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Bankrupting America : advisory entrepreneurship, fiscal competence and the presidency 1977-2009 Gillies, James Clark 2011

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BANKRUPTING AMERICA: ADVISORY ENTREPRENEURSHIP, FISCAL COMPETENCE & THE PRESIDENCY 1977-2009 by  James Clark Gillies B.A., The University of Victoria, 2000 M.A., The University of British Columbia, 2003  A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF  DOCTOR OF PHILOSOPHY  in  The Faculty of Graduate Studies  (Political Science)  THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver)  March 2011   James Clark Gillies, 2011  Abstract This study focuses on the presidential advisory system through the lens of fiscal policy in order to develop a better understanding of how modern presidents utilize their advisers and how through a process of advisory entrepreneurship, advisers compete among each other for the president’s attention and time. A set of ideal types of presidential advisers is developed in an effort to shift away from studying the presidency through traditional notions of staff hierarchies and management of the White House to the actual selection of advisers. This research traces fiscal policymaking from the Carter administration through the administration of George W. Bush by using a qualitative case study approach, with elite interviews and a quantitative test of ideal adviser types on fiscal policy, to provide a view of the decision making process inside the White House that often gets submerged in larger institutional studies of Washington. The study also offers an important perspective in explaining how presidents can veer away from fiscal competence. Presidential advisory systems matter a great deal to the policies that get passed through Congress. The fiscal policies themselves are the mark of what presidential advisers often decide is best for the country. Therefore providing the background and narrative of the roles these advisers play gives insight into how presidents confront their economic realities and how designing policies that appeal to the national interest can be sometimes, at best, a second or third priority. The case of presidential advisers and fiscal policy across these five presidential administrations provides instances of fiscal competence, when an administration crafts ways to have government live within its means and design policies that for the most part appeal to and benefit the majority of Americans. It also provides instances of fiscal incompetence, in  ii  which presidents ignore long-established truths and principles to push the country off of a sensible economic footing often for the benefit of those who elected them, and instances in which administrations aim for fiscal prudence but alienate the public in doing so because the policies enacted do not reflect the campaign promises made by the incumbents.  iii  Table of Contents Abstract .................................................................................................................................... ii List of Tables .......................................................................................................................... vi List of Figures ........................................................................................................................ vii List of Abbreviations ........................................................................................................... viii Acknowledgements ................................................................................................................ ix Dedication ............................................................................................................................... xi Chapter 1: Introduction ......................................................................................................... 1 1.1 General Introduction of the Topic................................................................................... 1 1.2 Theory ............................................................................................................................. 5 Ideal Types of Presidential Advisers ................................................................................ 5 A Theory of Presidential Adviser Selection ................................................................... 13 Scope Conditions ............................................................................................................ 17 Research Questions and Adviser Propositions ............................................................... 19 1.3 Presidential Studies: A Review of the Literature .......................................................... 21 Why Case Studies and Statistical Tests and not Formal Modeling?: Positioning this Research within the Confines of Presidential Studies .................................................... 21 Recent Research on Presidents and their Advisers ......................................................... 24 1.4 Research Design: Methodology, Case Selection and Data Collection ......................... 27 Methodology and Case Selection.................................................................................... 27 Data Collection ............................................................................................................... 28 1.5 Conclusion and Outline of this Study ........................................................................... 30 Chapter 2: The Fiscal Policy Inner Circle and Presidential Stewardship of the Economy ................................................................................................................................................. 33 2.1 The Economic Advisory System in the White House .................................................. 36 2.2 The OMB Director ........................................................................................................ 39 2.3 The Chairman of the CEA ............................................................................................ 41 2.4 The National Economic Council ................................................................................... 44 2.5 Grappling with Congress and Relying on Advisers ...................................................... 46 2.6 The Institutional and Economic Context ...................................................................... 50 The Stewardship Role of the President as Manager of the U.S. Economy ..................... 51 The President versus Congress: Authority over Budgeting ............................................ 52 Authority over Taxation .................................................................................................. 57 Setting the Stage for Today: Uncertainty in the 1970s ................................................... 61 2.7 Conclusions ................................................................................................................... 65 Chapter 3: Carter and George H.W. Bush: One Term Failures at Fiscal Policy .......... 68 3.1 Staffing the White House .............................................................................................. 68 3.2 Fiscal Legislation and Advisory Influence ................................................................... 79 3.3 Advisory Analysis: The Fiscal Numbers .................................................................... 110 3.4 Conclusion: Unbalanced Advisory Systems ............................................................... 114  iv  Chapter 4: Ronald Reagan and George W. Bush: From Ideological Pandering to Fiscal Disaster................................................................................................................................. 123 4.1 Staffing the Reagan White House ............................................................................... 127 4.2 The Bush II First Term Advisers: Political Advisers and Ideologues ........................ 132 4.3 Fiscal Legislation and Advisory Influence: The First Reagan Term .......................... 146 4.4 The Reagan Second Term: Advisers and Fiscal Policy .............................................. 156 4.5 The George W. Bush First Term: Tax Cuts, Then More Tax Cuts ............................ 165 4.6 The Bush Second Term Advisers: From Ideological to Ineffectual ........................... 175 4.7 The Reagan Legacy: An Ideological Agenda Achieved Through Advisory Balance 186 4.8 The Bush II Legacy: Fiscal Incompetence, Blowback and the Decline of the American Economy ........................................................................................................................... 194 Chapter 5: Bill Clinton: Fiscal Competence and Advisory Effectiveness ..................... 200 5.1 Clinton’s First Term Advisory System: Learning to Self-Correct.............................. 201 5.2 The First Term Fiscal Legislation: From Deep Red into the Black ............................ 214 5.3 Clinton’s Second Term: Maintaining Fiscal Discipline in a Lion’s Den.................... 220 5.4 Clinton’s Legacy: Fleeting Fiscal Competence and a Model for Mixed Adviser Sets225 Chapter 6: Quantitative Analysis of Presidential Advisers and Fiscal Policy .............. 230 6.1 Data ............................................................................................................................. 232 6.2 Summary Statistics...................................................................................................... 233 6.3 Box Plots ..................................................................................................................... 235 6.4 Determinants of Tax Revenue, Spending, and Budget Deficits (Surpluses) .............. 237 6.5 Forwarded Dependent Variables................................................................................. 243 6.6 Discussion ................................................................................................................... 246 Chapter 7: Conclusion - The Need for Mixed Adviser Sets and Balanced Advisory Systems ................................................................................................................................. 250 7.1 Linking to the Presidential Advisory Research .......................................................... 255 7.2 Linking to the National Bankruptcy and Economic Crisis Research ......................... 261 7.3 Linking Presidential Adviser Selection with Fiscal Competence ............................... 265 Bibliography ........................................................................................................................ 272  v  List of Tables Table 1.1 Ideal Types of Presidential Advisors ........................................................................ 6 Table 3.1 The Carter Economic Advisory System ................................................................. 70 Table 3.2 The Bush I Economic Advisory System ................................................................. 74 Table 3.3 Budget Deficit Containment (Deficit or Surplus in Billions of $ by Fiscal Year) 111 Table 3.4 Budget Deficit Containment (Deficit or Surplus in Billions of $ by Fiscal Year) 113 Table 4.1 The First Term Reagan Economic Advisory System ........................................... 129 Table 4.2 The First Term Bush II Economic Advisory System ........................................... 137 Table 4.3 The Second Term Reagan Economic Advisory System ....................................... 157 Table 4.4 The Second Term Bush II Economic Advisory System ....................................... 178 Table 4.5 Reagan Budget Deficit Explosion (Deficit in Billions of $ by Fiscal Year) ........ 189 Table 4.6 Reagan Second Term (Deficit in Billions of $ by Fiscal Year) ............................ 192 Table 4.7 Second Budget Deficit Explosion (Deficit or Surplus in Billions of $ by Fiscal Year) ............................................................................................................................. 195 Table 5.1 The First Term Clinton Economic Advisory System ........................................... 213 Table 5.2 The Second Term Clinton Economic Advisory System ....................................... 222 Table 5.3 Clinton's Deficit Control (Deficit or Surplus in Billions of $ by Fiscal Year) ..... 225 Table 6.1 Summary Statistics ............................................................................................... 234 Table 6.2 OLS Regressions................................................................................................... 238 Table 6.3 OLS Regressions with Controls ............................................................................ 240 Table 6.4 OLS Regressions with Forwarded Dependent Variables ..................................... 243 Table 6.5 OLS Regressions with Forwarded Dependent Variables and Controls ................ 244 Table 6.6 Clinton-Era Budget Outlays.................................................................................. 247  vi  List of Figures Figure 1.1 Presidential Adviser Selection ............................................................................... 14 Figure 6.1. Box Plots of Dependent Variables ..................................................................... 236  vii  List of Abbreviations BOB BEA CBA CBO CEA COBRA COLA DEFRA DLC EGTRRA EITC EOP EPB EPG ERTA FY GDP GNP G-R-H LSG MBA NEC NSC OBRA (1981) OBRA (1990) OBRA (1993) OECD OLS OMB OPD OPEC PAD PART TEFRA WHO  Bureau of the Budget Budget Enforcement Act of 1990 Congressional Budget Act and Impoundment Control Act of 1974 Congressional Budget Office Council of Economic Advisers Consolidated Omnibus Budget Reconciliation Act of 1986 Cost of Living Adjustment Deficit Reduction Act of 1984 Democratic Leadership Council Economic Growth and Tax Relief Reconciliation Act of 2001 Earned Income Tax Credit Executive Office of the President Economic Policy Board Economic Policy Group Economic Recovery Tax Act of 1981 Fiscal Year Gross Domestic Product Gross National Product Gramm-Rudman-Hollings Legislative Strategy Group Master of Business Administration National Economic Council National Security Council Omnibus Budget Reconciliation Act of 1981 Omnibus Budget Reconciliation Act of 1990 Omnibus Budget Reconciliation Act of 1993 Organization for Economic Cooperation and Development Ordinary Least Squares Office of Management and Budget Office of Policy Development Organization of the Petroleum Exporting Countries Program Associate Director Program Assessment Rating Tool Tax Equity and Fiscal Responsibility Act of 1982 White House Office  viii  Acknowledgements When you set out to write a doctoral dissertation, the path to completion is rarely a straight line. I had many diversions both in conceptualizing the project and conducting the research but somehow completed it thanks in large part to a tremendous group of scholars and friends who played important roles in its development and completion. To begin, I would like to thank my wife, Amanda Benjamin, for all of the support, patience and unconditional love through our shared academic experience across two continents and three countries. I also owe a tremendous debt to my parents, Jim and Liz Gillies, whose constant encouragement made the sacrifice of graduate school worth it. Their belief that I could finish this and their genuine engagement with my work and fascination with the world around us made completing this so much worthwhile. I would also like to thank my family, my incredible Grandma, Betty Porter, and my parents-in-law Victor and Phyllis Benjamin for all of the wonderful discussions about my research. The ability to conduct research was greatly enhanced with a Canada Graduate Scholarship from the Social Sciences and Humanities Research Council of Canada. Without this extraordinarily generous funding, it would have made completion of this project far more difficult. I am also indebted to the Canada-United States Fulbright organization, in particular Fulbright Canada, for the Fulbright scholarship to study and conduct research in the United States. For a Canadian in Washington D.C. to research American politics, the Fulbright proved not only useful in terms of funding but opened doors and furthered research opportunities. I am incredibly grateful to Michelle Emond and Michael Hawes for their support and help during my stay in the United States. At the University of British Columbia, I would like to thank my dissertation committee members Fred Cutler and Mark Warren for their insightful comments and fine-tuning. I would also like to thank faculty members Angel O’Mahony, Ben Nyblade and Paul Quirk for important conversations and discussion at the genesis of this project. Their hours working with me helped flesh out and clarify what I was writing and I am very grateful for their help. I also appreciated all the support from my colleagues Lesley Burns, Phil Orchard, James Tyer, Azur Stankovic, Nicolas Dragojlovic, Clare McGovern, Jennifer Schmalz and Tim Came. Thank you for the friendship and procrastination through many conversations on MSN Messenger, Facebook and Gmail. In Vancouver, I am incredibly thankful for the friendship and generosity of Anne Zavalkoff, Todd Margolis, Monique Silverman, Michelle Pidgeon, David Rubeli, Anita Parhar, and Shauna Pomerantz and Jon Eben Field. In Washington D.C., I was fortunate to be mentored and guided by Kent Weaver at Georgetown University, whose insight into how to frame my topic was invaluable. At Georgetown, I am also indebted to Leslie Evertz and Judy Feder who welcomed me to the fertile academic environment of the Georgetown Public Policy Institute. I also thank Manuscripts Librarian Nicholas Sheetz for access to the Colin Campbell Collection in the Special Collections department of Georgetown University Library. At the Brookings Institution, I benefitted tremendously from the supportive environment provided by the Governance Studies Program. For four months, as a Guest Scholar, I was fortunate for the support of many colleagues. Pietro Nivola, Tom Mann, E.J. Dionne, Korin Davis, Stephen Hess and Russell Wheeler were all extremely helpful in offering advice about how to  ix  navigate Washington. I benefitted particularly from the support and encouragement of Ben Wittes. I was also helped out by Research Fellows Christopher Loss (now at Vanderbilt University) and Nicole Kazee (now at the University of Illinois-Chicago). Finally my Washington experience was greatly enhanced by colleagues and fellow Ph.D. students Mike Schroeder, Kara Heitz and Stan Scott at George Washington University. While in Scotland at the University of Glasgow, I benefitted from my long conversations and discussions with an array of excellent academics and friends. A thanks goes out to Robert Hamilton, Ralf St. Clair, Rebecca Mancy and Kostas Angelopoulos. Special thanks as well to our good friends while we were in Glasgow, Abigail Beer, Elisabetta Toreno, Christine Ferguson and Matti Siemiatycki. I also was greatly helped in further refining my arguments with support from Chris Wlezien at Temple University, Simon Jackman at Stanford University, and John McAndrews at the University of British Columbia. In Ann Arbor at the University of Michigan, I have so many supportive and kind colleagues. I would like to thank Alan Deardorff and Susan Collins for the continued support of my teaching at the Gerald R. Ford School of Public Policy. I am particularly indebted to Ford School graduate Kevin Bradway for the help on the quantitative elements of this study. I also am thankful for the excellent teaching assistance I received from Sarah Taylor-Navarro, Lesley Freiman, Jessica Clark and Simon Tam. I appreciate also the support from friends and family while in Michigan, Sarah, Phillip and Ben Crymble. And I am especially grateful to the University of Michigan Telluride House for the supportive environment while living in Ann Arbor, particularly Adam Becker, Ben Rogers and Valerie Montes. Back in Canada, I have been very fortunate to have considerable encouragement from academics in completing this stage of my academic career. I would like to thank Colin Bennett at the University of Victoria for the teaching opportunity, Mikhail Molchanov, Tom Bateman, Patrick Malcolmson and Shaun Narine for the support at St. Thomas University, and an excellent group of international scholars who I have been fortunate to work alongside and present conference papers; Ilan Z. Baron, and Patricia Sykes, Sergio Fabbrini, Thomas Poguntke, and Luciano Bardi with the European Consortium for Political Research. Finally, I must say a few words in particular to two academics and friends who have provided constant support. I met Barry Rabe quite by accident at a Canadian Political Science Association conference. Since then, he has been extremely helpful and generous in providing both feedback on my work and in supporting the beginnings of my career by kindly suggesting that I step in for him at Michigan while he was on sabbatical. Little did I know that my life would be spent for the next four years in between Canada and the United States. I am very grateful for the opportunities I have had working with Barry. Last but certainly not least I owe a debt of gratitude for the mentorship, friendship and generosity of my dissertation supervisor Colin Campbell. At times fun, disappointing, serious, and surprising, Colin and I have worked through and lived through the ups and downs of my graduate life, the ups and downs of his distinguished academic career return to Canada, and the ups and downs of two presidential administrations. Communicating in person, by phone, and through the magic of the internet across three continents and five nations over six years, we managed to build this dissertation from some vague ideas into what it is today: complete! Colin, I thank you for sticking it out with me. x  Dedication  For Amanda Benjamin  xi  Chapter 1: Introduction 1.1 General Introduction of the Topic No matter how intelligent and conversant with issues, every American president must still rely on advisers to develop options and assess the likely implications of one course of action against others. What happens, however, when collectively these aides canvass and present only a narrow spectrum of possible positions and advocate these to the exclusion of other viable contenders? Further, if advisers fail to offer discernable alternatives to proposed positions, can we assume that presidents know that their choices have been constricted? In this study, it is argued that presidents have underlying incentives to design presidential advisory systems that are balanced, by including advisers from policy, political and ideological standpoints. An imbalanced advisory system can lead to problems for a president, some that are perfectly clear and some that are unforeseen, with tremendously negative implications for implementation of a policy agenda, for reelection, and for a president’s legacy. The role that advisers play in the White House is an important topic in presidential studies and is closely connected to the debates over centralization and politicization of the presidency. This also is linked to concerns that presidents today vest too much power in advisers, given that all advisers in the White House and the Executive Office of the President are unelected and most are employed without Congressional approval. Two central themes are explored in this study. First, it investigates tax and budget policy over the course of the last five presidential administrations to look at the effect the inner circle of economic advisers have on each president’s macroeconomic fiscal policy decisions. These decisions are affected by the way in which each president selected his  1  advisers, how each inner circle of advisers was crafted, and whether it left the president cut off from alternative viewpoints. The conditions in place when a president assumes office (a large electoral win, a clear electoral mandate, etc.), and the way that environment influences the selection of the president’s inner circle of advisers ultimately affects the decision making process over the course of an administration. Second, this study is concerned about the long-term impact of economic decisions that have been made over the course of the last thirty-two years. With the exception of the presidency of Bill Clinton, who chose to focus on balancing the budget through economic prudence and brought about the first balanced federal budgets in thirty years, every contemporary president has struggled with massive deficits and accumulated American debt as a result of the politics around taxation and spending. In 1978, Richard Rose and Guy Peters suggested that government could actually go bankrupt, both economically and politically, in its attempts to navigate between devising viable fiscal policies and dealing with a public that had always expected to be a net beneficiary of government. 1 Written in the spirit of the economic doldrums of the 1970s, in which the economics profession was in disarray and economic concerns such as stagflation were unable to be remedied by prevailing Keynesian theories, their message and themes are relevant today given the global economic shocks that have occurred as Barack Obama assumed the presidency. Rose and Peters outlined how fiscal policy in developed countries was no longer just an accounting exercise; political tradeoffs had prevented governments from simply trying to balance debits and credits. Today it is not just about these tradeoffs between viable policies and public expectations, but between tax and spending politics that defy actual economic 1  Richard Rose and B. Guy Peters, Can Government Go Bankrupt?, (New York: Basic Books, 1978).  2  conditions and budgeting based primarily around the costs of ever-increasing entitlement programs on inflationary autopilot. A simple answer to the question of the American government’s debt crisis would be that the United States today has not only gone bankrupt, but is perennially bankrupt, given that the goals of each party almost never meet and each takes the nation in divergent directions once elected, often reversing a decade of the previous governing party’s economic direction. Presidents thus struggle with how to balance fiscal objectives that most of the public regardless of political affiliation request, such as fiscal prudence, efficient government, fair taxes and balanced budgets, with realties that prevent them from achieving most of them. Apart from Clinton, no modern president has been able to design a fiscal policy which has government living within its means. In fact, a number of tax and budgeting policies have helped induce much steeper recessions and consequently a more hostile investment climate. These two themes – the roles and power of presidential advisers, and the consequences of fiscal decisions often based on advice from unbalanced advisory systems – are the central themes of this work. The study investigates these themes through detailed case study analysis of the economic advisory systems and fiscal decisions made by the last five presidents by selecting the factors truly decisive in a president’s performance and relating these to key indicators over time. It combines qualitative and quantitative analysis to argue ultimately that presidents require a balanced advisory system, regardless of popular support and the size of their electoral wins and mandates, to avoid the pitfalls of accepting and adhering to advice from only one type of adviser. An assumption is made that presidents should adhere to policies that appeal to the national interest and in fiscal policy, those are  3  policies in which the tax burden is treated with an eye on being proportioned relatively equitably among all income brackets, or that everyone should pay their fair share, and that budgeting and spending be designed to have government living within its means where modest deficits of under 4% of GDP are normal in times of economic contraction and where these deficits are reduced in times of economic expansion. Since the President’s Committee on Administrative Management issued its 1937 report stating that “the president needs help,” 2 this help has evolved into a fully functioning bureaucracy that assists the president in virtually every task, from policy advice to management of the government. This raises the question of why it is important to study the relationship between presidents and their advisers. Marc Hetherington has argued that declining political trust in government has played the central role in the demise of comprehensive public policy reform in the United States over the last several decades. 3 At the same time, we have witnessed the rise of personalized trust in presidential elections that reflect citizens’ beliefs that the elected president represents their own values (or at least the values of those who supported him). This trust in personal vote/distrust in government dichotomy suggests an environment in which the president’s unelected ‘help’ have tremendous opportunity to influence and guide the decision making process, particularly at the final moments or deliberations of policy making. 4 While the president, and indirectly, his party are responsible to the electors is clear but what is less clear is that the advisers are unelected and, more specifically, often appointed without 2  Louis Brownlow, Charles E. Merriam, and Luther H. Gulick, President's Committee on Administrative Management: Administrative Management in the Government of the United States, (Washington, D.C.: United States Government Printing Office, 1937). 3 Marc J. Hetherington, Why Trust Matters: Declining Political Trust and the Demise of American Liberalism, (Princeton: Princeton University Press, 2005). 4 Andrew Rich, Think Tanks, Public Policy, and the Politics of Expertise, (New York: Cambridge University Press, 2004).  4  Congressional confirmation. The power these advisers wield at the final stages of the policy process is problematic given their unchecked influence. 1.2 Theory Ideal Types of Presidential Advisers A set of ideal types of presidential advisers is developed to establish a working theory of presidential adviser selection. These ideal types are then utilized in a comparative case study of the dominant and arguably most important domestic policy area for a president, tax and budget policy, across the last five presidential administrations. Case studies yield comparability across cases because the issue area is held constant, and consequently the study looks at time-limited incidents that are bracketed by historical processes. This kind of research yields the comparability advantages of a case study and the advantages of causal process observation in order to tease out a process view of presidential advisers with a broader historical orientation. 5 This study investigates the extent to which a president’s inner-circle advisory system within the White House Office (WHO) and the Executive Office of the President (EOP) is dominated at certain times by particular types of advisers, whom I term advisory entrepreneurs. These four types of entrepreneurs are political advisers, policy advisers, ideologues, and honest brokers/fixers. One type or a combination of types will likely dominate the White House. The focus then is on understanding and explaining under what conditions principal advisers who concentrate on only one of the needs of the president, such as honest brokerage, political advice, policy and/or pragmatic advice, and ideological or electoral base policy advocacy, can dominate.  5  Henry E. Brady and David Collier, Rethinking Social Inquiry: Diverse Tools, Shared Standards, (Lanham, Md.: Rowman & Littlefield, 2004).  5  Advisory entrepreneurship refers to principal advisers who concentrate on ideological, political or policy maneuver or on providing an honest broker perspective. 6 Because of an adviser’s focus on either policy, political or ideological positions, individually they do not canvass the entire spectrum of alternatives and submit those positions to the test of collegial consultation. But together, working as a functioning and balanced entity, they can. Differentiating this concept of entrepreneurship to capture all types of advisers that can influence the president, a set of ideal types of presidential advisers is offered to capture the groups of advisers that compete for the president’s attention. Naturally, access and influence with the president among advisers ebbs and flows. These advisers are divided into four categories of entrepreneurs (see Table 1.1). By doing so, the dependent variable in this research, namely presidential adviser selection, becomes more fine-grained than research on only one adviser type would allow. Table 1.1 Ideal Types of Presidential Advisors Type of Advisory Entrepreneur Ideologue  Policy  Political Honest Brokers/Fixers  Source Party and electoral base advocates  Objective transform the system through policies that are off-center and achieve goals of the bases of the liberal and conservative factions of their respective political parties  D.C. insiders/specific policy constituencies (domestic, economic, foreign)  implement policy ideas and win benefits and advance long-term strategic interests of constituency  Political/campaign strategists Former advisers/strategists/policy experts/etc.  win elections returning stability to the presidential agenda; reprioritizing presidential goals  6  Advisory entrepreneurship is developed from Campbell’s (2004) notion of “ideological entrepreneurship.” This refers to principal advisers who concentrate on ideological maneuver at the expense of canvassing the entire spectrum of alternatives and submitting those to the test of collegial consultation. The inner circle of ideological voices then constricts the access to challenges to their own views and blocks out collegial dissent, thereby marginalizing formal decision making processes.  6  This study argues that a president should try to assemble a mix of each of these types in order to provide a balance between those committed to his campaign issues and philosophy, and utilize both seasoned political and policy veterans who understand what and how much an administration is able to achieve given the institutional constraints in Washington. This mix of advisers is essential not just for mere political success but for a president’s long-term historical legacy. Getting reelected is important but many two-term presidents have expended much of their political capital in just that one area. Good advisers, protecting both the president and the presidency, can help ensure that legacy is equally as important and guard against the tendencies of other more political and ideological factors that work only towards securing reelection and shoring up the party base. Well-remembered presidents have to appeal beyond party and design policies that pivot towards the national interest. This is where a balanced advisory system can play a key role, in modulating policies that appeal more broadly across the spectrum, and giving the potential of enlarging the electoral coalition that initially voted for the president. Those four types of advisers, when proportioned correctly, can help presidents with three key elements for a successful presidency: popular policies that appeal to the most voters, policies that help ensure reelection, and policies that help ensure a positive legacy. This mix is not just for mere political success but to guard against the tendencies of presidents to appeal only to their party or party base. The most successful presidents are those that are remembered for appealing beyond their own party. We assume here that all presidents want to achieve this kind of presidency. Naturally, not every adviser fits squarely into one of the above categories, but as ideal types, these four represent the roles presidential advisers are required to play and are four  7  essential elements of successful presidential leadership: an effective political staff to navigate party politics and elections, a competent policy staff to put in motion and pass the presidential agenda, a cohort of ideologues keeping presidential decisions on message with one’s own party and seeking systemic transformation in certain policy areas to achieve party base objectives, and straight shooting honest brokers unafraid to offer presidents advice unencumbered by the agendas of other adviser types who are already in the White House. The ideologues represent the advisers who are seeking to transform the system through policies that are off-center and to achieve goals of the bases of the liberal and conservative factions of their respective political parties. Among the issues and policies pursued by ideologues include the 1981 Reagan and 2001 Bush II tax cuts, with at least some of the supply side economics behind them stemming from a Republican base philosophy of cutting taxes and then cutting the size of government to ‘starve the beast’. 7 But an ideologue can also be working at the center, if they are not countered by advisers from other parts of the political spectrum. For example, it can be argued that members of the centrist Democratic Leadership Council are just as ideological as those on the far left wing of the Democratic Party or the far right of the Republican Party. Each has a particular ideology. Therefore in the definition of ideologue, radically centrist ideologues are not excluded. The political advisers represent, in the most pejorative sense, the ‘hacks’, those who helped the president win his campaign or have considerable political experience and who then take up key positions in the White House. Many are naturally there for one overarching  7  Thomas S. Langston, Ideologues and Presidents: From the New Deal to the Reagan Revolution, (Baltimore: Johns Hopkins University Press, 1992), Thomas S. Langston and Elizabeth Sanders, "Taking Ideologues Seriously: Neoconservative Influence and Theories of the Presidency" (Unpublished Manuscript, 2005), David A. Stockman, The Triumph of Politics: How the Reagan Revolution Failed, (New York: Harper & Row, 1986), Paul Craig Roberts, The Supply-Side Revolution: An Insider's Account of Policymaking in Washington, (Cambridge: Harvard University Press, 1984).  