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The thirty-ninth President of the United States, Jimmy Carter, had not slept for almost forty-eight hours when he telephoned the President-elect, Ronald Reagan, just before seven o'clock on the morning of January 20, 1981. "We have good news on the hostages," he said to the Reagan assistant who answered the phone, Michael Deaver.

Carter had spent those sleepless hours in the Oval Office and in the subbasement Situation Room of the White House, personally supervising intricate negotiations between diplomats in Washington, Tehran, and Algiers, and bankers in New York and London, attempting to free fifty-two American hostages held in captivity in Iran for 444 days. The last step was a complex series of bank cash transfers releasing $12 billion in Iranian assets seized by the United States government after the diplomats, their staff, spies, and Marine guards were taken at the embassy in Tehran in November of 1979. At 6:47 a.m., the last transfer was done and planes were waiting on the runway of the Tehran airport to take the Americans out of Iran.

Reagan was sleeping just across Pennsylvania Avenue, in Blair House. Deaver told President Carter that Reagan had left orders that he was not to be disturbed unless the hostages were actually free, in the air and out of Iranian airspace. The former governor of California had left a wake-up call for eight o'clock, four hours before he would be sworn in as the fortieth President. At the appointed hour, Deaver knocked on the door. Reagan grunted and Deaver heard him roll over, so he knocked again, saying: "It's eight o'clock. You're going to be inaugurated as President in a few hours."

"Do I have to?" Reagan called back. Then he laughed.

The President called again at 8:30. Reagan was up. Carter said that planes were still on the runway in Tehran. The takeoff was being delayed by the Iranians and it looked as if the planes would not be out of Iran before noon in Washington, the hour at which Reagan would become the fortieth President. Reagan said he was sorry about that and he meant it. The hostage crisis, along with soaring inflation and interest rates at home, had doomed the Carter presidency and the next President did not want it to take over his as well. He told the President what he had told his own men, that he did not want to say anything about the hostages in public until they were all safely out of Iranian airspace. "It's very close," Carter said. Reagan was not unsympathetic to the man he had defeated in November. He thought Carter deserved both the blame and the credit for the Iranian crisis and resolution. The President-elect's major contribution to the negotiations were campaign statements designed to persuade the Iranians that he would be a tougher adversary than Carter, and they would be well advised to release the Americans before he took office. As the conversation wound down, Reagan asked the exhausted President if he would be willing to go to West Germany, to the United States Air Force base and hospital at Wiesbaden, to greet the hostages once they were finally released. Carter immediately said yes.

A couple of hours later the two men rode together side by side in a limousine, up Pennsylvania Avenue to the Capitol for Reagan's inaugural. They did not much like each other and conversation was hard. Reagan took the initiative as he often did; entertainment after all had been his business for more than thirty years. Trying to make his beaten and bitter predecessor feel more comfortable, he rolled out old Hollywood stories, a couple of them about his days at Warner Brothers studios under Jack Warner.

"He kept talking about Jack Warner," Carter said later to his communications director, Gerald Rafshoon. "Who's Jack Warner?"

The Presidents, old and new, shared only one moment of true personal communication. Reagan hoped to announce the release and credit Carter during his inaugural remarks. Just before noon, as he stood to take his oath of office, he turned to look at Carter, who shook his head slightly and whispered the words, "Not yet." Back in the Situation Room, eighteen feet under the West Wing of the White House, Carter's chief of staff, Hamilton Jordan, and Rafshoon were working, still on open phone lines back and forth to Algiers. As Reagan stood to deliver his inaugural address a mile away, a White House secretary came down and told them, a bit frantically, "You've got to get out of here. The Reagans will be on their way." As the Carter men hustled up the stairs from the Situation Room, they realized that the photographs on the wall of the corridor leading to the press room had all been changed. Carter images were gone, the framed Reagans smiled at them now.

Reagan, who took pride in the fact that he wrote or at least carefully edited most of his own speeches before and after he became a politician, had begun working on his inaugural speech the day after he defeated Carter. Actually he had been working on it for twenty-five years, beginning on the day in 1954 when he was hired by General Electric to translate his fading fame as a movie star into being the company's traveling spokesman and morale booster, speaking to more than 250,000 GE employees at 139 plants. That experience catapulted him into politics at the highest levels when he adapted his standard GE speech into a half-hour 1964 fund-raising speech for the Republican presidential candidate, Senator Barry Goldwater of Arizona. Goldwater was crushed in that election, but Reagan soared, replacing Goldwater as the public voice of American conservatism and becoming governor of California within two years. It was a wonderful voice, husky and honeyed, but not greatly respected. In one of his first presidential campaign memos, Reagan's pollster, Richard Wirthlin, told him:

We can expect Ronald Reagan to be pictured as a simplistic and untried lightweight (Dumb), a person who consciously misuses facts to overblow his own record (Deceptive) and, if president, one who would be too anxious to engage our country in a nuclear holocaust (Dangerous).

When Reagan won the Republican nomination in 1980 on his third try -- he lost to Richard Nixon in 1968 and to President Gerald Ford in 1976 -- it marked a peak for movement conservatives but still frightened many Republicans who more or less agreed with the premises of the Wirthlin memo. Led by former Secretary of State Henry Kissinger, the party's elders came within minutes of persuading Reagan to take Ford as his running mate, not so much as Vice President but as a kind of co-president in charge of foreign affairs and budgetary matters. A joke, which took notice of Reagan's supposed laziness, made the rounds on the floor of the Republican convention: "Ford will be president before nine, after five, and on weekends."

