A Visit to the Woodshed

By Ed Magnuson

Loose talk about Reaganomics brings a verbal thrashing from the President

He had been the Reagan Administration's glowing star, casting light on all the murky, mystifying tax and spending statistics that his wondrous computers at the Office of Management and Budget continually cranked out. He was the farm-bred, Harvard-educated wizard who would transform those numbers into the magic by which Ronald Reagan's economic recovery program would prove a smashing success. Even David Stockman's adversaries admired his effectiveness as a promoter of the Reagan cause. At his regular breakfast last week with Treasury Secretary Donald Regan and Chief Economic Adviser Murray Weidenbaum, Stockman was delighted by a birthday cake presented by Regan, his principal rival within the bureaucracy. It was decorated with 35 tiny hatchets, symbolizing Stockman's tender years and his budget-slashing accomplishments. He laughed loudly at another Regan gift: a T shirt bearing the words I AM A TEAM PLAYER on the front and TREASURY DEPARTMENT SUPPLY-SIDERS on the back.

That moment of warmth was a refreshing change for an Administration whose key players have been squabbling all too publicly. Indeed, that same afternoon President Reagan drew derisive laughter from the White House press corps when he insisted that the celebrated feud between Secretary of State Alexander Haig and National Security Adviser Richard Allen had been "exaggerated out of all reality" and that, to the contrary, "we're a very happy group." Yet, at the end of that same press conference, Reagan learned for the first time that his whiz-kid budget director had brought yet another flap upon the Administration: in an article in the December issue of the Atlantic Monthly, Stockman was quoted as saying some most indiscreet things about the Administration's entire approach to budget balancing and tax cutting. Suddenly, the architect of Reaganomics was in danger of being fired. And for the second time in two weeks, Reagan had to summon a top aide to the White House for a stern presidential scolding.

An ashen-faced Stockman called a press conference and announced that he had offered the President his resignation but that Reagan had refused it. With uncharacteristic humility, the budget director apologized publicly for "my poor judgment," "loose talk," "careless rambling" and use of a "rotten, horrible, unfortunate metaphor." Reagan, he said, had given him a verbal thrashing. "My visit to the Oval Office for lunch with the President was more in the nature of a visit in the woodshed after supper," Stockman said. "He was not happy about the way this has developed--and properly so."

By week's end Stockman had survived the initial uproar. But the Administration's star had clearly fallen into a black hole, possibly taking Reagan's fading chances to win future economic fights in Congress with him. It was doubly unfortunate that Stockman's self-inflicted wounds came at a time when the nation's economic recession was deepening and the Administration's tax and spending policies were meeting rising resistance on Capitol Hill (see following story).

How could such a shrewd operator shoot from the lip and hurt himself so badly? That remains a mystery. Even before Stockman took office at OMB, he had agreed to meet periodically with William

Greider, 45, a respected assistant managing editor of the Washington Post. Greider wanted to write an in-depth magazine story about the entire budget-making process. Under the ground rules they agreed to, according to Greider, "the particulars of the conversations were not to be reported until later, after the season's battles were over." Stockman unaccountably contends that he thought his comments would remain "off the record." Greider persuasively insists that he told Stockman that he wanted to write the piece as soon as the Administration had won its big tax-cut battle in early August, and Stockman raised no objection. Stockman even posed in October for photos to accompany the article. Last week Stockman argued that he and Greider had developed an "honest but rather large misunderstanding" that had lasted through some 18 interviews over eight months (see PRESS).

The 24-page article, called "The Education of David Stockman," is actually a thoughtful, unsensational account of the budget director's young but busy career at OMB. The narrative starts so sleepily, on the Stockman family farm in western Michigan, that official Washington was slow to notice the bombshells amid the biography. A member of a politically active, conservative, Methodist family, Stockman studied history at Michigan State and theology at Harvard before joining maverick Republican John B. Anderson's congressional staff in 1970. Elected to the House on his own in 1976, Stockman turned his bookish brilliance to mastering the complexities of the federal bureaucracy and the intricacies of how each entrenched interest fights for its funds. Thus he was a good choice to become the new President's budget director, and he quickly dazzled many veteran committee chairmen with his grasp of budgetary detail.

Still, the Greider article depicts Stockman, who took on his OMB job with high hopes that "we can change the habits of the political system," as disappointed in the end that "institutional inertia" was so difficult to overcome. Even as early as last January, Greider reports, Stockman ran Reagan's promised three-year tax cuts and big increases in military spending through an OMB computer and found the results "absolutely shocking." The machine projected a budget deficit of $82 billion in 1982 and $116 billion in 1984. So Stockman simply reprogrammed the computer with new assumptions of how supply-side economic policies would drive down both prices and interest rates and push up productivity. That enabled him to project a 1984 surplus if the Reagan plans were carried out.