8  reason, to get a president a second term. They can temper positions, and push out unfeasible policy/pragmatic suggestions all to the benefit of focusing on political maneuver to get the president reelected. For example, Karl Rove has been the key political entrepreneur in the Bush White House as he sought to expand the Republican base and offer up policy positions, often very much off-center, to appeal to that constituency. Another key political adviser was Dick Morris, who Clinton turned to in the wake of the 1994 midterms and helped move to the president more to the center on a number of key issues. There are also the policy advisers, or colloquially, the ‘wonks’. These are often Beltway insiders with considerable knowledge of either individual policy areas or with significant executive branch experience who are brought on to the White House team and suggest policies and positions that are feasible in the given political environment in which the president will operate. 8 They are seeking to implement mainstream policy ideas, as well as trying to advance long-term strategic interests of their policy constituency (e.g. tax and budget reform). They differ from ideologues in that they are fundamentally grounded within the confines of the Washington system and are realistic enough to understand that incremental and not systemic changes are likely. Finally, there are honest brokers or fixers, often individuals that are brought in afterthe-fact to steer the White House in a new direction or give the president policy advice unencumbered by the group environments of the other three. Examples have included Carter’s second set of OMB leadership led by James McIntyre, Roger Porter, who served under Reagan and George H.W. Bush in a number of capacities, and Clinton National Economic Council Director Robert Rubin as well as his first term adviser David Gergen.  8  Rahm Emanuel and Bruce Reed, The Plan: Big Ideas for America, (New York: Public Affairs, 2006).  9  Distinguishing among these types of advisers is not without some fuzziness. Few advisers would fit solely in one category. However, it is a useful way to delineate the kinds of advice on which presidents have come to rely. For example, ideologues represent the key issues that the base of a political party, be it the right, the left, or occasionally the center, is advocating. But a president, in crafting a group of advisers, must be cognizant that he also represents the national interest and not just that of his party, and it is in the context of the conflict where different types of advisers play a crucial role. This dissertation will argue that presidents require a healthy mix of different kinds of advisers, a balanced advisory system, to avoid costly errors in group thinking. This leads to the inevitable question of whether a president is better off seeking homogeneity or heterogeneity among his inner circle of advisers. For example, a president who invests too heavily in his political advisers and does not adequately ensure he gets advice from other sources can become captured by those interested only in political maneuver. The same goes for a president who utilizes political and policy people without finding room for an ideological perspective to bring those two groups together or an honest broker to navigate between the policy and political groups. Relying solely on the advice of only one or two types of advisers would come at the expense of the opportunity to canvass the entire spectrum of alternative policy positions. This can leave an administration prone to major policy mistakes on issues pulled into the WHO and EOP, when particularly unrestrained influence over the president by one type of adviser exists, and when those who control access to the policy process are so cut off from alternative perspectives that there is inadequate review and little or no collegial consultation.  10  Off-center 9 or ideological position-taking can guide presidents and their principal advisers; however, it can prove a double-edged sword. Ideologues help focus a president on core party base principles and enable him to take the lead on these issues nationally by utilizing the bully pulpit of the presidency and by going public. 10 But as the work of Kernell and Edwards and a series of studies that have followed has shown, going public on these base issues is often ineffective. 11 However, after a focusing event, national crisis, or international conflict, in which there tends to be a rally in presidential support, certain conditions can exist in which presidents can more easily turn to ideologues to advance their positions. 12 It is in situations like these, such as after a major economic fluctuation, a terrorist attack, a natural disaster, or as the country prepares for war, that can produce an environment in the presidential advisory network wherein the president can cut himself off more easily from an effective review or countervailance of positions staked out by the leadership. Campbell invokes the term “unrestrained ideological entrepreneurship” to describe this environment and he suggests that the George W. Bush administration in the aftermath of 9/11 provides almost a textbook case of this, in which policy decisions with serious longterm negative impacts on both the effectiveness of the policy enacted and the credibility of  9  Jacob S. Hacker and Paul Pierson, Off Center: The Republican Revolution and the Erosion of American Democracy, (New Haven: Yale University Press, 2005). 10 Samuel Kernell, Going Public: New Strategies of Presidential Leadership, 4th ed., (Washington, D.C.: CQ Press, 2007), George C. Edwards III, On Deaf Ears: The Limits of the Bully Pulpit, (New Haven: Yale University Press, 2003). 11 Matthew Eshbaugh-Soha, The President's Speeches: Beyond "Going Public", (Boulder: Lynne Rienner Publishers, 2006), Brandice Canes-Wrone, Who Leads Whom?: Presidents, Policy, and the Public, (Chicago: University of Chicago Press, 2006), George C. Edwards III, Governing by Campaigning: The Politics of the Bush Presidency, (New York: Pearson Longman, 2007). 12 Richard A. Brody, Assessing the President: The Media, Elite Opinion, and Public Support, (Stanford: Stanford University Press, 1991), John W. Kingdon, Agendas, Alternatives, and Public Policies, 2nd ed., (New York: HarperCollins, 1995), Gary C. Jacobson, A Divider, Not a Uniter: George W. Bush and the American People, (New York: Pearson Longman, 2007), 127-131.  11  the administration were made. 13 For instance, Bush’s advisers tried to make the case for weapons of mass destruction in Iraq to justify going to war based on inaccurate evidence, and were overly optimistic in planning the invasion and occupation of Iraq. 14 They also recommended permitting high deficits despite the long-held opinions of members of the EOP’s Council of Economic Advisers. 15 In such an environment, a combination of political advisers and ideologues can dominate. Base electoral issues are forefronted and the administration seeks to capitalize on the support of a war-time president to push forward with an off-center agenda. 16 Further, political maneuver can become the overarching goal of the advisers, particularly as an election approaches. Presidents are then likely to focus on issues with which the other party strongly disagrees, the so-called ‘wedge’ social and cultural issues that appeal to the base of the party, where reaching across the aisle cannot be achieved. 17 In the case of George W. Bush, such an environment helped produce a polarizing presidency and instead of working towards compromise and trying to capture the political 13  Colin Campbell, "Unrestrained Ideological Entrepreneurship in the Bush II Advisory System: An Examination of the Response to 9/11 and the Decision to Seek Regime Change in Iraq," in The George W. Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Washington, D.C.: CQ Press, 2004). 14 Seymour M. Hersh, Chain of Command: The Road from 9/11 to Abu Ghraib, (New York: HarperCollins, 2004), George Packer, The Assassins' Gate: America in Iraq, (New York: Farrar Straus and Giroux, 2005), Rajiv Chandrasekaran, Imperial Life in the Emerald City, (New York: Knopf, 2007), Michael R. Gordon and Bernard E. Trainor, Cobra II: The Inside Story of the Invasion and Occupation of Iraq, (New York: Pantheon Books, 2006), Michael Isikoff and David Corn, Hubris: The Inside Story of Spin, Scandal, and the Selling of the Iraq War, (New York: Crown Publishers, 2006), Jane Mayer, Dark Side: The inside Story of How the War on Terror Turned into a War on American Ideals, (New York: Doubleday, 2008), Thomas E. Ricks, Fiasco: The American Military Adventure in Iraq, (New York: Penguin Press, 2006), Raymond Tanter and Stephen Kersting, "Grand Strategy as National Security Policy: Politics, Rhetoric, and the Bush Legacy," in The George W. Bush Legacy, ed. Colin Campbell, Bert A. Rockman, and Andrew Rudalevige, (Washington, D.C.: CQ Press, 2007), Chris J. Dolan and David B. Cohen, "The War About the War: Iraq and the Politics of National Security Advising in the G.W. Bush Administration's First Term," Politics & Policy 34, no. 1 (2006). 15 Jacob S. Hacker and Paul Pierson, "Abandoning the Middle: The Bush Tax Cuts and the Limits of Democratic Control," Perspectives On Politics 3, no. 1 (2005), Allen Schick, "Bush's Budget Problem," in The George W. Bush Presidency: An Early Assessment, ed. Fred I. Greenstein, (Baltimore: Johns Hopkins University Press, 2003), Rich, Think Tanks, Public Policy, and the Politics of Expertise. 16 Hacker and Pierson, Off Center: The Republican Revolution and the Erosion of American Democracy. 17 Morris P. Fiorina, Samuel J. Abrams, and Jeremy Pope, Culture War?: The Myth of a Polarized America, 2nd ed., (New York: Pearson Education, 2006).  12  center on issues where both sides can find common ground, Bush and his advisers forefronted base issues which helped make him “a divider, not a uniter.” 18 Bush is a classic example of a president who had advisers geared towards a very narrow reelection effort but largely failed in developing a lasting legacy that appealed to the national interest. A Theory of Presidential Adviser Selection This dissertation sets out a working theory where presidential adviser selection, or the set of advisers a president selects on assuming office or on being reelected, is broken down into the four categories (See Figure 1.1). The diagram below represents the processes that can account for presidential adviser selection. The factors that can affect adviser selection are 1) divided government; 2) pressure from the base (on specific issues); 3) perceived electoral threat which is determined by the size of the electoral college and popular vote victories; and a tendency to firm views dependent on the decision making style of the president and whether they are: 4a) a selective purchaser or, 4b) a passive consumer of advice, and 4c) the saliency of issues to the president (on specific issues).  18  Jacobson, A Divider, Not a Uniter: George W. Bush and the American People.  13  Figure 1.1 Presidential Adviser Selection  Presidential decisionmaking style [selective vs. passive]  Tendency to firm views [maybe off-center]  High Salience to president [issue specific]  Core Constituency or Base Pressure [issue specific]  Presidential adviser selection (4 types: ideologues, policy, political, honest brokers)  Divided Government  Electoral Threat perceived  Divided government is a strong determinant, especially for an incoming president. If a president knows he will be facing a Congress of the opposing party, it is likely he will not inundate his White House advisory system with an overwhelming number of those representing the party’s base. If he did saturate his staff with ideologues, it is likely many of the president’s policies would simply be shot down by Congress. However, if a president faces a unified government, and/or if his party picked up one or both houses in the  14  presidential election year, he may be inclined to add more of these off-center advisers, given that Congress is likely to be more favorable to party base positions and the momentum of the party in light of the recent election. An example of this was Reagan’s 1980 election and the Republican pickup of the Senate. Reagan responded with an advisory system that included a number of ideologues in key positions that he brought on board to deliver on his campaign promises. Core constituency pressure affects adviser selection as well. If a president is beholden to the base on particular issues, he may be inclined to include off-center entrepreneurs in his White House with specific tasks to develop and formulate policy to appeal to this core group. Bush’s establishment of the White House Office of Faith Based Initiatives is an example of this kind of adviser selection for the purposes of placating the base on specific issues. Further, the Clinton health care task force and some of the key advisers on that issue represented the Democratic Party’s base issue of establishing universal health care coverage. The electoral threat is also another key factor. A president winning a large Electoral College victory and/or a majority of the votes and claiming a clear mandate from the voters (although all presidents claim a mandate) can affect adviser selection. A big win should encourage a president to bring more off-center advisers on board or increase their strength in the White House given the public mandate he received in the general election. A second electoral win for incumbents, or midterm elections in which the president’s party increases in support, can increase or stabilize the number of ideologues as well. The opposite is also true. A president who declines in support or public opinion but retains office may have to move to the center, as Clinton did after the 1994 midterm elections. Presidents who win narrow  15  election victories pursue off-center policies and advice from ideologues at their peril especially when concerning legacy. They may be politically successful in appealing to their party’s base but they will not expand their legacy as a leader who pursued the national interest. A prime example of this is George W. Bush. Finally, a tendency to firm views is the other influence on presidential adviser selection. This factor acts as a proxy for the president’s level of engagement in the policy debate. It will impact the kind of advice he will seek and to which kinds he will listen. For instance, do political advisers, policy advisers, or ideologues win out more often when the president functions as a passive consumer of advice (Reagan Term 2, Bush II Term 1 and Term 2) as opposed to a selective purchaser of advice (Carter, Reagan Term 1, Bush I, Clinton Term 1 and Term 2)? Whether a president is a selective purchaser or passive consumer of advice on a particular issue area will affect the kinds of advisers he selects and ultimately to whom he listens. For example, on the first set of George W. Bush tax cuts, the president campaigned on this issue, and once in office, sought off-center cuts far deeper than what the public or the median lawmaker had in mind. Given that the issue was a top priority, he enlisted his new National Economic Council Director Lawrence Lindsey and other advisers to push for the deepest cuts possible, and then once they came back with what they thought they could extract from Congress, he cut off debate, made his decision regardless of how doctrinaire his advisers’ tax policy positions were, and let the Congressional Republican leadership push it through. Alternatively, Bill Clinton often appeared to be more indecisive than the more resolute Ronald Reagan and George W. Bush by not only seeking multiple viewpoints on  16  every policy issue but analyzing and scrutinizing policies to the point of indecision. As a classic selective purchaser of advice, off-center positions would be heard but more often than not rejected in favor of triangulated positions, lacking a clear philosophically left wing orthodoxy, but ones that Clinton could negotiate through a Republican Congress to win a political and perhaps Pyrrhic policy victory. These four major factors can influence presidential adviser selection and the mix or set of advisers a president will select. Once the mix of advisers is understood for an administration, and within an administration for an individual policy area like tax and budget policy, determining the access and influence advisers have in specific policy areas, and ultimately, the outcomes of policies, whether they are off-center or not, whether they are successful or not, and the president’s legacy on the issue area, becomes clearer. Scope Conditions Presidential policies that leave the federal government consistently bankrupt is underinvestigated. In terms of evaluating the effectiveness of the mix of presidential advisers, fiscal policy is selected for testing because it is consistently the most important and dominant domestic policy area, occurring every year, and with institutional regularity. It is also the economic policy area in which the president and his staff have a great deal of control, as opposed to monetary policy and national industrial policy. Whether the United States government pursues budget surpluses or deficits or increases or decreases taxes to give the government sufficient funds in order to operate and pursue its various roles and tasks is set by each president’s fiscal policy agenda. More often than not, contemporary presidential administrations have pursued policies that lead the federal government into debt and the role  17  of presidential advisers in encouraging presidents to adopt often irresponsible and economically damaging policies is worth investigating. Fiscal policy is also comparable across administrations as it is non-episodic, and is something every president has to face every year. Presidents are required to set both tax and budget policy and therefore because of regularity and routine, it provides a policy area that can be looked at across time. The bankruptcy thesis then provides an ideal way to evaluate presidential advisers. Tax and budget policy also represents a divide in parties’ traditional philosophies of governing, about what government is about, namely low taxes, fiscal prudence and small government as keystones of the Republican Party base versus higher taxes on the wealthy and an expansionary welfare state as keystones of the Democratic Party base. Tracing adviser selection and the roles played by the four types of advisers on this issue across five administrations should allow for an adequate test of a theory of presidential adviser selection. The study goes back only as far as the Carter administration for three reasons. First, these past five administrations represent a good sample of presidents: two Democratic presidents (Carter, Clinton) and three Republican presidents (Reagan, Bush I, Bush II); two one-term presidents (Carter, Bush I) and three two-term presidents (Reagan, Clinton, Bush II); three presidents with unified government (Carter 1977-1981, Clinton 1993-1995, Bush II 2001, 2003-2007), three presidents whose party held the Senate but not the House of Representatives (Reagan 1981-1987, Clinton 2001, Bush II 2001-2002), and four presidents that faced divided government (Reagan 1987-1989, Bush I 1989-1993, Clinton 1995-2000, Bush II 2007-2009); two presidents with a large electoral college victory and a large majority of the votes (Reagan 1980, 1984, Bush 1988), two presidents with a large electoral college  18  victory but a small majority or plurality of the votes (Carter 1976, Clinton 1992, 1996), and one president with a small electoral college victory and either a small majority or a minority of the votes (Bush 2000, 2004). Second, after the institutional effects and upheaval of the Nixon era, both the fallout from the Watergate scandal and the Congressional pushback in tax and budget policy that occurred, as well as the increased politicization of the presidency through staffing changes in the EOP, particularly in the Office of Management and Budget, the dust finally settled on the Carter presidency, which was the first complete administration under which the changes to executive tax and budget policymaking took full effect. 19 Third, in the thirty-two years from Carter to Bush II, from the economic problems of the 1970s, through Reaganomics and the supply-side policies of the 1980s, into the fiscal prudence of the 1990s, and then finally to the economic mismanagement of the 2000s allows for an ideal exploration of the government bankruptcy thesis. In terms of data collection and feasibility, making the historical cut at Gerald Ford and Jimmy Carter is logical. Gleaning an appropriate level of granularity for each case and each administration becomes increasingly difficult without the benefit of elite interviews conducted with current and former advisers or those conducted by other scholars for different projects that are accessible for use in research. Research Questions and Adviser Propositions In this comparative case study, two major questions are posed. Firstly, what are the effects of the mix of advisers a president selects on the decision making process? Secondly, 19  Larry Berman, The Office of Management and Budget and the Presidency, 1921-1979, (Princeton: Princeton University Press, 1979), Hugh Heclo, "Office of Management and Budget and the Presidency: The Problem of Neutral Competence," The Public Interest 38 (1975), James P. Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act, (Boulder: Westview Press, 1979), Allen Schick, "The Budget Bureau That Was: Thoughts on the Rise, Decline, and Future of a Presidential Agency," in The Institutionalized Presidency, ed. Norman C. Thomas and Hans W. Baade, (Dobbs Ferry, NY: Oceana Publications, 1972).  19  why have presidents been unable to devise fiscal policies that have government living within its means? Both of these questions open up a unique opportunity to investigate presidential advisory systems and answering them is essential to understanding the important role that advisers play over the course of an administration. Knowing the specific conditions in place when a president assumes power, one can try to predict the combination of adviser types a president is likely to choose. However, whether this team of advisers is ultimately successful depends on how well a president utilizes the advisory system over the course of an administration and whether that mix reflects the conditions a president is forced to operate under on assuming office. The combinations of factors lead to different possible results in the initial selection of presidential advisers, with a president perhaps relying more on advice from political advisers, policy advisers, ideologues, and occasionally honest brokers. These are termed ‘adviser propositions.’ The patterns of adviser choice, based on the theory of presidential adviser selection, are as follows: 1. Presidents facing a divided government (both Houses of Congress) and with a strong perceived electoral threat (i.e. a small mandate) rely on policy and political entrepreneurs more than ideologues. 2. When an issue is important to a president and there is significant pressure from the core constituency on that particular issue, a president will rely more on ideologues. 3. A president who is a passive consumer of advice on a specific issue and has a tendency to firm views relies more on ideologues and on political advisers. 4. Presidents with a strong perceived electoral threat rely on political advisers. 5. Presidents with a strong perceived electoral threat and whose party loses seats in a midterm or a second presidential election, and/or lose one or more Houses of Congress in the middle of a president’s term, rely on honest brokers.  20  1.3 Presidential Studies: A Review of the Literature Why Case Studies and Statistical Tests and not Formal Modeling?: Positioning this Research within the Confines of Presidential Studies Presidential studies have been the domain of quantitative behavioralists, 20 qualitative institutionalists, 21 historical institutionalists, 22 and those with personal theories of the president. 23 Scholars employing the political economy approach and formal modeling have become more dominant in recent years following Terry Moe’s influential chapter on the politicized presidency 24 and after criticisms were levelled at presidential research for not keeping up with methodological trends occurring in other sub-disciplines. 25 Among the standouts in presidential studies that use the political economy approach are research on  20  George C. Edwards III, At the Margins: Presidential Leadership of Congress, (New Haven: Yale University Press, 1989), Charles O. Jones, The Presidency in a Separated System, 2nd ed., (Washington, D.C.: Brookings Institution Press, 2005), Paul C. Light, The President's Agenda: Domestic Policy Choice from Kennedy to Clinton, 3rd ed., (Baltimore: Johns Hopkins University Press, 1999), David R. Mayhew, Divided We Govern: Party Control, Lawmaking, and Investigations, 1946-2002, 2nd ed., (New Haven: Yale University Press, 2005), Aaron Wildavsky, "The Two Presidencies," Trans-Action, no. 4 (1966). 21 Colin Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, (Pittsburgh: University of Pittsburgh Press, 1986), Fred I. Greenstein, The Hidden-Hand Presidency: Eisenhower as Leader, (New York: Basic Books, 1982), Bert A. Rockman, The Leadership Question: The Presidency and the American System, (New York: Praeger, 1984). 22 Jeffrey K. Tulis, The Rhetorical Presidency, (Princeton: Princeton University Press, 1987), Richard M. Pious, The American Presidency, (New York: Basic Books, 1979), Stephen Skowronek, The Politics Presidents Make: Leadership from John Adams to George Bush, (Cambridge: Harvard University Press, 1993). 23 James David Barber, The Presidential Character: Predicting Performance in the White House, (Englewood Cliffs, NJ: Prentice-Hall, 1972), Richard Tanner Johnson, Managing the White House: An Intimate Study of the Presidency, (New York: Harper & Row, 1974), Richard P. Nathan, The Plot That Failed: Nixon and the Administrative Presidency, (New York: Wiley, 1975), Richard P. Nathan, The Administrative Presidency, (New York: Wiley, 1983), Richard E. Neustadt, Presidential Power: The Politics of Leadership, (New York: Wiley, 1960), Richard E. Neustadt, Presidential Power: The Politics of Leadership from FDR to Carter, (New York: Wiley, 1980), Richard E. Neustadt, Presidential Power and the Modern Presidents: The Politics of Leadership from Roosevelt to Reagan, (New York: Free Press, 1990), Roger B. Porter, Presidential Decision Making: The Economic Policy Board, (Cambridge: Cambridge University Press, 1980). 24 Terry M. Moe, "The Politicized Presidency," in The New Direction in American Politics, ed. John E. Chubb and Paul E. Peterson, (Washington, D.C.: Brookings Institution Press, 1985). 25 Terry M. Moe, "Presidents, Institutions, and Theory," in Researching the Presidency: Vital Questions, New Approaches, ed. George C. Edwards III, John H. Kessel, and Bert A. Rockman, (Pittsburgh: University of Pittsburgh Press, 1993), George C. Edwards III, "The Quantitative Study of the Presidency," Presidential Studies Quarterly 11, no. 2 (1981), George C. Edwards III and Stephen J. Wayne, Studying the Presidency, (Knoxville: University of Tennessee Press, 1983), Gary King, "The Methodology of Presidential Research," in Researching the Presidency: Vital Questions, New Approaches, ed. George C. Edwards III, Samuel Kernell, and Bert A. Rockman, (Pittsburgh: University of Pittsburgh Press, 1993).  21  vetoes, 26 executive orders, 27 public appeals, 28 presidential proposals, 29 and agency insulation. 30 These scholars have added a layer of complexity absent in earlier work and have shifted the locus of research from the president himself to the decisions and actions that presidents make and take. They have also moved away from attempts of providing general treatments of the presidency, attributable to the influence of the behavioral paradigm in presidency research, and have honed in on specific delineated actions and decisions. This has brought some clarity to debates around presidential power and presidential influence in policymaking. Some scholars influenced by Terry Moe (including Moe himself) are hostile to methodology other than developing formal models that are tested quantitatively and distrustful of those scholars who persist with a kind of empirical richness—of personality, style and character of presidents—that political economy approaches tend to assume away. But there is one major problem with the type of research Moe is advocating: when trying to fit formal modeling to presidential advisers, a researcher needs items to count. Vetoes, executive orders, appeals, proposals and agencies are all quantifiable, and can generate workable data-sets. Go beyond these areas, and formal modeling and political economy approaches can become more difficult to incorporate.  26  Charles M. Cameron, Veto Bargaining: Presidents and the Politics of Negative Power, (New York: Cambridge University Press, 2000), Keith Krehbiel, Pivotal Politics: A Theory of U.S. Lawmaking, (Chicago: University of Chicago Press, 1998), Nolan McCarty, "Presidential Reputation and the Veto," Economics and Politics 9, no. 1 (1997). 27 William G. Howell, Power without Persuasion: The Politics of Direct Presidential Action, (Princeton: Princeton University Press, 2003). 28 Canes-Wrone, Who Leads Whom?: Presidents, Policy, and the Public. 29 Andrew Rudalevige, Managing the President's Program: Presidential Leadership and Legislative Policy Formulation, (Princeton: Princeton University Press, 2002). 30 David E. Lewis, Presidents and the Politics of Agency Design: Political Insulation in the United States Government Bureaucracy, 1946-1997, (Stanford: Stanford University Press, 2003).  22  Further, these studies have forefronted the unilateral or prerogative powers of the president and a perceived rigidity has crept into some presidential research, as if executive orders and vetoes are the only ways to study the presidency. 31 This is a somewhat limited methodological avenue to pursue because it ignores some of the basic functions of the president. That is not to say that scholars pursuing formal modeling view the presidency within a vacuum, but their work has a tendency to hyper-enunciate what can be used to create parsimonious models that have the analytic power to generate a range of expectations about behavior. Even some scholars influenced by Moe have argued for a correction and have pursued a more mixed approach to formal modeling. 32 Case studies are therefore well-suited to research on presidential advice, and have been successfully employed in major qualitative studies in presidential literature on staffing and advising. 33 Since the number of cases is limited, a researcher can hone in on issues that repeat themselves over time and then investigate this particular case longitudinally, tracing the historical development, and checking for signs of path dependence and feedback  31  Terry M. Moe, "Presidential Power and the Power of Theory," in The Evolution of Political Knowledge, ed. Edward D. Mansfield and Richard Sisson, (Columbus: Ohio State University Press, 2004). 32 William G. Howell and Jon Pevehouse, While Dangers Gather: Congressional Checks on Presidential War Powers, (Princeton: Princeton University Press, 2007), David E. Lewis, The Politics of Presidential Appointments: Political Control and Bureaucratic Performance, (Princeton: Princeton University Press, 2008). 33 John P. Burke, Presidential Transitions: From Politics to Practice, (Boulder: Lynne Rienner Publishers, 2000), John P. Burke, Becoming President: The Bush Transition, 2000-2003, (Boulder: Lynne Rienner Publishers, 2004), Matthew J. Dickinson, Bitter Harvest: FDR, Presidential Power, and the Growth of the Presidential Branch, (New York: Cambridge University Press, 1997), Alexander L. George, "The Case for Multiple Advocacy in Making Foreign Policy," American Political Science Review 66, no. 3 (1972), Alexander L. George, Presidential Decisionmaking in Foreign Policy: The Effective Use of Information and Advice, (Boulder: Westview Press, 1980), Greenstein, The Hidden-Hand Presidency: Eisenhower as Leader, Heclo, "Office of Management and Budget and the Presidency: The Problem of Neutral Competence.", Stephen Hess and James P. Pfiffner, Organizing the Presidency, 3rd ed., (Washington, D.C.: Brookings Institution Press, 2002), Charles E. Walcott and Karen M. Hult, Governing the White House: From Hoover through LBJ, (Lawrence: University Press of Kansas, 1995), Karen M. Hult and Charles E. Walcott, Empowering the White House: Governance under Nixon, Ford, and Carter, (Lawrence: University Press of Kansas, 2004), Irving L. Janis, Groupthink: Psychological Studies of Policy Decisions and Fiascoes, 2nd ed., (Boston: Houghton Mifflin, 1982), James P. Pfiffner, The Strategic Presidency: Hitting the Ground Running, 2nd ed., (Lawrence: University Press of Kansas, 1996), Daniel E. Ponder, Good Advice: Information and Policy Making in the White House, (College Station: Texas A&M University Press, 2000).  23  mechanisms. 34 Case studies are the most useful method for giving an accurate account of the role played by advisers over the course of an administration and in building a theory of presidential adviser selection. The analytical chapters in this study are organized thematically around policies that failed politically, successful policies that had government living within its means, and offcenter policies that resulted in increased economic instability. Each chapter then does two things; it offers insight into the selection of advisers the president made on assuming the presidency, and it evaluates the macroeconomic fiscal policy decisions of an administration. Recent Research on Presidents and their Advisers A handful of scholars have recently looked at the impact and influence presidential advisers have on presidential decision making. Dickinson, Haney, and Ponder have made significant strides in revisiting hypotheses and ideas of earlier scholars, and have worked to test these in different and perhaps better ways. 35 Daniel Ponder focuses exclusively on Carter’s domestic policy staff, Patrick Haney compares cases of foreign policy crises among modern presidents, and Matthew Dickinson develops a theory of presidential advice in Franklin Roosevelt’s administration. He also uses Haney’s cases, in another article, to test his argument. Each of these scholars tracks presidential decisions through the policy process, tracing how they are developed and how a president ultimately decides. None of them specifically develop formal models and therefore are prone to criticisms from scholars such  34  Paul Pierson, "Increasing Returns, Path Dependence, and the Study of Politics," American Political Science Review 94, no. 2 (2000), Paul Pierson, Politics in Time: History, Institutions, and Social Analysis, (Princeton: Princeton University Press, 2004). 35 Ponder, Good Advice: Information and Policy Making in the White House, Dickinson, Bitter Harvest: FDR, Presidential Power, and the Growth of the Presidential Branch, Matthew J. Dickinson, "Neustadt, New Institutionalism, and Presidential Decision Making: A Theory and Test," Presidential Studies Quarterly 35, no. 2 (2005), Patrick J. Haney, Organizing for Foreign Policy Crises: Presidents, Advisers, and the Management of Decision Making, (Ann Arbor: University of Michigan Press, 1997).  24  as Moe concerning parsimony, generalizability, and political economy or institutionalist posturing. 36 Of the three studies above, Ponder’s study is perhaps the closest to the kind of research this study hopes to emulate. His thesis argues that although presidents tend to centralize policymaking authority in the White House staff, the dynamic of staff participation and consequent policy success vary from issue to issue. The dynamic nature of centralization changes not just from one presidency to another but within an administration, and from issue to issue. Ponder argues that presidents seek advice from myriad sources to maximize the chances for policy and political success. But his focus on Carter’s domestic policy staff pays particular attention to external participants in the formulation of policy. He argues that the participation levels of staff members shift depending on factors such as scope and breadth of the policy under consideration, the nature of the political contagions surrounding the issue and the level of presidential interest. His major contribution is a concept known as “staff shift” which concerns the level of participation exerted by presidential staff members. Depending on the degree of policy formulation exhibited by the staff, staff can act as director of policy, in which it is fully centralized, as facilitator, where it acts in tandem with bureaucracy and affected groups, or as monitor, in which policy has been delegated to bureaucracy. Ponder’s tracing of policies through various participants offers a compelling understanding of how policy works its way to the president. Unlike Ponder, this research does not wish to explore the entire policy process. Instead, it concentrates specifically on the  36  Andrew Rudalevige, "Review of Good Advice: Information and Policy Making in the White House," American Political Science Review 95, no. 1 (2001).  25  WHO and EOP advisers, their folkways and their specific roles within the domestic advisory system of the president. The reason the WHO and EOP in-house advisers are so important, and require specific attention, is that they can restrict, temper, and ultimately present policy ideas to the president through their own policy lenses. They are the last stop along the policy line, and investigating what they do with and how they present policies to the president is the focus of the research. The work of Matthew Dickinson and Andrew Rudalevige stakes out a middle ground of sorts, between adapting the ideas of scholars from the behavioral era and utilizing some political economy methodological techniques. Rudalevige employs both particularly well in his study on managing the president’s policy program. 