Anniversary of an Interview: Part One Jude Wanniski May 1, 2000

To: Alex Cockburn & Jim Ridgeway
From: Jude Wanniski
Re: The Battle for Reagan’s Mind

I’d forgotten all about the interview I gave you fellows when you worked for the Village Voice twenty years ago. It turned up the other day when I read a New Yorker profile of Alan Greenspan by John Cassidy, the Brit on the magazine’s staff who covers economics. The piece captures Greenspan’s personality, but as usual messes up on substance, not always Cassidy’s fault. At one point he quotes Marty Anderson, the Reagan economics advisor in the 70's before the supply-siders came along, lavishing praise on Greenspan for his support of the Reagan tax cuts. Worse, Marty snipes at Don Regan, the Treasury Secretary, for opposing the tax cuts. Marty of course gets it bass ackwards, as Greenspan never had a good word to say about the tax cuts and was part of the gang that talked Reagan into phasing them in as slow as molasses. Greenspan also helped David Stockman and Dick Darman persuade the Gipper into raising taxes in exchange for spending cuts in 1982.

Don Regan, who had been the boss at Merrill Lynch, hired Norman Ture and Paul Craig Roberts to fight for the Reagan tax cuts and was a positive force in the administration as far as I was concerned. You folks remember all this, I think, because of the interview I gave you in April 1980. After reading it, I decided it is not only a nice bit of history, but will also help our website fans and younger students of Supply Side University understand how hard it was to help lead a revolution in political economics. You’ll recall that the interview got me in hot water with the Old Guard, but that’s exactly why I agreed to it. It got so much attention -- reprinted in its entirety in the Los Angeles Times -- that they had to show it to Reagan. It helped him see and understand the war for his mind going on around him, and I like to think firmed him up behind Jack Kemp and the supply-side team. I’ve had a soft spot in my heart for you fellows and the Village Voice ever since.

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THE MOVING TARGET, Village Voice
April 7, 1980
Worlds in Collision
By Alexander Cockburn & James Ridgeway

The new style Republicanism, lately espoused by Ronald Reagan, and sometimes referred to as Reaganomics, marks a radical departure from the traditional strategies advocated by GOP politicians. Its adoption marks a new departure for Reagan himself, one which causes deep alarm in an important section of his strategists and advisers. If the governor retains the zeal of a convert and gains the nomination, Reaganomics could become the issue of the general election.

In the tumultuous weeks before the New Hampshire primary, when it was widely assumed that the Bush campaign was poised for the knockout blow, Ronald Reagan began to fight back. The dirtiest blows were launched on his behalf by William Loeb, publisher of the Manchester Union-Leader. An off-balance Bush, battered by savage polemic, was further undone by his shrill mishandling of the Nashua television debate. But there is strong evidence that the shrewdest blows of all on Reagan's behalf were a series of simple spot ads put together by former journalist and business consultant Jude Wanniski, former Reagan aide and senatorial candidate Jeffrey Bell, and media
consultant Elliott Curson of Philadelphia.

Announcer: “In the past few years, our income has been eroded by the worst peacetime inflation and the largest tax increases in history. Our leaders tell us that in order to help energy consumers, we have to tax energy producers. And to have lower prices, we have to keep federal tax rates high. Ronald Reagan doesn't believe that."

Reagan: "If there’s one thing we’ve seen enough of, it’s this idea that for one American to gain, another American has to suffer. When the economy is weak...as it as been in recent years... everybody suffers...especially those who have the least. If we reduce paperwork and unnecessary regulations...if we cut tax rates deeply and permanently, we'll be removing many of the barriers that hold everyone back. Those who have the least will gain the most. If we put incentives back into society, everyone will gain. We have to move ahead. But we can't leave anyone behind."

But we can't leave anyone behind. It was this phrase, in what its creators call "The Good Shepherd" ad, that caused hard-jawed traditionalists in the Reagan camp to complain that the former California governor was sounding like a liberal. A couple of weeks later in Florida, an unabashed Reagan was denouncing Carter's anti-inflation plan as likely to cause "unemployment." The unemployment strategy, he told an amazed collection of Republicans in Fort Lauderdale, was, “old style” Republicanism.
The battle for Reagan’s mind is now on. On the one side are the forces of Jude Wanniski, Congressman Jack Kemp, Reagan's policy coordinator, and Professor Arthur Laffer, the theorist behind the 30 per cent tax cut which Reagan is currently presenting as a campaign plank and which is the most seductive element in his appeal to the working-class and middle-class Democrats who could well propel the governor to victory in November.

