apprehension that the president's policies to slash taxes, reduce social spending, while increasing military spending, might not lead to either a balanced budget or to a healthy economy.

What shocked readers of the December issue The Atlantic Monthly, on and off Capitol Hill, was not what Stockman said in his interviews with William Greider, but the candor with which the budget director conceded that his administration's supplyside policies did not merit the credibility they had heretofore garndered.

The conversations, "off-the-record" so far as Greider's own newspaper. The Washington Post, was concerned, revealed a sensitive, questioning intellectual television cameras cannot capture, a young man growing steadily disillusioned with the politics his role in the Reagan White House has made him partisan to. He questioned the ethics of doctoring the forecasts produced by the OMB's economic model. "None of us really know what's going on with all these numbers," Greider quotes Stockman as saying, a rather serious admission for anyone working in economics, let alone the chief architect of a revolutionary fiscal policy. Reagan's opponents have certainly made the most of the opportunity Stockman's indiscretions offered them; but neither the voices of anger or mirth can hide certain forlorn echoes. Stockman's remark that supply-side theory served as a "Trojan Horse" for old Republican doctrines could hardly prove devastating in a world where ideas and careful thinking count more than images and the impression they create. His charges are hardly new, for they mirror perfectly the opinions of more than a few Democratic Congressmen and liberal economists. Republicans had heard such complaints all summer, and the import of such attacks could only pale in contrast to the drubbing the Reagan program received in the nation's financial markets.

The bespectacled representative from Michigan came to the OMB prepared to fight for Reagan's supply-side policies in a Congress unaccustomed to radical change, and his success last summer was unqualified. Stockman united all Republicans, and played Democrats off one another to win approval for his package of across-the-board tax cuts and budget reductions. But if Stockman won the first big battle for the supply-side, the doctrine failed him in its debut on the market place. The summer's victory hardly made a dent in the soaring interest rates that threatened an imminent recession.

The budget director who rolled over Congress ran into solid brick at Wall Street. His political genius impotent against the law of the market. Stockman could only wonder how viable the supply-side theories he espoused could actually be. For the young intellectual had nurtured a coherent view of the way the world works--Greider describes it in his article as a sense of ideological purity--there could be no disjunction between politics and economics for David Stockman. The faith in the future and goodness of America, hard work and private enterprise was the same that inspired his confidence in the theories of Arthur Laffer and the tax cut of Congressmen Kemp and Roth.

The results of the summer of lobbying were understandably upsetting. The apparent failure of the supply-side doctrine to impact on pressing economic problems turned Stockman's ideological purity over upon itself, leaving instead a stark naivete. The wheeler-dealer all of a sudden became sensitive to the machinations of budget politics, the con jobs he had to perform to win votes, as well as the inevitable battles among the members of the cabinet. Stockman lost once to Defense Secretary Caspar W. Weinberger '38, over the matter of defense cuts, and for a second time (after the Atlantic's article went to press) to Treasury Secretary Donald Regan, who defended the Reagan mandate not to raise taxes against Stockman's protestations for a balanced budget.

In light of these events, the cynicism revealed of Stockman in his Atlantic interviews can hardly seem surprising. Where his politics had triumphed, the theories had failed him. For Stockman and the integrity of his vision, a binding faith in one meant giving up on the other. The interviews could only be ironic in the context of Stockman's image as the grim reaper of the New Right. Here was the blooming personification of the ruthlessness of the supply-side economics, questioning their fairness to many of the people they affect; the embodiment of the Reagan administration's unbending determination to steer a steady course, speaking out on his own doubts. David Stockman was much more than the budget officer who engineered Reagan's budget slashes and tax cuts--he was the image that justified the steady course toward fiscal austerity. His lack of confidence in those ideas meant the end of his political influence in the administration.

Stockman's reasons for allowing the interviews remain open to speculation. Like Nixon, he probably had a bit too much of the desire to be a hero, an ill-timed lust that undermined the situation in the end. Reagan's reasons for keeping Stockman on in face of the immense pressure to fire him are obvious. Getting rid of the number one man in the president's fight to revolutionize economic policy would be an admission that the remarks deserve credence, one that an administration that will soon have to defend its posture in Congress can ill afford to make. With the future of two other cabinet officers uncertain. Reagan, moreover, cannot presently afford to let a third go.

THE THEORIES of supply-side economics are hardly the scientific laws their self-righteous proponents claim them to be. Only absurd faith can justify belief that they are more than a political ruse to subsidize the indulgence of large-corporations and the affluent with the sufferings of the needy. It's like a trick with mirrors, the political maneuverings, and the legislation, the theories and the ideology covering for a system that guarantees injustice for the larger population. This time. David Stockman got caught in the middle.