37 Dickinson outlines what ails presidential studies currently. 38 Adding to his full length study of Franklin Roosevelt’s advisers, Dickinson uses transaction-cost economics to argue that presidential staff growth reflects not a presidential demand-side growth that came about with the post-World War II increase in government size and complexity but a supply-side growth in presidents’ search for information and expertise with which to reduce bargaining uncertainty. He essentially builds on Richard Neustadt’s insights into presidential staffing and offers a dynamic interpretation of staff structures and staff practices that might best suit the president. His theory and test are important because they incorporate work by earlier scholars while paying heed to political economy approaches. Dickinson systematizes the earlier findings of Neustadt but his research is extremely limited and as noted above, relies only on re-testing Haney’s foreign policy cases.  37  Rudalevige, Managing the President's Program: Presidential Leadership and Legislative Policy Formulation. 38 Dickinson, "Neustadt, New Institutionalism, and Presidential Decision Making: A Theory and Test."  26  Dickinson’s article is useful for this dissertation because he sets out a future research agenda for presidency scholars interested in how presidents utilize advisers in the decision making process. The problems he articulates with respect to current presidential research in political science are threefold. First, research should look more closely at the types of information presidential advisers and staffs have provided. Second, traditional typologies of staff organization and decision making should be reformulated into testable hypotheses. Third, to test these hypotheses systematically, scholars need to compile and examine a representative sample of presidential decisions, much of which exists in a rich body of case material on presidential decision making. Dickinson believes that scholars who follow this research agenda will be better positioned to judge the efficiency and effectiveness of different presidential advisory structures. This study takes into account Dickinson’s concerns and aims to remedy a number of the aforementioned shortcomings. 1.4 Research Design: Methodology, Case Selection and Data Collection Methodology and Case Selection A comparative case study of presidential adviser selection and the role played by advisers in tax and budget policy (macroeconomic fiscal policy) is conducted across the last five presidential administrations (1977-2009). Cases of important tax and budget enactments are selected, as defined by David Mayhew’s list of important Congressional enactments, from Carter through Bush II. 39 They include major budgets and budget legislation, reconciliation acts with Congress and major tax legislation. There are at least thirty possible observations. The data yields comparability among and across administrations because the policy area is held constant, and consequently is restricted to time-limited incidents, or statics, that 39  Mayhew, Divided We Govern: Party Control, Lawmaking, and Investigations, 1946-2002.  27  are bracketed by historical processes. While the comparative case study addresses how a president selects advisers, further analysis is required to explain how those advisers interact day-to-day and across the course of a presidential term or an administration. For example, how can the tax and budget policy efforts of the Bush II administration be thoroughly analyzed and studied without placing them in the context of the focusing event of the 9/11 terrorist attacks, the global war on terror, and the Iraq war that has ensued. What is missing are the historical dynamics and factors, the thick description and context that come into play in how a president utilizes his advisers. This case study seeks to incorporate the basic research agenda of the new institutionalism, as defined by March and Olsen, and the rich, empirical tradition of presidential studies literature based on thick description, archival material, elite interviews, and firsthand accounts. 40 In this way, it pays debt to the American political development and historical institutional research, in constructing a coherent and compelling narrative of institutional developments of fiscal policy in the presidential inner circle advisory system. This nexus of new institutionalist and historical institutionalist approaches within this research program will yield a nuanced and granular understanding of the inner circle. This is necessary to get to the heart of this apex of the White House world, that complex relationship between presidents and their inner circle. Data Collection For data sources, elite interviews have been conducted with current and former presidential advisers. In this type of case study research, and research in which qualitative methodology is essential to understanding and testing causal explanations, elite interviewing  40  James G. March and Johan P. Olsen, "The New Institutionalism: Organizational Factors in Political Life," American Political Science Review 78 (1984).  28  is perhaps the best source of data. 41 The study relies also on a large set of interviews conducted by Colin Campbell, from a previous project on the Carter and Reagan administrations, and on the Miller Center of Public Affairs at the University of Virginia’s Presidential Oral Histories Project, which has an extensive set of interviews with presidential advisers in their publicly accessible database. Close inspection and analysis of original documents, such as the actual legislation and policy proposals, is also essential to understand what ideas generated by staff were included in the final product. In choosing the area of tax and budget policy and selecting the five most recent presidential administrations, there is a multitude of previous academic work that has been conducted, and this research is utilized as well. Further, archival sources are used; newspaper reports and editorials and magazine articles, firsthand accounts, biographies and autobiographies, 42 and in particular definitive journalistic insider accounts of presidents and presidential administrations. 43  41  Joel D. Aberbach and Bert A. Rockman, "Conducting and Coding Elite Interviews," P.S.: Political Science and Politics 35, no. 4 (2003), Robert S. Weiss, Learning from Strangers: The Art and Method of Qualitative Interview Studies, (New York: Free Press, 1994). 42 Sidney Blumenthal, The Clinton Wars, (New York: Farrar, Straus and Giroux, 2003), George W. Bush, A Charge to Keep, (New York: Morrow, 1999), George Bush, All the Best, George Bush: My Life in Letters and Other Writings, (New York, NY: Scribner, 1999), Lou Cannon, President Reagan: The Role of a Lifetime, (New York: Simon & Schuster, 1991), Jimmy Carter, Keeping Faith: Memoirs of a President, (New York: Bantam Books, 1982), Hillary Rodham Clinton, Living History, (New York: Simon & Schuster, 2003), Bill Clinton, My Life, (New York: Knopf, 2004), Richard Darman, Who's in Control?: Polar Politics and the Sensible Center, (New York: Simon & Schuster, 1996), John J. DiIulio, "A View from Within," in The George W. Bush Presidency: An Early Assessment, ed. Fred I. Greenstein, (Baltimore: Johns Hopkins University Press, 2003), Ron Suskind, "Why Are These Men Laughing?," Esquire, January 2003, Ron Suskind, The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neill, (New York: Simon & Schuster, 2004), David Frum, The Right Man: The Surprise Presidency of George W. Bush, (New York: Random House, 2003), David R. Gergen, Eyewitness to Power: The Essence of Leadership: Nixon to Clinton, (New York: Simon & Schuster, 2000), Michael J. Gerson, Heroic Conservatism: Why Republicans Need to Embrace America's Ideals (and Why They Deserve to Fail If They Don't), (San Francisco: HarperSanFrancisco, 2007), Hamilton Jordan, Crisis: The Last Year of the Carter Presidency, (New York: Putnam, 1982), David Kuo, Tempting Faith: An Inside Story of Political Seduction, (New York: Free Press, 2006), Edwin Meese III, With Reagan: The Inside Story, (Washington, D.C.: Regnery Gateway, 1992), Dick Morris, Behind the Oval Office: Getting Reelected against All Odds, 2nd ed., (Los Angeles: Renaissance Books, 1999), William A. Niskanen, Reaganomics: An Insider's Account of the Policies and the People, (New York: Oxford University Press, 1988), Jody Powell, The Other Side of the Story, (New York: Morrow, 1984), Ronald Reagan and Douglas Brinkley,  29  Finally, the hypothesis that ideologues and political advisers, when in control of White House decision making on fiscal policy, can help push the president off of a fiscally competent path, is tested quantitatively. Difference of means tests and regression analysis is done to show that the economic advisers that presidents select can and do impact tax and spending policy. Categorization of Presidential Advisers 1.5 Conclusion and Outline of this Study This study focuses on presidential advisers across five administrations, and on how well presidents utilize their advisory system on tax and budget policy. It will present a theory and a test of presidential adviser selection, and will attempt to explain how the access and influence of inner circle advisers affects how the president makes decisions. This project will further the research in an under-developed area of presidential studies, namely the The Reagan Diaries, (New York: HarperCollins, 2007), Donald T. Regan, For the Record: From Wall Street to Washington, (New York: Harcourt Brace Jovanovich, 1988), Robert B. Reich, Locked in the Cabinet, (New York: Knopf, 1997), Roberts, The Supply-Side Revolution: An Insider's Account of Policymaking in Washington, Stockman, The Triumph of Politics: How the Reagan Revolution Failed, Robert E. Rubin and Jacob Weisberg, In an Uncertain World: Tough Choices from Wall Street to Washington, (New York: Random House, 2003), Gene B. Sperling, The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity, (New York: Simon & Schuster, 2005), George Stephanopoulos, All Too Human: A Political Education, (Boston: Little, Brown, 1999), Michael Waldman, POTUS Speaks: Finding the Words That Defined the Clinton Presidency, (New York: Simon & Schuster, 2000), Scott McLellan, What Happened: Inside the Bush White House and Washington's Culture of Deception, (New York: PublicAffairs, 2008), James Fallows, "The Passionless Presidency: The Trouble with Jimmy Carter's Administration," The Atlantic Monthly, May 1979. 43 Elizabeth Drew, On the Edge: The Clinton Presidency, (New York: Simon & Schuster, 1994), Elizabeth Drew, Showdown: The Struggle between the Gingrich Congress and the Clinton White House, (New York: Simon & Schuster, 1996), Richard E. Cohen, Changing Course in Washington: Clinton and the New Congress, (New York: Macmillan, 1994), Jeffrey H. Birnbaum and Alan S. Murray, Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform, (New York: Random House, 1987), Frank Bruni, Ambling into History: The Unlikely Odyssey of George W. Bush, (New York: HarperCollins, 2002), Robert Draper, Dead Certain: The Presidency of George W. Bush, (New York: Free Press, 2007), John F. Harris, The Survivor: Bill Clinton in the White House, (New York: Random House, 2005), Joe Klein, The Natural: The Misunderstood Presidency of Bill Clinton, (New York: Doubleday, 2002), James Mann, Rise of the Vulcans: The History of Bush's War Cabinet, (New York: Viking, 2004), Bill Minutaglio, First Son: George W. Bush and the Bush Family Dynasty, (New York: Times Books, 1999), Bob Woodward, The Agenda: Inside the Clinton White House, (New York: Simon & Schuster, 1994), Bob Woodward, The Choice: How Bill Clinton Won, (New York: Simon & Schuster, 1996), Bob Woodward, Bush at War, (New York: Simon & Schuster, 2002), Bob Woodward, Plan of Attack, (New York: Simon & Schuster, 2004), Bob Woodward, State of Denial: Bush at War, Part III, (New York: Simon & Schuster, 2006), Bob Woodward, The War Within: A Secret White House History 2006-2008, (New York: Simon & Schuster, 2008).  30  relationship between presidents and their closest advisers, and will add to the strong research on presidential advisers done by Dickinson, Ponder and Rudalevige. This study is broken down into two theoretical and three analytical chapters. The next chapter focuses on the president’s role in tax and budget policy, and provides a history and review of the literature. It also explains and delineates the key economic advisory roles in a president’s domestic policy advisory system. The third chapter focuses on politically unsuccessful attempts at controlling spending and striking balance in taxation. These are the presidencies of Jimmy Carter and his struggles with both his advisers and tax and budget policy in the late 1970s, and the first Bush administration and the limitations of continuing the Reagan legacy in tax and budget policy. The fourth chapter concerns off-center approaches to taxing and spending that resulted in massive deficits and economic instability. This looks at Ronald Reagan and his two terms presiding over a shift in fiscal policy in the 1980s, and on the Bush II administration and its reversal of the fiscal prudence practiced by Clinton. The fifth chapter looks at successful attempts to develop fiscal policies government can afford. It focuses on the eight years of Bill Clinton’s presidency and the ways in which a centrist ‘New Democrat’ navigated fiscal policy in a hostile political environment. The sixth chapter looks at advisers quantitatively and analyzes their impact on tax and budget decisions, testing the impact of advisory selection on the fiscal policies presidents pursue. It also looks at whether the advisory arrangements described in detail in the three preceding chapters are accurate.  31  Finally, it concludes with a chapter that develops an argument about the beneficial consequences of mixed adviser sets, and the need for future presidents, and in particular the current Obama administration, to ensure that they structure their advisory system in such a way that they do not get cut off from certain types of advice. It also links presidential advisory systems to the larger theoretical debates about democracy and the concentration of power in the hands of unelected individuals.  32  Chapter 2: The Fiscal Policy Inner Circle and Presidential Stewardship of the Economy Over the course of the past five presidential administrations, the American economy has expanded and contracted five times, bracketed by five periods of recession. The first was between 1980 and 1982, following limited economic growth under Jimmy Carter, and occurring under Ronald Reagan’s watch. It went into a decline in 1987-1988 as well. Climbing out in the late-1980s, the American economy continued to expand until well into the George H.W. Bush administration, in which a contractionary period lasted from 1990 to 1992. Sustained peace and prosperity under Bill Clinton as the technology sector dramatically drove the American economy continued until 2001, when as George W. Bush took the helm, the American economy contracted for a fourth time, from 2001 until 2003 following the events of 9/11. Finally, with economic indicators expanding, driven by housing sales, the economy again took a steep dive in 2007-2008, brought on by a combined credit and mortgage crisis partly as a result of inadequate financial oversight and leading to a major stock market readjustment. The economic turmoil of the 1970s, and arguably the 1920s and 1930s, has returned again as a period of severe recession in 2009 continues to linger. The responses by presidential administrations to managing the economy have differed in a number of ways. Operating in a political environment, presidents have for the most part followed policies that help them politically but have not been of great benefit for improving the economy. Reckless and irresponsible fiscal policies have exacerbated the effects of recessions, most notably during the presidencies of Reagan and Bush II. Presidents Carter and Bush I both attempted to manage the economy by applying prudent and economically  33  sound fiscal practices of deficit control and increased taxes. But their execution of these policies helped cost them second terms. Only Clinton was able to chart a fiscal policy course that tackled long-term economic problems by eliminating the federal government’s annual deficit. His economic stewardship was pivotal in making him a politically successful two-term president. Partly as a result of smart first term policy decisions, Clinton was able to enjoy a period of sustained economic growth. He also benefitted from an ability to focus on fiscal policy that had government living within its means. Clinton ironically was helped in the long term by a Republican Congress that had been calling for fiscal prudence and smaller government and for a brief time a Democratic president and a Republican Congress aligned on fiscal policy. That bipartisanship however was not to last. Reagan and Bush II adhered to far more ideological policy choices, buying into a low tax ethos that twice led to periods of massive government deficits while failing to cut spending in the aggregate. By the conclusion of Bush II’s second term, annual budget deficits had returned to a level of 3% of gross domestic product, reversing the fiscal prudence of the Clinton years. The record deficits of the Reagan years were bettered at the end of the Bush II years, with a deficit in 2009 well over $1 trillion. Since 2002, there has also been an explosion in public debt, averaging about 5% of GDP per year and escalating even more in 2008 and 2009. How did this happen? How did two politically successful two-term Republican presidents representing a political party that supposedly believed strongly in fiscal discipline, lower taxes, and small government dramatically increase government spending while doing little or nothing to curtail government deficits? How did a Democratic president whose party  34  believed in increasing the size and scope of government programs and spending balance the budget and incorporate fiscally responsible measures over a decade? And how did a Democratic and a Republican president, who each tried to adhere to economic management that responded appropriately to changes in the economy, ultimately lose support with members of their respective parties over fiscal policy which in part demonstrably hurt their reelection bids? The answers to all of these questions are bound up with presidents and the advice they received from their economic policy inner circle. In his memoir of the 1990s and 2000s, former Chairman of the Federal Reserve Alan Greenspan called this era ‘the age of turbulence.’ 44 While it may not live up to the upheavals that occurred in the 1920s and 1930s, the economic policies of the 2000s and 2010s offer a dramatic warning to current and future executives. Simply put, no matter what crisis, foreign or domestic, is occurring during the course of an administration, stewardship of the economy is a presidential responsibility at all times. Lose that focus, give in to economic policies that do not benefit most of the people most of the time, and presidents risk undermining everything they hope to achieve. Unfortunately, presidents do not have direct control over large sections of the American economy or even control over areas of government responsibility such as monetary policy. Further, trying to navigate the economic business cycle within a four year term timeframe is difficult. Presidents want to time economic policies to have the most positive effects in a reelection year. Sometimes they are able to benefit and sometimes they face the consequences during an economic downturn. In the federal government’s macroeconomic fiscal policy, presidential involvement equates to agenda setting status and tremendous influence over the final outcome. Presidents set tax policy and presidents introduce the 44  Alan Greenspan, The Age of Turbulence: Adventures in a New World, (New York: Penguin Press, 2007).  35  federal budget, and with the support of Congress, they guide the stewardship of the American economy. But that is both a blessing and a curse since presidents can have the upper hand institutionally in negotiating fiscal policy on their terms but when the economy suffers, they are the first to be blamed. In this chapter, the key economic advisory roles in a president’s advisory system will be delineated and the president’s role in tax and budget policy will be explored. The two key themes referred to throughout this chapter are one, that the kinds of fiscal policy decisions presidents make are enormously influenced by those they select for their economic inner circle and two, that while economic stewardship is part of a president’s responsibility, contemporary presidents have made poor fiscal managers. Those presidents who veer away from policies which reflect sensitivity to prevailing economic conditions do so at their own peril, both politically and in terms of their legacy. On fiscal policy issues, presidents whose key advisers on the economy lead them astray from fiscal competence risk their entire presidency. If government is not living within its means, that is if policies do not work towards balancing the budget, eliminating structural deficits, paying down the national debt, and providing responsible taxation, presidents risk irreparable damage to their presidency. 2.1 The Economic Advisory System in the White House In the 1970s, Hugh Heclo described a Washington that was increasingly captured by open issue networks of people looking to influence policy direction in government at all levels. 45 Heclo’s term re-evaluated the notion of the central importance of the iron triangle but also had implications for the presidency and how and where advice can enter the inner sanctum of the Oval Office. Presidents can seek and utilize advice from anywhere. Close  45  Hugh Heclo, "Issue Networks and the Executive Establishment," in The New American Political System, ed. Anthony King, (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1978).  36  friends and associates might help them work out policy details, structure political messages, even write speeches. The president, too, has an issue network, diffuse and ill-defined as the ones Heclo described. But he also must rely on a core set of advisers to control access to him, to guide him in the decision making process at all times, not just on an individual issue. Most importantly, advisers need to help the president navigate through all of the potential roadblocks, opinions, and institutional constraints that will impede on him in making virtually any decision. For our purposes, a distinction is made in which ‘inner circle advisers’ are those within one or both of the White House Office and the Executive Office of the President. While the president has other key sources of economic advice, most notably his Treasury Secretary, inside the White House there are four key sources to which the president will turn for economic advice: the Director of the Office of Management and Budget, the Chairman of the Council of Economic Advisers, the Director of the National Economic Council, and a president’s various White House advisers that assist with the formation of economic policy. The final of these sources can vary in title and stature depending on the administration. On fiscal matters, the Office of Management and Budget (OMB) and the Council of Economic Advisers (CEA) are within the EOP. The National Economic Council (NEC) and the assistants to the president for economic and domestic policy are within the WHO. Both the OMB director and the Chairman of the CEA require Senate approval. The other key economic positions do not. The cabinet, including the Treasury Secretary, are excluded in this definition precisely because they have responsibilities not just to the president but to their own departments such as managing a large bureaucracy. Although a crude measure in many  37  respects, in making this cut with the WHO and EOP the research can be focused on principal or inner circle advisers, those that come to represent the president’s cadre of closest and most trusted people from policy, political, ideological and honest broker perspectives. The inner circle also shifts over the course of the presidency, as advisers come and go or their influence ebbs and flows with the president. For example, when Jimmy Carter became president, his first OMB Director was a key inner circle member but as his star faded after a scandal, other advisers took his place. These examples appear in every administration so charting the changes within the inner circle is necessary to glean how influential particular advisers are when they arrive in the White House and then how influential they still are when they leave. Categorization of Presidential Advisers Advisers can be classified in one of the four ideal type categories based on the way in which they performed their duties in the White House. Throughout the next three chapters, the economic advisers in each term of each of the five administrations are broken down in tables to differentiate one adviser from another. Where the adviser is an inner circle adviser, this is noted. The process of categorization was based on extensive discussion with experts as well as a formula for determining where each adviser fit. First, we can determine how an adviser will behave at the point of being chosen, with only the facts about the person available to the president at the time of the individual’s appointment. But how advisers act during an administration may not be in keeping with how a president expected them to perform. For example, a policy person may end up being far more effective as a political adviser. Generally, the advisers studied here tend to perform as selected but note that advisers can change types over time. Very few actually do, and usually only when their role  38  or job shifts from one term or administration to another. Where it is obvious in matters of tax and budget policy, the advisers that change over an administration will be noted. Second, for two of the categories, ideologue and honest broker, the classification is straightforward. Their input in the economic policy process and how they conducted their advisory role are taken into account. Most ideologues and honest brokers often self-apply themselves as such so the distinction with these advisers is clear. Third, for the political and policy advisers, a distinction is made based on the actual job description of the adviser. Many are predetermined given their role in the White House. For example, Congressional Liaison is an inherently political position and all the advisers that have played the role of conduit between the White House and Congress are political advisers. While it can be argued there is some arbitrariness to the categorization, and as noted, there can be some overlap in an adviser matching two or more ideal types, the key advisers are classified based on as much data available. 2.2 The OMB Director Richard Nixon created the Office of Management and Budget as part of a larger attempt to restructure not only the White House but the top levels of the public service. 46 This culminated in Reorganization Plan 2 of 1970 which created the OMB in the EOP and a Domestic Council within the WHO. Nixon envisioned that the Domestic Council would  46  With the budget process behind the spending control curve, Richard Nixon sought to implement changes in the Bureau of the Budget (BOB) that had begun with the Heineman Task Force under Lyndon Johnson. In 1968, he appointed the Lindsay Task Force, whose transition recommendations metamorphasized by 1970 into a series of recommendations developed by the President’s Advisory Council on Executive Organization (the Ash Council) that captured Nixon’s ideas to restructure the White House. See Dwight Ink, "The Ash Council Recommendations," in Triumphs and Tragedies of the Modern Presidency: Seventy-Six Case Studies in Presidential Leadership, ed. David M. Abshire, (Westport: Praeger, 2001), 254-265, Richard Rose, Managing Presidential Objectives, (New York: Free Press, 1976), 47-57.  39  decide “what we do” while the OMB would decide “how we do it, and how well we do it.” 47 He then appointed George Shultz, his Labor Secretary, as OMB director. This made the agency “more overtly political” with Shultz moving “his office into the West Wing and a layer of six newly appointed Program Associate Directors (PADs)” added to oversee the reworked program divisions. 48 The alteration helped make the OMB director’s priority ‘responsive competence,’ budget forecasts and fiscal judgment linked to Nixon’s best interests in the political environment. 49 Dickinson and Rudalevige argue this politicization was rooted in the philosophies of government of the two parties. In their historical case study of the Bureau of the Budget under Truman, they contend that “simply put, Truman believed that government could help solve public problems, while Nixon and his Republican successors more often viewed government programs as a source of these problems.” 50 The relabeling of BOB as OMB was approved by Congress partly because of a general consensus in Washington that the budget process was broken. By 1974, following Nixon’s resignation and after the impoundment and spending controversies, the president’s free hand in budgeting would be tempered by more oversight from Congress with a more  47  Quoted in Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act, 21, Andrew Rudalevige, "The "M" In OMB: The Office of Management and Budget and Presidential Leadership of the Executive Branch, 1939-2003" (paper presented at the 2003 Annual Meeting of the American Political Science Association, 2003), 8. 48 Rudalevige, "The "M" In OMB: The Office of Management and Budget and Presidential Leadership of the Executive Branch, 1939-2003", 8. 49 Heclo, "Office of Management and Budget and the Presidency: The Problem of Neutral Competence.", Moe, "The Politicized Presidency." 50 Matthew J. Dickinson and Andrew Rudalevige, "Presidents, Responsiveness, and Competence: Revisiting the ‘Golden Age’ at the Bureau of the Budget," Political Science Quarterly 119 (2004): 26-27.  40  active leadership watching over presidential budgeting and an OMB equivalent working on behalf of Congress, the Congressional Budget Office (CBO). 51 Gerald Ford inherited a damaged presidency in which the OMB was seen as one of the worst legacies of the Nixon era. Despite the watchdog mentality of Congress and a period of more open government in the immediate post-Watergate years, Nixon’s institutional changes remained in place and the OMB continued to be politicized, and would even be made further responsive by successive administrations. 52 Ford’s senior White House advisers, Donald Rumsfeld and Dick Cheney, “singled out OMB for playing too dominant a role during the Watergate period and recommended that OMB’s powers be curtailed.” 53 Under James Lynn, director once Ford found his footing, the OMB would rebound but with the CBO, the House and Senate budget committees, statutory curbs on impoundment, and confirmation requirements for the director and deputy director, the responsive OMB Nixon had envisioned was constricted. But it was not to last as the impulse to politicize OMB made it a powerful weapon in the presidential arsenal. Since Reagan, the OMB Director is no longer a neutrally competent position. 2.3 The Chairman of the CEA The Council of Economic Advisers (CEA) was founded under Harry Truman and given Congressional approval in the Employment Act of 1946. The Act called for the president to transmit a comprehensive economic report to Congress at the beginning of each 51  Nixon’s changes coincided with the Watergate scandal as his closest advisers became mired in the cover-up and in protecting the president. The OMB, and its second director Roy Ash, began coordinating the day-to-day operations of the government from within the EOP. Referred to as “the Office of Meddling and Bumbling, an appellation characterizing its almost intolerable interference in the internal management processes of departments and agencies,” Ash also took over the duties of the Domestic Council, as the investigation closed in around John Ehrlichman and other Domestic Council advisers. See Berman, The Office of Management and Budget and the Presidency, 1921-1979, ix, 125, 127. 52 Frederick C. Mosher, A Tale of Two Agencies: A Comparative Analysis of the General Accounting Office and the Office of Management and Budget, (Baton Rouge: Louisiana State University Press, 1984), 134-135. 53 Berman, The Office of Management and Budget and the Presidency, 1921-1979, ix, 125, 127.  41  regular session, with other reports to be transmitted at his discretion. 54 The CEA’s duties were to focus on fiscal policy and economic forecasting and allow the BOB to concentrate on expenditure issues. As Naveh summarizes, the CEA’s charge was to assist and advise the president in the preparation of the economic report; to gather, analyze and interpret information on economic trends and developments; to appraise the various programs and activities of the government; to take the pulse of the economy; and to produce studies and reports when required by the president. 55 The CEA’s influence still rises and falls with how the personal relationship between the chairman and the president develops. Its role as the integral depository of economic analysis can be strengthened or weakened depending on who is on the three person council. A chairman seen as out of touch with the president’s needs loses influence vis-à-vis the other sources of economic advice in the White House. The first CEA Chairman, Edwin Nourse, stressed that the CEA was to be a nonpolitical entity: Its advice is in terms of economics, not politics…The President has always had ample sources of political advice. In setting up the Council, Congress saw no need for adding another. It did see the need for establishing an agency on the professional plane to place before the President the best advice obtainable from objective economic analysis inside and outside the government. 56  The urge to politicize the CEA was resisted for a time but as Widmaier argues, even Leon Keyserling, the second Chairman, altered the role to serve more as an administration spokesperson rather than a neutral academic. 57 In the 1970s, as the OMB became more responsive to the political needs of the president, the CEA maintained a degree of autonomy 54  Edwin G. Nourse and Bertram M. Gross, "The Role of the Council of Economic Advisers," American Political Science Review 42, no. 2 (1948): 285. 55 David Naveh, "The Political Role of Academic Advisers: The Case of the U.S. President's Council of Economic Advisers, 1946-1976," Presidential Studies Quarterly 11 (1981): 493. 56 Nourse and Gross, "The Role of the Council of Economic Advisers," 290. 57 Wesley W. Widmaier, "Where You Stand Depends on How You Think: Economic Ideas, the Decline of the Council of Economic Advisers and the Rise of the Federal Reserve," New Political Economy 12, no. 1 (2007): 48.  42  and neutrality but this was more bound up with its institutional position. Unlike the BOB and later the OMB, which sits “astride a flow of business that supports them from below,” the CEA chairman was “suspended from above” with direct access to the president ensured without the divided and competing loyalties that plagued BOB directors. 58 The CEA is newly created with each administration; in other words, there is no institutional memory, it is a council as opposed to a bureaucracy, and it established a reputation for neutrality that survived attempts through President Ford to politicize it. As Walter Heller and Roger Porter both suggest, it is precisely these attributes that made it unique in the White House advisory system. 59 Its honest broker status contributed and reinforced its powerful position in the economic advisory network. 60 But that changed when the Keynesian consensus fell apart in the 1970s and different kinds of economists were selected for the CEA That perceived academic independence has not changed in the last thirty years. But there is no longer a neutrality among the CEA and the Chairman has assumed a politicized direction akin to the OMB Director despite admirable defenses of the independence of the position. 61 The politicization was made definitive when Reagan’s first CEA Chairmen Murray Weidenbaum resigned because he could not support presidential policy on taxes and  58  Walter W. Heller, "Economic Policy Advisers," in The Presidential Advisory System, ed. Thomas E. Cronin and Sanford D. Greenberg, (New York: Harper & Row, 1969), 37. 59 Ibid., 37-38, Roger B. Porter, "Presidents and Economists: The Council of Economic Advisers," American Economic Review 87, no. 2 (1997): 103-104. 60 For apt descriptions of the roles CEA chairmen played in key economic decisions prior to Carter, for Eisenhower, see M. Stephen Weatherford, "Presidential Leadership and Ideological Consistency: Were There “Two Eisenhowers” in Economic Policy?," Studies in American Political Development 16 (2002), M. Stephen Weatherford, "Responsiveness and Deliberation in Divided Government: Presidential Leadership in Tax Policy Making," British Journal of Political Science 24, no. 1 (1994).; for Johnson, see Heller, "Economic Policy Advisers.", John W. Sloan, "Economic Policymaking in the Johnson and Ford Administrations," Presidential Studies Quarterly 20, no. 1 (1990).; for Nixon, see Paul W. McCracken, "Economic Policy in the Nixon Years," Presidential Studies Quarterly 26, no. 1 (1996).; and for Ford, see Sloan, "Economic Policymaking in the Johnson and Ford Administrations.", Porter, Presidential Decision Making: The Economic Policy Board. 61 See Joseph E. Stiglitz, "Looking out for the National Interest: The Principles of the Council of Economic Advisers," The American Economic Review 87, no. 2 (1997): 110, 113.  