David and Goliath
The Triumph of Politics: Why the Reagan Revolution Failed, by David Stockman New York: Harper & Row, 422 pages, $21.95
David Stockman's much-discussed book is a modern version of the David and Goliath story. As in the story passed to us in the Book of Samuel, David takes on Goliath by himself. In Stockman's version in The Triumph of Politics, however, Goliath wins the encounter and David is banished (forever?) from the royal court. The ancient story in which David wins has inspired generations of the faithful, even if it is not a guide for prudent conduct. The modern story in which Goliath wins is less inspirational but more instructive.
Stockman's portrait of David is not flattering but is not really very important. At each successive stage of his odyssey from future farmer to campus radical to divinity student to congressional aide to congressman to budget director to investment banker, he turned his back on the "rabbi" who had guided him through the prior stage. David ultimately repudiated everything that had been important to him—the Christianity of his parents, the Marxism of his college professors, Pat Moynihan's realism, John Anderson's independence, the visions of Jack Kemp and Phil Gramm, and the wisdom of Ronald Reagan. Like many bright, energetic people, he was impatient with and sometimes disrespectful of those who attained their position by other qualities, such as loyalty. He leaves the impression of a tattler, a snitch.
According to Stockman, David had only a naive grasp of both economics and politics. His economics ranged from confused to conventional. Early on, he was fascinated with the Laffer curve that was supposed to illustrate that increasing tax revenues could accompany declining tax rates. But then he came to believe that "a tax cut will increase revenues only if you start in a zero inflation world." This is merely confused. There was never any basis for believing that a general reduction in tax rates would increase total revenues, regardless of the inflation rate, and no administration economist or budget projection ever made that claim. In fact, however, the reduction in the highest income-tax rates and in the tax rate on capital gains appeared to increase revenues, again independent of the inflation rate.
David also grossly and consistently overestimated the short-term economic effects of the deficit. On this issue, his views, however wrong, were broadly shared. He first argued that the deficits would increase inflation. After inflation dropped sharply in early 1982, he shifted his argument to the effect on interest rates. After interest rates also dropped sharply in late 1982, he shifted his argument again. Adopting the strange reverse-Keynesian position of Wall Street, he then argued that the deficit would prevent a recovery. In the spring of 1983, after the recovery was under way, he argued that the deficit would abort the recovery. After the recovery proved to be unusually strong, David's arsenal of apocalyptic conjectures about the economic effects of the deficit were exhausted, and he went into internal hibernation until the administration was again willing to address the budget deficit after the 1984 election. There is ample reason to be concerned about the deficit, but the failure of the apocalypse to arrive on schedule undermined his credibility.
David's political vision was also clouded. He began work as the budget director with a belief that a small group of "anti-statist conservatives" could reverse the momentum of the welfare state. After recognizing that this was not possible, he concluded that it was wrong to try. Both of these judgments, I believe, are wrong. The Reagan administration achieved a substantial defense buildup, a reduction in tax rates, some deregulation, and a substantial reduction in inflation because there was a substantial consensus for each of these elements of its economic program. It was less clear whether there was any consensus for reducing domestic spending, because it had not been tried and Reagan had not tested the political response to such cuts in the 1980 campaign. Some cuts were achieved in 1981, but less than enough to offset the defense increase and the tax cut. The limits on the consensus for domestic budget cuts, however, would not have been recognized unless the administration had proposed more-substantial changes.
Now that Stockman is older and wiser and richer, he concludes that "there is no room [in this process] for scribblers, dreamers, ideologues, and passionate young men." What a sad comment. Some other David, however, will continue to be an important part of this process, by articulating some other vision, by pushing the system, by testing the limits on the consensus of Congress.
He also concludes that his own failure to slay Goliath by one blow "proved that the American electorate wants a moderate social democracy." There is no reason, however, why the "settled consensus of professional politicians" has any relation to the preferences of the electorate as long as a large part of government spending is financed by borrowing. Does anyone seriously contend that the electorate would support a 40 percent increase in personal and corporate taxes to pay for the current activities of the federal government?
Most other reviewers of Stockman's book have focused on the David story and rendered a negative verdict. That is understandable but unfortunate. Understandable because David's comments about most of the people with whom he worked for years seem like bad manners; understandable because the reviewers share some envy that Stockman received a $2.3 million advance for his book without so much as an outline. Unfortunate, because Stockman's portrait of Goliath is as unflattering as his portrait of David but much more important. It is awkward for the establishment media, which had cultivated Stockman as an internal critic of the administration, now to acknowledge that he has some very critical insights about the American political process.
Among those that he still seems to be sorting out are the following:
• The politics of campaigns, which avoids hard choices, undermines the potential to address hard choices after the elections.
• A large part of the welfare state was created under Republican presidents and is protected by Republicans in Congress.
• Majority rule can lead to outcomes that are wholly inconsistent.
• The process of correcting errors in the government is very slow and uncertain.
• A lot of people in the Reagan administration had no commitment to Reagan's policy agenda.
• Congress is an extraordinarily parochial body with a very short time horizon.
• A good many people in high government positions are not very swift.
• A large part of the federal budget involves transfers to people who are not poor.
There are not many people around Washington who share David's outrage about this process.
My major reservation about Stockman's portrait of Goliath is his conclusion that most people must really support Goliath after all. That Goliath survived David's slingshot, however, is not sufficient evidence of much public support. In politics as in war, one should be careful about attributing virtues to the victors. From my perspective, David's outrage was more attractive and more productive than his concluding rationalization.
William Niskanen, a former member of Reagan's Council of Economic Advisers, is now chairman of the Cato Institute in Washington, D.C.