Reagan, the Republicans and Teddy Kennedy Jude Wanniski November 26, 1979

Executive Summary: The Reagan strategy of staying out of the Republican campaign until November 13 successfully neutralized potential primary threats from Jerry Ford and Jack Kemp. Ford, Reagan's most serious contender, was pushed into making his formal announcement not to run by other contenders who needed Ford's supporters in their own campaigns. And Kemp was brought into the Reagan camp as "chief spokesman" and Chairman for Policy Development.

A Reagan-Kemp marriage positions Reagan as the candidate of economic growth, but it is up to Kemp to demonstrate the effectiveness of supply-side policies as a political tool. Connally fades as the electorate sees him as a Big Business, Big Government, Big Labor syndicalist. George Bush emerges over Howard Baker as the candidate of the GOP Eastern Establishment, who will try to pull down Reagan. If Reagan is lured or pushed back to the "fiscal responsibility" and "austerity" themes before New Hampshire, he is crippled. If he successfully defends the tax cut issue, he will be the nominee and will be armed with a JFK tax cut — the most formidable of weapons against the likely nominee, Teddy Kennedy.

Reagan, the Republicans and Teddy Kennedy

For most of 1979, several Republican candidates have appeared to be running for their party's 1980 presidential nomination. They've really been jogging in small circles, limbering up, waiting for Ronald Reagan to show up. "The race usually can't start until the front-runner lets it," Reagan's campaign manager, John P. Sears, told a reporter last summer. Sears, at 38 the premiere political strategist in the U.S., was in no hurry to let the campaign begin early, and once again he confounded conventional wisdom. Reagan was supposed to collapse in the polls by his refusal to start running with the others, on the theory that this would underscore his major vulnerability, i.e., his venerability. Nor was it inexpensive to keep the candidate under wraps so long. While John Connally was raising megabucks, the Reagan operation went through a mini-liquidity crisis last summer. When he quit as finance director in late August, Lyn Nofziger complained that Sears was "repackaging" Reagan as a "soft" conservative, but Nofziger's bigger problem was that Sears was postponing Reagan's entry. "People would rather give to a candidate who can't win than to a candidate who isn't running," he told me a few days before he quit.

What did Sears gain for his boss by holding him back so long? Obviously, when Reagan announced on November 13 — allowing the race to begin in earnest — he was far ahead of the rest of the field. Critical analysts could observe that Reagan's lead had eroded in the several weeks prior to his announcement, but a good part of this could be attributed to Gerald Ford's formal announcement that he would not run. The George Bush and Howard Baker camps helped push Ford into making his formal announcement; they complained to Ford that so many of his supporters were staying on the sidelines on the chance that he would run that their candidates couldn't make headway against Reagan. But it was Sears' patience in holding Reagan out of the action that forced this decision on Ford — thereby eliminating Reagan's most serious contender. Had Reagan been running with the rest of the pack all summer, he could have been chewed up by now and Ford would have been under much greater pressure to get into it.

In the same way, the Sears' strategy confounded the supporters of Rep. Jack Kemp.1 As early as November 1978, they were trying to position the Buffalo congressman for a presidential run. They reasoned that in a multi-candidate field, with no ideological divisions among the major contenders, Kemp's "radical conservative" approach to economic growth — appealing across party and class lines — would stand out, just as Jimmy Carter's anti-Washington themes stuck out in the Democratic multi-candidate field of 1976.

Kemp was agreeable, but insisted that he could not get in unless Reagan faltered in public perceptions. For one thing, he and Reagan come out of the same wing of the GOP. If he challenged Reagan and somehow a third candidate won, he, Kemp, would be blamed for toppling Reagan by dividing the conservative base. Secondly, Reagan had consistently shown warmth and encouragement to Kemp's ideas. Throughout the year, John Sears made repeated visits to Kemp, urging him against a presidential run on political grounds, just as Reagan encouraged Kemp to believe that his "supply side" ideas would have a major influence in shaping a Reagan campaign and a Reagan presidency.

