Eight for the Cabinet

By GEORGE J. CHURCH

As the economy nosedives, Reagan's men have their work cut out for them

It was not exactly a halcyon time for Cabinet making, as the Soviet shadow grew longer over Poland and the U.S. economy once again lurched out of control. But Washington can be a parochial town where people and power are concerned, and week after week the anticipation had been building. Resumes flowed into the drab transition headquarters. FBI agents conducted background checks. There was feverish speculation in the corridors of the bureaucracy, as well as in the daily accounts of newspapers and TV news broadcasts. But when the moment came for Ronald Reagan to announce his first eight selections for Cabinet-level jobs, it was an understated affair. The President-elect, true to his low-key posture since Election Day, stayed holed up in Blair House, the capital's elegant residence for VIP guests. It was left to transition Press Spokesman James Brady to introduce the nominees to the 350 reporters gathered in the Mayflower Hotel ballroom.

Brady read off eight names with rather less emotion than a railroad conductor calling out station stops, as a line of men, all in blue or gray suits, stepped before the TV cameras. For half an hour, they took turns answering questions or, more accurately, politely not answering them, explaining that they would have to become more familiar with their new jobs before they could say anything specific about their own views or the new Administration's policies. Said Secretary of Commerce-designate Malcolm Baldrige, in the only semblance of lively comment: "I haven't even found the front door to the Department of Commerce yet."

Still, the very lack of color--in the ceremony and in the group--said something important about the Administration that Reagan is putting together against a background of threatened economic and international crisis. Only one of the eight, Michigan Congressman David Stockman, stands out--for youth (he is 34) and for passionately held views. He is a self-described fanatic in his devotion to minimal Government and supply-side economics (which basically means stimulating the economy by cutting personal income taxes and prompting more business investment). As director of the Office of Management and Budget, he should put some ginger into Cabinet debates. In a memo to Reagan that became public just before his selection for OMB was announced, Stockman and a close friend, New York Congressman Jack Kemp, urged the President-elect to declare a "national economic emergency" immediately after Inauguration.

The other seven are moderate conservatives, most of whom are better known as skilled managers than as innovative thinkers. Five can be considered members of the Eastern Republican Establishment. They are Pennsylvania Senator Richard Schweiker, who will be Secretary of Health and Human Services, and four businessmen: Baldrige; Treasury Secretary-designate Donald Regan; William Casey, who will head the CIA; and Transportation Secretary-designate Drew Lewis. Two longtime California friends of Reagan's fill out the group: Caspar Weinberger, chosen as Secretary of Defense, and William French Smith, Attorney General-designate. Even they are not typical Sunbelt hardliners; in fact, their selections reinforce a surprisingly strong Ivy League cast in Reagan's official family.

Both studied at Harvard, as did Regan, Lewis and Stockman; Baldrige graduated from Yale.

The makeup of the Cabinet could well change sharply this week, when Reagan is expected to name most or all of his remaining seven selections. He is considering a black woman, Jewel Lafontant, a Chicago lawyer, for Secretary of Housing and Urban Development. Moreover, for the most senior post in the Cabinet, Secretary of State, Reagan seemed to be settling on the highly controversial nomination of former NATO Commander Alexander Haig.

Unlike Reagan's choices so far, Haig might face a confirmation fight because of his role as a top aide to Henry Kissinger and then, during the last months of the Watergate crisis, as Richard Nixon's Chief of Staff. Democrats are expected to question Haig closely about whether he was involved in bombing decisions during the Viet Nam War, wiretapping of Nixon Administration officials suspected of leaking secrets, and the Watergate coverup. But Republicans rallied to their President-elect's apparent choice. Tennessee Senator Howard Baker, who will be majority leader in the new Senate, felt confident that he could find the 51 votes needed for confirmation.

The Republican New Right is not happy with Reagan's Cabinet carpentry. Except for Stockman, the ultraconservatives have been completely shut out so far. Collectively, Reagan's choices announce louder than anything he has said that he intends to run a pragmatic Administration, one not bound by ideology, and the right wing is vocally dismayed. Said Richard Viguerie, a leading hardliner, accurately enough: "It's the kind of Cabinet Jerry Ford or George Bush would have assembled. I'm sick to my stomach. Reagan gave all the winks and signals that he was going to be a true conservative, and he turns his back on us."