Opposed to this group are ranked such mainstream conservative Reagan supporters as Arthur Bums, Milton Friedman, Alan Greenspan, George Schultz, and -- more elusively -- former Treasury Secretary William Simon. Along with many in Reagan's entourage such as Martin Anderson, domestic issues adviser, they see Reagan captured by zealots, or “hard-line ideologues,” as Business Week terms the Wanniski group in a carefully calculated onslaught this week.

At issue is the future thrust of the Reagan campaign. Will it be traditional rantings against big government, allowing supporters to argue that Reagan '80 is very much like Reagan '70 in California: a tough-talking right-wing politician on the hustings turned moderate in office, the man who learned how to pull the levers of power, but not too hard? Or will Reagan set off across new, uncharted terrain, preaching the classical economic supply-side economics that would turn the world of Keynes upside down and provide a bracing tonic for capitalism in the 1980s?

In making this leap, will Reagan also need the advice of Wanniski, Laffer, and Kemp and start stumping with a call for a return to the gold standard, as a fundamental store of value and yardstick for the dollar? Among the traditionalists, impetuous calls for a return to the gold standard evoke the hideous memory of William Jennings Bryan’s fate at the hands of an unbelieving or dubious electorate.

The battle is substantive. Its most articulate spokesman-strategist among the wild men is Jude Wanniski. Wanniski, formerly of The Wall Street Journal and author of The Way the World Works, has been the most adroit propagandist for the ideas of Laffer and Professor Robert Mundell of Columbia. Wanniski was the guiding hand behind the Kemp-Roth tax-cut bill. He has advised Reagan and believes firmly that the governor is a convert. A Wanniski memo to his corporate clients spoke of a Reagan intuitively favoring supply-side economics at a weekend of strategy sessions in California in January. A supply-side Reagan, Wanniski thinks, could sweep into office in a landslide, whereas a traditionalist Reagan might just sneak past Jimmy Carter, but would not spark the populace with dreams of better times instead of the tightened belts of an age of austerity.

The struggle rages -- Reagan's old-time Sacramento gang and heavyweight pundits slugging it out with the hotheads. Last week, just as articles in the business press were beginning to pick on Wanniski as the deftest spokesman for the Laffer gang, we talked to him at length.

Man Meets Curve

AC/JR: What's the difference between the Reagan of 1976 and the Reagan of 1980, so far as economic policy is concerned?

Wanniski: The Reagan of 1976 did not have the concept of the Laffer Curve, [which is] the law of diminishing returns applied to tax policy. You can raise a tax rate to a point where individuals are so discouraged from producing because government takes so much out of their production -- that they produce less, and then the government gets less revenue as a result. That's all the Laffer Curve is about. Between 1976 and 1980, that’s the whole difference in a nutshell, the idea that you can make the economy bigger and more efficient without having to divide things up. In 1976, Reagan got into difficulties with his $90 billion spending-cut plan which is really shifting spending and tax resources to state and local governments because people jumped on him for collapsing the social safety net.

Now he understands that there’s a way to move the economy to a higher level of efficiency and productivity without first throwing the widows and orphans out into the snow. That’s the phrase I use. The traditional conservative Keynesian method suggested that we can reduce the level of activity of the central government, but we have to wrench away all these expenditures from the federal budget, and, somewhere down the line, after we go through the threshold of pain and sacrifice and austerity, we will be able then to get back to the kind of economy we had years ago.

AC/JR: So how did Reagan meet the Laffer Curve?

In one sense Reagan has always understood this. Somebody in December worried about Reagan and Kemp coming together, and said, Will a 68-69-year-old guy really fasten onto these new ideas? How can an old dog learn new tricks? I remembered reading in Reagan's book, Where's the Rest of Me?, his biography written in 1965, how he understood the disincentive effects of high marginal tax rates on the motion picture industry.