Reagan's lofty non-candidacy did not falter. It seemed to gain strength as none of the other contenders caught fire, and Sears decided to press this advantage by advancing Reagan's entry date from Labor Day to November 13. When Reagan did announce on November 13, Kemp was on his team — his "Chief spokesman" and Chairman for Policy Development. Between Labor Day and November 13, Sears had deftly arranged the marriage between the Reagan and Kemp cadres.

This was no easy task, given the egos involved and the mutual suspicions of the subordinates. And because Kemp counts himself responsible for the ideological movement, he had to be satisfied that Reagan's people were serious about the ideas. Yes, Reagan had been peppering his speeches with praise for Kemp and endorsements of the Kemp-Roth bill to cut personal income tax rates by almost a third. But a policy prescription that is not rooted in a systematic approach to governance — a coherent policy vision — can get blown away in the first attack by the opposition.

In 1975, remember, Reagan entered the GOP presidential race with a proposal to cut $90 billion from the federal budget and decentralize programs by relinquishing a like amount of federal taxing authority to local governments. The idea was not unpopular at the grass roots, but when the Ford camp attacked the idea — on the grounds that it would force state and local governments to raise taxes to pay for social services — Reagan was unable to deal with the barrage of questions fired at him by the press corps at every campaign stop. He had not been grounded in the theory, which meant that every answer raised new questions. On the eve of the New Hampshire primary, the $90 billion plan was scuttled. In the process, Reagan lost the momentum he had built up, and he lost the primary.

The memory of the $90 billion plan hovered malodorously over the Sears-Kemp negotiations this autumn. How far should Reagan go in endorsing ideas that might become embarrassingly difficult to defend? How far should Kemp go in demanding a campaign role that would insure the centrality of the ideas? The upshot was a Reagan level of commitment high enough for the Kemp platform to be taken seriously, but not so high that it couldn't be jettisoned if for any reason it proved to be a problem.

What Sears got out of the deal, far more than a relatively meaningless endorsement from a relatively unknown upstate New York congressman, was a transfusion of intellectual energy into the Reagan campaign. David Broder of the Washington Post, after interviewing Sears, observed that "Kemp and his circle of advisors" was his "most important catch." And when Kemp was introduced at Reagan's November 14 press conference in Washington, he said: "I believe the team the governor has assembled will be able to beat any team on the field. Why? Because Ronald Reagan, the oldest and wisest of all the candidates, has embraced the youngest and freshest ideas about how to revive our nation, both spiritually and intellectually."

Several months ago, a group of Houston Republicans, all supporters of John Connally, asked my opinion on whether Reagan or Connally would be more effective as a President in implementing the kinds of economic policies that would get the country moving again. Under pressure to be honest and diplomatic, I came up with the following rationale.

Man for man, John Connally has it over Ronald Reagan. In fact, Connally is the only candidate who could walk into the Oval Office today and without further preparation be President. If you put Connally and Reagan into isolation booths, and slipped each of them the same $64,000 question that they'd have to confront as President, Connally would have the superior response a majority of the time.

But when you pick a President, you don't really pick one man, but a team to run the government. Here, Reagan has the edge. If you put both in an isolation booth, fed in the same $64,000 questions, but now permitted each to make five telephone calls before they answered, Reagan would have a superior response a majority of the time. Reagan would tend to call strong individuals with independent judgment; Connally would tend to decide the answer and call five allies who would likely support his judgment.

Indeed, Connally has always played to a "Man on Horseback" image, making split-second decisions, shooting from the hip. It is difficult to imagine Connally delegating campaign strategy, or any kind of strategy, to a John Sears, or naming a Jack Kemp "Chief Spokesman." But as a result, Connally does not have a reputation for attracting people of high quality in his circle of advisors. The only name that comes readily to mind is Charls Walker, the Washington lobbyist who was Connally's Treasury Undersecretary in 1971-72. The New York Times of November 18 identified Walker as Connally's economist:

"He's pretty well set in his economic policies," Mr. Walker said of Mr. Connally, adding that he spends "not very much time" on behalf of his candidate. His advice to Mr. Connally is to "put a lid on spending" and then to use the increase in tax revenues produced by inflation to make tax cuts of $50 billion to $100 billion.