Besides lacking New Rightists, with the exception of Stockman, the Cabinet also has no political figures with strong followings of their own. Paradoxically, that might be an advantage in the style of collegial leadership Reagan intends to bring to Washington: the Cabinet members will not feel themselves impelled to push the interests of outside constituencies. But even some moderate Republicans fear that the Cabinet might be short on imagination and bold strategy. The success of the Administration, therefore, may depend heavily on Reagan's sub-Cabinet selections, which are not expected to be announced before January.

A willingness to consider innovative approaches may be sorely needed. In their memo to Reagan, Stockman and Kemp raised the threat of "an economic Dunkirk during the first 24 months of the Reagan Administration." The Congressmen foresaw a multisided crisis: a new recession and rising unemployment brought on by skyrocketing interest rates; "hemorrhaging" federal deficits that would 'fan an already raging inflation; a "credit crunch" caused by excessive Government borrowing to cover the deficits, leaving little loanable money for businessmen and consumers. They also prophesied that unless the Iran-Iraq war ends speedily, world oil inventories will disappear by February or March, leading to "panic" price boosts--perhaps to as much as $50 per bbl. from $32 now--and a return of the shortages and gasoline lines of 1979.

The Congressmen urged Reagan to devote "exclusive" attention in his first 100 days to an economic package that would be shaped in "fevered consultation" with Congress. Its main elements: deep tax cuts to revive business expansion and consumer spending; "stern" reductions in federal spending to contain deficits; immediate deferment or cancellation of federal environmental and safety regulations thought to hinder business expansion and raise costs; "cold turkey" elimination of all remaining oil price controls on Feb. 1 (that would magnify the inflationary impact of rises in imported crude prices, but enable the Government to scrap the cumbersome allocation system that has worsened the bite of past shortages).

Reagan, said the Congressmen, would have only a short period during which to establish himself as a forceful and effective economic manager. If he does not, the financial markets will fall apart in expectation of a continuing "Reagan inflation" and "Washington will quickly become engulfed in political disorder commensurate with the surrounding economic disarray."

Hardly anyone else in either Washington or Wall Street would use such pyrotechnic language, but the Stockman-Kemp analysis of economic trends is close enough to the facts to be worrisome. Indeed, in one respect their memo had not even caught up with the latest bad news. The Congressmen predicted that "by year-end, bank [interest] rates are likely to hit the 15%-17% range." Actually, the bank prime rate on business loans jumped a point last week, to 20%. That matches the historic high of last April, when strangling interest rates touched off a sharp though short recession.

Even those rates have been insufficient to restrain an inflationary expansion in the U.S. money supply, so Wall Streeters expect the prime to go higher still, perhaps to 22% or 23%. The possible consequences might include a wave of bankruptcies among businesses unable to pay such towering interest costs, and a new recession that is now almost universally expected by economists in both the capital and the financial community.

Meanwhile, inflation hit a 12.6% annual rate in October, and there is no sign of any slowdown. Predictions of continued double-digit rates throughout 1981 are now common. Indeed, Alan Greenspan, a Reagan economic adviser, disapprovingly reported to a business audience last week a widespread view that double-digit inflation would continue through the entire decade. The gloom has shattered the euphoria with which the stock market initially greeted Reagan's election. The Dow-Jones industrial average plummeted 62 points in five trading days through last Thursday. A Friday rally brought it up to 917.15, but that is still 83 points below its high of 1000.17 on Nov. 20.

Internationally, the skies are darkening too. The outgoing Carter Administration beat the publicity drums hard last week to warn of an impending Soviet invasion of Poland, in the somewhat frail hope that simply sounding alarms might help stay the Soviets' hand (see WORLD). If that policy of verbal deterrence fails, Reagan and his new Cabinet will not even get their feet under their desks before they are severely tested abroad as well as at home.

--By George J. Church.

Reported by Laurence I. Barrett with Reagan

With reporting by Laurence I. Barrett, Reagan

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