President Reagan took office in January of 1981, and William F. Buckley recalls:
Reagan, arrived in Washington, was determined to do something in the direction of balancing the budget. His predecessor, Mr. Carter, had piloted the country into the highlands of stagflation. This meant that, simultaneously, the country was suffering from price inflation - the cost living rising - and from unemployment. It was a part of the capitalist catechism that the two phenomena would not coexist. If there was a plethora of goods, exceeding the money supply, then the regular, reliable engines of competition would ease the upward pressures, bringing prices down. A reduction in the supply of goods would signal to the market a need to increase the supply: exit unemployment. During Carter's last year in office, the "Misery Index" (inflation plus unemployment) was over 20 percent.
What had caused the economy to lurch into this disastrous condition? As tempting as it is to place all of the blame on Jimmy Carter, part of the responsibility must also be placed on Congress, which was solidly under the control of the Democrats during the four years of the Carter administration. In any case, stagflation was produced by distortions in the natural forces of the market: economies, left to their own devices, will occasionally lurch into period of unemployment and find their way out, and will occasionally lurch into periods of inflation and find their way out. Indeed, natural economies cycle through such things regularly, depending on their self-correcting mechanisms to draw them back toward equilibrium. But to encounter inflation and unemployment simultaneously, artificial forces must be introduced into the market.
What could be done to improve the economy? The classic prescription of deregulation, reduced taxes, reduced federal spending, reduced deficit, and reducing debt would make sense in the case of inflation, or in the case of unemployment. But would it work in the case of both occurring at the same time? The nation would never know. Reagan may have occupied the White House, but the Democrats had control of Congress, and would not contemplate any moderation of taxes or spending. David Stockman, who worked on the budget, realized that as long as Congress failed to address the fraud and waste which were the Social Security program, the Medicare and Medicaid programs, and the Department of Education, there could be no chance of a balanced budget or any reduction in debt. Reagan
had talked about cutting "fraud and waste" in the federal government to get the deficit under control. But Stockman was right in realizing that the problem was far more entrenched.
The Reagan administration was faced with an unpleasant dilemma. The only effective prescription was politically not viable. Either continue recommending an effective course of action, which Congress would refuse to enact, or take those ineffective steps which Congress allowed. The realities of the Democrat party in the House of Representatives meant that Reagan could not reduce the debt or the deficit.
It took Stockman a very long time before he discovered that the Reagan administration, for instance, simply stopped thinking about Social Security as a malleable budget feature. If he had known that, he says, he would not have engaged in the struggle to begin with, for the very simple reason that the struggle was not winnable ... Unless Social Security is made to correspond to contributions to Social Security, you are left with an imbalance that mocks at
an form of fiscal responsibility, and at any expectation for a rational future to the nation's budget.