43  the long term fiscal direction of the administration. 62 Today, some CEA Chairmen have been more influential than others, some operating in the background and others, like Charles Schultze under Carter and Michael Boskin under Bush I, more prominent. 63 2.4 The National Economic Council Since the early 1990s both the OMB Director and the CEA Chairman are now part of a more organized economic team within the National Economic Council that includes the key White House economic advisers and the Treasury Secretary. As economic stewardship plays the key domestic role for every administration, Bill Clinton created the NEC by executive order to oversee all White House economic policies. It functions as the coordinating body for the president’s economic advisers and since its inception the NEC Director has assumed the role as lead adviser on the economy. 64 The creation of the NEC actually began under Gerald Ford who instigated the first of a series of presidential attempts at this type of coordination. With two key sources for economic advice in the EOP, the WHO lacked a formal mechanism or institutional arrangement for economic policy coordination. Ford created the Economic Policy Board (EPB), directed by William Seidman, to help coordinate the economic affairs of the White House. The EPB was preceded by Nixon’s Council on Economic Policy which was located within the White House and headed by George Shultz and then Kenneth Rush. While its influence waned with the Watergate investigation, it rematerialized as the EPB which was  62  Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 118. G. Calvin Mackenzie and Saranna Thornton, Bucking the Deficit: Economic Policymaking in America, (Boulder: Westview Press, 1996), 83-84. 64 I. M. Destler, The National Economic Council: A Work in Progress, (Washington, D.C.: Institute for International Economics, 1996). 63  44  much more useful at coordinating between the economic agencies and utilized a multiple advocacy approach to decision-making. 65 Porter describes its role: While the EPB’s primary function was organizing the flow of information and advice to the President for his decisions on economic policy issues, the Executive Committee also…exchanged information among the administration’s leading economic officials…resolved disputes between member departments and agencies, coordinated the activities of several statutory councils and committees, and served as the place where the major White House policy-making entities responsible for advising the President met and coordinated their activities. 66  But its policy decision execution proved cumbersome with too many centers of advice and no one economic adviser able to speak for everyone. Former CEA Chairman Alan Greenspan suggests that the CEA and the inner circle advisers actually played a larger decision making role. “On macro policy questions [the EPB] was not an efficient mechanism, and therefore we really worked around it in the key decision making processes.” 67 Each subsequent administration would change the title and the functions of its economic policy coordinating unit. Carter established the Economic Policy Group, cochaired by the Treasury Secretary and the CEA Chairman. Reagan abolished that in favor of several cabinet councils, of which only two met with regularity, one of which was Economic Affairs. In Reagan’s second term, the councils were reconfigured into two councils, the Economic Policy and Domestic Policy councils, both of which survived through the George H.W. Bush administration. Clinton then established the NEC, which George W. Bush continued. The NEC Director is now seen as the major White House spokesperson on economic policies and the central coordinator of both the OMB and CEA as well as Treasury. 65  See Porter, Presidential Decision Making: The Economic Policy Board, Roger B. Porter, "The President and Economic Policy: Problems, Patterns, and Alternatives," in The Illusion of Presidential Government, ed. Lester M. Salamon and Hugh Heclo, (Boulder: Westview Press, 1981), 213-215, Rudolph G. Penner, "The National Economic Council and the Economic Policy Board," in Triumphs and Tragedies of the Modern Presidency: Seventy-Six Case Studies in Presidential Leadership, ed. David M. Abshire, (Westport: Praeger, 2001), 140142. 66 Porter, Presidential Decision Making: The Economic Policy Board, 99-100. 67 Alan Greenspan, quoted in Erwin C. Hargrove and Samuel A. Morley, The President and the Council of Economic Advisers: Interviews with CEA Chairmen, (Boulder: Westview Press, 1984), 430.  45  Former Reagan OMB Chairman James Miller argues that there has been a significant power shift to the NEC since it was created: I don’t think there’s any question that the most important economic advisor today is Larry Lindsey and he’s on the White House staff. He’s not the chairman of the Council of Economic Advisers and he’s not the Secretary of the Treasury, he is part of the White House staff. That’s new. In a way, when Laura Tyson left the chairmanship of the CEA to go over to the White House to head the [NEC]…that should have been a sign that it was more prestigious and more important job than CEA chairman. 68  2.5 Grappling with Congress and Relying on Advisers There can be no doubt that the economy weighs heavily on the minds of every incoming president or incumbent president reelected. Without the public’s faith in the president’s ability to manage the economy, little else can be accomplished. Power and control over fiscal policy is an ebb and flow between the president and Congress and much of this power sharing depends upon the economic climate in which a president finds himself. It also depends upon party control in Washington and whether there is a period of unified or divided government. In this sense, the contemporary era of tax and budget policy is one characterized as ‘Congress versus the president,’ interlinked with the contingent centralization of the presidency. 69 The extent today of a president’s ability and influence in fiscal policy is a result of the institutional development of the budget process, of institutionalized presidential tax and budget policymaking, and by the political development of the president’s central role in this policy area as presidential advisers have assumed more responsibility over economic and fiscal policy planning vis-à-vis Congress and the Cabinet. In money matters generally, the Constitution provides in Article 1, Section 8: The Congress shall have the Power To lay and 68  Interview with James Miller, Ronald Reagan Oral History Project, Miller Center of Public Affairs, November 4, 2001. 69 Rudalevige, Managing the President's Program: Presidential Leadership and Legislative Policy Formulation, Allen Schick, The Federal Budget: Politics, Policy, Process, Rev. ed., (Washington, D.C.: Brookings Institution Press, 2000), 18.  46  collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defense and general Welfare of the United States. Although taxation authority originally rested with Congress, over time that power became shared with the president. The presidential budget in the United States is a peculiarity of the twentieth century, which came about as a “relatively modern technique for coordination of the executive branch.” 70 As Schick notes, “while the Constitution does not prescribe any particular budget outcome, it was accepted that each year’s spending should not exceed that year’s revenues.” 71 Congress managed the coordination of revenues and expenditures in the nineteenth century, but the rise in federal spending and the fragmentation of the political environment led to a movement for more centralized control. Budget and tax decisions may be reached in concert with Congress, but in the sixty plus years since Franklin Roosevelt, the president has become the agenda setter on fiscal policy. 72 Despite first move status, a presidential budget may be received on Capitol Hill with derision, often deemed ‘dead on arrival,’ and subsequent negotiations are necessary to pass the annual federal budget. National budget policymaking constitutes an annual, continuous, and non-episodic presidential policy area. 73 The president must decide every year how big the deficit in the presidential budget will be and how much of a burden that is going to place on the national debt and on the economic well-being of the country. Decisions to raise, lower, or maintain personal income tax levels also factor into the budget equation. While tax policy is not  70  John H. Kessel, Presidents, the Presidency, and the Political Environment, (Washington, D.C.: CQ Press, 2001), 146. 71 Schick, The Federal Budget: Politics, Policy, Process, 10. 72 Andrew Rudalevige, The New Imperial Presidency: Renewing Presidential Power after Watergate, (Ann Arbor: University of Michigan Press, 2005), 141-155, Steven A. Shull, Policy by Other Means: Alternative Adoption by Presidents, (College Station: Texas A&M University Press, 2006), 7-9. 73 Kessel, Presidents, the Presidency, and the Political Environment, 146.  47  necessarily an annual occurrence, it is intertwined with the budget process, and is particularly important early in a president’s term, when he decides his fundamental tax policies. Discussion of federal budgeting has been dominated by the concept of incrementalism, associated with Lindblom and Wildavsky, with annual budgets drifting instead of shifting abruptly. 74 As Jones, Baumgartner and True suggest, “budgets seem to have been powerfully affected by the concepts of “base” and “fair share,” which assume that each year’s budget should be based on the previous allocation and that any increment should be shared relatively equally across categories and agencies.” 75 Even as the incrementalism thesis waned and was largely abandoned by Wildavsky, new evidence suggests that federal budgeting has become even more incremental. 76 The almost permanent deficits of each fiscal year have been the result of the failure of expenditure within means, dramatic changes in revenue brought about by major changes in policy, most notably tax cuts, and changes in economic performance that administrations do not factor into fiscal policy making. White House advisers have come to play a crucial role in fiscal policy making. The decisions by the CEA, the OMB and more recently the NEC, along with the Treasury Department’s senior staff, will dominate the presidential decision making process. It is with fiscal policy where presidents have the most influence over economic matters. In other areas such as interest rates and monetary policy, the president is much less in control since those are the domains of the Federal Reserve. Most other economic activities require active participation, coordination, and compromise with the private sector, with other nations, or 74  Aaron Wildavsky, The Politics of the Budgetary Process, (Boston: Little, Brown, 1964), Charles E. Lindblom, "The Science Of "Muddling Through"," Public Administration Review 19 (1959). 75 Bryan D. Jones, Frank R. Baumgartner, and James L. True, "Policy Punctuations: U.S. Budget Authority, 1947-1995," Journal of Politics 60, no. 1 (1998): 3. 76 Eric M. Patashnik, "Ideas, Inheritances, and the Dynamics of Budgetary Change," Governance 12, no. 2 (1999): 151, Bryan D. Jones, James L. True, and Frank R. Baumgartner, "Does Incrementalism Stem from Political Consensus or from Institutional Gridlock?," American Journal of Political Science 41, no. 4 (1997), Aaron Wildavsky, The New Politics of the Budgetary Process, (Glenview, IL: Scott, Foresman, 1988).  48  with various international bodies and organizations. The only challenger to a president’s power over the purse and over taxation is the Congress, and by extension, of course, the American voting public. Further, the shrinking of federal government programmatic spending as a percentage of the national economy suggests that presidents and their advisers have less room to manipulate and control the economy than they once had. Over the last thirty years, many argue the U.S. Federal Reserve Chairman exerts greater influence on the economy day-to-day than does the president. 77 Despite academic attention paid to the political business cycle thesis which purports that presidents use their authority to improve the economy prior to a reelection campaign, 78 empirical evidence suggests that presidents have little consistent and direct impact on the economy. 79 The president however still reaps the benefits and shoulders the blame for economic conditions, notably in regards to personal income tax levels, the annual budget deficit and the national debt, which often reflect the prevailing economic situation and are linked to presidential success and popularity. Given the institutional structure of decision-making between the president and Congress, there is significant leeway for the president to implement his own policy ideas about taxation. Although most budgetary money is already allocated for entitlements, national defense, and interest payments on the federal debt, presidents still have significant  77  See Sloan, "Economic Policymaking in the Johnson and Ford Administrations.", Bob Woodward, Maestro: Greenspan's Fed and the American Boom, (New York: Simon & Schuster, 2000), Kessel, Presidents, the Presidency, and the Political Environment, 163. 78 See William Nordhaus, "The Political Business Cycle," Review of Economic Studies 42 (1975): 169-170, Edward R. Tufte, Political Control of the Economy, (Princeton, N.J.: Princeton University Press, 1978), chapter 1, Kenneth R. Mayer, The Political Economy of Defense Contracting, (New Haven: Yale University Press, 1991). 79 Matthew Eshbaugh-Soha, "Presidential Signaling in a Market Economy," Presidential Studies Quarterly 35, no. 4 (2005): 719, Kessel, Presidents, the Presidency, and the Political Environment, 163-164.  49  power over the size of the federal budget. 80 That leaves the president and his various sources of economic advice with significant control over macroeconomic fiscal policymaking. Many of these key advisers are not only unelected, but unchecked, without statutory approval requirements from Congress. And therein lays the real power wielded by these advisers—the folkways of advice and information in the White House and how those ideas make their way to the president. 2.6 The Institutional and Economic Context The conflict between the president and Congress inherent in the doctrine of separation of powers spilled over to fiscal policy in the twentieth century. Between the passage of the Budget and Accounting Act of 1921, which created the annual executive or presidential budget, and the passage of the Congressional Budget Act and Impoundment Control Act of 1974, the president’s power in the budget process gradually increased. Following the New Deal and World War II, taxes helped double federal outlays by the 1950s. The need for increased revenue during the war years legitimized the increased taxation, and allowed for the president and Congress to produce budgets at or near balance following the war boom. With spending under control, as Schick has argued, “the new money transformed the president’s budget role…to program planner.” 81 But the 1970s brought about fundamental shifts in the budgetary process between Congress and the president, changes in the public psyche with respect to levels of taxation, culminating most notably with tax revolts in states that began in California, and fiscal changes in the White House advisory system brought about by the Reagan Revolution.  80  Eshbaugh-Soha, "Presidential Signaling in a Market Economy," 719, Jon R. Bond and Richard Fleisher, The President in the Legislative Arena, (Chicago: University of Chicago Press, 1990). 81 Schick, The Federal Budget: Politics, Policy, Process, 17.  50  In four sections below, the institutional and economic context leading up to Carter’s presidency will be summarized, explaining first the role of the president as manager of the economy, second the institutional authority over budgeting, third the unique aspects of and the institutional authority over taxation, and finally, the economic conditions in place by the mid-1970s. The Stewardship Role of the President as Manager of the U.S. Economy Presidents are responsible for maintaining a strong economy and acting prudently to restore the economy if it falters. As Eshbaugh-Soha has summarized, “the public expects the president to provide the good life, as presidents are called upon to assure consumers in times of economic strife and encourage continued growth when the economy is strong.” 82 When they are unable to remedy economic conditions or when the economy falters at the wrong time in the election cycle, presidents can suffer the consequences. This proved to be one of the failures for Presidents Carter and George H.W. Bush in the lead-ups to the 1980 and 1992 elections. Timing is of particular importance. MacKuen has argued that “the public’s quadrennial chance to formally judge the president may not be used to evaluate the totality of a president’s performance.” 83 A president that experiences an economic downturn early in his term has time to recover and resurrect his support as an economic manager. Conversely, if economic conditions worsen late in the term, the president must convince the public that the conditions are not entirely his fault, or hope there is another focus to the election campaign.  82  Eshbaugh-Soha, "Presidential Signaling in a Market Economy," 718. Michael MacKuen, "Political Drama, Economic Conditions, and the Dynamics of Presidential Popularity," American Journal of Political Science 27, no. 2 (1983): 190.  83  51  The budget speech the president delivers and the release of the executive budget each year signal his spending intentions to the public. His announcement also presents a platform for signaling his taxation plans, if changes are to be made in the upcoming fiscal year, or if the current tax rates will remain the same. Presidential rhetoric on the economy, on the federal deficit, and on taxes is the central way for the president to convey to the public how the executive branch is attempting to manage the economy. 84 The President versus Congress: Authority over Budgeting In the seven years prior to Jimmy Carter’s inauguration, known as the so-called “Seven Year Budget War,” 85 the president and Congress clashed repeatedly on the budget, on the best way to deal with the economic conditions of the country, and on the jurisdiction over fiscal policy. The battles between Nixon and Ford and a Democratic Congress set the tone for the fiscal policy that would follow in the current tax and budget era. As Pfiffner has described, Nixon “attempted to change fiscal priorities from the expansive domestic spending of Lyndon Johnson’s War on Poverty to a greater emphasis on defense and foreign policy, by cutting social programs.” 86 A Democratic Congress balked at these attempts, and in a series of oversight displays, sought to rein in the “imperial presidency,” as Schlesinger termed the excesses of the Nixon years. 87 Nixon challenged Congress by impounding funds and appointing political advisers in critical budget positions within the White House hierarchy insensitive to the constitutional role of Congress in the budgetary process. 88 His constitutional argument for impoundment 84  B. Dan Wood, "Presidential Rhetoric and Economic Leadership," Presidential Studies Quarterly 34, no. 3 (2004): 581-582. 85 D. Roderick Kiewiet and Mathew D. McCubbins, The Logic of Delegation: Congressional Parties and the Appropriations Process, (Chicago: University of Chicago Press, 1991), 77. 86 Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act, 2. 87 Arthur M. Schlesinger, Jr., The Imperial Presidency, (Boston: Houghton Mifflin, 1973). 88 Louis Fisher, Presidential Spending Power, (Princeton: Princeton University Press, 1975), 56.  52  stemmed from a narrower interpretation of Article 1, Section 8, the Congressional power of the purse. From a president-centric perspective, this constitutional power was in place to ensure the president was accountable to Congress by not giving him an independent source of revenue. Nixon, however, filtered this article of the constitution through the Employment Act of 1946 which he believed gave presidents discretion to modify appropriations measures to control inflation. He also believed that since Congress had passed spending ceilings in the past, with specific authority for the president to cut spending when appropriate, Nixon felt entitled to impound funds when the president deemed necessary. 89 But a major problem with Nixon’s use of impoundment was that his cuts affected programs. Charles Schultze has argued that a guiding principle in budgeting is to “do no direct harm.” 90 For Congress, this was one of the principal reasons that both Democrats and Republicans came together to oppose Nixon’s use of impoundment and instead “opted for spending ceilings enforced by the president” because they do not require a vote against any particular program or constituency. 91 The need for budgetary reform on Capitol Hill was also motivated by the complicated and lengthy Congressional budgetary process. As Pfiffner has summarized, “revenue and expenditure bills were considered by different committees at different times with no institutional link between the two.” 92 The budgetary process was inefficient and decentralized, with budgetary power over mandatory spending spread across numerous  89  Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act, 27, 57, 59, 61. Charles L. Schultze, The Public Use of Private Interest, (Washington: Brookings Institution, 1977), 70-72. 91 John B. Gilmour, Reconcilable Differences?: Congress, the Budget Process, and the Deficit, (Berkeley: University of California Press, 1990), 52. 92 Pfiffner, The President, the Budget, and Congress: Impoundment and the 1974 Budget Act, 5. 90  53  committees, and discretionary spending associated with the Appropriations Committees and Subcommittees, the traditional “Guardians of the Treasury.” 93 With the expanding size of the federal budget and without an overall mechanism within a single committee to control spending that was characterized by across-the-board incremental increases in program funding, the complex congressional budgetary process virtually assured an era of budget deficits. 94 The passage of the Congressional Budget Act and Impoundment Control Act of 1974 (CBA) streamlined the legislative process for budgeting “while prohibiting presidents from unilaterally manipulating how, and whether, budgetary appropriations were actually spent.” 95 In brief, the CBA contained three provisions worth note: 1. it created new budget committees in the House and Senate to formulate budget ceilings for revenues and expenditures, the result of which led initially to a reining in of discretionary spending; 2. it established deadlines for completion of the various stages of the budgetary process culminating in a reconciliation procedure; and 3. it created the Congressional Budget Office (CBO) to provide Congress with its own budget expertise, score the fiscal impact of proposed initiatives, and act as a check against the budget assumptions of the Office of Management and Budget (OMB). 96 As President Ford assumed the presidency, Congressional oversight on the budget was in full force and this left Ford and his advisers in a weakened position than Nixon had, one in which budget decisions would have to be worked out in tandem with Congress.  93  Richard F. Fenno, The Power of the Purse: Appropriations Politics in Congress, (Boston: Little, 1966). Donald F. Kettl, Deficit Politics: Public Budgeting in Its Institutional and Historical Context, (New York: Macmillan, 1992). 95 Rudalevige, The New Imperial Presidency: Renewing Presidential Power after Watergate, 7. 96 Ibid., 129-130. 94  54  The mid-1970s oversight by Congress has been characterized as a reassertion of Congressional power over what was constitutionally already their responsibility. But Rudalevige argues that the president’s continued role as chief budgeter was an expansion of prerogative or discretionary authority. 97 While often not included among the president’s more obvious prerogative powers, such as executive orders, proclamations, national security directives, presidential signing statements, executive agreements, and unilateral actions as commander in chief, Shull makes a convincing argument that “Congress’s decision to share the power of the purse with presidents in annual budgeting” constitutes an exercise of presidential prerogative power. 98 In terms of veto points and sequence within the system, the president has the upper hand, despite the CBA’s attempt “at channeling information—and authority—through new procedures and veto points.” 99 Congress annually responds to the president’s “first move” budget initiative which does not allow the Congressional bodies to organize themselves prior to the legislation. With less than perfect information and with representatives reacting to as opposed to initiating the budget, partisanship becomes the simplest and easiest alternative for Congressional bodies. But Congressional parties also do not want to get the blame if they cannot reach a resolution and agreement with the president. With centralized policy control and the upper hand in the budget sequence, presidents do not have to face the same number of veto points through which more decentralized policies must be navigated. This presidential control, ironically, was further extended by the streamlining of the Congressional budgetary process, which “reasserted the authority of congressional committees to act as decision-making units. Unfortunately, these reforms also 97  Ibid., 138. Shull, Policy by Other Means: Alternative Adoption by Presidents, 7. 99 Rudalevige, The New Imperial Presidency: Renewing Presidential Power after Watergate, 138. 98  55  undercut the strength of the party leadership and this further decentralized power within Congress.” 100 As Gilmour argues, with the fragmentation of Congressional authority between newly empowered budget committees and subcommittees and the party leadership, it became more difficult for Congress to disagree with and vote down a presidential budget after the passage of the CBA. Since “Congress lacks the power to implement a budget policy unilaterally and requires the president’s cooperation in passing legislation, the administration is often consulted closely in the course of drafting a resolution, particularly when the president’s party controls at least one chamber of Congress.” 101 Finally, both Congress and the president gave up significant power over the budget with the rise of automatic indexation of entitlement programs, and the exemption of trust funds such as Social Security and Medicare hospital insurance from mandatory spending controls and sequestrations. By tying entitlement programs to an external index, most notably the Consumer Price Index, to adjust for inflation, legislators gave up the “creditclaiming possibilities of election-year raises in benefits and put these programs on financial autopilot.” 102 Since most indexation took place in the 1970s, as Weaver explains, its effect on mandatory spending was similar to the CBA’s effect on reining in discretionary spending: it removed much of the mandatory spending from budgetary politics. 103 Entitlement spending thus is insulated from annual appropriations control. 104 Social Security, pensions, and Medicare trust funds, generally financed by earmarked payroll and 100  Sven Steinmo, Taxation and Democracy: Swedish, British, and American Approaches to Financing the Modern State, (New Haven: Yale University Press, 1993), 135. 101 Gilmour, Reconcilable Differences?: Congress, the Budget Process, and the Deficit, 70. 102 Jones, Baumgartner, and True, "Policy Punctuations: U.S. Budget Authority, 1947-1995," 14. 103 R. Kent Weaver, Automatic Government: The Politics of Indexation, (Washington, D.C.: Brookings Institution Press, 1988), 139. 104 Jones, Baumgartner, and True, "Policy Punctuations: U.S. Budget Authority, 1947-1995," 13.  56  excise taxes, have become the third rail of American politics. 105 Reforms proposed to ensure their continued solvency have ultimately failed to be supported because they have become earned rights for most Americans. Despite efforts by presidents and legislators through George W. Bush to significantly alter these trust funds, even the threat of bankruptcy and insolvency has yielded no change in the ways dedicated revenues are to be spent. 106 Authority over Taxation Congressional fragmentation and the unique separation of powers doctrine are integral to understanding the distinctive American system of taxation. Steinmo believes that this tax system came about as a result of the unique structure of American political institutions and through the peculiar dynamics of the decision-making process: The fragmentation of political authority in the United States has shaped America’s tax policy development. President after president has attempted to reform the tax system by eliminating loopholes, broadening the tax base, and introducing national consumption taxes, yet their efforts have repeatedly been rejected by Congress. 107  Rather paradoxically, there is a comparatively heavy taxation of the corporate sector. This seems to fly in the face of established theories which suggest that the pluralist decisionmaking process yields power to the well-organized and well-financed interests. 108 But as Steinmo notes, the difference is that “the U.S. tax system contains literally hundreds of tax instruments designed to benefit quite specific corporate interests and even specific companies.” Furthermore, “very broad tax write-offs designed to promote corporate savings  105  Patashnik, "Ideas, Inheritances, and the Dynamics of Budgetary Change," 157. Ibid, Eric M. Patashnik, Putting Trust in the US Budget: Federal Trust Funds and the Politics of Commitment, (New York: Cambridge University Press, 2000). 107 Steinmo, Taxation and Democracy: Swedish, British, and American Approaches to Financing the Modern State, 135. 108 Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups, (Cambridge: Harvard University Press, 1965). 106  57  and investment have generally been much less common [in the U.S.] than in Europe.” 109 The structure of the American tax system has come to be defined by the literally thousands of “tax expenditures” or “tax subsidies,” or simply “loopholes” embedded largely by Congress and approved by the president in the tax system. 110 Out of the taxation battles of the Reconstruction Era, and in the wake of the McKinley Tariff in 1890, a permanent system of progressive income tax was passed by Congress. But it took until 1913 for the states to ratify the 16th Amendment and by the 1920s national personal and corporate income taxes became the principal sources of revenue for the federal government as tariff revenues declined. The political development of taxation would have an extraordinary impact on how taxation evolved in the contemporary era. 111 The New Deal coalition was unable to streamline tax policy and the overall result coming out of World War II was a system that resisted high taxes and catered to special interests. The pay-as-you-earn system of progressive income tax established during the war was continued and it expanded the tax base to the vast majority of income earners, in which taxes were taken out of each paycheck. This helped cement a new political logic on Capitol Hill: increases in government spending could be financed while politicians cut taxes because they no longer had to be funded specifically through tax increases since payroll taxes were already in place. A system of taxes taken out of paychecks shifted blame for tax increases away from politicians. In  109  Sven Steinmo, "Political Institutions and Tax Policy in the United States, Sweden, and Britain," World Politics 41, no. 4 (1989): 513. 110 Sven Steinmo, "Why Is Government So Small in America?," Governance 8, no. 3 (1995): 306. 111 As soon as Congress had the power, tax rates on the wealthy skyrocketed to pay for the costs of American involvement in World War I, while the poor and middle classes had fairly low rates of taxation. As the war ended, Congressional tax committees were lobbied heavily by wealthy interests to reduce levels of taxation. Instead, because tax cuts on the wealthy were politically unfeasible in the populist/progressive climate, they decided to open loopholes for corporations. Marginal rates on the very wealthy would eventually fall but not before the tax code would become the most complex in the world.  58  addition, non-payroll tax issues, like tax expenditures and tax incentives were expanded to many industries, corporations and groups which ushered extensive cronyism into the politics on the Congressional revenue committees. 112 Presidential efforts to bring coherence to the tax system were usually non-starters, and remedies to the most egregious examples of cronyism and abuses of the tax code were not pursued largely because Congress had no incentive to give tax policy management control to the executive. Rather than concede tax authority to the president, Congress created and then expanded an elaborate committee system and devolved political authority for particular policy decisions to individual committees and subcommittees. 113 Its answer to committee power cronyism was “to distribute responsibility for taxation ever more widely” and shift power from committees to subcommittees, essentially decentralizing tax policymaking authority among hundreds of subcommittees. 114 The overall effect of the porous nature of the system of Congressional tax policymaking described above was to help institutionalize chronic deficits. Program spending increased incrementally, defense spending increased so long as Congress agreed with the funding levels the president had in mind, and entitlements expanded with the economy, but taxes could scarcely be increased to pay for it. The president was somewhat helpless against the Congressional log roll. When legislators arrive in Washington, they come to terms with “the ultimate incompatibility of widely dispersed power within Congress, on the one hand, and a strong role for Congress in national decision making, on the other.  112  Steinmo, "Why Is Government So Small in America?." Nelson W. Polsby, "Institutionalization in the U.S. House of Representatives," American Political Science Review 62 (1968). 114 See Steinmo, "Why Is Government So Small in America?," 311-324. 113  59  This inherent tension generates an explosive dynamic within Congress as an organization and between Congress and the executive.” 115 The difficulty with the American tax system by the 1970s was not that policymakers were unaware of the problems tax expenditure and tax incentive policies create for the tax system. 116 Rather, the electoral incentive presented to members of Congress encouraged them to act on the short-term interests of their constituencies, even when this compromised the longer term interests of the country as a whole. 117 Members of Congress can be held responsible for voting to increase personal income taxes while finding it difficult to claim credit for an increase in spending on a popular program. 118 This paradox “has made the American tax code by far the most complicated and particularistic in the world.” 119 While the president has a freer hand in budget expenditures, Congress often has the advantage when it comes to broader tax policy, or more specifically, Congress more frequently challenges the president if tax policy is detrimental to their short-term electoral interests. In other words, presidents can offer broad-based personal and corporate income tax cuts and receive little opposition from Congress. But tax increases are likely to be resisted and therefore fundamental but necessary tax decisions are often avoided because of the inevitable stalemate that would result.  115  Lawrence C. Dodd, "Congress and the Quest for Power," in Congress Reconsidered, ed. Lawrence C. Dodd and Bruce Oppenheimer, (New York: Praeger, 1977), 281. 116 Steinmo, Taxation and Democracy: Swedish, British, and American Approaches to Financing the Modern State, 144. 117 David R. Mayhew, Congress: The Electoral Connection, (New Haven: Yale University Press, 1974), 1-26, Morris P. Fiorina, Congress: Keystone of the Washington Establishment, (New Haven: Yale University Press, 1977). 118 Anthony Downs, "Why the Government Budget Is Too Small in a Democracy," World Politics 12 (1960). 119 Steinmo, Taxation and Democracy: Swedish, British, and American Approaches to Financing the Modern State, 144.  60  Setting the Stage for Today: Uncertainty in the 1970s The shift from an active interventionist welfare state that characterized the New Deal to Watergate period, to a post-Keynesian laissez-faire monetarist economic philosophy has been a gradual phenomenon. Over the last thirty years, there has been far more emphasis on personal wealth management and responsibility, on de-funding of social programs, and, in theory, fiscal responsibility through deficit reduction and balanced budget legislation. And it is during the last thirty years in which economic philosophies have taken hold in the White House, in the 1980s and again in the 2000s, that have placed the U.S. federal government in a state of fiscal irresponsibility. The emphasis on small and limited government is rooted in the social ideology and intellectual traditions of the eighteenth century, as is the belief that the budget should be balanced. 120 Those economic theories became Republican Party gospel by the late twentieth century, however, while its rhetoric proved useful in elections, its execution by Republican presidents was a disaster. Both Reagan and Bush II chose to pursue the most politically advantageous parts of these economic theories but failed to do the necessary hard work to achieve small government. Consequently, the government’s fiscal house is in the most serious disorder since the Great Depression.  