The idea of holding down the spending curve and using the "fiscal dividend" produced by inflation to balance the budget and/or cut taxes has been part of every Presidential strategy since Lyndon Johnson unveiled it in 1967, and has been President Carter's as well. It is really one of the sources of the country's economic difficulties, for it merely suggests that if we only had higher tax rates (through inflation) we can subsequently enjoy lower taxes.

On November 6, when Connally announced this strategy as part of his "comprehensive economic plan," he also announced a specific program to increase incentives to save:

Under the "Nest Egg" plan, any American could invest up to, say, $10,000 in a bank, a savings and loan, or in a common stock. And, as long as he let the interest or dividends accumulate and be reinvested, he would pay no tax. Taxes on his investment account would be deferred until he wanted to use the funds to pay for a child's education, or whatever.

This is exactly the kind of plan likely to be cooked up in an isolation booth, with Connally dreaming it up and having five of his friends salute. There is only a limited increase in incentives for an individual to save if the government says it will tax the income on investment all at once instead of a little bit at a time. The government won't tax you as long as you don't consume. The business community tends to applaud such ideas, having come to believe the economy's root problem is too much consumption and too little saving. The average voter, who is well aware that the problem is too little production — which means too little savings and consumption — will not be impressed.

The more fundamental reason why Connally will almost certainly not succeed in winning the GOP nomination is that he is at heart a Syndicalist — one who believes that the answers to national economic problems lie in a syndicate of Big Business, Big Labor and Big Government — an approach the American electorate will not swallow. The movers and shakers of corporate America are fascinated by Connally's style, but it often seems they hear only the music and not the words. In a Times profile of Connally, we read of one old Connally friend, now a "close adviser," describing Connally as a Texas version of Nelson Rockefeller:

"John likes to do things," he says. "He likes to get his hands on everything. That's why you had wage and price controls at Treasury. That's why you had his university building program. That's the one thing consistent about him. If all those business people supporting him think he'll let them and the economy alone, they're going to be real surprised."

The other serious difficulty with Connally is that he wants to believe the source of U.S. economic problems is overseas. In 1971, he argued vigorously for devaluation of the U.S. dollar on the grounds that it was a strong dollar that kept us uncompetitive with Japan. After an end to dollar convertibility, a series of dollar devaluations and double-digit inflation, Connally is no longer in a position to argue that it is a weak dollar that is making us uncompetitive with Japan. So he argues that Japan's high tariffs on U.S. beef and oranges are at fault. "I'd tell the Japanese," he tells crowds everywhere, "that unless they're prepared to open markets for more American products they'd better be prepared to sit on the docks of Yokohama in their Toyotas watching their SONY televisions, because they aren't going to ship them here."

The most ironic of Connally's campaign innovations was his controversial October 11 proposal to swap concessions by Israel to the Palestinians for a guaranteed flow of Arab oil at stable prices. It is ironic in the sense that the dollar price of oil is largely a function of U.S. monetary policy, which is what led Columbia's Robert Mundell to predict, in January 1972, a dramatic increase in the price of oil following Connally's dollar depreciation and end of dollar convertibility. Again, here is Connally looking abroad for solutions to problems created here.

The Washington Post public-opinion poll of November 19 showed Republicans favoring Reagan by 41 percent, Baker with 20 percent, Connally with 15 percent, Bush with 5 percent, and the rest among the lesser candidates and "undecided." What must astonish the fans of charismatic John Connally — so bold, so decisive, so Presidential! — is that he places third to Howard Baker, whose campaign thus far has had the consistency of oatmeal. One explanation may be that voters prefer the honest-looking candidate whose views are not really known to the sharpshooter whose views are made known all too clearly. The other explanation, offered by Connally's campaign manager Eddie Mahe, is that there are two Republican races going on at once: Reagan versus Connally and Baker versus Bush. Reagan is way ahead of Connally right now, but Reagan will soon disintegrate, now that he is an official candidate and will have his inadequacies illuminated in the press. Baker and Bush? Well, once Connally takes Reagan, he will squash the survivor of the lesser scrap. "We'll get rid of them and get ready for November," says Eddie Mahe.