In the weeks before his inaugural, with staff and press concentrating on who would man the new government, the President-elect spent his own time outlining the inaugural address. To him, the words were more important than the men who served him, aides he usually just called "the fellas," often because he could not remember all their names. He was helped this time by a fellow named Ken Khachigian, a Los Angeles lawyer who had written for President Nixon and done a good deal of the heavy word-lifting on the 1980 campaign speeches. As he always did, Reagan began by chatting for twenty minutes or so about his ideas and gave Khachigian a six-inch pile of the four-by-six index cards he had used and edited for speeches over the years. In his transition meetings with Carter, Reagan had not taken a note nor made a serious comment during the President's long and complicated issue briefings, but at the end of the first and most important session -- use of nuclear weapons was one topic -- he noticed that Carter used three-by-five cards listing the subjects of the hour-long talk. "Can I get copies of those?" Reagan asked as he stood up to leave.

With his writer taking notes, Reagan began dictating themes:

The system: everything we need is here. It is the people. This ceremony itself is evidence that government belongs to the people....Under that system: our nation went from peace to war on a single morning, we had the depression etc....We showed that they, the people, have all the power to solve things....Want optimism and hope, but not "goody-goody."...There's no reason not to believe that we have the answer to things that are wrong.

He also told Khachigian to find the script of a World War II movie. "It was about Bataan," he said. An actor named Frank McHugh, Reagan remembered, said something like: "We're Americans. What's happening to us?" The writer found the line, which was somewhat different from what Reagan recalled, and used it as a finale in the first draft of the speech he brought to the President-elect on January 4: "We have great deeds to do....But do them we will. We are after all Americans."

The new President, unlike most of his predecessors, wanted to give his inaugural address from the back of the Capitol, facing west toward the monuments to Washington, Jefferson, and Lincoln -- and toward Arlington National Cemetery, the final resting place of many American heroes. He told Khachigian that a friend from California had written him a letter about a soldier buried there, a World War I battlefield courier named Martin Treptow, a boy from Wisconsin killed in action in France in 1917. Treptow had kept a diary, Reagan said, with this on the flyleaf: "My Pledge: America must win this war. Therefore I will work. I will save, I will sacrifice, I will endure, I will fight cheerfully and do my utmost, as if the issue of the whole struggle depended on me alone."

"Can I see the letter?" asked Khachigian. "We have to check this out."

Reagan looked hurt, at least that's what Khachigian thought.

The writer met again with Governor Reagan on January 18, two days before the inauguration. It was a Sunday. The President-elect had already been to church and was sitting in bed, under the covers. He had hung up his pants -- so they wouldn't wrinkle, Khachigian thought -- and was having coffee and toast with honey. Reagan immediately noticed that the Treptow story was not in the final draft of his speech. Why? Khachigian nervously said that researchers could not find a diary and the soldier was not buried at Arlington but in his hometown, Boomer, Wisconsin.

"Put it back in," Reagan said.

The writer came back an hour later with the changes Reagan wanted. Richard Allen, a conservative veteran of President Nixon's National Security Council scheduled to be Reagan's NSC director, was there with a couple of other staffers to talk about the latest word on the hostages in Iran. They were watching television. Steve Bell of ABC News was talking about the crisis, about Carter and his men working on the details of transferring money to the Iranians. The image of an Iranian mob appeared; the President-elect pursed his lips and muttered: "Shitheels!"

On Tuesday, Reagan's men circulated among reporters, making sure the ladies and gentlemen of the press understood the symbolism of facing westward: a new direction opened by a man of the West. But it was the Californian's words that marked the most radical departure from presidential tradition. And the words were Reagan's own. He wrote the final version of the speech out in longhand on a yellow legal pad -- waking once at 4 A.M. to write for twenty minutes -- changing the speechwriter's phrasing, changing "they" to "you," adding old favorites of his own, among them: "Those who say we are in a time when there are no heroes just don't know where to look." He followed that with his own ode to the common people: "You can see heroes every day going in and out of factory gates...producing food enough to feed all of us and the world beyond....You meet heroes across a counter."

He said nothing he had not said before in his years as spokesman and speechman for General Electric and then as governor of California and as the post-Goldwater icon of the conservative wing of the Republican Party. As he had during the campaign, he touched four simple themes: (1) reducing taxes and deficits, thus reducing the power and size of the federal government; (2) rebuilding the American military; (3) confronting communism around the world; (4) restoring American patriotism and pride.

Ronald Reagan wanted to destroy communism. He had long ago rejected words like "containment" and "détente," instead preaching a victory of right over wrong. In 1977, he had listened to a long briefing by Richard Allen about the need for an overall strategy for dealing with Soviet communism and interrupted to say, "I do have a strategy: 'We win, they lose!' " Talk like that and the repeated anti-communist sermons were what had worried Kissinger and others. But this inaugural day, Reagan's first speech as President focused on America and Americans, just as his campaign had.

Rather than repeat economic statistics, which he often mangled anyway, Reagan tried to change the way people thought. Importantly, he redefined populism, the old American idea that someone up there was screwing the little guy. In the past, in the agricultural South and in the Midwest, the homegrown oppressor of the hardworking little guy was traditionally big business, the banks, the railroads, Wall Street. In Reagan's new populism the bad guys were not businessmen and financiers -- they were heroes to Reagan -- his bad guy was big government. Speaking to and for all his fellow Americans, their brand-new President said:

These United States are confronted with an economic affliction of great proportions....In this present crisis, government is not the solution, government is the problem....

It is time to reawaken this industrial giant, to get government back within its means, and to lighten our punitive tax burden. And these will be our first priorities....

Those who do work are denied a fair return for their labor by a tax system which penalizes successful achievement and keeps us from maintaining full productivity....For decades we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present....

"We the people," this breed called Americans...special among the nations of the Earth....And as we renew ourselves here in our own land, we will be seen as having greater strength throughout the world. We will again be the exemplar of freedom and a beacon of hope for those who do not now have freedom.

Conservative intellectuals called that a revolution. But to Reagan it was a restoration. He wanted to take America back to a past imagined, a time of hard work, generosity, and patriotism, all under a God on our side.

