December 1981
"
While David Stockman would speak passionately against the government in Washington and its self-aggrandizing habits, there was this small irony about his siblings and himself: most of them worked for government in one way or another--protected from the dynamic risk-taking of the private economy. Stockman himself had never had any employer other than the federal government, but the adventure in his career lay in challenging it.
Or, more precisely, in challenging the "permanent government" that modern liberalism had spawned.
While ideology would guide Stockman in his new job, he would be confronted with a large and tangible political problem: how to resolve the three-sided dilemma created by Ronald Reagan's contradictory campaign promises.
But Stockman was confident, even cocky, that he and some of his fellow conservatives had the answer. It was a theory of economics--the supply-side theory--that promised an end to the twin aggravations of the 1970s: high inflation and stagnant growth in America's productivity.
The supply-side approach, which Stockman had only lately embraced, assumed first of all, that dramatic action by the new President, especially the commitment to a three-year reduction of the income tax, coupled with tight monetary control, would signal investors that a new era was dawning, that the growth of government would be displaced by the robust growth of the private sector.
Fast forward.....
A Trojan horse?
This seemed a cynical concession for Stockman to make in private conversation while the Reagan Administration was still selling the supply-side doctrine to Congress. Yet he was
conceding what the
liberal Keynesian critics had argued
from the outset--
the supply-side theory was
not a new economic theory at all but only
new language and argument to conceal a hoary old Republican doctrine: give the tax cuts to the top brackets, the wealthiest individuals and largest enterprises, and let the good effects "trickle down" through the economy to reach everyone else.
His failed expectations were derived from many events. In August, when enactment of the Reagan program was supposed to create a boom, instead, the financial markets sagged. Interest rates went still higher, squeezing the various sectors of the American economy.
Real-estate sales were dead, and the housing industry was at a historic low point. The same was true for auto sales. Farmers complained about the exorbitant interest demanded for annual crop loans. Hundreds of savings-and-loan associations were at the edge of insolvency. The treasury secretary, perhaps also losing his original faith in the supply-side formulation,
suggested that it was time for the Federal Reserve Board to loosen up on its tight monetary policy. Donald Regan saw a recession approaching."