CHAPTER TEN

THE WILL TO BELIEVE

In February 1982, weary of all the wrangling over his proposed 1983 budget, Ronald Reagan took a vacation in Barbados. He had been invited there by his old friend, the actress Claudette Colbert, who maintained a home on the island. Among the guests at the presidential retreat was William F. Buckley, Jr. The conservative writer was carrying a private message from Richard Nixon: Reagan needed “a nutcutter, someone who can do what Agnew did for Nixon, what Nixon did for Eisenhower. Someone to handle Tip O’Neill.” Nixon viewed life, especially public life, as harsh and hostile, where criticism was inescapable and humiliation always possible. A president’s role was difficult: he must maintain the dignity of his high office, yet he must also mete out punishment to his opponents. He must therefore have a henchman whose dark impulses are unrestrained by ruffles and flourishes. “Nancy was more interested in this than Reagan was,” said Buckley. “But you can never measure the impact of a story. It can lodge itself into his memory and come out someday.”

Reagan never acted on Nixon’s advice. When one believes in the magic of the marketplace, a “nutcutter” isn’t needed. Where Nixon felt the need for vengeance, Reagan counted on optimism and faith. Conservatism, after he became president, was organized around a prediction of spectacular prosperity, the greatest boom of all time, that would come true because we believed it would. “All we need to have is faith, and that dream will come true,” Reagan said in a speech on April 28, 1981. He assumed an alchemical process in which individual faith would be turned into market confidence. If the voters believed in his program, Congress would enact it and investors would instantly feel both secure and venturesome. The bull market and capital spending that would follow would be a triumph of positive thinking. His program, however, did not initially catalyze this chain reaction.

Upon the President’s return from Barbados, the recession deepened. The winter image of Reagan splashing in the tropical surf had not enhanced his popularity. His program’s fairness was becoming a public issue. Already its partiality to wealth and the wealthy had been symbolized by the First Lady’s purchase of expensive new china, her extravagant new White House hairdressing salon, and her lavish designer gowns. Reagan and his senior advisers began a public-relations effort to counter the unfortunate political effects of the recession. For example, promptly after his vacation, when the Washington Post ran a frontpage story about a black family in Virginia on whose lawn a Ku Klux Klan cross had been burned five years previously, the President descended on the scene in a helicopter to comfort them. On the advice of political strategists, the Reagans’ Rodeo Drive style of living was altered. No more black-tie dinners. No more riding breeches. A heartfelt expression of sympathy for the unemployed became a regular feature of the standard speech.

To the degree that Reagan’s promise of prosperity was unfulfilled the actual conditions of his youth were re-created—the 1920s, a time of yawning inequalities of wealth, and the 1930s, a time of vast unemployment. George Stigler, the University of Chicago economist, a colleague of Milton Friedman, put the matter frankly. He was invited to the White House to be congratulated by the President for winning the 1982 Nobel Prize in economics. Afterward, he appeared at a press conference, a media event at which, shrewd presidential aides assumed, the distinguished free-market economist would praise the free-market President. Instead, Stigler called supply-side economics a “slogan” and observed that the nation was in the throes of a “depression,” a forbidden word conjuring unpleasant images of Herbert Hoover and breadlines. For using such illicit language Stigler was promptly hustled out of the press room.

The Wall Street Journal, the standard-bearer of supply-side economics, in the meantime expressed great admiration for the President’s refusal to resort to Keynesian remedies, even as unemployment lines lengthened. “The economic downturn set postwar records in unemployment and hit some states like a depression, but it is also bound to produce benefits,” editorialized the Journal. “As the ‘Austrian school’ of economics teaches, recessions play an important role in economic growth. They weed out inefficient, outmoded enterprises and free resources for new ones. The Reagan administration is the first in memory to adopt this school of thought and to deal with a slump by doing nothing.”¹

Reagan’s initial success carried within it the seeds of discord. The ideas the Counter-Establishment had manufactured had helped bring its candidate to the presidency, but because ideology was central to conservative politics doctrinal differences led to intense factional conflict. What had helped elevate conservatism to power now placed its future in doubt.

