bring up the economy. There were at least a dozen statements in which he maintained that the economy had to get on track before the Soviets could be countered. To cite one, on May 27, Reagan asserted that “the first step in restoring our margin of safety must be the rejuvenation of our economy.”20
It was in this plan for economic recovery that Reagan put the first stamp on the young administration. Here, his economic philosophy played a key role in shaping the fiscal policy of the nation as he attempted to reign in out-of-control spending, regulations, and taxes, all of which he believed had robbed the American economy of its vitality, and particularly its ability to bounce back after a recession. The economy needed to be freed in order to perform.
The prescription that Reagan recommended rested on four pillars: deregulation, reductions in the rate of growth of government spending, a stable, carefully managed growth of the money supply, and, most significant, tax cuts.21 Among them, Reagan made great strides in deregulation, a process that had begun under Carter but was expanded and accelerated under Reagan, including deregulation of the trucking industry, the airlines, telecommunications, banking, and oil. He hit the ground running: within ten days of his inauguration, he froze more than 170 pending regulations. By the end of his first term, the total number of pages in the Federal Register was cut in half.
The rate of growth in government spending was cut in the domestic area, although Reagan’s reductions were sometimes countered by large increases in defense spending. Overall, domestic spending was reduced by roughly a half-trillion dollars in the 1980s. The difficulty for Reagan in controlling government spending was that he faced a Democratic Congress that often disagreed with his policies, and which wanted rises in domestic spending but cuts in defense expenditures—both the opposite of Reagan’s preferences. Congress ultimately controlled the purse. By the end of the decade, Reagan, who watched the budget deficit explode on his watch, would be demanding executive privileges like the line-item veto, a budget procedure enjoyed by most state governors.
Reagan made much greater headway in managing the federal money supply as a means to control inflation. Here, he had to rely upon those running the Federal Reserve Board. Nonetheless, he retained and brought in the right men—chairmen like Paul Volcker and Alan Greenspan, who ensured that the first enemy that President Reagan slew was not the Russian bear but corrosive inflation that had killed a presidency or two. This was a huge triumph, dropping the inflation rate down to miniscule levels of which Jimmy Carter could have merely dreamed, and which went a very long way in reversing the malaise and misery index of the 1970s.
Most important, among the various major tax cuts pursued by the new president, the federal income tax reduction was the centerpiece. Reagan secured a 25% across-the-board reduction in federal income tax rates over a three-year period (5%-10%-10%), beginning in October 1981. Eventually, through this and later cuts, the upper- income marginal tax rate was dropped from 70% in 1981, which Reagan believed was punitive and stifling, to 28% before he left office.
While this economic plan was the crucial first step, Reagan knew that revitalizing the American economy would not happen over night. Cutting taxes proved less difficult than staying the course during the two years that followed, as the stimulant effect of the cuts was slow in kicking in. All three of the “troika” that jointly served as Reagan’s first “chief of staff ”—James Baker, Michael Deaver, and Edwin Meese—as well as future solo Chief of Staff Ken Duberstein, talk about the internal doubt in the first two years of Reagan’s economic program. Despite critics outside and inside the White House who pushed Reagan hard to modify course, he remained steadfast. As Baker noted, there was “no way” there would be a change in direction because Reagan was the one individual who would not bend. He was sure his plan would work, and he refused to abandon it, even when pressure bore on him from his closest advisers. He was convinced of the wisdom of his economic strategy and the free-market theories it rested upon.
Reagan’s chiefs of staff recall that he incessantly told a specific story during this period. Each of the four heard it so often that they could recall it verbatim.22 It was an anecdote about a father with two boys—a pessimist and an optimist. The father placed the pessimist in a room full of new toys. He placed the optimist in a room with a pile of manure. When he returned, the pessimist was crying and throwing a fit, complaining that he had no toys to play with. He went to the other room and found the optimist digging doggedly through the pile of manure. When the father asked the optimist what he was doing, the boy replied: “I know there’s a pony in here somewhere!”
That optimist was Reagan. He went against his staff nonstop in this period. An exasperated aide told Time: “He is absolutely convinced that there will be a big recovery.” Time noted his certainty that everything would work out, “as it always has in Ronald Reagan’s world.” Said an aide: “He is an optimist. My God is he an optimist!”23
BOOSTING MILITARY MORALE
Reagan also felt that shoring up the military was key to regaining respect on the world stage. He complained that paychecks for the armed forces were so small that some married enlisted men were eligible for welfare. He claimed that many military personnel were so ashamed of being in the service that they put on civilian clothes when they left their posts. Hence, he immediately told the Joint Chiefs of Staff that he wanted to do “whatever it took” to make “our men and women proud to wear their uniforms again.”24
He embarked on a massive military buildup. Only a couple of months after entering office, Reagan asked for an extra 32 billion dollars in defense spending beyond Jimmy Carter’s defense request, which itself had actually constituted a notable increase from previous levels. From 1981 to 1985, Reagan’s Pentagon sought to raise spending on the procurement of weapons by 25 percent per year, doubling the total by the end of the first term. Reagan pledged to build a 600-ship Navy, restoring old, mothballed destroyers, once proud fighting ships that the president believed still had glorious days ahead of them. He would seek to construct the MX missile, nicknamed the “Peacekeeper,” as well as the deployment of 572 Pershing II missiles to be deployed among NATO countries in Western Europe. In addition, the new administration proceeded with a number of impressive new defense technologies, some of which would not become known to the general public until the start of the next decade— weapons systems like the superaccurate Tomahawk cruise missile and the Patriot anti-missile missile, the latter of which would ultimately prove the impossible: that a bullet could hit a bullet.
This is a short list of what Reagan sought militarily, and none of it accounts for the patriotic voice he lent to these efforts, which was an added crucial element to restoring the nation’s pride. All of these ventures had the effect of demonstrating a stronger, resurgent America, not only economically but also militarily. Suddenly, the country that had left Vietnam no longer appeared to lack resolve.
OVER ALL, THIS GENERAL WILLINGNESS BY REAGAN TO STAY THE course, militarily and with his embattled economic plan, was a sign not only of his faith in his policies but also of strong leadership in the face of overwhelming criticism. Reagan was following the path for victory that he laid out himself, and nowhere was this more evident than during that first presidential year. His prescription for placing America back on solid ground derived from his own steadfast belief in the free-market system and the power of military strength; both would affect overall morale. And the eventual reinvigoration of the economy would become Reagan’s proudest accomplishment, not only because it came to turn around the nation but because it made all of his other goals possible.25
With 1981 coming to a close, Reagan felt that he had put into place the mechanisms that, by his estimation, would restore America to greatness, that would catalyze America’s comeback. He readied for the reward—for a resurgence of American pride. But as fate would have it, his attention would be thrust abroad before year’s end, forcing the Crusader to shift his focus to Eastern Europe and express his solidarity with Poland.
8. Poland Explodes: December 1981
