Former Office of Management and Budget (OMB) Director David Stockman, whom I worked with in the 1981 Reagan administration transition team, has gotten himself involved in a legal tussle with the Justice Department. The charges center on bookkeeping irregularities at a bankrupt producer of auto interior supplies, Collins & Aikman, in which Stockman was heavily invested.

Some reporters seemed overly eager to assume his guilt, while dredging up ancient myths about how Stockman had blown the whistle on Reaganomics as nothing but a snare and delusion. The Washington Post's Jeff Birnbaum wrote that "Stockman was the face of Reaganomics." He cited one disgruntled Democrat griping about his "obviously phony economic forecasts" and another (Rep. Barney Frank) claiming Stockman was "intellectually a little dishonest."

In December 1980, while Stockman was in Michigan for the holidays, he came to the First National Bank of Chicago to recruit me. He was accompanied by Washington Post writer William Greider, who a year later would publish an Atlantic Monthly article on "The Education of David Stockman."

One reason Stockman wanted me on the team was that I had enumerated $51.4 billion in spending cuts (10 percent of the budget) in an August 1978 article in Fortune, "Curbing the Federal Spending Spree." I also argued the importance of lower marginal tax rates in a Wall Street Journal article, "Individuals and the Tax Question."

The January 1981 economic transition team initially consisted of Stockman's congressional staff and me, then Larry Kudlow and John Rutledge, with periodic visits from Alan Greenspan and Allan Meltzer. We met in Stockman's congressional office. After the Carter team vacated its offices, we were joined by Paul Craig Roberts, Murray Weidenbaum and Dick Darman. The economic plan had been largely assembled by then, in a black binder.

The printed version, dated Feb. 18, 1981, was titled "America's New Beginning: A Program for Economic Recovery." The economic assumptions of that plan had been dramatically revised at the last moment despite the protests of the monetarists (Meltzer and Rutledge) and supply-siders (Kudlow, Roberts and I).

Contrary to folklore, the controversy had been entirely about inflation, not at all about any allegedly "rosy scenario" for real gross domestic product (GDP). Real growth averaged 3.9 percent per annum in both the original and the revised scenarios. Our forecast of 1.1 percent real gross national product growth for 1981 assumed recession and was accurate. Our estimated annual growth for 1983-86 was 4.5 percent, and the actual figure turned out to be 4.6 percent.

Only the inflation forecasts were changed. The original forecast had inflation dropping to 4.2 percent in 1983 and to 2.6 percent by 1986. As it turned out, inflation fell even more quickly, to 4.1 percent in 1983 and 2.2 percent in 1986. In 1981, however, Greenspan and Weidenbaum did not believe inflation could come down quickly. All the inflation forecasts were then increased by at least 2 percentage points -- to 7 percent in 1982, for example.

Higher inflation helped Stockman by making future deficits appear smaller, on paper, because inflation was assumed to push more people into higher tax brackets but (implausibly) to not inflate non-indexed spending or to raise interest rates. Thanks to a lot of self-serving whitewash by Stockman, Darman and others, the convenient Keynesian exaggeration of inflation in 1981 has been twisted into a fable in which three young supply-siders somehow forced OMB Director Stockman and Council of Economics Advisors Chairman Weidenbaum to go along with "wildly optimistic assumptions." The optimism was about inflation, and we, not they, were right.

The other big hoax about the era is that budget deficits increased because tax revenues fell dramatically, contradicting those supposedly rosy predictions of supply-side economists. What are the facts? Federal revenues amounted to 17.2 percent of GDP from 1950 to 1959, 17.9 percent from 1960 to 1969, 18 percent from 1970 to 1979, 18.3 percent from 1980 to 1989, 18.6 percent from 1990 to 1999 and 18.5 percent last year. Tax revenues are always weak during the first few years after recessions (such as 1983, 1992 and 2002). But the notion that sharply reduced marginal tax rates in the 1980s left the government starved for funds is a boldfaced lie. Continued...