Transcript: Chapter 12

Narrator: That fall, budget director David Stockman told Reagan he would have to cut deep into defense spending -- the keystone of his anti-Soviet policy -- and social security if he wanted a balanced budget.

Darman: When he was presented with the question of whether he would reduce the rate of growth of defense, he decided not to and concluded that though he didn't want the deficit, the country would tolerate it if the economy were strong.

Caspar Weinberger, Secretary of Defense: He always phrased it this way -- if it were a question of balancing the budget or regaining strong military capabilities, he'd always opt for the latter. And he never, never wavered in that.

Cannon: He had a chance to tackle entitlements, he had a chance to break Social Security costs and he wasn't willing to do it because he would have forfeited his most precious asset, his popularity, to do it. And he wasn't willing to do that.

Narrator: Those were fateful decisions. Reagan would never again have as good an opportunity to adjust his budget and avoid the ballooning deficits of the decade ahead. That year, the economy took a downward turn.

By November, blue-collar workers, who had voted for Ronald Reagan, were losing their jobs. Inflation had prompted the Federal Reserve Board to increase interest rates. Reagan was forced to admit that the nation was headed into a recession.

Reporter: Mr. President, your secretary of the treasury Donald Regan, yesterday gave a rather pessimistic view of the nation's economy. I think he called it a "real downer" that we were facing. Do you share his pessimistic view of the economy? Are we in for a real downer in your opinion?

Reagan: Well now, I don't know what his definitions is of a "real downer." I think that we're going to have some hard times for the next few months. I think we're going to see a pickup in the economy, and I think that Don Regan believes this also, in spring or latest early summer.

Narrator: That spring, when the president vacationed at the home of actress Claudette Colbert, there were no signs of improvement.

Reagan who had seen himself as coming to America's rescue began to be cast as callous and insensitive; "splashing ... in the lap of luxury, while Americans go hungry," one reporter wrote. But the press reserved its harshest criticism for the first lady, calling attention to her designer dresses, her lavish entertainment, her millionaire friends and her new White House china, failing to note that it had been donated.

The extravagance of the Reagan White House added to the perception of insensitivity -- a perception Reagan bitterly resented.

Morris: His invariable line when the subject of poverty and homelessness was raised was I know about, all about the Depression because I was out hitchhiking across the landscape looking for work in the depths of the Depression. I know about poverty. Actually it was just a matter of a couple of weeks. He got a job very quickly and from January 1933 onward never had to look anywhere for a salary check.

Ron Reagan: If you wanted something done by my father, if you wanted him to move a certain way on a certain policy, what you had to do was humanize it, bring him a person that's afflicted by some problem or another, and all of a sudden then it becomes very real to him.

Deaver: He would have three or four checks, personal checks in the top drawer of his desk, in the Oval Office and he was always running out of those checks because he was writing checks to people. I went in there one time and he had written a check to some woman who was on welfare. And the next month he got his bank statement. Well, you know, the bank statement had these checks and her check wasn't in it. So, he called her on the phone and said you know, you haven't cashed that check. She said, "Oh no, I framed it." He said, "Well, my God, I sent you that money so you'd have some money to eat. I'll send you another check, you keep that one framed and cash this one."

Matthews: Simply because he becomes aware of one person's plight and responds to it as human beings doesn't really solve the problem. I mean he's basically responsible for the economic management of the United States and he has to deal with that responsibility, not simply as an individual citizen.

Narrator: As the recession deepened through 1982, its effects were felt across America. Farmers were driven off their land by high interest rates. In the cities, homelessness became a scandal.

Thousands of businesses failed. Unemployment reached its highest level since the Great Depression.

"I prayed a lot during this period," Reagan wrote, "not only for the country and people who were out of work, but for help and guidance in doing the right thing."

Narrator: Pressure on Reagan to change course mounted. His program now derided as "Reaganomics,"-- had not only failed to produce growth, but was leading the nation into fiscal disaster.

"We are really in trouble," Reagan confided to his diary. "Our projections are out the window ... We look at two hundred billion dollar deficits if we can't pull off some miracles."

Even true believers were disillusioned. David Stockman, tired of arguing for cuts now urged the president to raise taxes.

"Reagan," wrote columnists Evans and Novak "was having to fight two thirds of his administration to save his economic program."

Smith: There are very few conventional politicians who would have stuck it out as he did. But he came to office imbued with a conviction that less government and lower taxes would resolve the pervasive sickness of the American economy. And what he saw in 1982 as, was the fever that was about to break.

Narrator: Reagan stayed the course. "I believed the economic recovery would work," he wrote, "because I had faith in those tax cuts and faith in the American people." But the American people were losing faith in Ronald Reagan.

Man: He'd better read the papers a little better, go down to the unemployment office and see all the people standing there, getting unemployment benefits -- those that can get them and those that have ran out of them and so forth. The president himself hasn't got the message yet.

Second Man: I don't like to turn to welfare, but if that's what is going to take to get by until this current economic situation is through that's what we'll have to do.

Third Man: I think the American dream is in the past. It's long gone.

Crowds: What do we want? Jobs. When do you want them? Now.

Narrator: On November 2, in critical mid-term elections, voters would pass judgment on Ronald Reagan and his conservative program. Reagan watched as the American people gave a vote of no confidence by throwing twenty-six Republicans out of the House. The political disaster his staff had feared was upon him.

Helen Thomas: With 11.6 million people out of work would you be willing to have some cutbacks in defense spending to help these people who are out of work?

Lou Cannon: Have you ruled out the possibility that would modify in anyway your call for an increased defense budget maybe just for this one year?

Narrator: Ronald Reagan had vowed to fight Communism. Now his defense build-up -- the chief weapon in his anti-Soviet crusade -- was coming under attack.

In what might have been the largest peacetime gathering in American history, nearly one million people rallied in Central Park to call for a freeze in nuclear weapons production.

Protester: All of us want to live and we want life for our children and our grandchildren.

Narrator: Two years into his presidency the talk in Washington was of chaos and disarray.

"The question no longer is whether Reagan has failed," wrote a conservative analyst, "but the magnitude and ramifications of his failure."

By January 1983, Reagan's approval rating had plummeted to 35 percent. Her husband, Nancy confided to a reporter, might not seek a second term.

Richard Wirthlin, Pollster: I brought him the bad news that his job rating was low and he was very serious for a moment and then he smiled and he then reached over and patted me on the arm and said, I know just what I can do about it. I'll go out and get shot again.

Narrator: If Reagan's presidency failed, his crusade to protect America from big government, begun in 1964 would fail with it. His crusade to save the world from Communism, begun in 1946 would fail too. Ronald Reagan had come to office to rescue America. Now he was the one in need of rescue.

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