Reaganomics: Too Many Voices

By James Kelly

The chorus of advisers is singing off-key

They've all sold out, every one of them." That dour assessment came from Jude Wanniski, a fanatic believer in supply-side economics, after a visit to the White House last week. By "they" he meant members of the President's economic team, who in Wanniski's zealous view have all but abandoned supply-side theory--one of the basic doctrines of Reaganomics.

The economic religion preached by Ronald Reagan has always accommodated the beliefs of two different sects. On one side of the aisle sit the supply-siders, who believe that by slashing taxes Washington can stimulate economic growth: on the other side sit the monetarists, who believe that Washington can slow the inflation rate by tightening the nation's money supply. Now, nagged by persistently high interest rates and the threat of a recession, this uneasy choir of Reagan's economic experts is no longer singing as if with one voice, and the cacophony can be heard from Wall Street to Capitol Hill. True believers in Reaganomics, of course, can justifiably argue that their religion is not a failure, since its trial has only just begun.

One wanderer from the true faith appears to be Treasury Secretary Donald Regan, who along with Budget Director David Stockman and Council of Economic Advisers Chairman Murray Weidenbaum is a member of Reagan's "economic troika." Regan last week called upon the Federal Reserve Board to loosen the tight money supply. He merely wanted the Fed to honor its own targeted growth rates for the money supply and avoid choking the economy, but to monetarists looser money is absolute heresy.

Weidenbaum called Regan and asked him, "What's going on here? We've got to be talking with one voice." The CEA chairman told Regan he agreed with the Secretary's statement in principle but was opposed to the Fed pumping more money into the economy now. Then, at a breakfast meeting with reporters the next day, Stockman implicitly contradicted Regan by arguing that the Fed should keep the brakes on the money supply. As Regan continued to attack the Fed's tight money policy on a two-day speaking tour, Treasury Under Secretary Beryl Sprinkel tried to get his boss to soften the rhetoric. Regan, however, refused to include in his speeches the suggested changes dictated over the phone by Sprinkel's office. At week's end it became clearer why Regan seemed so sure of his footing. Presidential Counsellor Edwin Meese told the Business Council at a meeting in Hot Springs, Va., that the President agrees with his Treasury Secretary on the need for the Fed to increase the money supply slightly.

In San Francisco, both Regan and Federal Reserve Chairman Paul Volcker addressed the annual convention of the American Bankers Association. Regan made his now familiar pitch for the Fed to live up to its stated policies, adding that "I'm not saying anything publicly that I have not said for weeks in private." But Volcker pointedly rejected Regan's advice and stated flatly that he would not start pumping additional money into the economy. Volcker also denied that Regan had privately asked him to boost the money supply. Aside from their policy differences, there is little love lost between the two men. Volcker declined to appear at a joint press conference with the Secretary and left the San Francisco Civic Center shortly before Regan arrived to give his speech. "Volcker does not think Regan is the greatest Treasury Secretary in the world," grumbles one Treasury official. "Volcker thinks he knows more about economic policy than anybody else, even God."

But the squabble between Regan and Volcker is merely symptomatic of the disagreements that have been simmering for months among Reagan's economic advisers. From the beginning, critics of the Administration have complained that Reaganomics is riddled with contradictions. They predicted that the President's twin offensives, stimulating the economy by slashing taxes and braking inflation through tight money, would result in continued high interest rates and sluggish growth. The supply-siders and monetarists in the Administration kept an uneasy peace as the White House marshaled its forces to push Reagan's economic program through Congress last summer.

The united front began to crumble in September as it became clear that the package of tax and budget cuts was not making Wall Street bullish. The reason: high interest rates and fear of ballooning federal deficits. Stockman, who saw the spiraling interest rates as a way to justify his budget-cutting offensive in September, began blaming the rates on the deficits. When his plans for shaving Social Security benefits proved politically suicidal, the OMB chief committed himself to a supply-side heresy: he suggested a delay in carrying out some of the tax cuts just passed by Congress.

Regan then uttered his own heresy against Reaganomics by suggesting that the deficit could be pared by raising billions of dollars through jiggering the tax system. Though the President's message last month called for only $22 billion in ill-defined "revenue enhancement" measures, TIME has learned that Regan initially instructed his aides to find ways to raise $50 billion in new revenue over the next three years. Supply-siders fear that these measures will never be passed and Congress will instead opt to erase some of the individual tax cuts. Supply-side economic theory will then never have been tested at all.

Administration officials deny that its economic advisers are speaking in disparate voices. "There is a major, underlying core of agreement on the program that has been there all along," says Martin Anderson, White House adviser for domestic affairs. "No one disagrees with the broad thrust." Adds Weidenbaum: "We're all in tune. There are no ideologues among us."

After Regan's attack on Fed policies, the White House pressured the agencies involved to produce some agreed-upon "guidance" that all spokesmen could adhere to. A memo of understanding, signed by Sprinkel and Stockman's top economic aide, Lawrence Kudlow, among others, said that all concerned agreed on a steady slow growth of the money supply, which the Fed was moving to accomplish. The message ended: "Nothing which has been said in recent days indicates a retreat from that commitment." A White House spokesman as much as admitted that concern about economic disunity had been only temporarily stilled. Said he: "I don't think you'll hear much about that--for a few days anyway."

In fact, the discord is being heard on Capitol Hill. Support for the President's economic programs among once loyal Republicans is beginning to weaken in Congress. "There are a lot of different signals,'' complained Republican Representative Jack Kemp of New York. In the House, Democratic leaders, with the help of Republican defectors, last week pushed through an appropriations bill for social programs to cost $87.3 billion in fiscal 1982, some $4 billion more than Reagan had wanted. Though the bill came within a whisker of matching Reagan's first round of budget slashes, it did not include the additional 12% across-the-board cuts the President had asked for last month.

Nevertheless, 39 Republicans ended up voting against sending the bill back to committee for paring. The White House threatened to veto the bill, and House Republican leaders say they have the votes to make the rebuff stick.

In the Senate, meanwhile, three influential Republicans are tinkering with Reagan's revised schedule of budget cuts and "revenue enhancements." The trio, Mark Hatfield of Oregon, Pete Domenici of New Mexico and Robert Dole of Kansas, do not contend that Reagan's proposal is not needed, but only that he made the wrong choices. Said Domenici:

"There's great concern that the President's mix won't work." Though the alternatives being offered by Hatfield and Domenici differ in specifics, both want to slice more out of the defense budget than the $2 billion requested by Reagan. Predicted Dole: "The Democrats are just going to sit back and see what we propose and then tell us how unfair it is."

Clearly Reagan can no longer make Congress do his bidding as easily as he did last summer, but chances are that he will win a large share of his second round of cuts. Even if the defense budget is pruned more than he would like, the Administration's economic program will be far from crippled. Reagan never promised a quick fix for the economy, and despite the growing chorus of worries about Reaganomics, the program needs time to be fully tested. Only then will the country be able to judge fairly whether or not the President's policies work. --By James Kelly. Reported by David Beckwith and Neil MacNeil/Washington

With reporting by David Beckwith, Neil MacNeil/Washington

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