At the moment, it does appear that this second explanation is the less satisfactory one. If Reagan is going to be pulled off his perch, it looks like it will have to be Baker or Bush, and more and more it seems like Bush, notwithstanding the public-opinion surveys. Bush, son of former Connecticut Gov. Prescott Bush, is a Yale graduate. He is the candidate of the Ivy League Republicans, the Burning Tree Golf Club Republicans, the Eastern Establishment that produced Tom Dewey and Ike, and which will plead with Jerry Ford to get back into it if Bush can't score in the early primaries. The Bush straw poll win in Iowa, his upset of Howard Baker in a Maine straw poll, and his surprisingly strong 3rd place finish in the Florida straw poll on November 17 — 21 percent to Reagan's 36 percent and Connally's 27 percent — suggest he is a man on the move: (Connally's 27 percent is counted a deep disappointment given the time and money the Texan spent trying for an upset.)

What Bush has going for him, in addition to his relentless determination and the Eastern Establishment, is a superior campaign manager in David Keene (who learned political strategy at the feet of John P. Sears) and an audacious media consultant, Baltimore's Bobby Goodman, who can be counted upon to throw the long ball in putting together Bush's television spots. Baker, by contrast, has a team of political scrubs and the oatmeal media firm of Bailey & Deardourff, which did President Ford's spots in 1976.

What Bush and Baker have going against them is Arthur F. Burns, the millstone around their necks. The former chairman of the Federal Reserve is now a Fellow at the American Enterprise Institute in Washington, where he holds court for aspiring GOP presidential candidates. Burns presided over the collapse of the international monetary system, was a prime mover in talking John Connally into the wage and price controls of 1971, and remains the fountainhead of Old Guard fiscal austerity advice. Baker's camp lists Burns as "probably the most influential economist" in the Tennessee Republican's thinking. Bush's camp puts Yale's Paul MacAvoy, a younger Old Guarder, in the top spot, with Burns right behind.2 With this kind of backing on domestic economic policy, it is at least a credit to Baker and Bush that they tend to focus their initiatives on foreigh policy.

In the primaries, and in a general election of Reagan versus Ted Kennedy or Jimmy Carter, the central issue will be whether tax rate reductions can precede spending cuts, or whether the cuts must come first or concurrently. Reagan is now the only candidate in the field who, if given the choice of a tax rate reduction of $X billion or a spending cut of $X billion, will take the former. The other Republicans push either dollar-for-dollar tax and spending cuts or, like Connally, promise tax cuts after inflation boosts taxes sufficiently to finance the cuts. The fine points of this issue will certainly not be debated on the stump. The major importance of the issue is that it colors a candidate's entire platform; a candidate cannot radiate optimism and economic growth and hope unless his starting point is Reagan's. To drift from that point alters the complexion of the entire campaign to one of doubt, pessimism and austerity.

Here is the Baker flavor, first from his Detroit Economic Club speech of September 17:

A PROGRAM FOR THE FUTURE: The trends cited above—high and persistent inflation, the energy crisis, proliferating government regulation, relatively low rates of capital investment, declining growth in productivity, and slow growth in real GNP—are not susceptible to quick solutions or a painless reversal.

It will take time and entail some sacrifice. But if the necessary sacrifices are equitably distributed, and if Americans are convinced that their government has the judgment and the commitment and the courage to adhere to an effective, balanced program then I am confident they will respond.