He ended his speech with the Treptow story, talking of the crosses at Arlington and saying the dead soldier lay under "one such marker" and quoted the young soldier's pledge. "The crisis we are facing today does not require the kind of sacrifice that Martin Treptow and so many thousands of others were called on to make. It does require, however, our best effort and our willingness to believe in our capacity to perform great deeds, to believe that together with God's help, we can and will resolve the problems which now confront us....

"And after all, why shouldn't we believe that? We are Americans."

Reagan, too old to change his mind about much, knew one very big thing about leadership and leaders: Words are usually more important than deeds. And words of hope and destiny had elected him over a failing President. When Jimmy Carter said the nation faced "a crisis of confidence," Reagan said no, it was Jimmy Carter who had lost confidence, adding: "I find nothing wrong with the American people." Carter, the former governor of Georgia, was the last of a line of Democratic and liberal leaders and liberal commentators who consistently reminded Americans of what was wrong with them, citing milestones of failure, from the racism of the old South to the folly of the war in Vietnam and the lying of Watergate. But it was not an easy election. With an independent candidate, John Anderson, a moderate anti-Reagan Republican congressman from Illinois, winning 7 percent of the vote, the new President won just 50.75 percent of the voters who went to the polls that day. So, now Reagan was proceeding down Pennsylvania Avenue to move into the White House and Carter was on a helicopter headed for Andrews Air Force Base and a flight back to Georgia. He met Jordan at Andrews and asked him to check on the hostages. Jordan called the White House to ask his old military liaison whether the hostages were safe yet. "I'm sorry, sir," said the officer. "You are no longer authorized to receive that information."

In a special Inaugural Section of The Washington Post, James David Barber, a political scientist from Duke, writer of a best-selling book, The Presidential Character, said: "Reagan floated into the presidency on a recurrent tide that swells through politics with remarkable regularity -- the tide of reaction against too long and hard a time of troubles, too much worry, too much tension and anxiety. Sometimes people want a fighter in the White House and sometimes a saint. But the time comes when all we want is a friend, a pal, a guy to reassure us that the story is going to come out all right....In short, Reagan was elected because he is not Carter." Then Barber added an important perception of the old entertainer: "Reagan has a propensity to be more interested in theatrical truth than in empirical truth." Reagan was not a man of vision, he was a man of imagination -- and he believed in the past he imagined.

Reagan's triumph on November 4, 1980, also swept in Republican congressional candidates across the country, giving the party control of the Senate for the first time since 1954 -- the new Senate was made up of fifty-three Republicans and forty-seven Democrats -- and among the losers that day was a roster of the Senate's liberal all-stars, including George McGovern, Birch Bayh, Frank Church, and John Culver. In the House of Representatives the Democrats retained control with 243 members, while Republicans won 192 races. But several prominent Democratic liberals lost, beginning with Minority Whip John Brademas. "An across-the-board rejection of the Democratic Party," wrote William Schneider, a poll analyst writing in the Los Angeles Times.

Still, there seemed to be no consensus that Reaganism or Republicanism were being accepted across the country. The inaugural address got mixed reviews. The conservative editorial page of The Wall Street Journal cheered: "President Reagan said what needed to be said....His address was delivered by a man to whom the world has come around and who knows it. It was a radical speech, and it felt good to hear it." The Baltimore Sun disagreed: "What an insult to language and logic! It showed a willingness to distort a perfectly valid idea mainly for effect." The Philadelphia Inquirer stood somewhere in the middle: "The deep underlying question raised by Mr. Reagan's address, as by his candidacy for President, was unspoken....It is: Can the federal government be significantly dismantled, can the authority of the central government be broadly reduced, programs and spending cut, without savaging the lives and hopes of those Americans who are least equipped to defend themselves?"

The Algerian airliner lifting the hostages out of Iran took off at 12:33 P.M. Washington time. At his formal inaugural lunch, in the Statuary Hall of the Capitol, President Reagan rose to offer a toast, saying: "With thanks to Almighty God, I have been given a tagline...some thirty minutes ago, the planes bearing our prisoners left Iranian airspace and are now free." Then, in a viewing stand outside the White House, the new President watched 8,000 marchers and 450 equestrian teams parade by in his honor. With each passing flag, he leaped to his feet and put his right hand over his heart. He leaped again later that night in a holding room with his wife at the Washington Hilton before the first of eight inaugural balls. Straightening his tie in a full-length mirror, he jumped, clicked his heels, and said: "I'm the president of the United States of America!"

On January 29, the new President held his first press conference, nationally televised from the auditorium of the Old Executive Office Building next to the White House. After he recited a short list of symbolic anti-government acts -- a civilian hiring freeze, a 5 percent reduction in travel expenses for all federal employees, a reduction in the number of consultants attached to government -- Reagan spoke for the first time, as President, about the Soviet Union and communism. For him, after decades of crusading anti-communism, the words were routine. For a President they were harsh. The question was about détente, and he answered: "Well, so far détente's been a one-way street that the Soviet Union has used to pursue its own aims. I don't have to think of an answer as to what I think their intentions are...they have openly and publicly declared that the only morality they recognize is what will further their cause, meaning they reserve unto themselves the right to commit any crime, to lie, to cheat, in order to attain that....I think that when you do business with them, even at a détente, you keep that in mind."

Earlier that day, it was reported that his Secretary of State, Alexander Haig, had sent a "sharp message," in State Department jargon, to his Soviet counterpart, Foreign Minister Andrei Gromyko, warning that there would be "dire consequences" if the Soviet Union sent troops into Poland to put down anti-communist strikes and demonstrations. A sharp rise in food prices in the summer of 1980 had triggered protests led by shipyard workers who organized themselves under the banner "Solidarity," which quickly grew into a makeshift national movement of more than five million workers, led by a shipyard electrician named Lech Walesa. The first National Intelligence Estimate sent to President Reagan, fifteen pages prepared by the Central Intelligence Agency and the intelligence divisions of the Pentagon, was titled "Poland's Prospects Over the Next Six Months."

