For nearly a quarter century, Murray Weidenbaum has said little about what it was like to serve as the first chairman of President Ronald Reagan’s Council of Economic Advisers, a role in which he was a primary architect of policies later known as “Reaganomics.”
Now, one year after Reagan’s passing, Weidenbaum has issued a brief memoir detailing his years as the president’s chief economic adviser: “Advising Reagan: Making Economic Policy, 1981-82.”
Weidenbaum, the Mallinckrodt Distinguished University Professor at Washington University in St. Louis, provides readers with an inside look at the frenzied planning process that prepared Reagan to launch his ambitious bid to rescue the American economy.
Former Secretary of Defense Caspar Weinberger credits Weidenbaum with guiding Reagan’s hugely successful economic policies, and suggests that Reagan and the country “were lucky indeed to have Murray in charge during the critical first years of the Reagan Administration.”
Weidenbaum, whose admiration for Reagan is still apparent, gives much of the credit to the president, suggesting “the great communicator” played a crucial role by changing the dismal tone of public discourse on economic issues.
“‘Malaise’ was the big word when he took office,” Weidenbaum recalled in a USA Today story written in the days following Reagan’s death on June 5, 2004. “It was used by his predecessor. You didn’t hear much about malaise after he took office.”
Reagan provided the inspiration, but he called upon Weidenbaum and cohorts to develop specific plans for the overhaul. Weidenbaum responded with a comprehensive audit of the nation’s economic problems, documenting rising federal taxes, increasing government spending, growing business failures, expanding regulatory agencies and a shift from a merchandise trade surplus to a deficit.
While some economists blamed these conditions on rising oil prices and other factors beyond our control, Weidenbaum’s audit minced no words — stating forcefully that the nation’s economic problems were a direct result of misguided government policies.
He warned that the economy was in dire straits, and suggested conditions would likely “become dramatically worse without profound – even drastic — changes in Federal economic policies.”
A new approach was critical, he contended, because the nation was simultaneously facing a variety of economic problems in new and unprecedented combinations.
“Although the economy in the past had suffered spells of high inflation or high unemployment, the unique aspect of the current situation was the simultaneous presence of both high inflation and high unemployment,” recalls Weidenbaum. “Thus, a comprehensive solution aimed at the entire range of economic ills facing the nation was required.”
Early in 1981, Weidenbaum issued the first written version of the president’s economic plan, elaborating on what he would repeatedly call the “four pillars” of Reagan’s economic program: tax cuts, spending cuts, regulatory reform and monetary restraint.
Weidenbaum argued that these pillars were highly inter-related and that success hinged on the full implementation of each mechanism. Tax cuts were basic to achieving strong long-term economic growth; spending cuts would help offset inflationary consequences of the tax cuts; regulatory reform would increase the economy’s efficiency and productivity while helping to curtail costs; and monetary restraint was fundamental to squeezing out rapidly escalating inflation.
Pressed for details on impending budget cuts, Weidenbaum quoted Harry S. Truman, “There isn’t a budget that can’t be cut,” and suggested the Carter Administration had left a budget that surely could be cut. He describes his efforts to trim federal budgets as “a labor of love,” one that he saw as central to a much broader agenda for reform.
“This administration is truly embarked on a long-term effort to reduce the size and burden of government in this country in all of it’s dimensions – taxes, expenditures, and regulation – and that will free up the energies of the private sector to once again become the major engine of economic growth and progress,” he stated.
On balance, many of the changes in economic policy that Weidenbaum hoped to see made were put into motion. Despite his best efforts, however, there was at least one key underlying premise of the “four pillar” economic strategy that was never fully realized.
Weidenbaum devoted much of 1982 to an unsuccessful effort to match tax cuts with corresponding cuts in government spending. Although Reagan clearly shared Weidenbaum’s fervor for tax cuts, he showed less enthusiasm when it came to making major cuts in civilian spending.
With no “doves” in the Reagan White House, military spending also grew at rates far above what Reagan had promised in his campaign. The inevitable end result, Weidenbaum realized then, would be a mushrooming national budget deficit, a consequence that Weidenbaum could not in good faith bring himself to support.
In July 1982, Reagan accepted Weidenbaum’s resignation with “deep regret,” noting his appreciation for the extraordinary contributions that Weidenbaum had made to the formulation of the nation’s economic recovery plan. Most important to Weidenbaum is that he and Reagan “parted as friends,” and that Reagan continued to seek out his advice on future issues.
“Whether justified or not, I take some considerable pride in the success of the Reagan presidency, and, of course, I am ready to take my full share of the blame for any shortcomings,” Weidenbaum writes.
Weidenbaum acknowledges that Reaganomics did not work painlessly. He points to a number of paradoxes and contradictions in its results: lower inflation and higher budget deficits; lower tax rates and higher levels of government spending (especially for the military); less unemployment and bigger trade deficits; a brief, but extremely deep recession followed by the nation’s longest peace-time recovery.
“Looking back, it seems clear that, on balance, “Reaganomics” was a success,” Weidenbaum concludes. “Overall, the benefits outweighed the costs. Warts and all, the Reagan presidency was a high watermark for the American economy.”
Editor’s Note: Review copies of the Weidenbaum memoir are available on request. For more information, please visit the Weidenbaum Center Web page, http://wc.wustl.edu, or call (314) 935-5630.