120  B. Dan Wood, "The Federal Balanced Budget Force: Modeling Variations from 1904 to 1996," Journal of Politics 62, no. 3 (2000): 819, Schick, The Federal Budget: Politics, Policy, Process, 10. Adam Smith, whose ideas provided the scholarly basis for, and would be refined into, classical economic theory, believed that the state was “inefficient from the standpoint of wealth creation and highly restrictive of individual liberty.” Budget deficits and large government programs financed by taxes on business and the citizenry interfered with the invisible hand of the free market. See Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, (London: W. Strahan and T. Cadell, 1776).  61  Classical political economy formed the basis for government finances for over 150 years, from independence until the Great Depression. 121 Keynesian interventionism altered this view in most Anglo-American democracies. Keynes argued that economies are demand, as opposed to supply, driven and federal government spending forms an integral part of this demand, stimulating private demand as opposed to simply providing public services. 122 As Wood summarizes, Keynesianism “provided a rationale for exponential growth in government spending after World War II…It also suggested that deficits are not necessarily to be avoided, but should even be pursued during times of economic contraction.” 123 One of the results of the embrace of Keynesianism was chronic deficits, institutionalized for a number of reasons. First, there was scholarly rationale for deficits by Keynes. Second, presidents embraced Keynesian solutions and tried to manipulate the federal government’s share of the economy to combat the effects of inflation and unemployment. Third, war spending on Vietnam and domestic spending on Great Society and War on Poverty programs outweighed incoming tax revenues. This ended the run of post-World War II peace dividend budget surpluses. Finally and most importantly, the peculiar institutional situation, with fiscal power shared between a fragmented Congress and a president seeking centralized control, strongly discouraged balanced budgets. 124 Gilmour argues that support for a balanced budget is never a legislator’s first choice: Balancing the budget is everyone’s third priority, but nobody’s first. Although [presidents] frequently voiced support for the goal of balancing the budget, as have nearly all members of Congress from both parties, there is reason to question their 121  Gary M. Anderson, "The U.S. Federal Deficit and National Debt: A Political and Economic History," in Deficits, ed. James M. Buchanan, Charles K. Rowley, and Robert D. Tollison, (New York: Basil Blackwell, 1986). 122 John Maynard Keynes, The General Theory of Employment, Interest and Money, (London: Macmillan, 1936). 123 Wood, "The Federal Balanced Budget Force: Modeling Variations from 1904 to 1996," 822. 124 In Fiscal Year 1969, there was technically a balanced budget as a result of a “guns and butter” economy climbing out of recession, but deficits would result for the next thirty years.  62  commitment to that goal…Nearly everyone has some program or component of the budget that he or she would not reduce in order to lower the deficit—Social Security, agriculture, housing, food stamps, veterans, or whatever. Many representatives— perhaps all—regard a cut in their favorite programs as worse than having a large deficit. 125  Further, ideological fragmentation in Congress and divided government made it more difficult to reach compromise and reconcile conflicting preferences over fiscal policy. 126 By the 1970s, classical economics made a recovery, as evinced by presidents turning away from Keynesian economic advisers and embracing a neo-classical monetarist school of economic thought associated with economist Milton Friedman. 127 This coincided with a return to a core belief in smaller government and low taxes, especially among the middle class, that took shape with a series of tax revolts at the state level. In the case of President Ford, this shift to monetarism began with the selection of Alan Greenspan as his CEA Chairman. Reflecting the fragmentation of the economics profession, Greenspan’s appointment was the first clear sign in the United States that the Keynesian consensus had broken apart. 128 Just as classical economic theories failed to respond to the effects of the Great Depression, Keynesian theories could not explain the peculiar phenomenon of stagflation, characterized by high unemployment and high inflation. 129 With the OPEC oil embargo and  125  Gilmour, Reconcilable Differences?: Congress, the Budget Process, and the Deficit, 190-191. George A. Krause, "Partisan and Ideological Sources of Fiscal Deficits in the United States," American Journal of Political Science 44, no. 3 (2000): 541, Mathew D. McCubbins, "Party Governance and U.S. Budget Deficits: Divided Government and Fiscal Stalemate," in Politics and Economics in the Eighties, ed. Albert Alesina and Geoffrey Caliner, (Chicago: University of Chicago Press, 1991). 127 Milton Friedman, Capitalism and Freedom, (Chicago: University of Chicago Press, 1962). 128 See Sloan, "Economic Policymaking in the Johnson and Ford Administrations," 113-114. For the embrace of monetarism in British economic policy, see Peter A. Hall, "The Movement from Keynesianism to Monetarism: Institutional Analysis and British Economic Policy in the 1970s," in Structuring Politics: Historical Institutionalism in Comparative Analysis, ed. Sven Steinmo, Kathleen Ann Thelen, and Frank Longstreth, (New York: Cambridge University Press, 1992), 90-97. 129 The Phillips Curve, the Keynesian theory that postulated that there was a tradeoff between inflation and unemployment, no longer explained the American economy. This economic uncertainty was further exacerbated by a split between the two parties. Democrats naturally gravitated towards controlling 126  63  oil price increases, soaring federal expenditures, rising food prices, declining labor productivity, and high interest rates, Ford was handed an economy in peril with the highest inflation rate in over fifty years (11 percent) and the highest postwar unemployment rate, which shot up months upon Ford taking office to 9.2 percent. Ford’s White House staff quickly moved to combat Nixonian impressions and “decentralization of executive authority became an organizational imperative.” 130 Alan Greenspan became Ford’s most important economic adviser, trying to wean White House advisers off of Keynesian solutions and to emphasize a long-range view of the economy. Conservative economics was “cautious and promised no miracles.” It emphasized inflation cutting and economic as opposed to political solutions. 131 By 1976, unemployment had declined and inflation was halved yet the economy still lagged behind and the recovery was not enough for Ford to win the 1976 election. But Ford, unlike a number of his predecessors, listened to and utilized the advice of a balanced group of economic advisers through the Economic Policy Board. Ford left Jimmy Carter with a modestly improved American economy but Carter was on the precipice of a political order in stark decline. The New Deal coalition and the welfare state liberalism it fostered had fallen apart, which left Carter a “disjunctive president,”  unemployment first, because of union pressure and a strong belief in full employment that was the cornerstone of the Employment Act of 1946, and then controlling for inflation if necessary. Republicans under Nixon wanted it the other way, to get inflation under control. See McCracken, "Economic Policy in the Nixon Years," 167-168. 130 Hess and Pfiffner, Organizing the Presidency, 115. Ford established the Economic Policy Board (EPB) to coordinate the OMB, the CEA and his White House advisers. Meeting some five hundred times, the EPB tried to design an economic program that would pull the country out of deep recession. The response to the economy was to hold down government expenditures, which required a series of presidential vetoes of Congressional legislation, to work toward a balanced budget, to promote moderate growth with a temporary tax cut and short-term rapid growth of the money supply, and to do everything possible to get inflation under control. See Hess and Pfiffner, Organizing the Presidency, 118, Herbert Stein, Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond, (New York: Simon and Schuster, 1984), 214. 131 Sloan, "Economic Policymaking in the Johnson and Ford Administrations," 117-118, 123.  64  assuming office at the end of a regime cycle, with a return to responsible political parties, and with his own party’s legitimacy in decline. 132 In four short years, Carter would experience the tail end of a Democratic Party advantage in Congress. The fragmentation of solid support for the domestic tax and spending priorities that had expanded American social programs in the postwar era ended as tax revolts in states, beginning with Proposition 13 in California, and Ronald Reagan’s candidacy changed Americans’ perceptions of what government should take from and should provide people. The impact of the tax revolt in Washington would be its articulation as the prominent campaign issue on which the former Governor of California, Ronald Reagan, would base his campaign against Jimmy Carter. 2.7 Conclusions After President Carter and Congress negotiated the first reconciliation budget act for Fiscal Year 1981 and through 2009, this era has been characterized as the president versus Congress in the area of tax and budget policy. The era from Roosevelt through Gerald Ford was largely about Congress coming to terms with the president as the nation’s chief budgeter; an authority over which Congress had long been constitutionally responsible. That ended with congressional actions taken to curb the worst excesses of the imperial presidency. Today, and over the last thirty years, there is an ebb and flow in power over fiscal policy, largely dependent on which party controls Congress and the presidency. In eras of unified government, power flows to the president; in eras of divided government, tax and budget policy is more of a shared responsibility. The analysis in this study will demonstrate that there has been a series of ebbs and flows since Carter. 132  Skowronek, The Politics Presidents Make: Leadership from John Adams to George Bush, 34-45, James L. Sundquist, Dynamics of the Party System: Alignment and Realignment of Political Parties in the United States, (Washington, D.C.: Brookings Institution, 1983).  65  Power over fiscal policy is also inevitably bound up with the president’s ability to command fiscal competence, which concerns the balance between spending and taxing during an administration. Presidents can have responsive competence from advisers as well as strategic competence from the federal public service. But they also require fiscal competence to achieve a general policy competence, a blend of all three competences, in order to govern effectively and make fiscal decisions that have government living within its means. The contemporary era is characterized by a contingent centralization and politicization of the presidency, that is, aggrandizement of the presidency has not followed a linear course. Instead, it varies from issue to issue, from Congress to Congress, and from president to president. 133 This is also true of fiscal policy. The limits of presidential control over government were highlighted in the Nixon years and since that time there have been incentives and an impetus for presidents to strive for a blend of responsive, strategic and fiscal competence, a policy competence, among their inner circle advisers. 134 Policy competence is captured in the incentives for mixed adviser sets and balanced advisory systems. While these ebbs and flows in institutional power sharing and control of issues in government have occurred, so too has an ebb and flow phenomenon native only to the presidential advisory system. The presidential advisers themselves have accreted and relinquished power vis-à-vis the president from issue to issue and episode to episode, largely dependent on the interest levels of the president on a particular issue area. This is true of tax  133  Rudalevige, Managing the President's Program: Presidential Leadership and Legislative Policy Formulation, 5-13. 134 Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 19-20, Rockman, The Leadership Question: The Presidency and the American System, 194-197.  66  and budget policy as well. Therefore, in looking at the roles played by advisers across these five contemporary administrations, one must keep in mind the power dynamics that are occurring while budgets and tax policy are being designed and implemented.  67  Chapter 3: Carter and George H.W. Bush: One Term Failures at Fiscal Policy As stated earlier, the analytical chapters are organized thematically around presidents whose policies that failed politically, off-center policies that resulted in increased economic instability, and successful policies that had government living within its means. Each chapter then does three things; it offers insight into the selection of advisers the president makes on assuming the presidency, evaluates the macroeconomic fiscal policy decisions an administration makes, and looks again at the advisory balance and fiscal numbers to provide a more nuanced understanding of these decisions. This chapter looks at the Jimmy Carter and George H.W. Bush administrations. While they are often not grouped together, except as one-term presidents, the fiscal policy experiences of Jimmy Carter and George H.W. Bush provide a study in executive failure. Both succeeded in dividing the electoral coalition that had voted them in, and both saw their party split over their fiscal policies in attempts to rein in deficits and control spending. Both became victims of their advisory system and are exemplars of the dangers of relying on advisers that fail to balance presidential objectives. In each case, Carter and Bush attempted a fiscally restrained approach but at the expense of their political capital. They wanted longer term solutions to complex budget and tax problems, which is noble in American executive politics, but when the initiatives did not go accordingly, they were held accountable by the voters and their economic legacies contributed to their defeats. 3.1 Staffing the White House Campaigning to restore some economic stability to the nation, Carter selected advisers who lacked an understanding of the need to develop, pass and implement a set of  68  economic policies early in his first term that would get the nation on the right course. This was further complicated by the fact that Carter himself was a pragmatic centrist outsider, a problem solver, as opposed to a traditional liberal presidential candidate. The need for advisory balance, of selecting an equal mix of political, policy and ideological entrepreneurs, and replacing those advisers with seasoned veterans and fresh faces when mistakes are made, has never been more apparent than in the case of Jimmy Carter. Carter’s first error in judgment was selecting a group of Georgians in the key inner circle and economic positions. His closest campaign adviser, Hamilton Jordan, was made key White House adviser, the “Assistant,” although not Chief of Staff, which Carter believed he did not need and felt was a remnant of the worst excesses of the imperial presidency. Jody Powell became his White House Press Secretary, Stuart Eizenstat became Assistant for Domestic Policy Affairs, and Bert Lance became Director of OMB. Jack Watson took on the roles of Assistant to the President for Intergovernmental Affairs and Secretary to the Cabinet, Robert Lipshutz became Carter’s White House Counsel, Gerald Rafshoon became Assistant for Communications, and Frank Moore became Assistant for Congressional Liaison (Table 3.1). There was no real Assistant to the President for Economic Policy in the White House and Ford’s Economic Policy Board was replaced with the Economic Policy Group, headed by the Treasury Secretary and the CEA Chairman. Only Carter’s CEA Chairman, Charles Schultze, a Brookings Institution economic specialist and former BOB director under Lyndon Johnson, was a Washington insider, but of the policy and not political stripe. In fact, as Burke has pointed out, six of the top seven presidential assistants in the White House were  69  Table 3.1 The Carter Economic Advisory System Type Of Adviser Ideologue  Policy  Political  Honest Brokers/Fixers  External  Name, Position None Jimmy Carter – President 1977-1981 Stuart Eizenstat (Inner Circle) – Assistant to the President for Domestic Affairs and Policy 1977-1981 Charles Schultze (Inner Circle) – Chairman of Council of Economic Advisers 1977-1981 Jack Watson (Inner Circle) – Transition Director, Assistant for Cabinet and Intergovernmental Affairs 1977-1980, Chief of Staff 1980-1981 Bertram Carp – Deputy Assistant for Domestic Affairs and Policy 1977-1981 Alfred Kahn – Special Adviser on Deregulation; Inflation 1977-1978 Robert Strauss – U.S. Trade Representative 1977-1980 Reubin Askew – U.S. Trade Representative 1980-1981 Hamilton Jordan (Inner Circle) – Assistant, Chief of Staff 1977-1981 Jody Powell (Inner Circle) – Press Secretary 1977-1981 Bert Lance (Inner Circle) – Director of Office of Management and Budget 1977 Frank Moore (Inner Circle) – Assistant for Congressional Liaison 1977-1981 Gerald Rafshoon (Inner Circle) – Assistant for Communications 1977-1981 Walter Mondale (Inner Circle) – Vice President 1977-1981 Robert Lipshutz – White House Counsel 1977-1979 Lloyd Cutler – White House Counsel 1979-1981 Landon Butler – Deputy Chief of Staff 1977-1981 Rex Granum – Deputy Press Secretary 1977-1981 James Fallows – Speechwriter 1977-1979 Ray Jenkins – Speechwriter 1979-1981 Tim Kraft – Assistant Secretary for Political Affairs and Personnel 1977-1978 Midge Costanza – Assistant for Public Liaison 1977-1978 Pat Caddell – Pollster 1977-1981 James McIntyre (Inner Circle) – Director of Office of Management and Budget 1977-1981 Van Ooms – Assistant OMB Director for Economic Policy 1978-1981 Anne Wexler – Assistant for Public Liaison 1978-1981 Alonzo McDonald – Director of White House Staff 1979-1981 Michael Blumenthal – Secretary of the Treasury 1977-1979 William Miller – Chairman of the U.S. Federal Reserve Board 1977-1979, Secretary of the Treasury 1979-1981 Paul Volcker – Chairman of the U.S. Federal Reserve Board 1979-1981  Georgians and close Carter associates (Jordan, Powell, Watson, Eizenstat, Moore, Rafshoon). 135 Carter’s second error was not learning from mistakes until it was too late. Although he did try to self-correct with more seasoned Washington advisers, Carter did not appoint a 135  Burke, Presidential Transitions: From Politics to Practice, 43. Midge Costanza, former Vice Mayor of New York, was the seventh as Assistant for Public Liaison. Costanza was replaced in 1978 by Anne Wexler.  70  Chief of Staff until 1979, well beyond the time this position could prove useful. He also did not learn from making promises he could not possibly keep or imposing deadlines that could not be met, and went ahead and announced a series of economic projections and goals that would ultimately be worse than expected. Whether in budget speeches, states of the union, or cataclysmically in the famous ‘malaise’ speech in July 1979, Carter never was able to clarify has economic goals nor how the country would be better because of them. The inability of Carter to consistently learn from those advisory and communication missteps contributed to the conditions that led to his defeat in the 1980 election. While nobody in the administration could have foreseen the media concentration on the hostage crisis in Tehran, and the economic fallout from a second OPEC oil shock, all of which contributed to deteriorating economic conditions in 1979, Carter’s advisers had already set in motion a poor decision-making apparatus. The roles these advisers played must be highlighted because Carter could have had a successful presidency, both from a policy and political standpoint, but let poor advice mangle economic messages that contributed to his 1980 defeat. His third major error was a failure on his part to recognize how important Congress would be in implementing any presidential agenda. His experience in working with the Georgia legislature was not in the same league as dealing with a Congress pulled and swayed by constituency pressures and party loyalties, and which had assumed a more aggressive stance vis-à-vis presidential power. As a candidate that did not represent the Democratic Party base on many of the near and dear liberal social and domestic policy issues, Carter must have known that he would be required to use enormous powers of persuasion to convince Congress to implement some of his ambitions. Time and again he would not reach  71  out and cultivate the necessary relationships with key members of his own party in order to pass his agenda. Further, Frank Moore had no Washington experience and was out of his element as Congressional Liaison. It also did not help matters that key inner circle advisers like Jordan did not extend olive branches to the Democratic leadership in Congress which lead to minor incidents that became magnified in the media. Finally, Carter had a tremendous tendency to over-analyze and to not make any decisions until after any moment had passed where decisions could have benefitted him politically. No shortage of ideas allowed Carter to immerse himself in the minutiae of government and this tendency to remain indecisive was indicative of his economic decisions. Where more ideological advisers may have helped move the president to stake out positions early and ready them for public and Congressional approval, ideas and policies would be left to fester with the president and no movement would occur until after it was too late to capitalize on his position at the center of the political system. This was further complicated by Carter’s belief in cabinet government. In this respect, Carter sought to decentralize the decision-making process and move it away from the inner circle and towards the heads of departments. It had mixed results as Jack Watson’s ad hoc cabinet clusters proved cumbersome and produced little change in the economic and fiscal policy area. Ultimately, the inner circle staff-based model would win out. Many of these errors in judgment could have been corrected if proper planning and selection of advisers had occurred from the start. In hindsight they seem more obvious but in 1976, Carter must have believed that Georgians could simply do it better than others and that the public would see the open and honest corrections he had made to a Nixon-style imperial presidency. He may have been right, if he had given those loyal regional advisers a group of  72  professional policy and party people to help craft an effective agenda. Jimmy Carter represents an example of a president who could have benefited from a more balanced advisory network and a more mixed adviser set. George H.W. Bush, in selecting a group to replace Ronald Reagan’s second term advisers, sought a more streamlined White House (see Table 3.2). His closest adviser was foreign policy expert Brent Scowcroft, who with a group of consultants and family friends, helped vet those who would make up the inner circle. His deep concern with the unwieldy triumvirate of inner circle advisers in the Reagan first term, despite appeals from close confidante James Baker, moved him towards a more command and control model for his advisory system. Bush dampened down rumors of designing a triumvirate at the top when he made John Sununu, the Governor of New Hampshire, his Chief of Staff and decided against selecting close campaign advisers Craig Fuller and Robert Teeter. 136 But Sununu’s nature, while it may have suited Bush’s organizational style, soon caused problems not just with the media and Congress where his abrasive nature made him an easy mark but in providing Bush with a semblance of vision. Sununu was selected to perform an honest broker and policy role but did not have a counterpart in the White House that would challenge his ideas or decisions before he presented viewpoints to the president. He drifted quickly into a policy advocacy role with conservative credentials, although not an ideologue, in an increasingly hierarchical advisory system dominated domestically by Sununu and OMB Director Richard Darman. Like Donald Regan, he proved too strong a force in the White House which lacked the give-andtake of Reagan’s first term. 136  Ibid., 211-213, Colin Campbell, "The White House and Presidency under The "Let's Deal" President," in The Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1991), 197-198.  73  Table 3.2 The Bush I Economic Advisory System Type Of Adviser Ideologue  Name, Position James Pinkerton – Deputy Assistant for Policy Planning 1989-1992 John Sununu (Inner Circle) – Chief of Staff 1989-1991 Richard Darman (Inner Circle) – Director of Office of Management and Budget 1989-1993 Michael J. Boskin – Chairman of Council of Economic Advisers 1989-1993  Policy  Political  Samuel Skinner – Chief of Staff 1991-1992 James Baker – Chief of Staff 1992 Andrew Card – Deputy Chief of Staff; Assistant to the President 1989-1992 Edward Rogers – Deputy Chief of Staff 1989-1991 David Carney – Assistant to the Chief of Staff 1989-1991, Deputy Assistant for Political Affairs 1991-1992 Marlin Fitzwater – Press Secretary 1989-1993 David Demarest – Director of Communications 1989-1993 Fred McClure – Assistant to the President for Legislative Affairs 1989-1992 Joshua Bolten Assistant to the President for Legislative Affairs 1992-1993 Chase Untermeyer – Assistant to the President, Office of Presidential Personnel 1989-1992 James Cicconi – Assistant to the President; Staff Secretary; Scheduling 1989-1991 Stephen Studdert – Assistant for Special Activities and Initiatives 1989 Boyden Gray – Counsel to the President 1989-1993 Jim Wray – Deputy Assistant for Political Affairs 1989-1991 Dan Quayle – Vice President 1989-1993  Honest Brokers/Fixers  Roger Porter – Assistant to the President for Domestic and Economic Policy 1989-1993  External  Nicholas Brady – Secretary of the Treasury 1989-1993 Alan Greenspan – Chairman of the U.S. Federal Reserve Board 1989-1993  John Burke, James Pfiffner, and Ryan Barilleaux all describe a transition once Sununu was named chief of staff that became increasingly dictatorial although appearing to be quite collegial in public. This public collegiality demonstrated Bush’s eagerness to be involved in the management of the White House to a far greater degree than Reagan and to have disagreements hashed out in front of him. But in practice, the Bush White House did not operate this way. A chronic disinterest on the part of the president in non-foreign policy issue areas allowed Sununu to play not only the strong chief of staff role, like Sherman Adams, H.R. “Bob” Haldeman and Regan before him, but also to insert himself into the 74  policy process to an alarming degree. 137 The result was that policy issues were not roundtabled, subordinate staff who may have disagreed with Sununu and Darman were silenced, and while Bush utilized Sununu as a lightening rod for unpopular and controversial presidential decisions, he let him run roughshod over domestic policy. 138 If Bush’s goal was to bring in economic advisers that appealed to the more conservative tax-cutting Republican base, his choices were at the very least antithetical. Both his OMB Director Richard Darman and his CEA Chairman Michael Boskin were known for their non-ideological beliefs. Darman, a former Reagan adviser, was not an ideologue of the supply side and joined Reagan OMB Director David Stockman in opposing the draconian tax cuts once it became clear they would not magically raise revenues. Boskin, while a classical economist and a tax reformist, was also no strong believer in the supply side doctrine. Together, Sununu and Darman would orchestrate the midterm budget deal for FY1991 that many in the Republican camp immediately criticized as giving into the demands of a Democratic Congress. Boskin did not object strenuously to caving on taxes and proved largely ineffectual in any of the major fiscal decisions as Sununu dominated access to the president and control of the domestic agenda. 139 Like Carter, Bush I did not have a large contingent of advisers, sticking with most of his inner circle for the entire four years, save for Sununu who was let go following a scandal  137  Ryan J. Barilleaux, "George Bush and the Changing Context of Presidential Leadership," in Leadership and the Bush Presidency: Prudence or Drift in an Era of Change?, ed. Ryan J. Barilleaux and Mary E. Stuckey, (New York: Praeger, 1992), 17, Burke, Presidential Transitions: From Politics to Practice, 213-215, James P. Pfiffner, "The President's Chief of Staff: Lessons Learned," Presidential Studies Quarterly 23, no. 1 (1993): 93. 138 Colin Campbell, "Management in a Sandbox: Why the Clinton White House Failed to Cope with Gridlock," in The Clinton Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1996), 61, Dan Goodgame and Michael Duffy, "Big Bad John Sununu," Time, May 21 1990. 139 John Hart, The Presidential Branch: From Washington to Clinton, 2nd ed., (Chatham, NJ: Chatham House, 1995), 63, Walter Williams, "George Bush and Executive Branch Domestic Policymaking Competence," Policy Studies Journal 21, no. 4 (1993): 709, Charles Tiefer, The Semi-Sovereign Presidency: The Bush Administration's Strategy for Governing without Congress, (Boulder: Westview Press, 1994), 9-10.  75  in late 1991. While Bush’s approval ratings remained high for the first three years of his presidency, largely as a result of the international upheaval and a Gulf War rally effect, Bush’s popularity proved fleeting once the economy and domestic issues were again the major concern of the public. It is these economic policies which provide an important focus on Bush’s advisers who, while reaping the benefits of high approval during Bush’s tenure as commander in chief, failed to capitalize over the course of his term on opportunities and positions that could have assured a second term. Among the policy advisers, self-described honest broker Roger Porter and his deputy James Pinkerton, the only ideologue in the White House, proved ineffective in economic policy. While working out of a White House “think tank” for domestic policy issues but without the weight of Sununu’s position, Porter and his staff were in an ideal position to establish and set presidential policy in a variety of areas. 140 Almost from the beginning, they would be quietly disregarded by the chief of staff. The Domestic Policy Council and Economic Policy Council as headed by Porter under the auspices of the Office of Policy Development, remnants of the Reagan administration, rapidly declined in importance and were effectively sidelined by Sununu and Darman who played both gatekeeper and policy advocate for Bush. 141 Andrew Card argues that Darman and Sununu often conveniently kept Porter out of the game…I do not think that Sununu was as Machiavellian as Darman. Darman had a talent for withholding about 20 percent of the information necessary for a decision until the policy recommendation was ready to be sent to the President. 142  140  Andrew H. Card, "The Bush White House and His Presidency," in The Bush Presidency: Ten Intimate Perspectives of George Bush, ed. Kenneth W. Thompson, (Lanham, MD: University Press of America, 1998), 49-50. 141 David B. Cohen, "George Bush's Vicar of the West Wing: John Sununu as White House Chief of Staff," Congress and the Presidency 24, no. 1 (1997). 142 Card, "The Bush White House and His Presidency," 56. David Bates, Bush’s Cabinet Affairs assistant, confirms this Sununu/Darman freezing out of the Porter operation. See Burke, Presidential Transitions: From Politics to Practice, 243-244.  76  Sununu was also accused of information hoarding and holding back cards until late in the game. 143 Card further elaborates that it was Darman and not so much Sununu who neutralized Porter’s shop, particularly Jim Pinkerton. When [Pinkerton] became a threat to Dick Darman’s think tank, however—which essentially consisted of only Darman himself—Pinkerton was not invited to participate in the process. When he did participate, his personality tended to overshadow Roger Porter, so even Porter did not want him there. 144  On the political side, Sununu’s deputies, Card and Ed Rogers, along with David Demarest’s Communications office and its public face, Press Secretary Marlin Fitzwater, helped maintain Bush’s high approval while running the day-to-day operations of the White House. Bush I was seen as very prudent and presidential and although it was not nearly as choreographed as the Reagan years, the political advisers presented Bush as an active president especially in foreign policy. It was a streamlined White House staff, smaller than previous sets of advisers and largely free of open conflict, according to those who witnessed it firsthand. 145 But the staffing problems that did arise were a result of Sununu’s managerial skills and the president’s characteristics, not unlike the dynamic that existed in the Carter White House, with a president who did not match his personal management and decision making weaknesses with advisory strengths in these particular areas. Without a White House ideological compass and even honest broker compass, given Porter’s lack of importance in the advisory system, Bush’s vulnerabilities came to the forefront in making decisions about economic policy. For most of Bush’s presidency, all domestic and economic decisions were controlled by the Darman-Sununu axis, in which the planned sub-cabinet and cabinet-council process of 143  See Cohen, "George Bush's Vicar of the West Wing: John Sununu as White House Chief of Staff.", Eloise Salholz, Thomas M. DeFrank, and Ann McDanie, "Sununu: The Making of a Scapegoat," Newsweek, March 13 1989, 23. 144 Card, "The Bush White House and His Presidency," 56. 145 See Ibid., 55-56, Darman, Who's in Control?: Polar Politics and the Sensible Center.  77  Porter’s shop was simply jettisoned by the highly concentrated power base in the White House. 146 Sununu steered to the conservative side but was no real ideologue on economic policy although he played the tough cop with the Democratic Congress on behalf of business interests and with respect to environmental policy. His attack dog style shielded the president, who preferred to avoid confrontation and present a public face of reasonableness and moderation, and consequently Sununu deflected blame away from Bush, most notably on environmental policy. 147 Darman worked well with Sununu, despite similar personalities that did not suffer fools gladly and that were demonstrably arrogant. 148 Rather than undermine one another, they proved an effective team at freezing out other advisers in the policy process, particularly Boskin, and forcing some cabinet members and Bush confidants to get access to the president in alternative ways than through the door of the Oval Office. 149 But Sununu’s positive effect began to wane and a scandal that involved government travel privileges for personal use engulfed him in 1991 eventually forcing his ouster. For Bush, however, his loyalty to Sununu and his public defense of his chief of staff for months after the scandal broke proved costly as Sununu should have been removed much  146  Campbell, "The White House and Presidency under The "Let's Deal" President," 210-212, Marlin Fitzwater, Call the Briefing!: Bush and Reagan, Sam and Helen: A Decade with Presidents and the Press, (New York: Times Books, 1995), 185, Charles Kolb, White House Daze: The Unmaking of Domestic Policy in the Bush Years, (New York: Free Press, 1994), 88. 147 Betty Glad and Michael W. Link, "President Nixon's Inner Circle of Advisers," Presidential Studies Quarterly 26, no. 1 (1996), Bert A. Rockman, "The Leadership Style of George Bush," in The Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1991), 27, Goodgame and Duffy, "Big Bad John Sununu.", Fitzwater, Call the Briefing!: Bush and Reagan, Sam and Helen: A Decade with Presidents and the Press, 175, Campbell, "The White House and Presidency under The "Let's Deal" President," 212. 148 Darman, Who's in Control?: Polar Politics and the Sensible Center, 206, Dan Quayle, Standing Firm: A Vice-Presidential Memoir, (New York: HarperCollins, 1994), 117. 149 John P. Burke, The Institutional Presidency: Organizing and Managing the White House from FDR to Clinton, 2nd ed., (Baltimore: Johns Hopkins University Press, 2000), 167-168.  78  earlier. 150 Card argues that the biggest weakness of the president was his loyalty to friends and “because no one lost their job even when visible mistakes were made, people thought that they could not lose their jobs.” 151 By the time Transportation Secretary Samuel Skinner, and nine months later James Baker, took over as replacement chiefs of staff, Bush’s high approval ratings were in freefall as attention shifted from the Gulf War to domestic and economic issues. Skinner’s interregnum was short lived because in seeking an open organization and a totally revamped White House, after the pitfalls of Sununu, the operation became ineffective. 152 The advisory system during Bush’s first three and most productive years under Sununu and Darman proved to be a pyramid hierarchy for policy clearance that culminated in the politically disastrous budget agreement in late 1990. 3.2 Fiscal Legislation and Advisory Influence Jimmy Carter’s problems as a Washington neophyte began during the transition in 1976. John Burke suggests that it was a difficult and non-transparent process with the two staffing groups refusing to share information, and no clear lines of demarcation between the domestic and economic issues groups. 153 The economic group working with Charles Schultze was less problematic. But complications arose early at the White House with turf wars between the economic advisers and the Domestic Policy Staff, headed up by Stuart Eizenstat. For the newly elected president, this image of advisory schisms, even advisers and cabinet members speaking out against or contradicting the president, would persist through inauguration and would prove to be a liability in building a coalition as a Democratic Party outsider. 