"The present crisis in Poland constitutes the most serious and broadly based challenge to communist rule in the Warsaw Pact in more than a decade," the secret NIE began, then warned that Soviet intervention of thirty Red Army divisions was a possibility if the country's own communist leadership could not control events that seemed to be spinning out of control. The conclusion read: "The Soviets' reluctance to intervene militarily derives above all from the enormous costs they probably anticipate in eliminating Polish armed and passive resistance....We believe that Soviet pressure on the Polish regime will increase and that, if the pattern of domestic confrontation continues, the trend is toward ultimate intervention."

It was a document that played to one of Reagan's core convictions: The point was dramatized in a rather petty way when Soviet ambassador Anatoly Dobrynin arrived at the State Department to deliver a message from Foreign Minister Gromyko. The Soviet limousine was turned away from the department's private garage entrance. The driver was blocked by security guards and told to drop his passenger at the main entrance -- let the Russian sign in at the same door used by lesser nations.

The White House announced that the President would make his first speech from the Oval Office on his sixteenth day in office, February 5. The subject would be economics. That timing was purposeful. Reagan wanted to create a sense of urgency, to declare, as he had during the campaign, that the United States was in its worst economic crisis since the Great Depression of the 1930s. When the old Reagan hands from California saw the next-to-final draft of the speech, they were surprised to see that the usual attacks on Washington liberals had been stricken from the text. When one of the Californians, press assistant Lyn Nofziger, asked Reagan about that, he laughed and said, "Listen, if I were making this speech from the outside, I'd kick their balls off."

He was inside now, a new role for the old drumbeater, but as he had during the campaign, he did solemnly recite the alarming statistics that marked the end of Carter's presidency: high inflation, high interest rates, unemployment, and increased deficit spending. He showed graphs with the good lines going down and the bad lines going up. He took a quarter, a dime, and a penny out of his pocket -- he had gotten the change from his young personal assistant, Dave Fischer -- to illustrate the fact that a 1980 dollar was worth only 36 cents compared with the purchasing power of a 1960 dollar. Then he said: "It's time to try something different, and that's what we're going to do."

He was more specific than politicians usually are on what was to be done, declaring that he wanted to reduce government spending and graduated federal income taxes. On spending, Reagan used a tried-and-true line he had repeated a thousand times in after-dinner speeches: "Over the past decades we've talked of curtailing government spending so that we can lower the tax burden. Sometimes we've even taken a run at doing that. But there were always those who told us that taxes couldn't be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance."

That was old-time religion to American conservatives. This is what Reagan had told them for years: "It is a myth that our graduated income tax has any resemblance to proportionate taxation. The entire structure was created by Karl Marx. It simply is a penalty on the individual who can improve his own lot; it takes his earnings from him and redistributes them to people who are incapable of earning as much as he can." Ronald Reagan, the movie star making $3,500 a week before World War II, had paid 91 percent in income tax on much of that money. He had hated that, and he promised this night to cut taxes 10 percent a year for three years. The fundamental question for more literal conservatives then was: How do you raise military spending, cut taxes, and reduce deficit spending and the federal deficit itself?

"Voodoo Economics," one Republican, his own Vice President, George H. W. Bush, had called Reagan's numbers games when he was running against him in the 1980 primaries. "Supply-side Economics" was the name put forth by younger conservatives who argued that putting more money back in the pockets of taxpayers would jump-start the economy and lift it to new heights -- in earnings, spending, and investment -- and actually increase federal revenues to wipe out deficits. That trick was new to the old conservative from California. Whether or not he actually believed in it was a subject of endless argument in conservative journals, but it worked rhetorically as a rationale for Reagan's four goals -- and it was at least as true as some of his stock of old anecdotes.

Nice work if you can get it, The New York Times reported when the Reagan plan was proposed before the Senate Budget Committee: "Surprise swept over the Democrats when the new Treasury Secretary, Donald Regan, the former chairman of Merrill Lynch, acknowledged that the highly optimistic forecast was based on Administration economists' views of how Americans are likely to respond to the program and not on any existing model."

Reagan did not think in models. He often said he had always believed that economics, his major at Eureka College fifty years before, was at least 50 percent psychology. Times were good if you thought they were good. Or, in this case, the disastrous Carter inflation would go away if people thought it would, because lower inflation would affect, positively, people's attitudes about spending and investing.

The new President laid out his old thinking in simple language in his first budget message to Congress, saying: "First, we must cut the growth of federal spending. Second, we must cut tax rates so that once again work will be rewarded and savings encouraged. Third, we must carefully remove the tentacles of excessive government regulation....Fourth, we must work with the Federal Reserve Board to develop a monetary policy that will rationally control the money supply. Fifth, we must move, surely and predictably, toward a balanced budget."

The old and the new taken together became "Reaganomics." The details of squeezing it all together into a budget and tax legislation was the job of the President's new director of the Office of Management and Budget, a thirty-four-year-old congressman from rural Michigan named David Stockman. During the campaign, Stockman had impressed Reagan and his men when he played his former boss, John Anderson of Illinois, in rehearsals for a September 1980 debate against Carter. Stockman/Anderson clobbered Reagan in secret. The young winner was shocked by the old man's mumbling confusion -- at least in those rehearsals. "Sorry, fellas," Reagan would say. "I just lost that one."

