Learning from Mrs Thatcher
Tom Bethell
Washington Just as Ronald Reagan's team was arriving in Washington, a remarkable new book on economics, entitled Wealth and Poverty was published in New York. Its author, George Gilder, an amateur economist in the best sense of the word, recently completed a report for the Reagan administration on Where Mrs Thatcher went wrong. David Stockman, a fan Of Gilder's and Reagan's new budget director, has the report on his desk, Britain's economic problems, Gilder wrote, arise out of the fatal belief that you can have capitalism without capitalists, that the 'targeted' tax incentives arranged by government planners can stimulate innovatlim and production without (horrors) allowing individuals to get rich at the same time. The resulting British (and Swedish) combination of low business taxes and high Personal taxes creates a static business order in. which companies become instruments of disguised consumption, because you cannot ta.k,e money out of the companies without giving most of it to the government. The existing corporate structure is thus favoured against future challengers. In an unpredictable world, Gilder went !II, successful innovation depends on 'inupstriai parthenogenesis', in which indivc,Iduals are encouraged to split off from old o`trms and use pooled savings to start rival nes. Only much reduced tax rates on il?ersonal income and savings permit this to if.Ppen. That is what 'supply-side economeans, not tax cuts for business. Ca We will soon find out whether Mr Reagan fl EIVOld the British precedent. In tax-cut discussions to date, unfortunately, pressure has already built up to use foregone revenues to 'buy' the gratitude of the existing business order with accelerated depreciation rules. On the other hand, a proposal to diffuse the foregone revenues across the entire population in the form of personal tax cuts generates hardly any lobbying pressure for its enactment. The three-year phased-in reduction of personal income tax rates proposed by the new President have therefore come under fire, notably from the Treasury Secretary, Donald Regan. If these tax cuts are whittled down, held hostage to spending cuts (which in practice never materialise) or reshaped into business tax breaks there will be no American economic recovery. That, at any rate, is the view of both Stockthan and Gilder.
Mr Reagan's Cabinet has been described as 'pragmatic'. This is probably intended as a compliment, but conservatives worry that it means that the clubby gents will prudently avoid combat with liberals over such matters as the size and role of government. On this view, ideologues throw the ball, pragmatics catch it. The Cabinet seems to have been assembled in deference to the. natural peer-group chumminess of millionaires, as though Cabinet-rank were the American equivalent of knighthood — a reward bestowed at the end of a career. One imagines them greeting one another at the Bohemian Club in San Francisco (to which two or three belong), grappling each other by the elbow and saying, 'Glad you made it on to the team, Bill.' One encouraging sign is that members have stoutly refused to resign from this men-only club despite complaints of 'insufficient sensitivity' by a sensitive senator.
Throughout all this Mr Reagan himself has remained oddly on the periphery: occasionally showing up at his barber's shop or gently riding around his ranch in the Santa Ynez Mountains. He seems to have been only mildly interested in his own Cabinet choices, switching off his own television set in the middle of their presentation to the press. There is something reassuring about the nonchalance and equanimity of the new President, however, You sense that he trusts the future and knows that the efforts of rational planners to control it are unavailing.
At a crowded, Republican-sponsored cocktail party held here a few days ago, new administration appointees and an equal number of journalists rubbed shoulders, whispered state secrets, and from time to time craned over the tops of each other's heads to see if someone more important was coming into the room. Everyone seemed to be asking the same question about Reagan, then flying in from California. Does he have any idea of the minefield that he is so casually strolling into? Domestic mines, not Russian ones: in the form of nearly uncontrollable budget totals, a demoralised military, intractable civil servants, stubborn administrators, contrary lawyers, hostile Congressmen; and, of course, platoons of investigative journalists already rehearsing their pieties and sharpening their quills. And up there in the sky somewhere was unsuspecting old Ron, probably dozing over a copy of the Reader's Digest, No, it wps agreed, he had no idea. And just as well he didn't, most felt. Otherwise, the new ideas that he will have to introduce if he is going to succeed would surely seem impossible and would not even he tried. Perhaps only a sleepwalker can negotiate a minefield unscathed, Reagan has, of course, been terribly underrated. Time may well show that he has qualities of greatness rarely seen in the White House. His observations about the correct role of government, often derided as 'simplistic' by the press, 'in fact sound as though they came at the end of a long train of thought,' the longshoremanphilosopher, Eric Hoffer, said recently. But perhaps the most Widely shared sentiment in Washington today is the hope that Mr Reagan will put his new ideas to the test without too much compromise. This was well expressed in the New York Times by a retired journalist who described himself as a 'charter member of the North-Eastern liberal press establishment.' Mrs Thatcher, he wrote, 'came to office espousing painful right-wing policies, which she has incompletely pursued, leaving her government not only unsuccessful but her unproved philosophical premises in disrepute.' Mr Reagan must test them. He has the will to do so. Today, and for a few short months, he will also have the goodwill of the people behind him.
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