Feeding rosy data into calculations to get a desired result is hardly an innovation at OMB. But Greider depicts Stockman as having great personal doubts that the supply-side figures were credible, even though the entire Administration, including Stockman, was then praising that theory in public. Greider was told by Stockman, who has not challenged the article's quotes: "I've never believed that just cutting taxes alone will cause output and employment to expand."

In one of the article's most damaging passages, Stockman agreed that supply-side theory was, in Greider's words, "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." Said Stockman: "It's kind of hard to sell 'trickle down,' so the supply-side formula was the only way to get a tax policy that was really 'trickle down' .. . Kemp-Roth [the supply-side tax bill] was always a Trojan horse to bring down the top rate." Stockman was saying this privately at the same time that the Administration was denying Democratic charges that the Reagan tax cuts favored the rich.

Even when Stockman helped win the Administration's big battle over the drastic budget cuts in July, Greider found him subdued.

Writes Greider: "Why? Because he knew that much more traumatic budget decisions still confronted them. Because he knew that the budget resolution numbers were an exaggeration." He quotes Stockman: "There was less there than met the eye . . . the numbers are just out of this world." Yet Stockman had used those same numbers as he waged his successful drive to persuade members of Congress to approve the cuts. And, while impressing everyone with his knowledge of all the statistics, Stockman was conceding privately to Greider: "None of us really understands what's going on with all these numbers."

At the same time that Reagan was berating Wall Street for doubting the effectiveness of his economic policies, Stockman was staring at his own statistics and concluding that the stock market analysts were right. Stockman's best computer figures no longer added up to a balanced budget by 1984. Big deficits loomed.

It is quite true, as Stockman argued in his own defense last week, that he soon began to admit this publicly. As early as May, Stockman was demanding sharp future slashes in such a politically sensitive program as Social Security, and in August he even urged big reductions in military spending. He was deeply disappointed, in fact, when the President refused to support any such large cuts.

In part, Stockman could be credited with honesty and candor in his talks with Greider. His indiscretions may have been more political than substantive. His private language was, as is that of most politicians and Government officials, far more colorful than his public pronouncements. Still, while apparently enjoying an ego trip with a reporter, Stockman had left the unmistakable impression that throughout his fatiguing drive to enact the Reagan program, he knew he was playing with funny figures, advocating theories in which he did not wholeheartedly believe and rebutting criticisms that he considered valid.

Actually, the storm over the budget director's loose talk developed slowly. Stockman had called a presidential assistant on Tuesday afternoon to say that he had a copy of an article about himself and would send it over. He added with cool understatement: "I think you'd better see this." Busy White House aides did not find time to read the lengthy document until late that evening. When they did, they were stunned. Said one: "My first reaction was that the Democrats were going to use this politically and that it would hurt us politically. It was a credibility problem."

The next day, however, the New York Times buried a brief Associated Press story about the fuss on page D7 and even the Washington Post, despite its own closeness to the story, ran it on an inside page. By Wednesday afternoon the most important reader of all had examined the article--and he was furious. "The President was as upset and angry as I've ever seen him," reported a top aide. "What was Stockman thinking of to have that kind of arrangement with a reporter?" Reagan asked. "How could he do such a thing?"

By Thursday, newspapers and newscasts were expanding the story. Democrats were jumping all over Stockman, and some Republicans on Capitol Hill were dismayed too. Reagan met Thursday morning with his senior advisers, speculating about the damage the article might do to his already endangered economic program. The possibility of asking Stockman to resign came up, but it was not resolved before other meetings intervened.

One was a Reagan appointment to discuss pending appropriations bills with congressional Republican leaders. Stockman knew he had to bring up the painful subject. Reagan gave him the opening. "I think Dave Stockman wants to say something," he said coldly. Stockman repeated his claim that he was the victim of a misunderstanding, adding, "I regret that I ever had the interviews." He closed by saying, "I want to continue to carry out the President's policies." Obviously contrite, he drew sympathetic applause from the leaders. A silent Reagan joined in.