Brilliant, confident and overconfident, lean and hungry, Stockman's personal politics had swung in one decade from "a soft-core Marxist," his words, and full-time anti-Vietnam War organizer to a zealous libertarian conservative. A month after election, Reagan had called him and said: "Dave, I've been thinking about how to get even with you for that thrashing you gave me in the debate rehearsals. So I'm going to send you to OMB." Now the new budget director, the youngest Cabinet officer in more than 150 years, was delegated to transform the muddle of Reaganomics into hard numbers by February 18, the day the President intended to present "America's New Beginning: A Program for Economic Recovery" as his first State of the Union message. The kid from Michigan was quite suddenly the fourth or fifth most important man in the White House, behind the President and his "Troika," or as some called it, his triumvirate: chief of staff James A. Baker III, a smooth Houston lawyer who had been Vice President Bush's campaign manager during the Republican primaries; Edwin Meese, a former California prosecutor who served as Governor Reagan's ideological memory; and Deaver, a California public relations man who protected and burnished the governor's persona. In the closing days of the 1980 presidential campaign, Deaver had turned to another old Reagan hand, Martin Anderson, and said, "You know, I am Ronald Reagan. Where do you think he got most of those ideas over the years? Every morning after I get up I make believe I am him and ask what should he do and where should he go." But, in fact, whatever Deaver thought, the staff was not the real Reagan. The old actor was staff-dependent but not staff-driven. He went where he was told to go -- taking direction they called it in his old business -- but possibly more than any politician of his time he said what he actually thought, often to a fault. Most of the staff also talked as if their man was wife-driven, but he was actually wife-dependent. He might never have become President without his Nancy, but there were many times he was heard saying, "That's enough, Nancy!"

Stockman was the new boy in every way. He signed on to "Supply Side," as he was supposed to, but he certainly never believed it. Young as he was, he was old-school, a cost-cutter and a low-tax man. Supply side was a useful if questionable political doctrine for him. "Starve the beast" were his more brutal codewords for the way to reduce government's role in American life. Sitting in the Old Executive Office Building at the center of piles of black notebooks, chain-smoking Salems, Stockman told a New York Times reporter: "I don't feel vulnerable. I'm used to being attacked. That's what all these books are, people losing their benefits from government. There's a lot of enemies in those pages....Most of them have unjust claims."

The Reagan White House was up and running in only a few days, smoothly, or so it seemed to outsiders shielded from the usual arm-wrestling over organization charts and offices with a view. The new President was an old man set in his ways, seventy on February 6, post-ambition in his way, with the certainty of the self-educated. He was quite different from his recent predecessors -- John F. Kennedy, Lyndon Johnson, Nixon, and Carter -- not obsessed with what other people thought of him. He had been famous for most of his life outside politics and he felt no great need to know what the newspapers were saying about him or anything else each morning. He skimmed The New York Times and Washington Post each morning at breakfast -- fruit or juice, bran cereal, and decaffeinated coffee. He looked at the Post first because the Times had no comics page, and that was where Reagan had begun his reading since he was a kid. Part of Meese's job was shielding the President from most disagreement. When internal debate could not be avoided, Meese did what he had done when Reagan was governor: call a meeting and let the boss listen to the arguments of Cabinet members and senior officials. When disagreement rose, so did Meese, taking the disputants outside as Reagan waved and said, "Right, fellas, you work that out and get back to me."

"Fellas" put them in their place, at some distance from the boss, and reminded them that throughout his career the people around him were more or less interchangeable, whether they were cameramen on a three-week movie shoot or the drivers he had in eight years as governor of California. Reagan's first chief of staff in Washington, Jim Baker, put it this way: "He treats us all the same, as hired help."

"It isn't that he doesn't like people, because he's very friendly," Martin Anderson told newcomers. "It's that he doesn't need people. Except for Nancy. He's the most warmly ruthless man I've ever seen." Later he added: "When he decided to get something done, you did not want to be in his way. He didn't take any pleasure in hurting people, but you were gone if you were in his way."

Reagan intended to be a President of big things. Baker, Meese, and Deaver handled smaller things, the day-to-day, week-to-week stuff. "I have never seen this man enjoy himself as much as he has in the last few weeks," said Deaver, who had worked for the Reagans for almost twenty years, in an interview with The New York Times. "More than anything else, he enjoys presiding over Cabinet meetings and listening to the give-and-take. And he realizes that he is finally doing the things he's been talking about for years." That talking had mostly been public. When the boss did speak in private to the fellows, it was usually cryptic, often confusing. It was the job of everyone else, staff and Cabinet included, to figure out what to do about it. His typical Cabinet meeting exit lines were: "Maybe we should sleep on this," or "You fellas work it out."

That was Reagan's way. After a Cabinet meeting, he stopped by at a meeting of Latin American editors and commentators invited to the White House for a briefing after a conference at the Woodrow Wilson Center. As the participants were sitting down, the President suddenly popped his head in the door and said only a few pointed words: "Sorry I can't stay with you. But there is something I want you to know. We are going to turn Latin America into a beacon of freedom."

Then, with a wave, he was gone.

An early memo from his Secretary of State, Alexander Haig, a veteran of two White Houses, briefly mentioned Latin America and "steps being taken to implement your decisions." The "decisions" were actually presidential musings on the possibilities of covert aid to the government of El Salvador, where a right-wing government was fighting left-wing insurgents, and covert opposition to the government of Nicaragua, where a left-wing government, the Sandinistas, had driven out a right-wing military dictatorship supported for decades by Washington. The "decisions" were Reagan's talking points on a single card dated in February: "Covert dimension to what must be a comprehensive strategy for dealing with Cuba throughout Central America....Where will we get the money?...Cannot some of the items be funded by Defense?...Can we not get some help from [other countries]?...Come back with a refined proposal in a week."

The idea might be the President's, but in his memo, the Secretary of State kept the initiative for himself, adding a final sentence that began: "Unless you prefer otherwise..." The administration and the men in it went their own way unless the boss said he preferred otherwise.

Talking among themselves, the conferees at the Wilson Center meeting decoded Reagan's "beacon of freedom" remark as: There will be a lot more military aid, a lot more covert action, and a lot more killing in Central America. That was rather dramatically confirmed a bit later during the same conference. One of the scheduled briefers, the United States ambassador to El Salvador, Robert White, walked in and said, "I've just been fired by Haig." The reason, leaked to newspapers by Haig's people, was that White had gone to the press with his complaints that the Reagan administration was considering covertly aiding right-wing death squads responsible for the murders of hundreds of Salvadorans and several Americans, including three nuns raped and killed on the road from the capital, San Salvador, to the airport on December 2, 1980.