The corporate managers’ early enthusiasm for Reaganomics was transformed into an incessant demand for “mid-course corrections.” They lined up with the traditional Republicans, who had never been comfortable with the supply-side solution, which offended their deeply ingrained belief in an economy based on self-denial and self-restraint. They had a habitual fear of deficits, the mechanism by which liberals supported a host of social programs. This point of view had its bastion in the GOP Senate leadership caucus, where Robert Dole spoke for tradition: “People who advocate only cutting taxes live in a dream world. We Republicans have been around awhile. We don’t have to march in lockstep with the supply-siders.” The CEOs found the Republicans more congenial than the conservatives. And the President’s senior staff, generally, shared this perspective. Among them, Stockman carried the day. By the time of the publication of the Atlantic article documenting his disillusionment he had already convinced his colleagues; they were chagrined at his indiscretion but protected him from dismissal. They spent much of their time calculating how to get Reagan to accept tax increases to stanch the deficit, even coining euphemisms for his benefit: “revenue enhancers” was a favorite. Leaders of the Business Roundtable were shepherded into the Oval Office, where Reagan was urged to be “statesmanlike.”

The free-market ideologues fell to fighting among themselves. According to the original theory, the Mundell-Laffer Hypothesis, a loose fiscal policy and a tight money policy were yin and yang. Now the supply-siders declared war on the monetarists, whose ranks they believed the traitor Stockman had joined. So long as the recession dragged on, the supply-siders claimed that their theory wasn’t being tested. “It has not been tried under Reagan,” insisted George Gilder. They wanted deeper tax cuts and a restoration of the gold standard, monetarism by other means. The monetarists, for their part, wanted more harassment of Fed chairman Paul Volcker, a kind of Pavlovian punishment drill to make him obey Milton Friedman’s money supply targets. “The data,” asserted Beryl Sprinkel, the monetarist Under Secretary of the Treasury, “is clear at least as far back as Adam Smith.”

On August 19, 1982, the Congress passed a $98.9 million tax increase, molded and maneuvered by Dole. The measure was opposed only by conservatives, rallied by Jack Kemp, who denounced it as a “dramatic U-turn.” The Democratic ranks held steady for the Republican bill, and Reagan hailed its passage as critical to his “crusade.” Thus a year after he signed the largest tax cut in history, he signed the largest tax increase. This time there was no fanfare when he affixed his signature to the bill, no desk on the front lawn of Rancho del Cielo, no twenty-four pens, no reporters. Conservatives were aghast. “The collapse of Reaganomics,” wrote Buckley, “is testimony to a failure of nerve and understanding.”² By early 1983, the press was heralding the zeroing out of the conservative presidency. “The stench of failure hangs over Ronald Reagan’s White House,” editorialized The New York Times. “Mr. Reagan’s loss of authority only halfway through his term should alarm all Americans.”³

Reagan, however, still possessed the authority of ideology. He believed in the happy ending, not in econometric forecasts. Even in signing the tax increase he did not believe that any fundamental revision was taking place; this was simply a tactical adjustment. Policy was not the alpha and omega. The appearance of a recession rather than a boom proved to him the tenacious power of the nefarious forces he was fighting. His beliefs never varied. “I’m the supply-side mole in the White House,” he told his friends. Without his implacable faith that all would work out well, the conservative project might have shattered on the rocks. No matter how his policy changed, his message was constant. By maintaining control of the ideological wheel he was able to steer public opinion when the recovery finally materialized. His control of the interpretation of events was of greater political significance than the events themselves.

In the midst of the crisis of doubt, in 1982, Richard Wirthlin, the President’s pollster, polled for “patience.” He discovered that a majority of voters believed they ought to be patient, that Reagan’s programs would work in a year, that Reagan himself was likeable. Polling for “patience” was not the same thing as polling for popularity, or even for what survey researchers call “favorability.” The data collected by Wirthlin was regarded by the White House as a statistical indicator of faith.

Throughout 1982, major administration figures proclaimed almost weekly that the economic recovery was beginning. Their pious projections were wrong. The Democrats, emboldened by the demonstrable failure of the predictions, escalated their attacks. By fall the Democratic National Committee produced cutting television advertisements that concluded: “It’s not fair. It’s Republican.” The Republican National Committee countered with television spots and a slogan of its own: “Stay the course.” The catchphrase referred less to specific policies than to mythology. The persistence of the recession, the growing intensity of the opposition, and the nature of Reaganism led the President and his loyalists in late 1982 to defend his program on the grounds of faith.