150  See Michael Duffy and Dan Goodgame, Marching in Place: The Status Quo Presidency of George Bush, (New York: Simon & Schuster, 1992), 123. 151 Card, "The Bush White House and His Presidency," 59. 152 Cohen, "George Bush's Vicar of the West Wing: John Sununu as White House Chief of Staff." 153 Burke, Presidential Transitions: From Politics to Practice, 23-26.  79  Adding further liability to Carter’s economic team was the new OMB director Bert Lance. Carter wanted a modest program of economic recovery and Democratic spending control in Congress, with a slightly longer-term goal of balancing the federal budget. Lance was ill-equipped to demand the spending controls needed by government departments and by Congress, and by the time of the late-1977 banking scandal that engulfed him, his deputy, James McIntyre, who had been coordinating the administrative and reorganization effort at OMB, was more than ready to take over the reins. Lance was further handicapped because he did not choose an economic adviser in OMB. Without a chief economist, later filled by Van Ooms when McIntyre took over, OMB did little in policy formulation for the White House. McIntyre suggests that “Lance’s role was basically to be an emissary of the President, and to help him in making his policy decisions through the use of his good judgment and common sense. [Lance] was looking to me for the day-to-day management of the agency.” 154 Another concern that quickly became a White House problem was that Carter constantly revised his policies once he entered office, throwing many out there and hoping some would stick. His economic ideas were too many, even contradictory, and his vision proved too cumbersome even with a Democratic Congress. Carter sought to use zero-base budgeting, implement comprehensive tax system reform, push for spending reductions, and balance the budget all in his first term. Add to this a very ambitious domestic policy agenda and Carter was overloaded before he even entered office. While he understood that bold policy initiatives in domestic policy areas were necessary and that incremental changes  154  Interview with James T. McIntyre, Carter Presidency Project, Miller Center of Public Affairs, Oct. 28-29, 1981.  80  would be insufficient to achieve his aims, Carter and his advisers seemed unaware of how to craft and implement a passable agenda. In operating under Ford’s Fiscal Year 1977 and 1978 budgets, Carter’s own revised budget required hastily developing a relationship with Congressional leaders to support policies antithetical to their own core beliefs. It put Carter at a significant disadvantage because he was forced to demand from Congress budgets they did not necessarily want to pass. This would further affect the ability of the president to garner support for his other ambitions, something his successors, particularly Reagan, made sure to mitigate. As Eizenstat explains: You’re living with the fiscal year that started in October of ’76, which is going to go to October ’77. If you don’t submit your budget revisions then, from October of ’77 ’til October of ’78, you’re living under the budget that Ford just set up. So you’re sitting there for two years under somebody else’s budget. But you’ve got to develop the budget revision while you’re still appointing people. You don’t have assistant secretaries and the departments on board and able to give their input, which, by the way, is why [David] Stockman was able to do what he did. I mean, there was nobody to argue with. You know, he just did it. 155  Each year of the Carter presidency had at least one economic and fiscal difficulty, beginning with a stimulus package that did not achieve what it promised, a new approach to budgeting that was circumvented by departments, an attempt to reform the tax system that was scuttled by Congress, and finally, alternating expansionary and contractionary budgets that failed to achieve his campaign promise of a balanced federal budget by 1981. As a fiscal reformer, Jimmy Carter found few supporters in Congress for his policies on merit alone. Unveiling his economic package shortly after inauguration, few in his own party were pleased with what he had in mind. Corporate tax incentives, such as investment tax credits, to boost capital investment and stimulate the economy, displeased liberal  155  Interview with Stuart Eizenstat, Carter Presidency Project, Miller Center of Public Affairs, Jan. 29-30, 1982.  81  members and labor leaders. Stimulus spending upset some conservative Democrats. Rigmarole over what was to be included such as tax incentives and a stimulus package pitted Carter’s political advisers, like Jordan and Powell, against Bert Lance. The compromise twoyear $31 billion economic stimulus package pleased no group entirely, and included a $50 tax rebate and some public works stimulus spending, the brainchildren of Charles Schultze. Schultze was Carter’s most important economic adviser in the first year of his presidency. He argued strongly in favor of the public works stimulus, in keeping with a philosophy developed through the Brookings Institution’s Setting National Priorities series. But this package was developed amidst a federal budget deficit that was approaching $70 billion and it continued to cause more headaches as fellow Democrats criticized its limited size and its intensions. 156 Carter’s course suggested an augmented cautious approach, like that of Ford, but with a stimulus in Fiscal Year 1977. His advantage was that the economy was picking up when he assumed office, not dramatically with a sharply declining unemployment rate, but moving towards recovery. He pinned these goals to a general economic dividend that would come about with increased economic growth. Deciphering where the president stood on economic issues however plagued Carter’s presidency. He never found the right balance. He wanted to curb spending but Carter’s stimulus was from Schultze’s neo-Keynesian playbook that some government stimulation of the economy was needed. To the layperson that is contradictory. Still, Schultze also shared the president’s conviction that government spending be curtailed or slowed. Rises in government expenditures during recessions and external world crises, like oil price and world 156  Leon Keyserling, Truman’s CEA Chairman, believed the package needed to be doubled if it were to have any positive effect on the economy. See Hobart Rowen, "Advance Wage, Price Notice Called Necessary by Lance," Washington Post, February 25, 1977.  82  crop increases, contributed to the high inflation of the mid-1970s and Schultze continued the Ford administration view that there were no easy answers, and that government spending control combined with job growth would be the best option to curtail inflationary upsurges and increased unemployment. 157 Another idea Carter developed was tax reform, publicly put forward by his Treasury Secretary Michael Blumenthal the week of his inauguration. The proposal was that the system would be changed so that all income, including capital gains, would be taxed at a lower uniform rate. It would do away with many of the tax loopholes and incentives that were geared to only narrow constituencies. The tax revision would be the next step following the economic stimulus package, to be delivered in fall 1977 to Congress, for Fiscal Year 1979. The plan would provide no deductions or interest payments or contributions, no special treatment for capital gains, and no exemption of earnings on municipal bonds. The uniform tax rate is based on the idea of doing away with all preferences and special treatments that have been indicative of the U.S. tax system since the progressive era. Blumenthal liked the simplicity of “eliminating the distinctions between capital gains and normal income.” 158 Deficit control was Carter’s other concern, given the public perception that they were imprudent and related to the twin ills of the 1970s, stagflation and economic stagnation. In the economic stimulus, a $50-per-person rebate of the previous year’s income taxes was seen as a way to put money back into the system rather than focusing solely on a  157  Taken from interview excerpts in C. Robert Zelnick, "Jobs and Inflation: Carter's Choices, an Interview with Charles L. Schultze," Washington Post, January 23, 1977. Also see Charles L. Schultze, Memos to the President: A Guide through Macroeconomics for the Busy Policymaker, (Washington, D.C.: Brookings Institution, 1992), 309-314. 158 Quoted in Hobart Rowen, "Treasury Chief Favors Uniform, Lower Income Tax Rate," Washington Post, January 23, 1977.  83  public works program. Lance argued that “some priming of the pump was necessary to revitalize the economy.” 159 Within four months of inauguration, Carter got his supplemental budget and stimulus package passed. As Eizenstat noted, “The first year is when you really do get things done. Every President wants to repeat the first hundred days. If Roosevelt could do it, why can’t they.” 160 Unfortunately, Carter abandoned the $50 rebate in April 1977, the centerpiece of Schultze’s stimulus package even though it had passed the House in March, and was approved by the Senate Budget Committee. Despite significant disagreement from Mondale and his Georgia advisers, who argued strongly against backing out, Carter felt it was not needed in light of the resurgent economic conditions. But the upswing was caused partly by the anticipation of the rebate. The decision received negative media coverage and helped cement the image of the president as a vacillating and non-resolute decision-maker. Despite high approval ratings with his initial policy announcements in early 1977, support for Carter declined. Coupled with the demands he made in his FY1977 revised budget to suspend nineteen expensive water improvement and construction projects approved by Congress and his later decision to back down on this, an extremely compromised energy policy proposal that was just barely approved by Congress, as well as the Bert Lance affair in early fall, Carter was vilified by a number of members of his own party for flip-flopping on issues. It was made worse by the fact that the American public were led to believe they would get a tax rebate back from government. Eizenstat recalled that “a terrible mistake was made…having  159  Bert Lance and Bill Gilbert, The Truth of the Matter: My Life in and out of Politics, (New York: Summit, 1991), 121. 160 Interview with Stuart Eizenstat, Carter Presidency Project, Miller Center of Public Affairs, Jan. 29-30, 1982.  84  gone through all the pain and suffering of doing [the alternate budget], if we didn’t just veto the legislation when we had gotten 194 votes in the House supporting our position.” 161 The rebate withdrawal highlighted the difficulty with a spokes-in-a-wheel advisory system which did not serve a president with penchant-for-detail tendencies that needed to be reined in. As Campbell notes, “the presence or absence of a creative tension between divergent views appears to rest as much upon personality factors as structural ones. Thus a president’s temperament can severely limit competition in a spokes-in-a-wheel structure.” 162 Eizenstat suggests that the mistakes made early on were indicative of the inner circle set up. “I think what happened, in part, is a lack of internal organization. In part, it’s a lack of prioritizing.” 163 The compartmentalization of decision making manifested itself in these kinds of policy announcements and then retreats. Without an effective way to bring together the policy advisers, like Eizenstat, Schultze and Watson, with the political people, like Jordan, Powell and Moore, the only place, as Deputy Chief of Staff Landon Butler argued, “where politics and policy at the highest level came together was in the person of Jimmy Carter.” 164 Essentially, even as early as the transition, Carter had no outlet among his inner circle in which policies and decisions could be brought together and presented to him in a less disjointed and more coherent way. On the spending side, budgets beginning in FY1979 (starting Oct. 1, 1978) were to reflect zero-base budgeting, in which all federal programs were to require justification every year. Carter pinned a balanced budget on both government reorganization and zero-base 161  Interview with Eizenstat. Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 47. 163 Interview with Eizenstat. 164 Landon Butler, in Interview with Hamilton Jordan, Carter Presidency Project, Miller Center of Public Affairs, Nov. 6, 1981. 162  85  budgeting, which in theory would have forced government agencies and departments to justify spending and thus reduce waste and inefficiency, and the fiscal dividends that would come about from an improved economy. He sought a balanced budget by 1981 and became synonymous with that broken promise as the economy worsened in 1979. Again, this stems in part from an advisory network made up of Washington outsiders. Campbell, Lynn and Whitman, and Wildavsky and Knott all note that Carter’s budgeting changes were adhered to in principle but worked around in practice, to the point where administrators refused to point out places in which cuts could be made in their own programs and instead highlighted the ineffectiveness of others. 165 In late 1977, Carter’s other major fiscal policy area, tax reform, proved to be a nonstarter. While it was an effective campaign issue, by the second year of his presidency, there was no longer support for it on Capitol Hill. Carter was a victim of not only bad timing, but advisers who were not providing him with the correct direction. He had an image as a vacillator, but the other reality was that he was stubborn and unwilling to change his mind on policy issues. As Light and Campbell both suggest, Carter maintained extremely fixed ideas of his policy options that did not lend themselves to give-and-take sessions, even among the Georgian advisers. 166 Congress also balked at tax reform because of Carter’s inability to establish the relationships with top Democrats on the finance and economic committees he needed to unroll his agenda. Like his truncated spokes-in-a-wheel system among senior staff, little was 165  Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 174, Laurence E. Lynn and David deF. Whitman, The President as Policymaker: Jimmy Carter and Welfare Reform, (Philadelphia: Temple University Press, 1981), 189-201, Aaron Wildavsky and Jack H. Knott, "Jimmy Carter's Theory of Governing," in The Beleaguered Presidency, ed. Aaron Wildavsky, (New Brunswick, NJ: Transaction Publishers, 1991), 200-203. 166 Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 46, Paul C. Light, The President's Agenda: Domestic Policy Choice from Kennedy to Carter (with Notes on Ronald Reagan), (Baltimore: Johns Hopkins University Press, 1982), 136.  86  shared directly between the White House and Congressional leaders. The tax revolts in 1978 suggested that Carter had missed his opportunity because Congress moved from tax reform to tax cuts. Eizenstat contends “the Hill wasn’t interested in traditional tax reform. They took our tax reform proposal and made a capital gains deduction out of it.” 167 Carter himself argued that on tax reform, he failed to both convince the public of its merits and negotiate an agreement with Congress. “In the end, we considered ourselves fortunate that a massive tax giveaway program was not passed over my veto.” 168 After the disappointments of the inaugural year, the Carter budgets that followed tried to follow a line of spending prudence and restraint, the kinds of fiscal policies that Bill Clinton was able to sell successfully later. But Carter seemed to get the order incorrect, starting off with the FY1979 budget that was contradictory to his campaign. After promising to control government spending but then negotiating with Congress supplemental budgets in FY1977 and FY1978 with larger deficits and more spending than Ford’s, the FY1979 budget was even more expansionary. In April 1978, with two-thirds of the nation believing the president’s handling of the economy was unsatisfactory, the Carter administration gradually slipped into what Campbell has termed survival politics mode which “characterizes a presidency that attempts to establish total discipline within the executive branch.” 169 Twin advisory problems had manifested themselves in the Carter White House. The first was that his Economic Policy Group, the reformatted version of Ford’s Economic Policy Council, was frequently overshadowed and outmanoeuvred in the White House by Eizenstat’s Domestic Policy Staff. The EPG tended to discuss but not make any decisions. Like the weekly cabinet meetings, the EPG met regularly the first year, but then ceased to be 167  Interview with Eizenstat. Carter, Keeping Faith: Memoirs of a President, 84-85. 169 Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 81. 168  87  a regular part of the budget review process. It was indicative, Hult and Walcott suggest, of the “Carter White House’s difficulty in coordinating across units.” 170 It also demonstrated that Eizenstat had risen above his economic peers as a trusted policy adviser, even on domestic economic issues, following Lance’s resignation and the inability of the EPG to formulate policy. Ooms elaborates on this lack of a coherent budget process: A regular fall and spring budget review process with other executive offices of the president, agencies sitting in on it, the other stuff, the EPG stuff, is more hit and miss…there isn’t much cycle to it…it has been organized in such a way that the Domestic Policy Staff takes a fairly important role and ends up chairing a lot of meetings. 171  The EPG framework, instead of bringing together policy and politics, resulted in standoffs between the economic advisers and the White House Office inner circle. Ooms characterized the problem as one in which because of the cleavages and disagreements in EPG, ranging from “Eizenstat on the liberal end, to [McIntrye] and others on the conservative end of the spectrum,” many issues never even were taken to Carter. 172 The second problem was with OMB itself. McIntyre did not instigate budget policy formulation. That rested with the inner circle of staffers and with Schultze in the CEA. Essentially, the inner circle in the White House and not the economic advisers took on the key decision making in fiscal policy as well. The first Carter budget was perceived as a broken promise because recessionary fears that had been dominant in this budget’s preparation in early 1977 had receded. Another problem was that Carter needed to present a midterm election year budget that would please Congressional Democrats and smooth over frosty Congressional White House relations. The budget then received negative attention as the deficit continued to balloon. McIntyre argues 170  Hult and Walcott, Empowering the White House: Governance under Nixon, Ford, and Carter, 151. Interview with Van Ooms, Campbell Collection, Georgetown University. 172 Van Ooms, in Interview with James T. McIntyre, Carter Presidency Project, Miller Center of Public Affairs, Oct. 28-29, 1981. 171  88  that Carter made a tactical mistake by allowing the deficit to grow: “My theory was that the President should have balanced the budget in 1979…And then he would have had more flexibility in 1981.” 173 The tax cut that was included, combined with the effects of the stimulus program, helped contribute to new inflationary pressures caused largely by the energy crisis that put the administration on an impossible footing for the next two years. If FY1979 showed an administration struggling with how to navigate and guide an economy out of recession, the FY1980 budget cemented Carter’s image as a president unable to provide effective stewardship of the economy. It served as a telling reminder of the need for some consistency in decision making. As Van Ooms suggests: Our ’79, ’80, and ’81 budgets concentrated on the problem of inflation…[but] there was no consistent presidential view on the general problem of inflation, and we all tried to get our own points of view across. We did not step back and try to define a more comprehensive point of view and serve the President’s interests as a staff should. 174  The 1980 budget was geared towards combating inflation and when put together the year prior forecasted a modest deficit and was designed as a set up for his final budgets in which a balanced budget would be possible. Carter publicly promised a deficit of no more than $33 billion in a televised address in late October 1978 but outlays ended up $48 billion above the original January proposal of 1979. The budget was then perceived as out of control because of automatic adjustments in program levels from higher interest rates and higher inflation rates, reaching 13.5% in calendar year 1980. 175 As Ooms recalls: The inflation problem due to the energy crisis was simply not foreseen…We were putting the ’80 budget together as Iran began to come unglued. By the time we had to put it to bed, it was still too early to assume that you were going to have the kind of energy shock we had in ’79. 176  173  Interview with McIntyre. Ooms, in Interview with McIntyre. 175 Ooms, in Interview with McIntyre. 176 Ooms, in Interview with McIntyre. 174  89  The back-and-forth on a course either to combat recession or to combat inflation hurt Carter with the public and with business. Unfortunately, economic advisers had to go with economic predictions from the year before and in Carter’s last two-and-a-half years, they ultimately selected a middle ground between expansionary or contractionary budgets that did not address the underlying problems of the economy. Carter’s public discussions of his economic goals also put him at a disadvantage for his reelection when they would frequently be unable to be met. The FY1980 budget exposed how much the public no longer trusted Carter to improve the economy. Part of this characterization of the president rested with Carter’s inability to correct his advisory network and demand fiscal restraint. During the budget process, McIntyre would work out with the OMB staff and Schultze budget goals that would then be overridden and expanded by Carter’s advisers, particularly Eizenstat and Vice President Mondale, who would justify increases from policy and political standpoints. As OMB Associate Director Frank Raines explained, “the only people you’ll find involved in everything are within the fence” of the White House Office. 177 OMB’s stature declined following Lance’s resignation because McIntyre and Ooms never had the personal relationship that Lance had with Carter. The Georgians then squeezed OMB out of the decision end game because Carter relied heavily on Eizenstat and the political advisers in the White House. This exposed the flipside of Carter’s failure to appoint ideologues. He also tended not to rely on the honest brokers that were brought in when his trusted advisers were replaced. McIntyre’s inability to offer a counterbalance to the White House staff suggests that he also had to get used to the fact that Carter wanted to be his own chief budgeter. One of the reasons that Lance had no chief economist was that he and the 177  Interview with Frank Raines, Campbell Collection, Georgetown University.  90  president would work out the figures themselves. Carter continued that role after Lance left. As Lance himself argues: My leaving left a void…it just left a void that he didn’t have time or the inclination to try to fill. And as far as I know, he never filled it. Jim McIntyre…never had that sort of relationship with Jimmy Carter. 178  For Carter, the FY1980 budget proved to be one of the last opportunities to reestablish trust with the public as the hostage crisis and the economy plagued the administration in the final eighteen months. Further, the Crisis of Confidence speech in July 1979 followed by the cabinet resignations of the Energy, Transportation, Treasury and HEW secretaries gave Carter an image of a president who offered no real hope to the public. Not only did it give Ronald Reagan an effective campaign strategy, but pushed Kennedy to challenge Carter in the Democratic primaries. The FY1981 budget is notable for being the first budget worked out under the rules of the Congressional Budget and Impoundment Act guidelines that call for a reconciliation process between Congress and the president. After Carter’s announced budget in February was rejected outright for its failure to fight inflation, FY1981 offered a $16 billion deficit, half of earlier estimates, and was still perceived as yet another broken economic promise. The budget was supposed to be balanced. With economic figures worked out in early 1979, the worsening conditions required a reworking of the numbers in early 1980, this time with direct involvement from the Congressional Budget Office. Carter in fact called on Congress to make the necessary revisions to bring in a balanced budget in FY1982. But the economy immediately tanked  178  Interview with Bert Lance, Carter Presidency Project, Miller Center of Public Affairs, May 12, 1982.  91  after his revisions were announced which sent the budget out of balance again. 179 With pressure from Democrats in Congress to not cut spending, FY1981 was another expansionary budget, despite the president’s attempts to rein in his party. Stein argued that “Carter’s [FY1981] budget did not inspire confidence as a pillar of an anti-inflation program. The president revised the budget in March to meet some of the criticisms, but that was taken to indicate lack of steadfastness.” 180 Carter basically gave away the budget to Congress after presenting his budget revisions and consequently the deficit again swelled. By 1980, Carter’s trusted advisers in the White House had shifted from policy mode to staving off Kennedy’s primary challenge and then into campaign mode for the general election. His FY1982 budget was set to be balanced but he never had the opportunity to capitalize publicly and campaign on his fiscal prudence triumph. As Reagan took over, Carter’s final budgets were massively overhauled and re-presented to reflect the principles of the Reagan Revolution. Following inauguration, George H.W. Bush confronted the same recalcitrant Congress with which Reagan was saddled except that there were even larger Democratic majorities in both houses. As with previous administrations, Bush I was forced to filter his domestic and economic agenda through the looming budget deficit, but also through the Gramm-Rudman-Hollings budget sequestration procedure. As Charles Jones has argued, this could have been turned into the president’s advantage, in that the White House no longer had to decide the budget since the G-R-H sequestration process would determine the size of the  179  Bruce J. Schulman, "Slouching toward the Supply Side: Jimmy Carter and the New American Political Economy," in The Carter Presidency: Policy Choices in the Post-New Deal Era, ed. Gary M. Fink and Hugh Davis Graham, (Lawrence: University Press of Kansas, 1998), 61-62. 180 Stein, Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond, 231.  92  deficit. 181 Unfortunately for Bush, he seemed too willing to make a deal rather than stick to Republican principles like his predecessor, despite the fact that Reagan repeatedly raised taxes. The problem was less sticking to principles and more the management of the message, something of which Reagan was a master. The FY1990 budget revisions became known as the “slide-by budget,” because although the capital gains tax negotiation slowed down the process, it was not characteristic of the budget battles of the Reagan era. 182 This was the last year of the G-R-H procedure since both Congress and the White House were avoiding the rules and increasing the structural budget deficit. Changes to the process were needed. Bush I and his advisers cannot entirely be blamed for the failure of the administration to set a clear and concise economic agenda in the first couple of months. Majorities favored more spending and government expansion to deal with education, poverty, the environment and other domestic issues. But 1989 presented opportunities for the incoming president, not only as the foreign policy landscape significantly altered in the first year, but as the Democratic Party leadership in Congress seemed to be in a freefall, plagued by scandals and the resignations of House Speaker Jim Wright and House Whip Tony Coelho. Instead of capitalizing on this disarray, the first year produced a caretaker administration struggling with a vision and a coherent agenda for the remainder of the first term. The Reagan-initiated, Bush-revised $1.2 trillion Building a Better America presidential budget presented in February was ratcheted up by Democrats and eventually signed as a $1.25 trillion budget for FY1990. In some respects, the larger federal budget 181  Charles O. Jones, "Meeting Low Expectations: Strategy and Prospects of the Bush Presidency," in The Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1991), 60. 182 Duane Windsor, "The 1990 Deficit Reduction Deal," in Principle over Politics?: The Domestic Policy of the George H.W. Bush Presidency, ed. Richard Himelfarb and Rosanna Perotti, (Westport, CT: Praeger, 2004), 28.  93  showed that Bush was responding to his own rhetoric, in wanting to be “the education president” and “the environmental president” leading “a kinder, gentler America” into the era of a lone superpower. But instead of highlighting this slight government expansion and courting the middle class vote, Bush shied away from wanting to address this relaxation of the Reagan legacy. The budget summitry became stalled after the initial budget as the White House and Congressional Democrats battled. Bush’s failures were compounded by a negotiating team that did not seem to learn from the Reagan-style tactics of claiming victories in the bargaining with Congress. Appearing as inflexible from the beginning, the administration refused to back down on the capital gains tax cuts and on any major tax increases, refused to make long-term post-Cold War defense cuts, and introduced a social policy add-ons package which would cut into other program budgets. The reconciliation bill was delayed until late November because of this White House intransigence and it was largely the administration’s fault that a bipartisan process descended into conflict through the implementation process. 183 By the time an agreement was reached, with Bush’s economic team of Darman, Sununu, Porter, Boskin, and Treasury Secretary Nicholas Brady meeting daily with the president, the new fiscal year had already begun without a reconciliation bill. Opinion had shifted and now the president was being blamed for the delay, as well as the G-R-H processinduced across-the-board cuts of $16 billion. 184 Bush gave up on the capital gains cuts and signed a bill with just under $15 billion in budget cuts. The deal almost met the G-R-H 183  Paul J. Quirk, "Domestic Policy: Divided Government and Cooperative Presidential Leadership," in The Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1991), 78-79. 184 The sequestration likely would have been much larger had Secretary of Defense Dick Cheney not proposed shifting military pay from the first business day of the new fiscal year to the last business day of the last fiscal year, saving the administration almost $3 billion. See Stanley E. Collender, "The Budget Deficit," in Developments in American Politics, ed. Gillian Peele, Christopher J. Bailey, and Bruce E. Cain, (New York: St. Martin's Press, 1992), 286-287.  94  requirements and did not raise taxes which should have been a victory for the president. Unfortunately, without the savvy Reagan public relations machine behind him, Bush and the White House failed to capitalize. Darman suggests that under the circumstances, the 1989 budget agreement was as good as the administration was likely to get There had been no concession on read-my-lips. Supply-siders were happy with the push for capital gains…Some deficit reduction measures were moving forward, and we were ready to take a minor sequester to assure their progress. 185  But he also recognized that Democrats would use all of their institutional and political resources the following year to force Bush into a weakened position. I knew this could not last. Time, the economy, and the budget numbers were moving against us…I wanted desperately to avoid the predictable problems of waiting until 1990…We had to wait until 1990. And that was bound to make a big difference. 186  Without quid pro quo negotiation with the Democratic leadership, Darman determined that he was obliged to produce a balanced budget without touching Social Security, risking significant political damage on other entitlements, cutting defense, or raising taxes! The chance of producing a credible budget, under these constraints, was close to nil. 187  Even with the impasses, it did not affect Bush’s poll numbers tremendously for the first year. While hitting a low of around 60% approval in late summer, the dramatic collapse of the Iron Curtain in the subsequent months gave Bush approval ratings in the eighties by the end of 1989. Although he did not celebrate much of a victory in the budget reconciliation, with Congress spending an additional $56 billion above the presidential request, the highest amount since the Carter years, Bush ended his first year more popular than every previous incumbent president after his first year.  185  Darman, Who's in Control?: Polar Politics and the Sensible Center, 228. Ibid., 228-229. 187 Ibid., 229. 186  95  For Darman and Sununu, Bush’s desire to be a statesman-like president required the advisers to play the bad guys, shouldering the blame for failures to set out a comprehensive agenda or for negotiating with Congress on sacrosanct Republican issues. Sununu’s selection as chief of staff proved a shrewd choice for the first year in terms of placating the Republican base. Sununu ran the White House operation with some efficiency, free of the leaks and open in-fighting and bickering that characterized both the Carter and Reagan administrations. It had the makings of an archetypal collegial advisory system. And unlike Donald Regan, Sununu understood his role was to assume blame and deflect it from the president. But Sununu’s abrasive nature and his ability to attack the press and members of Congress alienated him from the Washington establishment. By 1990, Sununu had assumed the duties of vicar of White House domestic policy, ostensibly filling the gap left by the president’s lack of interest in the non-foreign policy areas. 188 What appeared to be collegial was far more hierarchical with Sununu essentially performing the Regan role. Darman was never an ideologue in the early days of the Reagan first term, often the bearer of modest expectations to David Stockman’s revolutionary pronouncements. Darman’s selection as OMB Director fit perfectly with Bush’s prudence and Tory character. Darman was a known entity, neither dogmatic nor radical, but effective and highly recommended by Bush associates like James Baker. Unfortunately, Darman was also more economically liberal. Like previous White House advisers Charles Schultze and James McIntyre, he believed that balancing the budget and tackling the deficit came about through targeted revenue increases and reductions in government spending. This was made clear early in 1989 when Darman and Treasury Secretary Brady attempted to levy a tax on  188  Cohen, "George Bush's Vicar of the West Wing: John Sununu as White House Chief of Staff," 38, Campbell, "Management in a Sandbox: Why the Clinton White House Failed to Cope with Gridlock," 61.  96  deposits in bank accounts to offset the savings and loan bailout. Sununu and Bush were forced to dismiss the idea and defend Bush’s no new taxes pledge from the campaign. In 1990, concern over the deficit began to dominate the news as the shock of the international upheaval wore off. Believing that a new approach was necessary to deal with the still-exploding fiscal situation, Bush called for a budget summit with Congress following what would be another dead-on-arrival presidential budget in the early year. He suggested that this time there would be no preconditions, which the media and the Democrats immediately interpreted as the no new tax pledge was off the table. In Bush’s haste to appear conciliatory and open to compromise, the right wing flank and the Democrats pounced on the perceived weakness in the president’s willingness to negotiate. The goodwill and gesture of compromise was further undone by Sununu’s heavy-handed tactics that suggested Bush would veto any major tax increases. 189 The anatomy of the 1990 budget summit and subsequent agreement is worth examination for it reveals the apex of Sununu’s policy influence and the unbalanced nature of Bush’s advisory system. It also demonstrates the deal-making character of Bush, not wanting to appear indignant or ideological in his policy stances and searching for a compromise that would please everybody. It sounds very presidential but in execution, Bush alienated his own party. In analysis of Bush’s public and private veto threats, Richard Conley found that for President Bush, highly salient legislation was the most difficult for the White House to negotiate…Democrats were most willing to provoke confrontation and cast such confrontation into the media spotlight. Although Bush was successful in halting all [veto] override attempts save one, he had a more difficult time claiming credit for the salient bills that passed and on which he was able to wrest concessions. 190 189  Windsor, "The 1990 Deficit Reduction Deal," 28, Darman, Who's in Control?: Polar Politics and the Sensible Center, 251. 190 Richard S. Conley, "George Bush and the 102d Congress: The Impact of Public And "Private" Veto Threats on Policy Outcomes," Presidential Studies Quarterly 33, no. 4 (2003): 747.  