The President was a clean-desk man. James Baker's deputy, Richard Darman, served as Reagan's "In Box" and "Out Box." When the President came down from the living quarters, his schedule for the day was there in a leather folder. He liked to draw a line through each appointment as it ended. Next to that were papers collected and compiled by Darman, most of them approved in advance by Baker. The documents, briefings, clippings, and memos were usually short and direct, light on numbers and other complexities. The papers and notes that Darman brought in late in the afternoon, usually at 5 P.M., for Reagan's evening work at a small study upstairs -- often he read them while watching television with his wife -- were the same, most of them summaries or talking points on a single page, or two at most.

Many of the pages waiting on Reagan's desk each morning were "Recommended Telephone Call" memos. Usually the calls were to members of Congress: "Thank Lloyd for his support," things like that, a dozen or so most days. The memos came back each evening marked, in the President's handwriting, "Mission Accomplished, RR." He arrived in the Oval Office each morning at nine o'clock or a few minutes after, had lunch with his wife upstairs in the living quarters, came back at two o'clock, and left before six each afternoon. Most days there was also morning and afternoon "staff time" -- usually reading and writing letters, sometimes taking a nap. After supper, Darman would deliver a package of readings, placing them on a table upstairs. They were sorted in colored folders -- red for "Classified," green for "Action," gray for speech material, blue for general information. Darman nodded to the Reagans sitting at opposite ends of a long couch, watching television, or tapes of the evening newscasts, or an old film, often munching popcorn. He tried to keep the reading material to an hour and a half, and the President methodically went though the folders, putting a small check or his initials on each document as he finished it.

Those beginnings seemed so even-tempered and orderly that Reagan was comfortable, and then some, walking through an hourlong NBC News show titled Day in the Life of the President after only twenty days in office. Already, his days were pretty much the same. Early on, Jim Baker realized that his boss, the old actor, was used to working from a script and used to taking direction. "Mr. President," he said at the beginning, "if you agree, we think we ought to concentrate on your economic agenda, to the exclusion of everything else, for the first three months of your administration." So, each day, Baker or Darman would appear, saying, "Here's what the day looks like." If the President preferred otherwise, which he rarely did, he would say so -- if not, he would methodically begin crossing off the meetings and briefings, making the phone calls until it was time to leave his bare desk.

For the NBC cameras, the President arrived an hour earlier than on most other days, coming downstairs just after 8:15 A.M. for a breakfast meeting with labor leaders who had supported him against Carter. Then there was his usual 9:15 meeting with Baker, Meese, and Deaver, and at 9:30 with the three of them and Richard Allen, the

National Security Adviser, who delivered the "Morning Summary," a dozen or so short intelligence reports and analyses of the state of the world. The civil war in El Salvador and the strikes and demonstrations in Poland usually dominated the first pages the President saw, but there were other topics, too, including: "Giscard Proposes International Conference on Afghanistan"..."Israel: Likud Government Begins Final Settlement Push"..."West Germany: Unrest in Schmidt Coalition"..."Soviet Assessment of Impact of Hostage Release"..."Italian Communist Party Wants Role in Government."

On February 10, before the cameras were allowed in, Allen did have real business, arriving with a short and classified Central Intelligence Agency biography of Poland's new leader, General Wojciech Jaruzelski, who was trying to bring military order to the country after weeks of Solidarity strikes. At 9:45, with the cameras rolling, Max Friedersdorf, his congressional liaison, arrived with Press Secretary James Brady. As broadcast three days later on NBC Magazine, the network host, David Brinkley, put those scripted little sessions in a favorable and dramatic frame, saying:

There are those who say he can't do it, that the political pressure against cutting federal payrolls, contracts, subsidies, grants, benefits are so great that Washington and particularly Congress cannot stand up to them. Well, that may be true. Modern history suggests it is true. Since 1933 and Franklin D. Roosevelt and the Depression nobody has changed the thrust of the United States government. More taxes and more spending. And no one has really tried. Reagan will try.

Those words segued on screen to a full Cabinet meeting, which the President opened with a small joke, telling them the subject was the economy, "So try not to smile too much."

The agenda in front of him said: "Announce that the focus of the Cabinet meeting is on the Economic Program....Indicate that Don Regan and Dave Stockman have been working day and night to meet our schedule....Before getting into the details of the program, ask Dave Stockman for an overview...(Stockman will deliver a list of programs that will not be cut in any substantial way.)..."

"Don Regan and Dave Stockman have been working night and day," the President said. "Before we get into details, I'd like to ask Dave for an interview...I mean an overview."

As Stockman began, Brinkley's voice overrode him, saying, "Stockman is the big number now. He's so fast with big figures that he scares old Washington hands."

Stockman was pretty fast with words, too, beginning with the job of meeting Reagan's campaign promises -- cutting taxes, building up the military, and then somehow cutting the federal budget enough to balance it. He began with budget cuts for the fiscal year 1982, which would begin in eight months, on October 1, 1981. "The goals you gave us are extraordinarily difficult," he said. "But I'm pleased to report today that we're almost there....We have $49.8 billion of savings in the fiscal 1982 budget. We only have about $4.3 million to go....We're 93 percent of the way to the goal you set."

Whatever those numbers meant -- and no one at the table knew -- Stockman did know they were wrong and impossible, too. The numbers he was using were based on January projections that the 1982 budget would have a deficit -- the gap between revenues and spending -- of $75 billion. But factoring in Reagan's proposed tax cuts and defense spending increases, Stockman's computer was calculating $600 billion of deficits over the next five years. Moving right along as the President nodded, Stockman changed one promise with a muttering reference to balancing the budget by 1984, a year later than Reagan had promised. No one noticed. Stockman sounded sure and confident, but when he finished his recitation, his hands were shaking when he pushed at the mop of long hair that helmeted his face. But the President, who had not really spoken to him since he was appointed, seemed pleased, saying, "Good work, Dave."