So now, how exactly does be meet up with the Laffer Curve? Well, he meets up with it through us, Laffer himself, and Wanniski, Jack Kemp, and Jeff Bell.

AC/JR: Where are the milestones since 1976 in the political application of Laffer's ideas?
Nineteen-Seventy-Six was when I met Kemp and we then redesigned his tax program. We threw out all the stuff he had introduced in his jobs-creations act of 1974 to 1975 and put together a simple tax bill, cutting tax rates roughly by one-third in personal incomes. So that was a milestone because as soon as Kemp did this, it was so simple that we began attracting support in the House of Representatives. Instead of having nine co-sponsors, he winds up in short order getting 95 co-sponsors. Then the press starts writing about Kemp, and he gets interviews, and the whole idea is discussed. Then I write The Way the World Works, where I call the Laffer curve the Laffer Curve. I give it the name. One chapter of it goes into Irving Kristol's magazine, The Public Interest, and that is circulated. People talk about the Laffer Curve as something that is simple enough for policymakers to fasten upon and something where Jack Kemp can go from one member of the House of Representatives to another and take out a paper napkin and draw the curve. So if you talk about milestones, it was critical that we get all the complexities of the idea -- and this is classical economic that we are trying to revive -- boils down to a few simple pictures.

Sinatra and the Marx Brothers

AC/JR: Give us a simple picture of your views.

The problem is stagflation. This is the problem that hit the Western economies for the last dozen years and all the Western economists -- those who are Keynesian and those who are monetarist are all operating in the demand model -- the law of supply and demand. And there is no simultaneous equation that can solve unemployment and inflation at the same time -- in their model. The reason being that the only individual who exists in the demand model is the consumer who either has too little money in his pocket with which to demand -- that's unemployment; or he has too much in his pocket with which to demand -- that's inflation. So the strategies of the Keynesians and the monetarists all come down to, How do we get money out of their pockets -- when there's inflation; or, How do we get money into their pockets -- when there's recession. There's no way of dealing with the two problems at once, except in the Marx Brothers movie -- A Day at the Races,, I think -- where Harpo is putting money into the guy's pocket and Chico is taking it out the other end.

So then we have Laffer-Mundell coming along and saying it's not demand that moves the economy, it's supply. Supply is the limiting factor. There's no way that the government can affect the demand of individuals other than by thwarting it. Every individual on the face of the planet will demand as much as he or she can possibly consume. Take an individual. He has unlimited cravings to consume in the few years he has on earth. We all want to live like Frank Sinatra, to move from place to place in our own private jet plane. The demand is unlimited. What limits us as individuals is our ability to supply our own talents in the marketplace in order to exchange for the jet planes and everything else that we want. The ability and the time. So that's why we are called supply-siders. We want to maximize the individual's ability to fulfill his potential. When we see an unnecessarily high tax rate imposed on the individual by the Keynesian trying to take money out his pocket, we say, Hey look, that's not doing any good for the economy. Get the level of taxes rates up to where you're financing the government debt and providing for goods and services, but don't do it in a way that holds that individual back.

In the simplest model, you have individuals come into the marketplace to transact with each other, and this is true today as it was 3000 years ago. Now I come into the market and I see all these wonderful things that I want. And in order to get them, I have to go home and figure out what I can bring to the market to get these goods. I have to go and figure out a way to supply goods to the market. The only thing the government does is to provide for the security of the marketplace. It keeps the bandits out. It makes sure people don't come in and sell tainted bread and wine that will poison us. It provides for the mails and an army and navy and so forth.

The only recessions that occur, occur because the government suddenly introduces a barrier to commerce that keeps you and me from transacting our goods. When an unnecessarily high tariff, or a tax, or a regulation, or it begins to manipulate the money, the currency. That's another thing we ask the government to do: produce a currency that is both the medium of exchange, a unit of account, and a store of value, so we can work today and translate our production into a paper asset that we can change back into goods when our kids are ready to go to college or when we are ready to retire. Now the demand-modelers come along and recommend the way to increase or to decrease prosperity, when there's a recession or a surplus of goods. The Keynesians say we should tax goods away from those people who have them and give them to those people who do not have them. They say the problem in the economy is insufficient purchasing power. Either you tax them away from this group and give them to that group, or borrow them from this group by issuing bonds. That's deficit finance. The Democrats and the Keynesians have had that packet, working off a recession through taxes or deficit finance. The monetarists have said, Hey look, why work all of those resources through the central government, through taxes or deficit finance. There's a far easier way to do it, through the private sector. Increase the money supply through the banking system, increase the amount of bank credit and we will not have to make the government bigger. This is why the monetarists have tended to be more conservative, Republican, and the Keynesians, more liberal and Democratic, just depending upon their tastes in how to manipulate demand, whether it should be done through the public or the private sector.