Reagan’s faith was of the kind that the philosopher William James described in his essay The Will to Believe. Faith was not belief in something we knew to be untrue, “some patent superstition.” James pointed to cases “where a fact cannot come at all unless a preliminary faith exists in its coming . . . where faith in a fact can help create the fact ” (emphasis in original text).⁴ The more we invested our faith in Reagan, the closer we would come to realizing his goals. If we did not falter, faith could bring on the Restoration. Conversely, disbelief was more than mere opposition—it made the program fail.

The New Beginning was by no means a certainty; predestination was not a tenet of Reaganism. Big government, a demonic power “coming through the windows, underneath the door and down the chimney,” according to Reagan, speaking on October 28, 1982, might win. To the extent that we doubted our power to accomplish the ends of Reaganism, these ends would be unfinished. Faith was therefore crucial. On October 21, the President claimed that the “voices of fear and doom” among the Democrats threatened recovery. “There is a psychological element to a recession,” he said. “You have to ask those critics in an election year: Do they really want a recovery? Or would they be smiling broadly if things were getting worse simply because it might seem politically advantageous to them?” If we wavered, Reagan and Reaganism were jeopardized. But with faith, they could be fulfilled: “faith in a fact can help create the fact.” Faith would reconcile two irreconcilable myths of Reaganism—the free-market myth of a wide-open world of enterprising individuals and the community myth of a close, happy family. For the faithful, the recession and its attendant miseries were no judgment. Rather, economic hardships indicated the epic quality of the struggle, the tenaciousness of the enemy.

On May 25, 1982, Reagan solemnly charged that Tip O’Neill wanted to “cancel the election of 1980.” The President said, “We are engaged in an epic conflict. . . . We will never shelve the mandate of 1980 and return to politics as usual.” He asked to be judged on the purity of his opponents. If they did not believe in conservatism, his program’s shortcomings must be attributed to them. Reagan’s insistence that when his program was incomplete it was not his own was compelling evidence of its mythological nature, for myths depend upon a seamless web for their power. Reaganism imperfect could never really be Reaganism. To alter the plan was to compromise it fatally. Yet it could never be enacted whole because in a democracy there is always opposition: “politics as usual.” Thus there would always be a convenient explanation for failure.

The President appeared to believe that liberalism was prefabricated when in fact it was improvisatory. In general, the mimetic conservative reaction—“shadow liberalism”—was founded on this misconception. Reagan himself never appreciated that Tip O’Neill always sought specific and limited objectives. The Speaker was not one to engage in any “epic conflict.” It wasn’t his style. He respected procedure and precedent. He understood that all members of Congress considered their views legitimate, and to the extent that they kept getting reelected, they were legitimate. Interests also were legitimate to O’Neill. Conflicting claims had to be weighed, sometimes one against the other. Yet in the end there must be an accommodation. The process must go on.

Reagan, for his part, ascribed coherent intent to O’Neill and the Democrats. He believed that if we had faith in conservatism we would not practice “politics as usual.” His own special brand of politics was dependent on media appearances and media events. “Our economic program will work because Americans want it to work,” he said. To turn spirit into matter required faith—and publicity. So public opinion had to be constantly rallied by Reagan. The style of his leadership was devoted to the substance of his myths.

Many people saw Reagan’s charm as part of his program. They conflated his personality with his public program, which accounted for much of the enduring patience detected by pollster Wirthlin. This popular blurring of image and policy was central to Reagan’s position within the mythology. On the one hand, Reagan had risen from humble origins to become a movie star, a millionaire, the President—the free-market myth. On the other, he was just like the next-door neighbor, plainspoken, humorous, commonsensical, authentic—the community myth. Reagan showed that the myths that were theoretically at odds could work well together. Why couldn’t they work for society? The mythology could be extended from the body of Reagan to the body politic.

