One of the most enduring myths of American politics, which is shared by people on both the left and the right, is that Reagan dealt a death blow to the welfare state. In fact, despite some cuts, he left the programs created by the New Deal and the Great Society largely untouched. On the other hand, he vastly increased military expenditures and significantly decreased revenue by cutting taxes, which resulted in a huge deficit. Indeed, despite the fact that Reagan has almost become a saint for Republicans, who pretend to be deficit hawks until they’re in charge, Reagan’s administration was one of the most fiscally irresponsible in the history of the US.
David Stockman was Director of the Office of Management and Budget between 1981 and 1985. He was a very committed proponent of supply side economics, part of a small group of Republicans in Congress who, although they were not initially close to Reagan, planned to use him to dismantle the welfare state. His book is the story of a young, inexperienced ideologue who goes to war with Washington and is thoroughly defeated because he failed to appreciate that politics, not just ideology, matters. It’s one of the most brutally honest book I have ever read and quite possibly the best thing you can read to understand how Washington actually works.
The book focuses almost exclusively on the budget and will also be very useful if you want to understand the reconciliation process that is about to be used by Republicans to replace Obamacare. Stockman explains how he was fooled by the politicians in Congress, who knew how to play the long game, so they could protect the special interests that supported them against ideologues like him who were going after them. Like most ideologues, he didn’t understand that it’s useless to have a program, unless you also have a realistic plan to implement it.
He also explains how the administration created a huge deficit because he and the other people in charge of preparing the budget made some extremely stupid mistakes. In particular, they used the inflation rate they had inherited from Carter to project revenue, but forgot that part of their plan was to cut inflation, which indeed is probably the only good thing Reagan did for the economy. (But, to be fair with Reagan, this wasn’t nothing. Given how brutal the recession caused by Volcker’s efforts to curtail inflation was, most politicians would have unplugged him long before his policy could succeed, but Reagan persisted in supporting this effort and it was a very good thing for the US and for the world that he did.) Of course, this meant that revenue was greatly overestimated, but by the time Stockman and his team realized their mistake it was too late to revise the budget.
This mistake was largely responsible for the deficit under Reagan, which broke all the records for a peacetime budget at the time, although since then Bush Jr. and even more so Obama have shown that, no matter how bad one politician is, another can always outdo him… The result of Reagan’s administration is that military expenditures were dramatically increased while taxes were massively cut, but the welfare state was for the most part left untouched and special interests remained in control of Washington. That’s still where we are today and, despite the fact that some people around Trump would like to change that, I would be surprised if their efforts were more successful than Stockman’s, especially since Trump is probably even more ideologically shallow than Reagan.
The only difference is that — unlike Stockman who, despite having served in Congress for a few years before he was appointed Director of the OMB, was totally clueless about politics — Bannon understands politics very well. But he’s never been in charge before and I would be amazed if, when all is said and done, the establishment had not been able to thwart whatever his plans to dismantle the administrative state are. After all, if there is one lesson of American history, it’s that, in the end, Washington always wins.