Then, as directed, for the cameras, Stockman began reciting a list of programs protected against Reagan's promised budget cuts -- he meant "so far," but he never said that -- beginning with the great middle-class entitlements, Social Security and Medicare. Suddenly the room came alive. "That's great!" someone said. "This is just wonderful," Reagan added.

Leaving the room, away from the cameras, Meese and Brady began talking about how to get the great news to the press. "No, no," Stockman tried to explain, telling Meese, "We can't imply that they're exempted from cuts entirely." They ignored him. They had heard what they wanted to hear and they were preparing press releases. The misunderstood misinformation was the lead three-deck headline of the next morning's New York Times:

On another morning, the President's script was titled "Cabinet Talking Points" and began with an introduction of Secretary of Defense Caspar Weinberger:

"Turn to Cap Weinberger who will outline where he and Dave Stockman have found savings within the Department of Defense." But there were no real savings in military spending. Quite the opposite. Another series of misunderstandings and miscalculations -- Weinberger budget tricks and Stockman mistakes -- was producing fuzzy budget numbers and footnotes that could produce a 10 percent a year increase in defense spending for at least six years. That represented double what candidate Reagan had proposed during the campaign. "What happened?" Stockman asked one of his assistants when he saw the talking points.

Three things happened. Reagan had escalated his promises during the campaign. And the budget director and the Defense Secretary had agreed on a 7 percent a year increase on Carter's defense budget. Stockman used the 1980 Carter budget of $142 million. But Weinberger used the 1981 number, which included a congressionally mandated, built-in 9 percent a year increase that had been added after the national humiliation of the failed Iranian hostage rescue mission called Desert One. Finally, Reagan himself had ordered a onetime "Get well" package of expenditures that amounted to growth increments of 12 percent in 1981 and 15 percent in 1982. So, the 7 percent increase was on a $222 billion base rather than the $142 billion base Stockman had in mind.

Even with the date for balancing the budget quietly extended to 1984, Stockman's projections indicated that the tax cut and the defense buildup would create the greatest budget deficits in history, growing to $130 billion in that year alone. He was dealing with the fuzziness of the numbers by placing asterisks all over the budget; each asterisk represented "Future savings to be identified." On camera, the President nodded occasionally and said more than once, "Good job, Dave. We're here to do whatever it takes." Stockman was telling himself that he could still make the numbers balance with what he called "Chapter Two" cuts in Social Security, Medicare, and other entitlement programs, which accounted for more than 40 percent of the total budget. That fantasy strategy collapsed with the press release that led the Times and most other newspapers on the morning of February 11. Whatever the numbers showed, the President's breezy optimism held, and leaving a dinner that night Reagan said he still believed the budget could be balanced by 1983, then added: "If we try for '83, we're sure to get it by '84."

The first Harris poll of the Reagan presidency was published that same morning, February 11, and The Washington Post reported it this way: "By 77 to 17 percent, the majority of Americans give the new president positive marks on 'inspiring confidence in the White House.' This contrasts sharply with the 64 to 34 percent negative rating on the confidence issue Jimmy Carter was given as he left office....An 87 to 10 percent majority rates Reagan favorably for deciding to give priority to improving the economy."

On February 14, at Camp David, the presidential retreat in Maryland's Catoctin Mountains, Reagan sat down with a speech draft by Khachigian, and memos from Stockman, and began writing out his "Economic Address" in longhand. Twenty pages. That was the way he had worked for almost forty years, from the time he became a member of the board of directors of the Screen Actors Guild in 1941.

"I'm here tonight," he wrote in the second paragraph, "to ask that we share in restoring the promise that is offered to every citizen by this, the last best hope of man on earth."

That was how he began before Congress on the night of February 18, and then, following a Stockman suggestion -- "An opening in which old, failed policy principles are set up in straw-man fashion: this sets the strategy for a totally new framework for national economic policy" read a memo from the budget director -- he continued:

All of us are aware of the punishing inflation which has for the first time in sixty years held to double-digit figures for two years in a row. Interest rates have reached absurd levels of more than twenty percent and over fifteen percent for those who would borrow to buy a home....Almost eight million Americans are out of work....Hourly earnings of the American worker, after adjusting for inflation, declined five percent over the past five years, Federal personal taxes for the average family have increased 67 percent....

Our national debt is approaching $1 trillion. A few weeks ago I called such a figure, a trillion dollars, incomprehensible, and I've been trying ever since to think of a way to illustrate how big a trillion really is. And the best I could come up with is that if you had a stack of thousand-dollar bills in your hand only four inches high, you'd be a millionaire. A trillion dollars would be a stack of thousand-dollar bills 67 miles high. The interest on the public debt this year we know will be over $90 billion.

Reagan proposed cutting the funding of eighty-three major programs, proposed his tax cuts and increased military spending, and then said, as he had written himself on the nineteenth page of his speech draft:

We're in control here. There's nothing wrong with America that together we can't fix....The substance and prosperity of our nation is built by wages brought home from the factories and the mills, the farms, and the shops....For too long now, we've removed from our people the decisions on how to dispose of what they created. We've strayed from first principles. We must alter our course.

The taxing power of government must be used to provide revenues for legitimate government purposes. It must not be used to regulate the economy or bring about social change. We've tried that and we must be able to see it doesn't work.

"This was the big night," he wrote carefully in the diary he had decided to keep as President. "It was a thrill and something I will long remember."

"REAGAN: NOTHING WRONG THAT WE CAN'T FIX" headlined the New Orleans Times-Picayune. "REAGAN ROLLS ECONOMIC DICE TO GET U.S. BACK ON COURSE," said the Omaha World Herald. "A Bold and Risky Venture" said The New York Times over an analysis by the paper's chief Washington correspondent, Hedrick Smith, that said: "Much attention has focused on the specific numbers and programs involved.... Only now have some politicians begun to comment that the new President is staking the Republicans' future on achieving a philosophical sea change in American politics.... Democrats and Republicans remarked that in his straight-talking, figure-studded speech, Mr. Reagan had confronted Congress with a set of decisions on domestic policy that were of greater magnitude of any since the early New Deal period." The paper's economic correspondent, Steven Rattner, added: "President Reagan's economic program represents a daring gamble that a sweeping application of an untested economic theory can improve the American economy radically and quickly."