97  This was true of the 1990 budget agreement, a difficult compromise and a significant achievement given the pay-as-you-go deficit legislation that accompanied it, but one that forced Bush into a defensive position and counterbalanced the gains he made as commander in chief during the Gulf War. Giving into deal-making subsequently was seen as weak and his flip flop on new taxes haunted him. The budget agreement was largely negotiated and masterminded by Darman and Sununu. David Cohen cites one former Bush White House official who argues that “as Sununu himself probably would say, his and Dick Darman’s advocacy of the 1990 budget deal (and breaking the ‘no new taxes’ pledge) was politically disastrous. To this extent, then, he was ‘influential’ without being ‘effective’” 191 As Bush prepared the FY 1991 budget, pressure mounted to reduce the budget deficit. Knowing that the agreement made with Democrats in 1989 could not last and that eventually Bush would have to take a hit on the tax pledge, Darman and Sununu suggested a budget summit. The reality of having to address the bigger issues of the budget process and the economy and not simply reaching an agreement with Democrats should not be underestimated. Bush inherited a series of decisions that had been continuously deferred until next year. The first problem was that payments to individuals, particularly indexed entitlements, accounted for almost half the federal budget. The FY1989 Reagan budget included 27% for national defense, 15% for interest on the national debt and 47% for individual payments. That left only 11% of “the federal budget for everything else the  191  Quoted in David B. Cohen, "From the Fabulous Baker Boys to the Master of Disaster: The White House Chief of Staff in the Reagan and G.H.W. Bush Administrations," Presidential Studies Quarterly 32, no. 3 (2002): 477.  98  government does.” 192 As Kettl argues, “presidents…have little flexibility in using the budget to steer the economy.” 193 G-R-H also helped the economy steer the budget so that budgeting shifted from an exercise in how Democratic administrations could achieve full employment or how Republican administrations could foster a growing economy to an automatic pilot exercise in compromise between the executive and legislative branch. 194 The second problem was that in moving to the G-R-H automatic pilot, fiscal policy became increasingly reliant “upon interest rate adjustments in managing the U.S. economy…This has made impossible demands on interest rates to simultaneously control domestic demand, to achieve equilibrium on the balance of payments, and to avoid a debt crisis.” 195 Essentially, Greenspan, as Chairman of the Federal Reserve Board, continued the tight monetary policies of the Volcker era. Bush and subsequent presidents have had to share economic policy with the Fed Chairman at a much more significant level. The third problem was deficit reduction. The presidential budget announced in February 1990 seemed deliberately written to be rejected by Congress. It proposed about a $64 billion deficit, in keeping close to G-R-H targets, with a capital gains tax cut to induce stockholders to sell shares and increase their taxable income, user fees and new Medicare taxes, as well as modest cuts in Medicare, entitlements and national defense. 196 But it was based on the same kind of rosy scenario assumptions and black box gimmickry Reagan had used in 1981. After the G-R-H sequester the year before, administration officials knew they  192  Donald F. Kettl, "Presidential Management of the Economy," in Understanding the Presidency, ed. James P. Pfiffner and Roger H. Davidson, (New York: Addison-Wesley, 1997), 249. 193 Ibid., 250. 194 See Henry J. Aaron, "Policy for the Nineties," in Setting National Priorities: Policy for the Nineties, ed. Henry J. Aaron, (Washington, D.C.: Brookings Institution Press, 1990), 7. 195 Joseph J. Hogan, "Economic Policy," in Developments in American Politics, ed. Gillian Peele, Christopher J. Bailey, and Bruce E. Cain, (New York: St. Martin's Press, 1992), 226. 196 David W. Brady and Craig Volden, Revolving Gridlock: Politics and Policy from Carter to Clinton, (Boulder: Westview Press, 1998), 88-89.  99  would have to present a budget that at the very least avoided sequestration. It was therefore designed to be dead on arrival in order to launch summit negotiations. By May, the economy was slowing and Darman’s numbers forecast a much larger deficit, in the hundreds of billions, one that had to be tackled with revenue increases. A budget summit now became inevitable. 197 Congressional leadership eventually winnowed down the participants in the budget summit and then the president agreed to take part, arguing that the meetings should take place in the Oval Office. Both Darman and Bryce Harlow, the Assistant Secretary of the Treasury for Legislative Affairs, have argued that this was the first in a series of tactical mistakes. The Oval Office setting effectively tied Bush to a successful negotiation and anything less would be seen as a presidential-initiated failure. 198 Once the Bush budget team (Darman, Sununu and Brady) and the Congressional budget leadership 199 began to negotiate, the White House seemed unable to control the negotiations and public relations around the tax pledge. Sununu tried to argue that new taxes could be vetoed by the president, which forced the White House to issue statements that the chief of staff was incorrect. 200 Blunders like this occurred over the subsequent months, including even the president antagonizing the media. 201  197  Richard M. Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," Presidential Studies Quarterly 29, no. 3 (1999): 620. 198 Darman, Who's in Control?: Polar Politics and the Sensible Center, 250-251, Bryce L. Harlow, "The Budget Process," in The Bush Presidency: Ten Intimate Perspectives of George Bush, ed. Kenneth W. Thompson, (Lanham, MD: University Press of America, 1997), 73. 199 Mitchell, Foley, House Majority Leader Dick Gephardt, House Budget Chairman Leon Panetta and Senate Budget Chairman Jim Sasser, Senate Minority Leader Bob Dole and House Minority Leader Bob Michel. 200 Goodgame and Duffy, "Big Bad John Sununu." Goodgame and Duffy suggest that Sununu’s tactics were in keeping with his bad cop image in protecting the president. Knowing that Bush would likely have to renege on the tax pledge, Sununu tried to strengthen the president’s position. Subsequent analysis contends that Sununu’s comments had the opposite effect, contributing to the White House being out of touch with the president and further alienating the negotiators on both sides. 201 Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," 624, 629-630.  100  Although he could come across as a conservative attack dog, particularly on social issues like abortion and on the environment, Sununu was a contradiction. He was “never a Reaganite, antigovernment conservative” 202 and unlike stalwart ideologues, he could be inflexible on a policy stance but then reverse course and advocate the opposite. This was no more apparent than when Sununu suggested that the no new tax pledge should be reneged on in order to complete budget negotiations with Congress. This nullified his ideologue credentials. One of Cohen’s respondents argued that Sununu was indeed hard to categorize. I believe that, substantively, his record was mixed; some very good, sagacious advice on some domestic and environmental issues, generally from a conservative viewpoint, offset by some real bloopers…interpreted as a mixture of neutral brokering, when he believed a wide range of views needed to be explored with the President, and advocacy, when he believed that some constituency inside and/or outside government was lining up to foist off on President Bush some position or agenda that might be either bad policy or bad politics. 203  Jim Pinkerton is even more critical. “How could someone who hated taxes and loved activism come to embrace a pact that institutionalized the opposite?” 204 But Sununu, despite his conservative credentials was an incrementalist like Bush, not an ideologue. False starts led to impasse after a month and a half of negotiation. Finally, in lateJune, Bush sat down with his team and the Democratic and Republican leadership. Speaker Foley suggested the need for an agreed statement of bipartisan negotiation, including “entitlement reform, defense and domestic discretionary spending reduction, budget process reform, and tax increases.” 205 Surprisingly, Bush simply agreed to the conditions and this group of politicians and economic advisers, without any input from communications or  202  Goodgame and Duffy, "Big Bad John Sununu." Quoted in Cohen, "From the Fabulous Baker Boys to the Master of Disaster: The White House Chief of Staff in the Reagan and G.H.W. Bush Administrations," 477. 204 James Pinkerton, "Life in Bush Hell," The New Republic, December 14 1992, 26. 205 Darman, Who's in Control?: Polar Politics and the Sensible Center, 260-265. 203  101  speechwriting staff, redrafted the statement, submitted it to Press Secretary Marlin Fitzwater, and the tax pledge was effectively reneged upon. 206 On the day Bush agreed to “tax revenue increases,” the budget team in the Bush White House dropped the ball. 207 The problem was optics which the advisers failed to roundtable so that control of discussion on the agreement rested not solely with Demarest, Fitzwater and the presidential communications staff but with Democratic leadership who immediately exclaimed that the read my lips pledge was finished. This public relations problem plagued the entire negotiation. Presidents before and after Bush have made campaign promises that they could not keep and have walked away unscathed and often with a second term and a popular and successful legacy. Bush’s problem was one of issue mismanagement and the fault lies with the members of the negotiating team and the communications staff. The 1990 budget deal was a major piece of legislation, not only in terms of the budget deficit but in improving the inefficient budget process. Yet Bush was on the defensive about the entire package before it had even passed, let alone before Gingrich and the Republican base rejected the agreement in the House on October 5. Presidencies can hinge on just a handful of decisions or indecisions, and with Bush I, like in the case of Carter, management of the budget issue became a bigger problem than the issue of the budget.  206  Harlow, "The Budget Process," 74-75. The actual White House statement was: It is clear to me that both the size of the deficit problem and the need for a package that can be enacted require all of the following: entitlement and mandatory program reform; tax revenue increases; growth incentives; discretionary spending reductions; orderly reductions in defense expenditures; and budget process reform to ensure that any Bipartisan agreement is enforceable and that the deficit problem is brought under responsible control. The Bipartisan leadership agrees with me on these points. 207 For an argument in favor of the incoming forty-first president not ruling out tax increases, see Paul H. O'Neill et al., "Economic Policy," in American Agenda: Report to the Forty-First President of the United States of America, ed. Gerald R. Ford and Jimmy Carter, (New York: Book-of-the-Month Club, 1988), 64.  102  Bush did three things wrong in negotiating with the Democrats and agreeing to summitry with “no preconditions.” The first was not a policy or ideological problem; it was simply one of handling the issue. Issuing a joint agreement to negotiate with the caveat that revenue increases would result should never have been released without being written and rewritten by the president’s staff. The Democrats were playing hardball and the White House staffers were in another league, blinking when forced to make a decision and being outplayed by Congressional Democrats who thrived on and sought confrontation. 208 Darman argues this was the fundamental tactical mistake that led to the undoing of Bush’s popularity and the unity of the Republican Party. It was a matter of timing and presentation. We should not have allowed the press release to go out when we did, the way it did…We weakened the President politically. And we reduced our leverage considerably for the negotiations that were to follow. I regret that deeply.” 209  Harlow was even more exact in his criticism The President was very poorly served that day. When President Bush indicated that he would approve a statement, someone in that room…should have said, “Mr. President, can I see you alone for a second in the study?” 210  Bush gave away too much even before the negotiations started so that not only was this a tactical mistake but also a bargaining error. He continued to give away his bottom line before negotiations were complete, in order to get the deal. 211 Secondly, Bush should have courted the Republican base from the start of the negotiations, meeting one on one with Gingrich, Gramm and other conservative leaders, in an effort to bring them on board and in full compliance with the resulting compromise. The  208  Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," 624, Daniel P. Franklin, Making Ends Meet: Congressional Budgeting in the Age of Deficits, (Washington, D.C.: CQ Press, 1993), 7072. 209 Darman, Who's in Control?: Polar Politics and the Sensible Center, 265. 210 Harlow, "The Budget Process," 75. 211 Brady and Volden, Revolving Gridlock: Politics and Policy from Carter to Clinton, 96, Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," 624.  103  defection and subsequent political firestorm opened the door for Democratic strategists to define the 1992 presidential campaign, helped allow a populist independent into the presidential race and forced a conservative to openly challenge Bush for the 1992 Republican nomination. Harlow elaborated A huge tactical mistake…was the failure of administration officials to heed, stroke, caress, and keep the Republicans in Congress and across the country informed on what was happening. 212  This was at its worse the day of the tax pledge reversal when most Republicans, including many White House staffers, found out about it second hand after it had been posted on the press bulletin board. Darman recalls that The statement had been released, and the predictable firestorm was raging…I told [the president, the First Lady, and Fitzwater] of Gingrich’s reaction when Sununu tried to persuade him that “tax revenue increase” meant growth incentives. Gingrich hung up!213  Harlow suggested that the damage done on that day decided the 1992 election The alternative was to let Republican Party faithfuls around the country feel terribly betrayed by the President’s not telling them of this statement. As a result, those Republicans walked away from the President and stayed away. 214  Over the coming months, anecdotes about Sununu and Darman’s heavy-handedness with Republicans suggest that Gingrich and the conservatives had every right to be angry with the White House. 215 Pinkerton is perhaps the most insistent that their tactics destroyed Bush’s reelection chances Darman’s elitism, control freakery, and fetish for deal-making evoked echoes of Henry Kissinger, another smart player obsessed with secrecy. But the joke was on him: Darman  212  Harlow, "The Budget Process," 74. Darman, Who's in Control?: Polar Politics and the Sensible Center, 264. 214 Harlow, "The Budget Process," 75. 215 See Burke, The Institutional Presidency: Organizing and Managing the White House from FDR to Clinton, 168, Harlow, "The Budget Process," 76-77, Burke, Presidential Transitions: From Politics to Practice, 254255, Pfiffner, "The President's Chief of Staff: Lessons Learned," 94, Quirk, "Domestic Policy: Divided Government and Cooperative Presidential Leadership," 75-81, Barbara Sinclair, "Governing Unheroically (and Sometimes Unappetizingly): Bush and the 101st Congress," in The Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Chatham, NJ: Chatham House, 1991), 176-177. 213  104  orchestrated a multivariate, gothically nuanced surrender when the Republicans were winning! 216  Rejecting the budget summit agreement in early October in the House was a protest against the administration’s treatment of the right wing. Unfortunately, it only strengthened the Democratic position and forced Bush to court liberal Democrats for the final mid-October agreement that passed both houses. He not only reneged on “tax revenue increases” but on income tax increases as well. Thirdly, the president never sold the package to the American public. Here was his only major domestic legacy and the White House did little to champion it, as if the tax cut reversal was more of a disaster than an historic budget agreement. 217 The advisory inaction on defending it only exacerbated the notion that the White House caved in and alienated the Republican base. Bush should have been able to sell himself as a fiscally responsible leader, making necessary decisions and reaching effective solutions. Instead, he was perceived as a wimp by his own party and a weakened leader by the opposition. Following the agreement’s defeat in the House in early October by a coalition of conservative Republicans and liberal Democrats, the revised budget deal, supported by more Democrats than Republicans, was much worse for Bush than the agreed terms Darman and Sununu had worked out with Congressional leaders in summit negotiations. The longstanding impasse in the original agreement was over Democrats wanting income tax increases on wealthy individuals in exchange for a cut in the capital gains tax. Democrats simply delayed, forcing the reconciliation bill into late summer, pushing it to the beginning of the new fiscal year and the threat of a government shutdown in a midterm election year. With an estimated deficit of nearly $300 billion, no deal would have triggered the G-R-H 216 217  Pinkerton, "Life in Bush Hell," 26. David Mervin, George Bush and the Guardianship Presidency, (London: Macmillan, 1996), 151.  105  cuts and could have significantly cut defense spending just as the administration was planning its response to the invasion of Kuwait. 218 Their inaction forced Bush into a fall-back budget process: the White House would have to make a deal, or under the GRH law Bush would be required to sequester funds totaling 20 percent of domestic discretionary spending and 27 percent in defense expenditures. Spending cutbacks of this magnitude ($90 billion or more) might trigger a recession and would be politically unsustainable. 219  After a series of continuing resolutions and a weekend of nonessential government services suspended, the agreement saw a capital gains freeze but no income tax increases. This agreement, had Gingrich not revolted, could have been sold to many more Republicans since income taxes were left untouched. Furthermore, the president was riding high in the polls with the rally effect of the war. But once the agreement was defeated in the House, Bush did not actively take part in the remainder of the negotiation, arguing that it was now a Congressional matter, and Democrats quickly came to agreement on tax changes. 220 Bush lost both capital gains and income taxes and in November, Republicans lost eight House seats and a seat in the Senate. 221 With the Iraqi invasion of Kuwait in August 1990 and pending American military intervention in the Middle East, the actual specifics of the budget deal were overshadowed. But the agreement was seen by economic analysts as a significant achievement. The negotiators worked out a budget that would avoid the sequestration process and adhere to deficit reduction targets by dramatically increasing excise taxes and user fees. A separate 218  John W. Sloan, "The Burden of the Reagan Legacy on the Bush Presidency," in Principle over Politics?: The Domestic Policy of the George H.W. Bush Presidency, ed. Richard Himelfarb and Rosanna Perotti, (Westport, CT: Praeger, 2004), 116. 219 Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," 632. 220 Sinclair, "Governing Unheroically (and Sometimes Unappetizingly): Bush and the 101st Congress," 179180. 221 The budget agreement’s final passage in mid-October prompted Ed Rollins, co-chair of the Republican Congressional Campaign Committee, to suggest that midterm congressional challengers for House seats openly oppose the president’s deal. See Ryan J. Barilleaux and Mark J. Rozell, Power and Prudence: The Presidency of George H.W. Bush, (College Station: Texas A&M University Press, 2004), 34.  106  piece of legislation, the Budget Enforcement Act, was incorporated as Title XIII of the final deal which completely reworked GRH. 222 Since conservatives rejected this first version of the bill, this left Bush with either taking a massive sequestration and across-the-board budget cuts or courting congressional Democrats and reaching agreement. As Barilleaux and Rozell explain, he chose negotiation which resulted “in a package that included tax increases on wealthier citizens.” 223 The final result, the Omnibus Budget Reconciliation Act of 1990 (OBRA), increased the top income tax rate to 31% from 28% for the highest income earners and increased the individual alternative minimum tax from 21% to 24%. It ratcheted back the number of excise tax increases from the summit budget package, lowered entitlements slightly, and slightly lowered the total deficit reduction to $492 billion over the FY1991-FY1995 period. It provided for $137 billion in revenue increases over the projected five years. On the expenditure side, defense and nonentitlement spending was cut by $182 billion and interest payments on the debt were reduced by $165 billion, leaving the FY1991 budget $270 billion in deficit. 224 222  Along with the agreements reached on taxes and the budget, the budget process was revamped to reflect the concerns over the blunt tool of deficit reduction known as Gramm-Rudman-Hollings. The new budget procedures attempted to stop the backsliding and gimmickry on deficit reduction agreements and replace deficit reduction targets with spending limitations to be worked out when a new program proposal, tax change, or expenditure was considered. Future legislative initiatives were from now on to be considered in tandem with proposals for compensatory cuts in other programs within the same portion of the budget or for new taxes or fees. With focus now on adjustable deficit targets, deficit problems were divided into those caused by economic downturns and those caused by legislation. The pay-as-you-go or PAYGO rule would now force any tax changes or new expenditures to not increase the deficit. Therefore, any new programs or spending proposals would have to be offset with cuts or spending decreases in other existing programs; in other words, be budget neutral. In its initial incarnation, increases in the deficit were offset by across-the-board sequestration of nonexempt mandatory spending programs. 223 Barilleaux and Rozell, Power and Prudence: The Presidency of George H.W. Bush, 34. 224 OBRA also raised the cap on taxable wages for Medicare to $125,000 and cut Hospital Insurance by about $40 billion, increased gasoline taxes by 5 cents a gallon, increased sin taxes on alcohol and tobacco, increased luxury excise taxes, increased airport and telephone services taxes, and capped capital gains at 28% but did not cut them despite the feverish efforts of the administration. It further added income tax reforms, including two substitute bubbles in the form of a phase-out of the value of the personal exemption and a phase-out of some itemized deductions, and a reduction in itemized deductions for the wealthy. And rather than increase minimum  107  The excise tax hikes increased taxes on middle-income earners by about $100 a year but the bottom 40% of families saw an increase in income with new taxation more than offset by the increase in EITCs. Ironically, the “Bush tax increase” actually lowered taxes for a significant portion of the American public, particularly earners in lower tax brackets and those whose income was augmented by government welfare programs. Unfortunately, they tended not to vote Republican. What the 1990 budget deal demonstrated is that Bush lost the upper hand in the budget process. He had been outplayed by Congress in FY1991. There is little excuse for Sununu, Darman and the other domestic and political advisers being unable to control the eventual budget agreement. Following FY1991, the FY1992 and FY1993 budgets were simply continuations of the agreed-upon terms set down in 1990. In fact, the only tax legislation following OBRA were Bush’s election year veto of the Tax Fairness and Economic Growth Acceleration Act and the threatened veto of the Urban Aid Tax Bill of 1992, both Democratic attempts to further increase revenues or raise taxes. The FY1992 budget process started amidst the Gulf War in early 1991. While it insulated the defense budget from attempts by Congress to meddle, Bush did not pursue an aggressive economic policy, despite approval ratings in the nineties. He adopted a go-slow attitude and as the country drifted into recession, public perception was that the president was doing little to help those suffering from the declining economy. 225 The major difference between administration and congressional proposals in both FY1992 and FY1993 was over  wages, it expanded the earned-income tax credit from $994 to $1,228 for low-income working families to offset increases in excise taxes. See Pious, "The Limits of Rational Choice: Bush and Clinton Budget Summitry," 618-619, Eugene Steuerle, "Tax Policy from 1990 to 2001," in American Economic Policy in the 1990s, ed. Jeffrey Frankel and Peter R. Orszag, (Cambridge: M.I.T. Press, 2002), 143-145, Windsor, "The 1990 Deficit Reduction Deal," 30. 225 Barilleaux and Rozell, Power and Prudence: The Presidency of George H.W. Bush, 35.  108  discretionary domestic spending, with back-and-forth battles over small amounts in unemployment benefits, Medicare and other programs. 226 The FY1992 budget had a deficit of $290 billion, the largest ever but the apex of deficits for the next decade. It met BEA targets and began an era of gradual budget neutral deficit reduction. Matters for Bush became worse as the Gulf War triumph faded and Sununu was snared in a scandal that occupied the administration for months in late 1991. His replacement, Sam Skinner, was even more of a problem than Sununu with the White House staff becoming completely dysfunctional through the first half of 1992 as a massive and illadvised restructuring attempt occurred amidst the beginnings of Bush’s reelection bid. 227 Skinner, who had earned the nickname “the Master of Disaster,” was replaced by James Baker, brought in to coordinate Bush’s faltering reelection effort. Sununu’s ouster did allow Michael Boskin to play more of a hand in economic decisions, working with Darman to craft the limited FY1993 budget. But no further tax changes were negotiated despite calls for tax cuts in the 1992 election year. Unfortunately, the economy went into recession after the Gulf War and Bush’s poll numbers dropped steadily, all the more intensified by Sununu’s imbroglio. With no move to capitalize in fiscal policy on the president’s popularity in mid-1991, the Democrats found the key weakness to defeating Bush. 228 Once the focus was back on  226  Dennis S. Ippolito, "Governance Versus Politics: The Budget Policy Legacy of the Bush Administration," in Principle over Politics?: The Domestic Policy of the George H.W. Bush Presidency, ed. Richard Himelfarb and Rosanna Perotti, (Westport, CT: Praeger, 2004), 18. 227 David B. Cohen and George A. Krause, "Presidents, Chiefs of Staff, and White House Organizational Behavior: Survey Evidence from the Reagan and Bush Administrations," Presidential Studies Quarterly 30, no. 3 (2000): 432, Cohen, "From the Fabulous Baker Boys to the Master of Disaster: The White House Chief of Staff in the Reagan and G.H.W. Bush Administrations," 474, 477, 480. 228 The Democratic Party was given a by-election of sorts to test economic messages of running against the president’s record. Pinkerton argues that “not long after, James Carville, using Harris Wofford as a decoy, defeated Dick Thornburgh in the contest for Pennsylvania’s Senate seat. Still, no domestic agenda emerged. Its absence became dramatically apparent after the Los Angeles riots. The predicted right-wing backlash never  109  domestic issues, Bush had little incumbent record to run on for reelection. He was forced by the right wing to appear tough on any future tax increases which made negotiation with Congress on a bold election year initiative impossible. His 1992 vetoes were out of political necessity but by then Perot had entered the race, Buchanan had already challenged Bush in the primaries signifying the split in the party, and the Democrats had selected a centrist southern Governor with an almost savant-like grasp of domestic and economic issues. The FY1993 budget that passed was another victory for Democrats. As Ippolito argues, Democrats wanted to avoid a protracted battle over the budget so they agreed to the administration’s domestic spending freeze and applied the freeze to all the regular appropriations measures. 229 They also agreed on the post-Gulf War defense cuts Darman outlined in early 1992. Democrats could not be accused of appearing weak on defense or out of control on spending in an election year and since Bush vetoed their tax cut bills, the president could hardly run for reelection on taxes. It set in motion a 1992 presidential campaign in which Bush started behind in the polls and never recovered. 3.3 Advisory Analysis: The Fiscal Numbers Jimmy Carter left behind a mixed fiscal record as his alternating budgets that increased then decreased spending can attest. As Table 1 shows, his best year was in the middle of his presidency, FY1979 in which the deficit shrunk to just 1.6% of GDP. But by the time of the 1980 election, those numbers had floated back up to inauguration levels and his gains were perceived as temporary. Like Bush, Carter maintained relatively constant outlays as percentage of GDP but he could not control non-defense spending as it increased over the course of his presidency. Carter also had the fiscal restraint problem of a steady materialized. People worried instead that under Republicans, the country was falling apart.” See Pinkerton, "Life in Bush Hell," 27. 229 Ippolito, "Governance Versus Politics: The Budget Policy Legacy of the Bush Administration," 19.  110  increase in defense spending. Still, the modest increase to about $150 billion by 1981 would pale in comparison to the Cold War reinvigoration Reagan would enact. His fiscal record is notable for its lack of ideological or dogmatic decisions. There is no dramatic increase or decline in most of the fiscal categories as Carter stayed away from supply side theories and dramatic tax cuts as well as spending increases on government programs. But it is that very lack of notable changes that made Carter’s fiscal record a liability because he was only perceived as managing the economy in a contractionary era. The perception of stagnation, reinforced by Carter himself in speeches, helped to shape Table 3.3 Budget Deficit Containment (Deficit or Surplus in Billions of $ by Fiscal Year) 1977 1978 1979 1980 1981 Actual On-Budget Deficit -49.9 -55.4 -39.6 -73.9 -73.1 Actual Off-Budget -3.7 -3.8 -1.1 -.7 -5.1 Total Deficit -53.7 -59.2 -40.7 -73.8 -79.0 Gross Federal Debt 706.4 776.6 829.5 909.0 994.8 Gross Domestic Product 1,974.3 2,217.0 2,500.7 2,726.7 3,054.7 Deficit (as percentage of GDP) -2.7 -2.7 -1.6 -2.7 -2.6 Federal Debt (as percentage of GDP) 35.8 35.0 33.2 33.3 32.6 Total Individual Income Tax Receipts 157.6 181.0 217.8 244.1 285.9 Total Corporate Income Tax Receipts 54.9 60.0 65.7 64.6 61.1 Social Insurance and Retirement Receipts 106.5 121.0 138.9 157.8 182.7 Other Receipts 36.6 37.7 40.8 50.6 69.5 Total Revenue Receipts 355.6 399.6 463.3 517.1 599.3 Total Revenue Receipts (as percentage of GDP) 18.0 18.0 18.5 19.0 19.6 National Defense Outlays 97.2 104.5 116.3 134.0 157.5 Non-Defense Outlays 312 354.2 387.7 456.9 520.7 Total Outlays 409.2 458.7 504.0 590.9 678.2 Total Presidential Request Outlays 411.2 462.2 493.4 563.6 662.7 Excess Congressional Spending -2 -3.5 10.6 27.3 15.5 Total National Defense Outlays (as percentage of GDP) 4.9 4.7 4.7 4.9 5.2 Total Non-Defense Outlays (as percentage of GDP) 15.8 16 15.5 16.8 17 Total Outlays (as percentage of GDP) 20.7 20.7 20.2 21.7 22.2 Sources: Institute for Policy Innovation; Budget of the United States, Fiscal Year 2010; Office of Management and Budget  111  Carter’s fiscal record as one of failure. He managed the economy but Carter never fixed it and it was that very quality of visionless stewardship which Reagan defined in the 1980 campaign. Bush’s economic legacy is certainly one of prudence and, like Carter, he did not receive credit for trying to make the right decisions. As Table 2 outlines, the annual deficit reached a pre-George W. Bush apex in FY1992, with a nearly $300 billion deficit. The budget deficit finally began to be contained in FY1993 which at $255 billion was actually lower than the previous two years. The budget deal in 1990 put into effect spending controls, most notably in defense where post-Cold War spending cuts took effect from FY1991 through FY1993, with a slight upswing in FY1992 for the Gulf War. Note also the increase in both individual and corporate income tax receipts which took jumps in FY1993. Total government spending continued to hover around 21% of GDP, a legacy of the Reagan years. But note the substantial percentage increase in non-defense outlays from 15% to 17% over the course of Bush’s term. A larger portion of the federal budget was devoted to domestic and entitlement spending during Bush’s tenure than the fairly steady 15% of GDP during the Reagan years. Finally, take note of excess congressional spending above the total presidential budget request, which reached highs in FY1990 and FY1991. These are both legacies of the Bush economic team’s negotiations with Congress in which Reagan’s post-1982 ‘legislative deal-making with a fight’ became just simply “deal-making” under Bush. The average annual amount of excess congressional spending during the Reagan years was only $30 billion. In FY1990 and FY1991, Bush’s team negotiated final budgets $56 and $91 billion higher than their initial budget requests. These figures turned around in FY1992 and FY1993  112  as Congress followed BEA guidelines for deficit reduction and actually reduced the presidential budget request by $72 and $108 billion respectively. Table 3.4 Budget Deficit Containment (Deficit or Surplus in Billions of $ by Fiscal Year) 1989 1990 1991 1992 1993 Actual On-Budget Deficit -205.4 -277.6 -321.4 -340.4 -300.4 Actual Off-Budget 52.8 56.6 52.2 50.1 45.3 Total Deficit -152.6 -221.0 -269.2 -290.3 -255.1 Gross Federal Debt 2,867.8 3,206.3 3,598.2 4,001.8 4,351.0 Gross Domestic Product 5,400.5 5,735.4 5,935.1 6,239.9 6,575.5 Deficit (as percentage of GDP) -3.9 -4.5 -4.7 -3.9 -2.8 Federal Debt (as percentage of GDP) 53.1 55.9 60.6 64.1 66.2 Total Individual Income Tax Receipts 466.9 467.8 476.0 445.7 509.7 Total Corporate Income Tax Receipts 103.3 93.5 98.1 100.3 117.5 Social Insurance and Retirement Receipts 359.4 380.0 396.0 413.7 428.3 Other Receipts 82.8 91.7 93.2 101.4 99.0 Total Revenue Receipts 991.2 1,032.1 1,055.1 1,091.3 1,154.5 Total Revenue Receipts (as percentage of GDP) 18.4 18.0 17.8 17.5 17.6 National Defense Outlays 299.3 298.4 291.1 303.6 273.3 Non-Defense Outlays 953.8 1,051.0 1,083.2 1,118.4 840.2 Total Outlays 1,143.8 1,253.1 1,324.3 1,381.6 1,409.5 Total Presidential Request Outlays 1,094.0 1,197.0 1,233.0 1,454.0 1,517.0 Excess Congressional Spending 49.0 56.0 91.0 -72.4 -107.5 Total National Defense Outlays (as percentage of GDP) 5.6 5.2 4.6 4.8 4.4 Total Non-Defense Outlays (as percentage of GDP) 16.6 17.7 17.3 17.0 15.6 Total Outlays (as percentage of GDP) 22.3 22.1 21.4 21.2 21.8 Sources: Institute for Policy Innovation; Budget of the United States, FY 2010; Office of Management and Budget  The figures above show a president coming to terms with deficit control but also demonstrate what little Bush actually did for his own Republican cause. The national debt increased, both individual and corporate taxes increased, overall government and domestic spending increased, and defense spending decreased. With the considerable effort made to alleviate the deficit, these numbers would have likely reelected a Democratic president.  113  3.4 Conclusion: Unbalanced Advisory Systems Both Carter’s and Bush’s advisory problems were a result of advisory imbalance, vesting too much control in either too few advisers, in the case of Bush with Sununu or too many like-minded advisers, in the case of Carter. Carter and Bush did not pursue fiscal policies that were dramatically off-center, as Reagan and Bush II did. Instead, apart from deficit reduction which became a Clinton hallmark despite its origins in the Bush I years, both Carter and Bush I can be characterized as visionless stewards of the economy. They understood the importance of prudent fiscal policies but their advisory networks failed dramatically in managing fiscal policy issues. For Carter, the indecisiveness helped cost him the presidency. He presented no clear vision for the country and there was no voice among his advisers who could shape and sell that vision to the president. His vacillation year to year on budgeting, on taxes, and the economic direction of the country made him unpopular with a public eager to cast blame on the president and made Carter an easy target in the 1980 general election. Directionlessness and policy errors were also apparent in other areas, with domestic policy formulation and in foreign policy. It is a mischaracterization to suggest Carter was a victim of groupthink in the area of macroeconomic fiscal policy, as Janis and his progeny suggest he was on certain foreign policy efforts. 