This is why we, the supply-siders, object as violently to the Friedmanites as we do to the Keynesians.

Be Stubborn

AC/JR: Does Reagan really believe in supply side economics?

Yes. Reagan loves the stuff. John Sears, before he left, kept telling Kemp that he should spend more time on the campaign trail with Reagan, because whenever he spent a day or two with Reagan, Reagan came alive. When Kemp leaves, Reagan subsides. He is now at the point where he is getting better and better all the time.

AC/JR: On economic policy then, it's basically you and Kemp?

And Laffer.

AC/JR: Is there an opposing camp?

The opposing camp is an official board of advisers. It includes Arthur Burns, Milton Friedman, Casper Weinberger, George Schultz, Alan Greenspan. It's a force that has to be reckoned with. They are more or less in a position of arguing caution.

AC/JR: You are the wild men?

We are the wild men.

AC/JR: Do you think Reagan can beat Carter?

Easily. Carter can get as many votes as he got in 1976 and still lose in a landslide, because the electorate is going to be given the first supply-siders it's had.

AC/JR: What happens when the press gets a bit specific, as when they asked him on Issues and Answers about the 30 per cent tax cut and he covered up?

That was just confusion, because he wasn't briefed. That was one of the points Sears made when he departed. The biggest problem is getting Reagan briefed.

AC/JR: But supposing Reagan takes a couple of clouts. The press puts some fellow like Leonard Silk on the Laffer question, and there are some moderately technical questions, and the old boy will maybe stick his foot in the trough a couple of times, and there’ll be a fuss about Reagan blundering. So then the other camp, the official advisers, will come to the governor and say, This Wanniski-Laffer-Kemp stuff is a bit off the wall. Let's get back to the old verities, i.e., the status quo, the old time religion.

I wrote a three-page memo this morning to Reagan. I told him questions he was going to be asked and in the last paragraph I said to Reagan, No matter what sort of a box you get yourself into, one thing you've got to remember is Be Stubborn: Even if you're confused, you still think this is the right thing to do. That's all the electorate is going to watch for, that you are absolutely determined in the face of all critical questions.

AC/JR: But Jude, here’s how it will go. They'll say How can you possibly pay for the defense system you are calling for, Governor Reagan?

Out of the bigger economy.

AC/JR: And they'll say, Governor Reagan, it seems to be some sort of magic you're calling for here. And your answer would be that the old man has to hang onto the rope, no matter how the winds buffet him?

Look at the Business Week interview. Reagan really handled it well. Even on Issues and Answers, he got to the point where he didn't know what they were talking about, so he switched to Proposition 13 in California.

AC/JR: He went into a neutral corner?

He went into a neutral corner. Our argument is that the voters know what the problem is. The most they have to be persuaded is that this guy is serious and he's not going to let himself be danced around and do nothing 180 degrees opposite once he's elected.

AC/JR: Let's pretend it's the best of times. Reagan has won the election and there's even a Republican Congress. The world is waiting. What's the first things Reagan does?

His program in 1981 would contain at least the following elements if he remains a keen supply-sider: a 30 per cent reduction in marginal income tax rates at 10 per cent a year; indexing the tax system to offset future inflation; elimination of the gift and inheritance taxes; abolition of the windfall profits tax on the domestic petroleum industry; reform of the central bank to restore a convertible dollar -- gold exchange-rate .

AC/JR: Will welfare and social programs be cut?

No. Social programs are left in place. "The safety net," we call it. Government spending is reduced via economic expansion that makes people ineligible for welfare, unemployment, food-stamp benefits, etc., by virtue of having good jobs and good incomes.

End, Part I