"Figure-studded" the speech might be, but there were no numbers in the President's handwritten draft -- just blanks. Someone else filled in those blanks. The speech defined itself in its final sentences: "The people are watching and waiting. They don't expect miracles. They do expect us to act. Let us act together."

It was a stunning speech. Two days later a Washington Post/ABC News poll showed that two-thirds of respondents across the nation said they agreed with the President, although there were indications in other answers that they recognized his will and confidence better than they understood his economic arguments. The Times, which often set the agenda for the rest of the press and of the Washington political establishment, too, began to catch up with what had happened. "Trying to Repeal Keynes -- President's Plans Considered as Revolutionary as Those Espoused by the New Deal in the 30's" was the headline over a front-page analysis by the paper's chief economic correspondent, Leonard Silk:

He is urging tighter eligibility rules and reduced spending in food stamps, student loans, welfare, free school lunches, aid to the arts, humanities, sciences, public-service jobs, and much else.... But in economic terms, something even larger is afoot. The most remarkable aspect of Mr. Reagan's program is his effort to repeal the so-called Keynesian revolution: the transformation of economic theory that flowed from the mind of John Maynard Keynes in the 1930's and came to dominate the thinking of Presidents and Prime Ministers for almost half a century.

The Keynesian doctrine sought economic growth and stable prices through the manipulation of Government budgets. Governments were counseled that in a lagging underemployed economy, revival lay in generating demand by cutting taxes and raising public spending. Conversely the remedy for an over-heated economy was to raise taxes and curb spending to avoid inflation.

In crisp contrast, President Reagan...has declared new guidelines for public policy that stress stimulating not demand but production and supply, mainly by lowering business taxes, while relying on other measures -- budget cuts and tight money -- to rein in inflation. And, more fundamental, the President's overriding purpose is to bring about a permanent shrinkage of Government's place in the American economy.

Rudolph Penner, the assistant director of President Ford's Office of Management and Budget, was even blunter, writing in the Times: "President Reagan has proposed a huge restructuring of government, and people are actually taking him seriously. The man, whom we call a conservative, turns out to be downright radical.... It is Mr. Reagan's goal to lower budget outlays to 19 percent of the gross national product by fiscal year 1986, compared with an estimated level of 23 percent in 1981."

Penner used a telling anecdote about the power of a determined President who instinctively understood the Oval Office's agenda-setting power: "Mr. Reagan proposes reducing food stamps by $1.8 billion in 1982. One newspaper story quoted an unnamed Congressional staff member who said that the Budget Committee would not accept more than $1 billion in cuts. It is probably safe to say that two years ago, a similar Congressional staff member would have ruled out any cuts at all. Four years ago, he might have been demanding increases."

On the other hand, the right hand, Human Events, a sixty-thousand-circulation weekly newspaper favored by conservative activists and Reagan's favorite reading for years -- which featured headlines such as "State Department Spreading Marxism in Central America" -- began its coverage of the speech with: "President Reagan's economic package, less bold than many of his supporters would have wished...is nevertheless a strong attempt to rescue the economy, tether the runaway government, restore a good measure of economic liberty to the people and repair our crumbling defense posture. And considering the efforts of past chief executives, the proposal is almost revolutionary."

Human Events, however, was no favorite of the new men around Reagan. Baker and Darman, and Deaver, too, did their best each week to keep it out of the reading material they gave the President as he headed up to the living quarters and an evening of television. Human Events was also promoting the idea of "defensive weapons," specifically "Space Lasers," a kind of electronic umbrella to destroy ballistic missiles fired from the Soviet Union. "The first space-based lasers could be in orbit by the mid or late 1980s," wrote Senator Malcolm Wallop of Wyoming in a January issue. "Two dozen of these lasers would have to be orbiting in order to cover every spot on the globe at any given time. Each station would have enough fuel for hundreds of 'shots' -- meaning that each could cope with the possibility of a thousand missiles being launched in an almost simultaneous barrage."

The conservative journal was already deeply suspicious of the men around their old hero, the new President. "Is Reagan Ignoring Activists?" by William A. Rusher captured that uneasiness. Rusher, publisher of a newer and slicker conservative journal, National Review, pointed out that many of the best jobs in the administration were going to moderate Republicans with Ivy League degrees and names like J. Parmalee Butterthorpe III -- or James Addison Baker III -- rather than to people with names like Fred Bezirk, who led young conservative groups on middle-class campuses.

In the same issue Human Events promoted a book titled Wealth and Poverty by George Gilder, which attacked heavy taxation of wealthy investors and emphasized the moral and spiritual superiority of capitalism over other economic systems: "A must-read for those conservatives concerned about the future of capitalism...a refreshing departure from the spate of no-growth, the world-is-ending books on economics which have been in vogue in recent years."*

Rusher's complaints aside -- and he knew that Reagan's Sacramento was a place of talking right and governing from somewhere near the center -- ideas and optimism were in the air and so was the President. By ten o'clock the next morning, the Reagans were on Air Force One, flying west for a few days at Rancho del Cielo, his California ranch in the Santa Ynez Mountains, more than 2,200 feet above the Pacific beaches of Santa Barbara. During the flight, Reagan talked a bit to the pool reporters, a half-dozen men and women seated in the rear of the plane, who would later brief other reporters. They asked him whether he felt good about the big speech and the old star charmed them, saying: "Yes, well, I'm in good spirits, but then you're always in good spirits when you figure you got by without losing your place -- or forgetting your lines."

Copyright © 2005 by Reeves-O'Neill, Inc.