There was something unique yet commonplace about Reagan, who had good fortune and was still without pretension. His extraordinary qualities were ordinary traits magnified. The charismatic individual dreams the dream for the nation. His life is our dream. We don’t recognize that we’ve helped give his persona its power. We are sure he’s done it himself. We don’t understand that charisma comes ultimately from the crowd. But this is not a one-way transaction. In return for making him our leader, Reagan told us that the hand of Providence was on everyone, not just on him. He offered the possibility of stardom to us all. “We are not trying to help the rich,” he said on May 14, 1982. “We’re trying to preserve one of the few systems left on earth where people at the bottom of the ladder can still look forward to getting rich.” At a $l,000-a-plate Republican fund-raiser in the Washington Hilton on May 5, he had explained, “We’re the party that wants to see an America in which people can still get rich.” He sprinkled Stardust over everyone, what Max Weber called the “charismatic distribution of grace.”⁵

When he was in Hollywood, Reagan was never the superstar, the “King,” like Clark Gable, whom he quoted reverently in the final sentences of his memoir, Where’s the Rest of Me? Reagan’s incomplete success as a movie star was a precondition to his attraction as a political star. Many movie stars live out fantasies we may want to see projected but don’t necessarily want to enter ourselves. A film star whose personal life is out of control may still be an attraction, and his unconventional escapades may be why we pay to see him perform. But he cannot offer us security. A political star, on the other hand, must be in control of himself and the state. He must be able to command dreams so that he can bring them within our reach. And he must, in some way, embody the dreams himself.

Even the aristocratic Franklin D. Roosevelt was accessible to the common man. Young Reagan’s hero worship proved the point. FDR had polio, and part of his appeal was his own vulnerability. If he could master his crippled limbs, he could master a crippled nation. He understood common suffering because he had experienced it himself; his own life was an exemplar of willpower. He was thoroughly convincing when he asked us to believe in ourselves: “We have nothing to fear but fear itself.” He told us we were all good, that we were not personally responsible for our fall in the Depression, that hope was realism.

How could the ex-Hollywood star Ronald Reagan be the fearless FDR, the President he cited most often? How could Reagan foster a political realignment on the order of the New Deal? From the beginning, he attempted to re-create a sense of crisis equivalent to that which had prevailed in 1932. This was a conscious strategy, articulated by David Stockman in his memo, “Avoiding a GOP Economic Dunkirk,” written during the transition period for the President-elect. By his own account, Reagan’s program was designed to deal with a crisis just like that faced by FDR. “When this administration took office,” he said on September 28, 1982, “we found America in the worst economic mess since the days of Franklin Roosevelt. . . . Together we’ve pulled America back from the brink of disaster.” FDR, however, had no need to manufacture an image of apocalypse—an “epic conflict.” It was manifest.

On January 20, 1983, the White House released a report, “The Reagan Presidency,” prepared by Reagan’s staff, that summarized his first two years in office. The report stated: “Acting forcefully and fairly, President Reagan had averted the calamity-in-the-making which greeted him when he took office.”⁶ Was the “calamity-in-the-making” not really here but incipient, a “calamity” that required special vision to see?

The Reagan administration’s creation of a sense of crisis was like moviemaking. The ideologue’s policies and the pollster’s research provided a kind of “script.” The special effects of the presidency—dramatic television appearances and a “national economic emergency”—were used to convince us that a crisis was really occurring. Once the camera was rolling, the situation assumed a logic and momentum of its own, and only the original “script” provided a benchmark to the players.

Reagan’s image of crisis unfolded as a vivid picture of demonic power. “Runaway government threatens our economic survival, our most cherished institutions, and the very preservation of freedom itself,” he said on July 19, 1982. Two months later he spoke of “government careening out of control, pushing us toward economic collapse, and quite probably, the end of our way of life.” He insisted that the crisis existed exactly as he pictured it and that it was of a magnitude for which only conservatism was the appropriate response. If the crisis was inevitable, so was Reagan. His vision of the “end of our way of life” was confirmed, not denied, by rapid economic decline. “The poverty and unemployment of today is an outgrowth of the policies and problems of the late 1960s and the 1970s,” he said on September 15, 1982. When circumstances became dire, he called on us for faith; he could work wonders with us behind him.

But questions arose: Was this a crisis Reagan foresaw or manufactured? Can a nice guy do bad things? Why, if we had such a nice guy as President, did the nation suffer? Jimmy Carter, too, was widely perceived to be a good fellow. Eventually, though, most voters came to see him as weak, incompetent, and impenetrable; nice guys finish last. Reagan, by contrast, was perceived as not only nice but strong and familiar. He made us feel comfortable even as he persuaded us the world was on the edge of catastrophe. He was not a distant star; our faith in him therefore could have an effect, for even though he was a star we could help him. If we didn’t help him by believing and urging him on, we betrayed ourselves; his program to make us all stars would fail. Carter, who campaigned in 1976 on the slogan that we needed a government as good as the people, by 1979 was testing his own faith and doubting ours. (It was not insignificant that his memoir was entitled Keeping Faith.) Reagan said we were all good and asked for our help. With that call he linked the community to the paramount individual. He needed the community’s faith to make individualism come true.

