Reagan was of course helped, as ever, because his opponents underrated him. Carter was even quite pleased at the nomination of a washed-up actor with eccentric political views. But it was Reagan who won the exchanges. Carter mocked him, saying the economy was in depression; what he meant was ‘recession’ but did not know the difference. Reagan was quick off the mark: ‘A recession is when your neighbour loses his job. A depression is when you lose yours. And recovery is when Jimmy Carter loses his.’ Of course the establishment — what Vladimir Bukovsky calls the new American elite — did not like this but, in the event, the election gave Reagan a comfortable victory. Carter then went off to obscurity, subsequently returning in the 1990s to inform the world that North Korea would agree not to develop nuclear weapons or that Haiti would turn into a proper democracy, announcements very rapidly falsified by events. With this hapless figure, the sixties came to an end.
In January 1981, as he took over, Reagan announced that there should be tax cuts and a reduction in domestic spending; he promised prosperity. However, as with Margaret Thatcher though for different reasons, he ran into problems. There were severe enough limitations on his power but in any case the ‘conservatives’ were implicitly divided and this showed, after initial reverses. Reagan had pledged to cut public spending, and blamed it for many ills, including inflation; at the same time he had promised to cut taxes. There was a difficult context, because interest rates (at almost 20 per cent) were so high. Private enterprise could no doubt take up slack that came from a reduction of public spending, but not if credit were so expensive: any small business would need it to keep going. Besides, Reagan was not the only wielder of power: there was a Democrat-majority Congress, there were separate states with spending rights, and there was a legal system of fabulous interferingness. Public opinion was a constant concern, and the media thereby seemed to have enormous importance — the maker and breaker of presidencies. Besides, any President would inevitably find himself dealing with foreign affairs — one complication after another, with vociferous lobbies attached. Not an easy set of cards to play.
Divisions emerged rapidly enough. Jack Kemp especially had been arguing that tax cuts would more than pay for themselves. This was a popular enough cause. The average family income in 1970 was under $10,000, and as that figure, on paper, rose, the tax rate went up by 20 per cent, though the average income in 1980 was buying about 20 per cent less than in 1970. In, say, Germany, the high taxes at least bought decent public services. Not, for the most part, in the USA. However, there was a vast constituency for social security, especially Medicare and Medicaid, the costs of which went up and up (while also leaving millions of people without health insurance). There were also endless lobbies for this or that subsidy, especially the farmers: a cow cost $2 per day, before it had even started to chew the cud or be milked. A very tortuous campaign went ahead, through a Democrat-dominated Congress (with a slight and unreliable Republican majority in the Senate). Reagan turned out to be a very astute manager. His style was less than hectic: he refused to do early-morning meetings. The team that he had chosen spoke with different voices: a James Baker, more or less in conventional mould, could, as Chief of Staff, talk lobbyists’ language, whereas a David Stockman, managing the budget, addressed fears as to deficits. Reagan could also use television as a professional, and outflank Congress in that way, with an appeal to public opinion. Above all, he did not preach or offend, and his relations with the Democrat Speaker, Thomas ‘Tip’ O’Neill, were friendly. In 1981 legislation brought a tax cut of 25 per cent, in slices — 5 per cent at once and 10 per cent for the next two years. The top rate of tax fell from 70 to 50 per cent and by 1985 tax was supposed to be indexed against inflation. By 1988 the top rate had fallen to 28.5 per cent. There were concessions elsewhere, for retirement savings and the like. So far, so good. Reagan was also shown to be right as to the effects: the better-off did not avoid tax, and income from them went up, not down. In 1986 a new tax law brought the marginal rate down from 50 to 28 per cent but cut out some loopholes, and there were only three tax brackets. However, business and other taxes did in effect rise.
David Stockman, at the Office of Management and Budget, was a man of fiscal rectitude, and he could see an immediate problem: a deficit. It stood at $50bn in 1980, and under Reagan, by 1986, reached $200bn. When he left office, the overall debt had increased by $1,500,000,000,000 (1.5 ‘trillion’, though the word is not correct). Stockman was a free-market convert (originally from the radical Left) and set himself to attack ‘forty years… of promises, entitlements and safety nets’, i.e. the welfare state as it had grown up since Roosevelt’s time. The problem here was not just the poor, for whom the welfare state had been designed. There were many middle-class ‘entitlements’ as well, and the health schemes were notoriously prodigal. There were also arrangements to subsidize the buying of houses on mortgage — great federal institutions, quite strictly regulated. Meanwhile, Reagan himself had encouraged the Defense Department to put up its budget, and according to Stockman, its Secretary, Caspar Weinberger (one of Reagan’s Californians) in effect dictated government finances. Stockman talked to congressmen with a view to having taxes put up, not down, because of the deficit and ‘leaked’ news that he had sabotaged the tax cuts, but Reagan did not dismiss him until 1986, when Stockman went on to Wall Street. His memoirs are a long statement of contempt: both for the endless political subsidization (‘pork barrel’) that went on, sometimes by small-print subterfuge, and for Reagan’s own management, which he thought very weak and even reckless. Military spending took priority, and from 1981 to 1987 went up from under $200bn to nearly $300bn. But it was not just defence: Stockman catalogues case after case of special pleading, as each congressman expected a favour or two in return for his vote. His was a curiously unstable career — Harvard theology, the anti-Vietnam Left, free-marketeering, money on Wall Street and, in 2007, an indictment for fraud.