After the meeting, Reagan convened his top aides, as well as Vice President George Bush, to seek their advice on what to do about his talkative budget director. "If you keep him, nobody is going to believe us any more," suggested one adviser. Still, Stockman had made himself virtually indispensable to the Administration. "Hell," thought one participant, as others considered firing Stockman, "he's our entire domestic policy staff. What are we going to do without him?" Said Reagan: "I want to sit down and talk to Dave." Then he canceled a lunch with Bush and commanded Stockman to come to the White House for lunch instead.

When Stockman arrived at the White House, he was still complaining to Reagan aides that he had been misled by Greider. One of them took Stockman aside just before he entered the Oval Office and warned, "Don't go in and blame it on the goddam article. You and everybody else know that you made a serious mistake." One of the first things Stockman did during the 45-minute lunch with Reagan was offer his resignation. To Stockman's surprise, the President said, "I'll have to give you an answer on that later. There are some things I want to know." Only after grilling Stockman, seeking an explanation of why the younger man had talked so freely to a reporter and just how committed he really was to the Administration's policies, did Reagan reject the resignation.

Stockman emerged in a state of shock. "I feel like I've been run over by a freight train," he said. "I think the President laid the wood to him pretty damned good," observed a presidential adviser. Reagan had a further idea: "I think the press and public should see and hear David's explanation, just as I did."

Thoroughly chastened, Stockman returned to his office and composed himself over a familiar yellow legal pad. "He just dove into it like he does every other project," explained one Stockman aide. "He knew the kind of statement that the President wanted him to make and he wrote it out directly." For an hour, Stockman rehearsed the toughest questions his aides could throw at him about the whole affair. Then he went off to face an overcrowded room full of reporters in the refurbished White House press quarters. He looked pale and frightened at first, his attempt at a wan smile quickly fading. Twice he paused in his prepared apology, gulping to regain control of his emotions.

Stockman made a point of defending the President: "Never, ever, has he attempted to mislead the Congress or the American people, or say things which weren't true." Declared Stockman: "I would not be here now, nor would I have worked 16 hours per day for nearly a year, if I did not believe in the President and in his policies."

Although he handled himself well under questioning, Stockman remains, in effect, on probation. While 32 of the 53 Republican Senators signed a letter to Reagan supporting Stockman and pleading, "We need him as part of the team," Senator Paul Laxalt, the President's confidant, significantly did not. Moreover, a huge question had been raised as to whether Stockman can continue to be effective. Certainly, he has become an irresistible target for Democrats on Capitol Hill. Observed Leon Panetta, a key Democrat on the House Budget Committee: "He was knowledgeable. But now the first question will be: 'Is this just what you're saying, or do you really believe it?' " Insisted New York Senator Daniel Patrick Moynihan: "It was not just an error of good intentions, it was an error of deception." Contended Democratic House Floor Leader James Wright: "Apparently he had the President mesmerized to pursue a course that he, Stockman, knew was not right."

Republican Senator William Roth, coauthor of what he prefers to call the Roth-Kemp tax act, joked that he had invited Stockman to a Thanksgiving dinner at which the menu would include "Trojan horse pate, Chateau Hemlock '81, trickle-down consomme and foot-in-mouth filet." After dinner, said Roth, Stockman would be "offered a blindfold and a cigarette." Actually, Roth was furious at Stockman's remarks about supply-side economics, saying, "I'm outraged."

Such Republican criticism of Stockman will, of course, hurt him more than Democratic sniping. "He has substantially impaired his usefulness," contended Republican Senator Robert Stafford of Vermont. "To have him as his chief spokesman sure isn't going to help the President." Agreed Maryland's Republican Senator Charles Mathias: "I think this is terribly damaging to the President. Stockman was such a central figure."

Within the Administration, some advisers insisted that Stockman had never expressed many of the reservations about the Reagan economic policies that he had conveyed so freely to Greider. Said one presidential aide: "It came as a complete and utter surprise. This is just not Reagan team play." Asked a Treasury official: "How can you trust a guy like that again? Everywhere we go, we're going to have to live with what he did." Argued one Administration economist: "He's destroyed the President's credibility and his program, whether he goes or stays."

That would seem to overstate the case. But enough damage has been done, insist some White House insiders, that the whiz kid will have to wave some new magic wands and make the furor fade away if he is to keep his job. Warned one official: "He's got about a week or maybe two before another decision will have to be made." Predicted another top aide: "He's going to bleed to death." Already there was talk in the White House about finding a replacement for Stockman. That, however, will not be easy. Shaky as those elusive budgetary numbers may be, not many people have so firm a grasp on them as has David Alan Stockman.

--By Ed Magnuson. Report ed by David Beckwith and Douglas Brew/ Washington

With reporting by David Beckwith, Douglas Brew

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