The effects of Reaganism, however squalid, need not lead to disillusionment. For those with definite convictions and firm commitments, the unequivocal refutation of belief is insufficient to provoke apostasy. The sociologists Leon Festinger, Henry W. Riecken, and Stanley Schachter concluded in their landmark study, When Prophecy Fails, that “when people are committed to a belief or a course of action, clear disconfirming evidence may simply result in deepened conviction and increased proselytizing.”⁷ For a political cause or a religion or a messianic cult, each new “disconfirmation” raises the stakes. Some drop out, but those who remain believe ever more strongly. And the stronger the belief, the stronger the reaction to “disconfirmation.” If a prediction around which the cause has been formed has not been borne out, it cannot easily be acknowledged as false and the elaborate preparations as vain. There is more at issue than just being wrong; the legitimacy of the effort itself is involved. The more one perceives that the world is falling apart, the more likely one is to discount a failed prediction of a redemption. It’s not the timing of redemption so much as the promise of it that sustains the believer. The extent of the difficulty proves the desirability of the goal.

When Reagan was confronted with “disconfirmation,” he flatly denied its existence. On September 22, 1982, the Harvard economist Martin Feldstein, appointed by the President to head his Council of Economic Advisers, testified at his confirmation hearings: “Extremists among both the supply-siders and monetarists who predicted that inflation would be reduced without raising unemployment have been decisively proven wrong.” Three days later, in a national radio address, Reagan contradicted his own expert, charging that it was “the most cynical form of demagoguery” to suggest that the falling inflation rate had any relationship to rising unemployment. Reagan would not permit himself to be confused by contrary data.

Some information, though, was incontrovertible. Reagan knew in advance that on October 8, 1982, the Commerce Department would release an unemployment figure of 10.1 percent, a symbolic double digit, the highest rate since the Depression. This number would give aid and comfort to the Democrats and cloud the electoral prospects of the Republicans. True to the Festinger theory that awkward contradictions provoke missionary activity, the President toured the country, visiting states that were overwhelmingly well disposed to him, to declare that he anticipated and deplored such a sorry statistic. He extended his sympathy to the victims, blamed big government, and asked for “confidence.” He needed to take the political sting out of the number. Senior White House aides decided that the President must take to the airwaves. The weapon of the “Great Communicator” must be deployed.

The significance of Reagan’s speeches can usually be gauged by the completeness with which he reiterates the mythology of Reaganism. Some speeches are prosaic, containing just a parable or two to illustrate the myths. But when Reagan feels the need to elicit a tremendous public response, he recites it all. On October 13, 1982, he delivered an exceptional speech. It was not a simple campaign speech whose message was tailored just to the situation. It was pure Reaganism, beginning with a testimonial of faith from a citizen and ending with a plea for faith from the President. He asked us to remember that he was trying to make dreams come true. He traced all of our economic problems back to the demonic power of big government. We must reject “the quick fix,” which created “trendlines to disaster.” And he proclaimed the twin Utopian goals of ending “politics as usual” and conquering the business cycle. Prosperity would be permanent, “built to last.” No more zigs and zags on the chart, just a rising straight line into the future. Reagan read at length a letter from “a wife and mother named Judith, who lives in Selma, Alabama,” which concluded: “We believe. We must—it’s all we have.” “Well,” said the President, “Judith, I hear you . . . and you deserve to know what we’re doing in these difficult times to bring your dream—the American dream—back to life again after so many years of mistakes and neglect.” In this speech, the “dream” had already died. Heroic measures, a Lazarus-effect, were needed to bring it “back to life.” But “all we have” to resurrect the dead is our faith.