This could be Richard Nixon, Gerald Ford, Jimmy Carter, or Arthur Burns. Another call to sacrifice ourselves out of trouble. Baker's National Press Club speech of November 5 was a bit more upbeat:

The economic goal of my Administration will be steady growth in a non-inflationary economy. This goal cannot be achieved in a single year, but it can be achieved within the four years of a presidential term:

—by slowing down the growth of federal spending;

—by providing new incentives for savings and investment and thus for increased productivity;

—by devising a comprehensive plan to dismantle regulations that impede competition or drive up costs and prices unnecessarily;

—by eliminating the threat of wage and price controls;

—by restricting monetary supply until the inflation rate has been substantially reduced;

—and by formulating a schedule of tax cuts for various segments of the economy over the next four years and announcing that schedule in advance; and allowing the American wage earner and business person to make spending, saving, and investment decisions accordingly.

The words and music are virtually interchangeable with the George Bush positions, a printout from the Old Guard computer. Notice how smoothly tax cuts are scheduled years in advance, somewhat reducing the increases implied by inflation. The same approach is central to Baker's energy policy, which is to "Impose a windfall profits tax, and cushion the impact of higher energy prices with tax relief for middle-income families, and special assistance for the poor, for the elderly, and for local governments meeting special needs in colder climates."3

Tax and tax, spend and spend, elect and elect.

George Bush, more than the other candidates trying to knock off Reagan, seems aware that this may be the turf he will have to fight on, as Jerry Ford contested Reagan on the $90 billion plan. Here is a critical excerpt from a November 24 Bush interview by Human Events:

Q. How do you feel about tax reductions: Republicans are talking about Kemp-Roth and tax indexation—what is your plan?
A. My plan is to increase the supply side, not the demand side, so I'm talking about a tax cut for 1980, calendar 1980, or $20 billion. I want it linked to limiting the growth of federal spending, and to controlling the excesses of regulation. I want the tax cut to be production oriented.
A tax cut will stimulate the economy, but it has to be linked to a cut in government spending. That's why I prefer linking such a cut to a spending ceiling of the kind proposed by Milton Friedman.
If we do these two things we can create more jobs at the same time that we are effectively dealing with inflation.
I am conventional enough in my economics to say that you must have investor confidence, and you don't get that if you cut taxes without addressing yourself to the spending side as well. That's my tax philosophy.

Whatever else Reagan does between now and the New Hampshire primary February 26, he must defend his new economic policies — the radical idea that tax cuts alone will invite economic growth, expanded tax base, and the lessened pressure for social spending. The fact that he and Sears have Kemp aboard, with an infusion of intellectual energy that will strengthen that defense, points to a Reagan victory. If for some reason Reagan lets himself be thrown by Bush on this issue, he will, as in 1976, be crippled. Even were he to squeeze out the nomination, his chances of winning the presidency would be dismal, on the assumption that Teddy Kennedy will be the Democratic nominee.

If Reagan can expand his new turf, though, and reignite the tax revolt that came out of California in 1978, he would go against Teddy armed with a JFK-styled tax cut that would defeat Kennedy. Without this "new agenda" based upon supply-side economics, Reagan would only be the oldest version of all the other GOP candidates. The consequences would be a 1980 repeat of the Ford-Carter debates of 1976, with their understudies — George Bush and Teddy Kennedy — on stage.

* * * * * *

1 I include myself, of course, as a Kemp supporter and a member of his circle of advisers. I have strained for objectivity in this report, but it remains a subjective view that can be most useful if read in that light.

2 Dr. Martin Anderson, a protege of Arthur Burns, resigned as Reagan's inside economist a few days prior to November 13. The departure was non-ideological — Anderson will continue to draft position papers for Reagan from his academic base at Stanford — but significant nevertheless.

3 Reagan's November 13 speech seemed — to The Wall Street Journal — to signal support for a "windfall profits tax" in that Reagan said he would support an investigation to determine whether or not oil companies were "exploiting the people." In his stump speeches, though, Reagan has been unqualified in his opposition to the "windfall" tax.
the coming year.