Alan Reynolds

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.

Alan Reynolds

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