Reagan disdained the “quick fix” on principle. He practiced a form of political homeopathy in which the patient is brought to and through the crisis in order to cure him. The crisis was the index to the cure. An unfulfilled prediction, Festinger notes, is often taken by believers to mean that the true crisis point has not yet been reached. Escalating the crisis— refusing the “quick fix”—would heal permanently and completely. All the poisons must come out, none must be suppressed; otherwise, the poisons will return more virulently than ever. If we lack faith, we will never know the extent of the poisons in the system.

Campaigning for the Republican ticket in North Carolina on October 26, 1982, Reagan forecast “a new season of hope.” He charged that his opponents—creators of an economic “monster”—were “playing with people’s fears, trying to scare them into believing that things will get worse so their own political fortunes will get better.” Their criticism prevented the healing climax of the crisis they had produced. “The picture of fear and despair that they paint on the network evening blues is a picture of where America was, not where she’s going. . . . It’s time others stopped trying to scare people and subvert recovery.” Indeed, we had nothing to fear but fear itself.

Reagan spoke as though he were not the incumbent President but the perpetual challenger. All errors had been made in the past by bumbling or fiendish predecessors. These mistakes were still playing themselves out. When asked at a September 28, 1982, press conference, “Does any of the blame [for the recession] belong to you?” he replied, “Yes, because for many years I was a Democrat.” During the last week of October, on the eve of the midterm election, he made the most arresting claim of the campaign, accusing “big spenders” for the ban on school prayer. In fact, the Supreme Court had ruled twenty years previously that school prayer was unconstitutional. Reagan’s charge was inexplicable outside the framework of his mythology. He attributed everything bad that was happening to an evil power, an external cause. With others always bearing the blame, his image as a nice guy was sustained. This was much of the secret of his so-called Teflon presidency. In some dreams begin irresponsibilities.

But the dreams Reagan had of the future were not prophetic, for the future appeared to him only in the guise of the past. What he recollected was not really history, but fable. His wisdom was not illuminated by a precise memory or erudition, but by archetypal stories in which he always placed himself. He asked us to place ourselves in the stories with him. When our imaginations transported us there, his dreams would come true.

Before he had entered the White House, Reagan dreamed of the best of all possible worlds: Inflation would disappear through monetarist manipulation of the money supply and growth would be stimulated by supply-side tax cuts. This dream incorporated others’ dreams. And in Milton Friedman’s reverie, recovery must be won by pain.

In October 1979, the Fed had begun the monetarist experiment, but it discovered that its efforts to fine-tune the money supply were notably unsuccessful; it fluctuated wildly. The more volatility, the less credibility the monetary strategy possessed.

Throughout 1981, Beryl Sprinkel, Under Secretary of the Treasury for Monetary Affairs, visited the Federal Reserve every Wednesday for lunch. The board members had initially expected pleasantries and were startled when their guest came to hector them for being insufficiently militant monetarists. Within the Treasury Department, Sprinkel set up a group of orthodox believers called the Office of Domestic Monetary Policy to monitor every Fed lapse.

As the recession deepened, the anxiety within the White House grew. When would the recovery begin? When would interest rates come down? At a February 1982 press conference, the President expressed “confidence” and “support” for the Fed and its money supply targets. In the meantime, Murray Weidenbaum, James Baker, and Edwin Meese all made unpublicized visits to Volcker, asking him to ease up.

The economic portents were grim. International Harvester, a major corporation, appeared on the verge of bankruptcy. The Penn Square Bank of Oklahoma City, which had gambled and lost in oil and gas ventures, collapsed, taking with it millions from the Chase Manhattan Bank and Continental Illinois Bank, among others. Then Drysdale Securities, a four-month-old trading firm, folded, defaulting on more than $117 million on loans from Chase Manhattan. And then Mexico, with $80 billion in debts, almost went into default. Mexico’s crisis was an alarm that the international economy was on the precipice. Over the past decade, leading commercial banks had made more than $845 billion in loans to debtor nations, with the expectation that the money would be repaid in currency cheapened by continuing inflation. By stemming inflation through monetarism, the Fed had put the Third World countries—and the banks—in peril. Within the Fed, analysts began experimenting with computer-based scenarios. Their projections suggested that a crash of the world banking system was a real possibility. Soon the CIA was engaged in similar scenario-making, coming to the same conclusions.⁸

The Fed blinked. At the July deliberations of the Federal Open Market Committee, the small closed group that sets the Fed’s policies, a decision was made to let the money supply grow at the highest targeted rate. A month later, Volcker went public, testifying to Congress that the board might permit money growth to exceed the Fed’s previous limits. Finally, on October 9, Volcker told a Business Council meeting that for “technical reasons” the Fed would no longer calculate the movements of Ml. Interest rates fell, the stock market boomed, and the monetarists were bitterly disappointed.