230 But Carter was not able to achieve the kind of multiple advocacy  230  See Irving L. Janis, Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascoes, (Boston: Houghton Mifflin, 1972), 200. For detailed studies of the Carter foreign policy advisory network and the groupthink problems that can develop, particularly on arms control, see Janis, Groupthink: Psychological Studies of Policy Decisions and Fiascoes, Alexander Moens, Foreign Policy under Carter: Testing Multiple Advocacy Decision Making, (Boulder: Westview Press, 1990), Betty Glad, Jimmy Carter: In Search of the Great White House, (New York: W.W. Norton, 1980), Michael W. Link and Betty Glad, "Exploring the Psychopolitical Dynamics of Advisory Relations: The Carter Administration's Crisis of Confidence," Political Psychology 15, no. 3 (1994), Margaret G. Hermann and Thomas Preston, "Presidents, Advisers, and Foreign Policy: The Effect of Leadership Style on Executive Arrangements," Political Psychology 15, no. 1 (1994), Paul D. Hoyt and Jean A. Garrison, "Political Manipulation within the Small Group: Foreign Policy Advisers in the Carter Administration," in Beyond Groupthink: Political Group  114  that Ford received from his economic advisers. His most trusted advisers from Georgia cut off countervailing policy formulation and idea generation, not in any ideological sense, but in a geographical and political one. As Campbell argued, “Carter struggled to strike the balance his predecessor developed, providing a viable mix of countervailing scrutiny and structure.” 231 Carter needed a more mixed adviser set, from different regions of the country, with different backgrounds and experience, and most importantly, from different constituencies within his political party. He also needed more than a first among equals adviser to bring together and commandeer ideas from both his political and policy advisers. But Carter was also as undone by the way he sought out and utilized advice. Ironically, he was criticized publicly for his vacillation on policies and campaign promises while privately was known for his entrenched and non-wavering policy positions. As his own chief of staff for three years and his own closest adviser, Carter could not harness the full benefits of an advisory network. That is not a criticism of an otherwise engaged and intellectually curious president but one who failed to submit his own fixed policy positions to give-and-take among varied advisers. Without a coherent policy agenda to sell to Congress, much less the public, Carter succumbed to his own worst tendencies because he was so doctrinaire in his policy positions. Burke suggests that Carter wanted a collegial system and that he thought he was an effective delegator of responsibilities “yet what developed was almost exactly the opposite:  Dynamics and Foreign Policy-Making, ed. Paul 't Hart, Eric K. Stern, and Bengt Sundelius, (Ann Arbor: University of Michigan Press, 1997), Jean A. Garrison, Games Advisors Play: Foreign Policy in the Nixon and Carter Administrations, (College Station: Texas A&M University Press, 1999), Jean A. Garrison, "Framing Foreign Policy Alternatives in the Inner Circle: President Carter, His Advisors, and the Struggle for the Arms Control Agenda," Political Psychology 22, no. 4 (2001). 231 Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 49. See also Interview with Frank Moore, Campbell Collection, Georgetown University.  115  compartmentalized rather than collegial; micromanagement rather than delegation.” 232 With everybody singing from different song sheets, his own advisers did not know what Jimmy Carter actually wanted and consequently, the goodwill he amassed in the 1976 election quickly evaporated as the public grew tired of his vacillation. Just prior to his Crisis of Confidence speech in July 1979, Carter’s former speechwriter James Fallows wrote an article as the new Washington editor of The Atlantic Monthly entitled The Passionless Presidency. He describes a White House that was lost precisely because the Carter administration had no organized passion or ideological thrust to shape and guide the president. Fallows argued he did not have the ability to explain his goals or “the passion to convert himself from a good man into an effective one, to learn how to do the job.” 233 But Carter and his advisers were passionate, only without a central adviser or set of advisers who could coordinate policy and political advice and filter it through a coherent prism. That inability to self-correct by reworking the advisory system, particularly in the fiscal policy arena where polling even early in his presidency showed a public deeply unhappy with his economic efforts, weakened him. Fallows articulated this frustration: If there is a single grievous flaw I find in Carter, it is his complacency about the people he has around him and the ideas that come to him. There’s no passion in him to find better people, to find better ideas. He is satisfied with those he has. A lot of them are good but always they could be better. 234  In effect, the energetic Georgians in 1976 became a White House staff of parochial veterans insulated from new ideas by 1980. In a climate of unprecedented inflation and an economy that refused to perform as it should, with exogenous oil shocks and the destabilization of Iran, some would argue that  232  Burke, Presidential Transitions: From Politics to Practice, 88. Fallows, "The Passionless Presidency: The Trouble with Jimmy Carter's Administration." 234 Interview with James Fallows, Exit Interview, Jimmy Carter Presidential Library, Nov. 14, 1978. 233  116  Carter just had a good run of bad luck. Perhaps no president could have navigated the late 1970s and not received the back of the American public’s hand. But Carter had four years to at least show that he was capable of mastering just one aspect of the economy, be it unemployment, inflation, recessionary worries, or the deficit. He left office with higher unemployment, higher inflation and a larger deficit than Ford or Nixon. While Carter managed to fiscally restrain overall spending on domestic programs, which remained almost flat during his four years, he never received credit for making sound judgments in combating inflation. As he acknowledged, “the obvious inconsistency in my policy during this rapid transition from stimulating the economy to an overall battle against inflation was to plague me for a long time.” 235 Outgunned by Congress on fiscal restraint, by government agencies refusing to make necessary cuts, and by an impatient public waiting for an economy to recover, he never was able to convince a majority that his way of governing and of managing the government was worthy of being reelected. Reagan would take full advantage of this prevailing perception of the president in the campaign, and with his effective election question, “are you better off than you were four years ago?,” to end the presidential debate, he encapsulated the focus of the campaign. Reagan, unlike Carter, would craft a very specific and limited set of ideas on economic policy for the 1980 campaign. In refusing to update his staff with fresh blood and ideas, Carter fell prone to inadequate debate and discussion of his policies. He severely limited his policy options by relying only on inner circle advisers who were preordained to offering the president views on which he already agreed. By not seeking stand-by wage and price control authority under the Congressional Budget and Impoundment Control Act in 1977, Carter was unable to 235  Carter, Keeping Faith: Memoirs of a President, 78.  117  adequately prepare for the inflation that was to come. By making only minor year-to-year budget adjustments without a long range plan, by pushing forward with a sizeable stimulus package in his first year, by presenting expansionary budgets with larger deficits, and by not vetoing the tax cut in FY1979, he helped to generate inflation. 236 It was part of his case-bycase planning mentality. Carter found it difficult to see the forest for the trees when his head was filled with endless policy ideas. Politically, Carter’s whole macroeconomic philosophy was difficult for the Democratic Party to accept on merit. As Hargrove argues, Carter’s preference was to “restrain spending in order to keep budgets down and to fight inflation. But he experienced countervailing pressure from fellow Democrats…He usually ended up compromising, with no one happy.” 237 Carter had, in effect, the political business cycle in reverse, with the only good economic news coming early in his term and a recession in his reelection year. This inability to command his own party contributed to the end of Keynesianism in the White House, and the breakdown in fiscal consensus that brought about the Kemp-Roth tax cut measures in Carter’s final year and subsequently the more aggressive Reagan tax cuts. Bill Clinton would enter the White House with a similar dilemma as Carter; a fiscally conservative Democratic outsider who believed in budgetary restraint and deficit control forced to bargain with a more liberal Democratic Congress that after twenty-five years of growing deficits and expansionary budgets understood only the politics of growth. While Carter has been reassessed in a more positive light than his 1980 election result would 236  Carter also inadvertently aided the Reagan Revolution when he sacked Michael Blumenthal at Treasury and replaced him with William Miller. Conservatives in Washington and Wall Street financiers argued successfully, over Carter’s Keynesian advisers like Schultze, for Paul Volcker to take over from Miller as U.S. Federal Reserve Chairman. Volcker’s philosophy was to suit the incoming president, but not Carter who was forced to deal with monetary restraint from the U.S. Fed and the end of interest rate manipulation to combat inflation. Volcker’s change in direction contributed to an election year downturn. 237 Erwin C. Hargrove, "Jimmy Carter: The Politics of Public Goods," in Leadership in the Modern Presidency, ed. Fred I. Greenstein, (Cambridge: Harvard University Press, 1988), 240.  118  indicate, given the extreme economic conditions he faced, the way he structured his advisory system and the way in which he made decisions cannot be considered a success. 238 In some respects, George Bush probably wanted to be like Eisenhower, disguising his role as political leader to maintain an appeal as head of state and to project “the inspirational and operational dimensions of the office.” 239 But Bush was a remarkably ineffective political leader, de-unifying his party over taxes, and failing to recognize, despite numerous opportunities, that he needed to show more interest in economic and domestic policy. Wanting to be an incremental centrist deal-maker following a popular conservative as president was never going to please all Republicans. But in ignoring his party’s base, Bush put himself in the same spot as Carter, having more trouble uniting his own party than negotiating with the opposition. Failure to recognize the power of conservatives that had been waiting to take control of the party since Goldwater’s candidacy in 1964 was an avoidable mistake. In warnings from advisers, from friends, and from Republican leaders, culminating in the October 1990 vote in the House that rejected the president’s own budget agreement, Bush still had two years to right his course and make peace with conservatives. He never did. Perhaps high approval ratings through mid-1991 convinced his White House and reelection teams that Bush did not need to pursue a conservative domestic agenda or pursue aggressive economic policies that appealed to the base. His failure to be reelected, unlike Hoover and  238  See Charles O. Jones, The Trusteeship Presidency: Jimmy Carter and the United States Congress, (Baton Rouge: Louisiana State University Press, 1988), Erwin C. Hargrove, Jimmy Carter as President: Leadership and the Politics of the Public Good, (Baton Rouge: Louisiana State University Press, 1988), Gary M. Fink and Hugh Davis Graham, The Carter Presidency: Policy Choices in the Post-New Deal Era, (Lawrence: University Press of Kansas, 1998), Ann Mari May, "Economic Myth and Economic Reality: A Reexamination of the Carter Years," in The Presidency and Domestic Policies of Jimmy Carter, ed. Herbert D. Rosenbaum and Alexej Ugrinsky, (Westport: Greenwood Press, 1994). 239 Colin Campbell, "Presidential Leadership," in Developments in American Politics, ed. Gillian Peele, Christopher J. Bailey, and Bruce E. Cain, (New York: St. Martin's Press, 1992), 89.  119  Carter, who were as much undone by world economic and foreign policy problems beyond presidential control as domestic policy, was almost entirely Bush’s own fault. Skowronek correctly identifies Bush as a president engaging in the politics of “articulation,” operating in an environment that required him to articulate the Reagan legacy. 240 As vice president, Bush was rarely intimately involved in the Reagan presidency, with a limited role in policy decisions. His attempt to make his presidency his own is not without merit. But the Republican Party wanted Bush to be Reagan’s heir. Instead, in charting his own course and in attempting to govern from the middle, Bush lost his party. Attempts to get it back in his reelection year came across as disingenuous. The recession required a president seen to be compassionate, involved, and working towards solutions to help those most affected by an economic downturn, the exact rhetoric on which Bush had been elected. This president also never materialized. Bush was forced to choose between being a caretaker president of the Reagan legacy, aggressively pursuing a conservative agenda, something conservatives had hoped, or charting a new course of incrementalism and governing from the center. Bush tried to do the latter and then following his own party’s backlash, failed to do the former. He could not have been president without being Reagan’s successor but he could not keep being president without pretending to be his predecessor. Bush’s advisory legacy was one of imbalance, with no effective ideologues or honest brokers able to break the Darman-Sununu axis. Barilleaux and Rozell suggest that the Bush administration’s ideologues were vastly outweighed by the large number of advisers who shared Bush’s preference for gradualism and caution. Most of the White House staff fell into  240  Skowronek, The Politics Presidents Make: Leadership from John Adams to George Bush, 20.  120  this category. 241 The few true blue conservatives, Jack Kemp, William Bennett, Vice President Dan Quayle, and Roger Porter-assistant Jim Pinkerton, were simply unable to counter the incrementalists. The “people of ideas in the Bush administration” as Langston argued at Bush’s midterm, “have great ambitions but dim prospects for their realization.” 242 Pinkerton wanted a “new paradigm” in Washington and more specifically in the budget negotiations, one in which conservatives try to engage the remaining right-of-center conservative Democrats including those associated with the Democratic Leadership Council and come to some agreement on long-term vision for economic policy. 243 Darman ridiculed “new paradigm” rhetoric and the few attempts by ideologues to help steer the agenda in the White House were repeatedly thwarted by the incrementalists. The fault for the advisory imbalance lies with Bush, who eschewed ideologues and New Paradigm Republicans and failed to engage the conservative base. It also lies with Sununu and Darman, whose arrogance and control of policy making perverted round tabling of issues and prevented counterparts from offering other points of view. As Pinkerton recalled, “Bob Teeter once told me, “Jim Baker was smart enough to know that he needed a Dick Darman. But Darman wasn’t smart enough to know that he needed a Baker.” 244 Harlow put it into a larger context The failure to handle [the tax pledge] issue properly is an indication of what was structurally wrong inside the White House. To put it bluntly, everything was at the top, and not enough bait was put in the White House apparatus to convince people to do the job they had been hired to do. 245  George Bush’s economic legacy, apart from the tax pledge reversal, was that the prudence of the deficit reduction measures included in the 1990 agreement led to eight years 241  Barilleaux and Rozell, Power and Prudence: The Presidency of George H.W. Bush, 134. Langston, Ideologues and Presidents: From the New Deal to the Reagan Revolution, 182. 243 See Ibid., 186-188, Pinkerton, "Life in Bush Hell," 27. 244 Pinkerton, "Life in Bush Hell," 26. 245 Harlow, "The Budget Process," 85. 242  121  of improved budget outcomes. To a president who preferred incremental leadership, the budget agreement made sense and the tax increases Bush signed were minimal. But it was not the issue that was the real problem. It was the value.  122  Chapter 4: Ronald Reagan and George W. Bush: From Ideological Pandering to Fiscal Disaster Ronald Reagan reclaimed the mantle of presidential power, if not in real finite constitutional powers, then certainly in the perception of strength and the ability to command the center of the political system. And while the much-vaunted Reagan Revolution may be a political ruse in retrospect, from the November 1980 election until Reagan’s 1981 tax and budget legislation was signed into law on August 13, 1981, no president since Lyndon Johnson was able to achieve so much of his campaign vision and platform in such a short time. Reagan succeeded where Carter had failed by defining an achievable agenda prior to taking office, by selecting an economic and domestic policy advisory system that balanced ideological, political and policy perspectives while benefiting from remarkable strategic management of issues, and by shear goodwill from the electorate and some luck with the economy. Before the events of September 11th recalibrated the Bush II presidency on to a different trajectory, many believed that George W. Bush had the makings of a second Ronald Reagan. 246 The belief was that because he eschewed the advice of his father’s key advisers and tacked towards Reagan-style policies in the 2000 campaign, most notably tax cuts, Bush could be expected to mold his presidency on that of Reagan’s. But it is here the comparison mostly ends since Reagan, with the help of sensible and pragmatic advisers, shrewdly changed course mid-first term and pushed back against ideologues in fiscal policy while Bush, without the benefit of competing strands of advisers offering more balanced views let 246  Joel D. Aberbach, "The State of the Contemporary American Presidency, or, Is Bush II Actually Ronald Reagan's Heir?," in The George W. Bush Presidency: First Appraisals, ed. Colin Campbell and Bert A. Rockman, (Washington, D.C.: CQ Press, 2004).  123  unrestrained entrepreneurship of fiscal issues go unchecked until the nation’s fiscal ledger had tilted to disaster. Both Reagan and Bush were elected in part to restore some faith in and dignity to the presidency after Carter’s ineffectiveness and Clinton’s personal indiscretions became part of the elections of 1980 and 2000. Reagan did restore faith in the institution, in spite of domestic policies to which the public largely never warmed; Bush II did for a short time before a decline in popularity unmatched in the modern era. While both Reagan and George W. Bush had tendencies to dwell only on the surface of policy debates, as a result of a keen lack of interest in the details and in the case of Bush, of a lack of deep understanding of complex issues, at least Reagan was seasoned enough to temper policies that were not going to suit him well in the long run. Their cases are worth exploring together, since so much was made of Bush II being Reagan’s heir to the presidency, and yet he followed a much different course. By giving voice to those who had bought into the theory of supply-side economics, Reagan’s advisory system allowed for a brief but unrestrained domination of the fiscal agenda by ideologues. In the transition period and in the sixty days following inauguration, the OMB, key advisers in the CEA, and in the upper levels of the Treasury Department committed Reagan to the largest tax cut and largest budget reduction in U.S. history. But just as those ideologues achieved passage of their ideas, Reagan, and his inner circle political advisers, understood that he would not be able to sustain that kind of legislative deference for the long term. Once the supply-siders had their day and the administration could claim it fulfilled its campaign promises on tax and budget reduction, Reagan shifted advisory power back to those political and policy advisers who could assure him a second term.  124  Within six years, from the passage of the Economic Recovery Tax Act of 1981 (the Kemp-Roth cut) and the Omnibus Budget Reconciliation Act of 1981 (the Gramm-Latta II budget plan) to the last major fiscal achievements of the second term, the Omnibus Budget Reconciliation Act of 1987 and the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 (Gramm-Rudman-Hollings II), almost all of the initial tax cuts and budget reductions were rolled back or allowed to expire, following dramatic deficit increases from an economic theory that did not perform as its most ardent backers suggested and directly contributing to a much steeper recession than anticipated in 1982. But for all of the concerns with the ‘voodoo economics’ of the supply side, 247 Reagan was able to capitalize politically because the tax cuts proved popular with the electorate despite the deep 1982 recession. Although Reagan was forced to raise taxes repeatedly after the 1981 cuts, his early legislation aligned mainstream Republicanism with tax cutting which is a legacy still in full effect today. 248 Reagan’s fiscal competence legacy was not perfect, but he did understand the give and take required to achieve both responsive and strategic competence. For a time, in his first term, this mix proved successful before falling apart.  247  Supply side economics ties to a fiscal theory based on the ‘Laffer curve’ which argues that rapid reduction of income tax rates would increase federal government revenues because the tax cuts would stimulate investment. See Hugh Heclo and Rudolph G. Penner, "Fiscal and Political Strategy in the Reagan Administration," in The Reagan Presidency: An Early Assessment, ed. Fred I. Greenstein, (Baltimore: Johns Hopkins University Press, 1983), 21-22; 26, Roberts, The Supply-Side Revolution: An Insider's Account of Policymaking in Washington, 93. 248 Supply side theory promised that major tax reductions would increase government revenues and ultimately lead to non-inflationary growth and balanced budgets but also starve the beast, by choking off funds for government spending thereby forcing Congress and the president to cut programs. Economists Arthur Laffer, Robert Mundell, Paul Craig Roberts, and Norman Ture, Wall Street Journal editorial writer Jude Wanniski, and New York Congressman Jack Kemp, sold the supply side doctrine first to Michigan Congressman David Stockman and then to Ronald Reagan. See Jude Wanniski, The Way the World Works: How Economies Fail and Succeed, (New York: Basic Books, 1978), Jack Kemp, An American Renaissance: A Strategy for the 1980s, (New York: Harper & Row, 1979), 38-39, 150, Jude Wanniski, "Taxes, Revenues, and the 'Laffer Curve'," The Public Interest 41 (1978), Arthur B. Laffer and Jan P. Seymour, The Economics of the Tax Revolt: A Reader, (New York: Harcourt Brace Jovanovich, 1979), 7-12.  125  George W. Bush should have grasped the management lessons of the Reagan years. As the first MBA president, the younger Bush should have had a keen understanding of how to avoid similar mistakes when it came to policy while emulating the political skill and leadership style that had made Reagan consistently popular. 249 But Bush was not Reagan. So enamored was he of Reagan’s tax cuts and the aura of conservative revolution they had inspired, as well as the sketchy economic rationale for them reinforced by his economic advisers in the campaign, that Bush did not consider the longer term ramifications of bad fiscal policies. He also did not fully comprehend the pitfalls of an advisory network so doctrinaire and ideological. While the 2001 tax cuts may have been a Bush campaign promise that the public lapped up even when it was not in the best interests for many of them, 250 the post-9/11 fiscal policies were entirely the result of fiscal incompetence. Given the already declining government tax base, an economy recovering from both the bust of 1990s boom years and the terrorist attacks, and the military commitments made by the administration overseas, the follow-up series of tax cuts were likely something Reagan and his advisers never would have done. Unfortunately for the younger Bush, the blinders were on from the start as symbolic politics trumped fiscal competence and an underlying belief in starving the beast of government spending crept into the inner circle but as optics and rhetoric, not as follow-on budget cuts. By the end of the Bush years, the deficit had exceeded Reagan-era levels.  249  See James P. Pfiffner, "The First MBA President: George W. Bush as Public Administrator," Public Administration Review 67, no. 1 (2007): 7-8, Donald F. Kettl, Team Bush: Leadership Lessons from the Bush White House, (New York: McGraw-Hill, 2003), Fred I. Greenstein, "George W. Bush and the Ghosts of Presidents Past," P.S.: Political Science and Politics 34 (2001): 78. 250 See Hacker and Pierson, "Abandoning the Middle: The Bush Tax Cuts and the Limits of Democratic Control.", Larry M. Bartels, "Homer Gets a Tax Cut: Inequality and Public Policy in the American Mind," Perspectives On Politics 3, no. 1 (2005).  126  4.1 Staffing the Reagan White House In balancing his trusted Californian advisers with seasoned Washington veterans and younger Republican operatives, Reagan immediately avoided Carter’s problems of relying almost exclusively on advisers from his time as Governor. Instead he received a unique mix of opinions; his close associates that knew his governing style, like Edwin Meese, Martin Anderson and Michael Deaver, astute political people that understood Congress and Washington like George H.W. Bush operative James A. Baker III, Roger Porter and Edwin Harper, and young Turks with policy ideas like David Stockman and Richard Darman. The group would prove dynamic in galvanizing Reagan’s economic ideas during the campaign and more so when convincing the public of their merits. Reagan’s advisory system developed into a modified spokes-in-a-wheel system, with a troika of power bases during the first term. The OMB, headed by David Stockman, and the CEA, chaired first by Murray Weidenbaum and then by Martin Feldstein, would feed into the advisory apparatus through James Baker as Reagan’s new Chief of Staff, and on the policy side through Edwin Meese as Counselor to the President. Meese was the natural pick for the Chief of Staff role, having been one of Reagan’s closest advisers while Governor of California. But Meese “was too doctrinaire” and “in terms of order and efficiency, he is not the guy to put in charge of the railroad.” 251 But Baker was polished and a born manager. Michael Deaver, operating closest to the president, acted as Reagan’s public relations principal and as Deputy Chief of Staff, coordinating with the Baker and Meese operations. Stockman was chosen as OMB Director because of his congressional reputation as a wizard with understanding the budget and legislative process. He also had an advisory role 251  Edmund Morris, Dutch: A Memoir of Ronald Reagan, (New York: Random House, 1999), 419, Donald T. Regan, "The Reagan Presidency: Atop the Second Tier," in Leadership in the Reagan Presidency: Seven Intimate Perspectives, ed. Kenneth W. Thompson, (Lanham, MD: Madison Books, 1992), 60.  127  during the 1980 campaign in preparing Reagan for debates against Carter and independent candidate John Anderson, Stockman’s former congressional mentor. 252 Following the election, Reagan relied on Stockman to assemble a team to rework Carter’s last budget and present a new revised budget after the inauguration. Reagan also made the OMB Director an official cabinet position. The CEA, chaired by Murray Weidenbaum and later Martin Feldstein, provided the key economic forecasting for the fiscal legislation Reagan wanted to pass early on. What resulted was a network throughout the first term that allowed the ideologues, political and policy people, and honest brokers to provide input, albeit gate-kept by the three principals of Baker, Meese and Deaver (see table 4.1). 253 The design of a troika of advisory funnels allowed for multiple inputs into the economic policy process. The Legislative Strategy Group (LSG), headed by Baker, worked with the principals and Congress to coordinate Reagan’s policies in the White House with Republican efforts on the Hill. In economic affairs, it was particularly successful in keeping Republicans united behind the president’s tax and budget agenda, as well as maintaining close contact with conservative Democrats who were inclined to support the president. The LSG would work with Staff Secretary Richard Darman and coordinated with OMB in crafting the fiscal agenda. 254  252  Stockman, The Triumph of Politics: How the Reagan Revolution Failed, 46. Edwin Harper explained that the inner circle had a series of meetings each morning along these lines: 7:30, the troika of Meese, Deaver and Baker meet in Baker’s office. 8:00, troika meets with rest of senior staff in Roosevelt Room. 8:30, Meese meets with his staff in his office. 9:00, troika meets with the President in the Oval Office. I meet with Dave Stockman in Dave’s office. See Interview with Edwin Harper, Ronald Reagan Oral History Project, Miller Center of Public Affairs, August 13, 2002. 254 James P. Pfiffner, "Ronald Reagan's Contrasting Chiefs of Staff," in Ronald Reagan's America, ed. Eric J. Schmertz, Natalie Datlof, and Alexej Ugrinsky, (Westport: Greenwood Press, 1997), 516. 253  128  Table 4.1 The First Term Reagan Economic Advisory System Type Of Adviser Ideologue  Name, Position Edwin Meese III (Inner Circle) – Counselor to the President 1981-1985 David Stockman (Inner Circle) – Director of Office of Management and Budget 1981-1985 Martin Anderson – Assistant for Policy Development 1981-1982 Richard Darman (Inner Circle) – Staff Secretary; Assistant to the President 19811984 Edwin Harper – Assistant for Policy Development 1982-1983; Deputy Assistant for Domestic Affairs and Policy; Deputy Director of OMB 1981-1982 John Svahn – Assistant for Policy Development 1983-1985 Craig Fuller – Assistant for Cabinet Affairs 1981-1984 Murray Weidenbaum – Chairman of Council of Economic Advisers 1981-1982 Martin Feldstein – Chairman of Council of Economic Advisers 1982-1984 Edwin Gray – Deputy Assistant and Director of the Policy Development Office 1981-1982  Policy  Political  Honest Brokers/Fixers External Economic Advisers  James A. Baker III (Inner Circle) – Chief of Staff 1981-1985 Michael Deaver (Inner Circle) – Deputy Chief of Staff 1981-1984 David Gergen – Assistant for Communications 1981-1984 Max Freidersdorf – Assistant for Legislative Affairs 1981-1983 Kenneth Duberstein – Assistant for Legislative Affairs 1983-1985 George H.W. Bush – Vice President 1981-1985 Lyn Nofziger – Assistant for Political Affairs 1981 Ed Rollins – Assistant for Political Affairs 1981-1983 Richard Wirthlin – Pollster 1981-1985 Roger Porter – Executive Secretary of Cabinet Council on Economic Affairs 19811985; Deputy Assistant and Director of the Policy Development Office 1982-1985 Joe Wright – Deputy Director, Office of Management and Budget 1981-1985 Donald Regan – Secretary of the Treasury 1981-1985 Paul Volcker – Chairman of the U.S. Federal Reserve Board 1981-1985  The Office of Policy Development and the Political Affairs office also allowed for multiple points of access into the senior staff triumvirate. Political Affairs was useful in insulating Reagan from partisan appeals during the budget revision and subsequent reconciliation process, with longtime Reagan associate Lyn Nofziger and later Ed Rollins serving as directors of the office in the first term. OPD was Meese’s policy group, headed by  129  Martin Anderson, then Edwin Harper and finally John Svahn, and they helped coordinate and roundtable economic issues before Meese met with senior staff. 255 There was also the cabinet council system, under Roger Porter and connected to senior staff through Craig Fuller, the Assistant for Cabinet Affairs. This system insulated the president from his cabinet, and created a forum for vetting cabinet and advisory policy issues before they went to the Oval Office. The council allowed the T-2 tier of economic advisers, deputies at OMB, CEA and Treasury, to resolve issues before they went to the T-1 tier of Stockman, Baker, domestic adviser Martin Anderson, and Meese. This T-1 group, initially called the Budget Working Group in 1981 and 1982, became known as the Budget Review Board by 1983 and acted as a final clearinghouse for round tabling policies and ideas from the cabinet councils, OMB and CEA before they went to the president. 256 In fiscal policy, this meant that cabinet, the OMB staff, the CEA, as well as Congress, all had a funnel through which their ideas could make their way to the president. Fiscal decisions were vetted at a number of different locations before being presented to the president. Reagan, averse to large meetings with open disagreement, preferred that policy disparities be worked out in private and clear options be presented to him in staff meetings. 257 Because Reagan was a superb delegator, but with little intellectual acuity, a spokes-in-a-wheel or rigid hierarchical White House, like that of Carter or Nixon, could have cut off an effective review of options, collegial consultation, and some advisory balance. Credit the triumvirate for preventing Reagan from becoming captive of one advisory group, 255  Margaret Jane Wyszomirski, "The Roles of a Presidential Office for Domestic Policy: Three Models and Four Cases," in The Presidency and Public Policy Making, ed. George C. Edwards III, Steven A. Shull, and Norman C. Thomas, (Pittsburgh: University of Pittsburgh Press, 1985), 141-143. 256 Campbell, Managing the Presidency: Carter, Reagan, and the Search for Executive Harmony, 183-184, Stockman, The Triumph of Politics: How the Reagan Revolution Failed, 385. 257 Dom Bonafede, "The Men around Reagan," in Ronald Reagan's America, ed. Eric J. Schmertz, Natalie Datlof, and Alexej Ugrinsky, (Westport: Greenwood Press, 1997), 502.  130  particularly after the early legislative successes of the ideologues. This system of a funnel with multiple points of access has not been replicated since Reagan’s first term. For the first term, the fiscal decisions were being made largely by the four senior staff. Baker argues that “there was a period when we were sort of feeling our way…but we’d sit down and work things out where there was a problem.” 258 Stockman had generated the fiscal plan during the campaign and the triumvirate worked to implement it in 1981. While it is convenient to label the Meese side the policy generating side and the Baker side the implementation side of the White House, in the passage of the 1981 tax and budget policies, both sides functioned collectively as implementers. Stockman had unfettered control over the policy process, even so far as to have the key Republican and Democratic Congressional supporters of the president’s economic policy, like Democratic Congressman Phil Gramm, working directly with the OMB. The central role Stockman and the supply-siders in OMB, Treasury, and on Meese’s staff played suggest that the lead up to the passage of the economic legislation was unrestrained ideological entrepreneurship. Stockman was given basic guidelines to cut tax rates as deeply as possible and cut the budget as much as he could on the domestic side while working with Defense Secretary Caspar Weinberger to ratchet up the defense budget. He had significantly more leeway in his policy actions than had former OMB directors. But this brief period of entrepreneurial activity was tempered by the political machinations of the Baker side of the operation, which held out against the ideologues on the Meese side and within the OMB and the CEA. Certainly the ideologues could claim a legislative victory in 1981 but once the true accounting was apparent and the size of the deficit was made clear,  258  Interview with Baker.  131  prudence and ideological reversal took hold and 1982 legislation attempt to upturn much of the fiscal imbalance caused in 1981. 4.2 The Bush II First Term Advisers: Political Advisers and Ideologues George W. Bush’s initial set of advisers had the makings of another Reagan first term. Like the troika model, Bush also originally set out his advisory system with three top people, Karl Rove, Karen Hughes and Andrew Card. 259 Rove, the architect of both his election wins, was made Senior Adviser, a title that allowed him considerable latitude across all aspects of White House business. Not only did he have a hand in policy, but in communications and political strategy as well. His authority and influence over domestic and economic policy would grow steadily in the first two years of the administration. Rove was the dominant political adviser in the Bush White House. Hughes became Counselor to the President, his first communications and media relations manager, and his confidant during the transition stage. Rove and Hughes were considered Bush’s top two strategic thinkers but Hughes’s influence waned as Rove and Cheney asserted more control over policymaking. 260 Card was named Chief of Staff and given control over staffing decisions. Appointed very early in the transition, while the Supreme Court was still reviewing the Florida recount, Card tried to avoid the trappings of the strong chief of staff model that had not helped Reagan and Bush I. But he was also concerned about being too ineffectual and not strong enough to be an effective gatekeeper for the president. By all accounts, his White House  259  Charles E. Walcott and Karen M. Hult, "The Bush Staff and Cabinet System," in Considering the Bush Presidency, ed. Gary L. Gregg and Mark J. Rozell, (New York: Oxford University Press, 2004), 54-55, Burke, Becoming President: Th