“The experiment has been abandoned,” mourned Friedman. Once again, he believed, the monetarist solution wasn’t given a fair chance. “It was terrible it wasn’t carried out. One step forward and two steps back. You cannot get large bureaucratic agencies to move—period. Inflation has been broken. The question is, will it stay broken? Now they’re engaging in a monetary explosion. In both the British and American cases you set out on the correct course of reducing the monetary growth rate. But in both cases you did it in such an erratic and inefficient way that you did not get the assistance of any confidence that you were really doing it. Therefore, you went through a much more severe recession than was necessary and desirable. The best image I can give you for both the Fed and the Bank of England is that they have been trying to drive a car down the center of a road with a defective steering apparatus; they keep in the center of the road because there are two big walls on each side. First, they hit one wall and then they hit the next, and back and forth. They have kept down that road but with these gyrations, with the result that the car is not in very good shape. People don’t have confidence that they’re not going to break through one of these walls one of these times. Right now the Fed is threatening to break through the wall on one side.”

“What is striking,” wrote the supply-sider Jack Kemp, “is his conviction that in every country which has tried to follow his advice, the monetary authorities have used monetarist rhetoric while pursuing a non-monetarist policy.”⁹

With the attempted countermanding of supply-side economics by tax increases, Stockman’s failure to stop the federal deficit by spending cuts, and the scuttling of monetarism by the Fed, the New Beginning, at least as an economic program, seemed to be finished. But these were only facts, and facts do not speak for themselves.

On Election Day 1982, there were a few more facts: twenty-six Republican representatives and seven governors were defeated. It was not an overwhelming repudiation of the President and the GOP, but it was not a vote of confidence. More important, the vote did not realize the grand prediction of a political realignment. After the 1980 election, they argued that a new conservative epoch had dawned, just as FDR’s election in 1932 signified the coming to power of a Democratic era. The 1982 contest would ratify the New Beginning, in much the same way that the 1934 midterm election ratified the New Deal. Reagan’s economic policies were to be the instrument of this realignment, the fruition of decades of conservative efforts. But the policies had unintended consequences.

And then came the recovery. By consistently adhering to the policy he had initially laid out—tight money, tax cuts, and an attempt at a balanced budget—Reagan had helped foster the worst recession since the Depression. But the more inconsistent he was, the more he departed from his original plan, the more the economy recovered. By early 1983, stock market prices were soaring.

Very little that Reagan promised worked as advertised. Monetarism resembled chemotherapy without any prospect of a cure. True, inflation had dramatically dropped, but so had vital signs of economic health. When the Fed announced it would cease targeting the money supply, the bull market thunderously appeared.

The supply side, as it turned out, was the demand side in drag. Reagan’s recovery had its source in the reversal of his policies and intentions. When money was put directly into the hands of consumers through the tax cut, an utterly conventional if regressive Keynesian stimulus, demand increased. The astronomical boost in military spending also had a simple Keynesian benefit, for it was public-sector money that translated ultimately into consumer demand—big government in action.

The deficit was the price Reagan paid for the recovery. He covered his debt by paying lip service to a balanced budget amendment to the Constitution, an ideological promissory note. Reagan was then freed to campaign for support for his incoherent program by offering a coherent worldview. His unyielding rhetoric reaped great rewards. By projecting an unchanging ideology throughout the economic crisis, he had been able to convince voters that his policies had not undergone any substantial revision and were actually the cause of the recovery. A majority of the voters gave him credit for the upturn. Between January and May 1983, he gained eleven points in the ABC–Washington Post poll. His interpretation of the recent past was prevailing—a triumph of ideology.

According to Reagan, the economic crisis we had passed through only proved the persistence of our sinister adversary. The Restoration was coming soon after all. Americans, he constantly reminded us, have the power to begin the world over again. And on this point what American, except an authentic conservative, would dispute him? Thus there would always be the promise of a New Beginning. His policies may have been in tatters, but his mythology was intact. Reagan and the conservatives were fortified for 1984.