Trimming the Sails

By WALTER ISAACSON

For 26 years, Republican Congressman Robert Michel has played well in Peoria, the Everytown of American politics. He has become an institution there, much like the local Caterpillar Tractor plant. But along with much of the nation, Peoria (pop. 124,000) has suffered the ravages of recession and unemployment. Caterpillar has laid off 8,000 employees, and joblessness has hovered at 16%, the highest rate since the Depression. So for the House Republican leader, who shepherded President Reagan's budget and tax cuts through Congress, the overriding national issue of the 1982 campaign, the economy, was a local issue--and a survival issue. Urged the Democrats: "Add Bob Michel to the unemployed list!"

Michel survived last Tuesday's test, but just barely (51.6% to 48.4%). The message he received from his constituents was clear. "We've listened and learned, and we will take what we've learned back to Washington," said a chastened Michel. "There will have to be some adjustments, some modifications in the things we are doing. No question about it."

By shoring up the Democrats' control of the House by 26 seats, sweeping more Governor's mansions into Democratic hands and scaring those Republicans who survived, the voters presumably were signaling Ronald Reagan to moderate his dogmatic approach. But the unexpected success of the G.O.P. in holding on to its Senate majority made it clear that

Reagan's general course of scaling back the role of the Federal Government in the lives of most Americans was not repudiated. Admitted Wendell Ford of Kentucky, chairman of the Democratic Senatorial Campaign Committee: "The days of spend, spend, spend are over."

If there was a dominant issue in the election it was Reaganomics, not only because the Democrats tried to make it so, but also because Reagan, against the wishes of some G.O.P. candidates, took to the stump to defend his policies. Particularly hi the dispirited Midwest, where Reagan's handling of the economy was a major concern, Democrats racked up large margins in many races for the House, Senate and governorships. According to surveys taken as voters left the polls, 40% said they had been personally hurt by the economy and 70% told pollsters that they saw their congressional votes as a "vote for or against Ronald Reagan." But Republicans drew on a pool of patience among voters who felt that Reagan's programs might work in time, that the blame for current economic problems was not essentially his but went back to Democratic Administrations, and above all, that the Democrats offered no persuasive alternatives. Some 55% of voters held the Democrats responsible for the staggering economy, and they were evenly split on whether Reagan's policies would eventually help restore prosperity.

Faced with worrisome economic questions and no clear answers, the voters sought the safety of the center. Neither party could claim a mandate, but both made the usual exaggerated morning-after victory statements. "It is a disastrous defeat for the President," said House Speaker Tip O'Neill. "We are very pleased with the results," pronounced Reagan. But each also stressed that he recognized the need to work together now. "There has to be some bending on both sides," said O'Neill. "There have been concessions and compromises in both directions on all the major issues," Reagan said, "and we expect to continue to work with the Congress in that way."

The Democrats will have a 103-member majority in the 435-seat House. Defeated last Tuesday were 26 Republican incumbents, 14 of them freshmen who were elected on Reagan's long coattails in 1980. The Democrats lost only three incumbents, losses that were balanced by Democratic gains in new seats or ones where incumbents retired. Overall, the popular vote for House members was split 57% to 40% in favor of the Democrats.

The magnitude of the Democratic shift in the House was larger than originally expected by the Republicans, who in the first blush of Reagan's landslide 1980 victory had harbored hopes of capturing the chamber this year. Since World War II, the average loss in a mid-term election by a party that has just won the White House is twelve; the Democrats under Jimmy Carter lost eleven in 1978. In fact, not since 1922 has a party lost as many seats in its first mid-term election.

The G.O.P.'s House losses were counterbalanced by its ability to keep its 54-to-46 Senate T majority intact. Only two incumbents lost: Democrat Howard Cannon of Nevada and Republican Harrison Schmitt of New Mexico.

Two open seats switched hands when Republican Paul Trible triumphed in Virginia and Democrat Frank Lautenberg won in New Jersey.

But the significance of the Senate voting was hidden; it was less in the outcomes than in the margins. "The Democrats came within a whisker of having a landslide," said Wendell Ford. Democratic incumbents won handily, most rolling up wins of 20 points or more. If the Democrats had picked up about 43,000 votes in five states (Virginia, Rhode Island, Missouri, Nevada, Vermont), they would have taken control of the Senate. Republican moderates, such as John Chafee of Rhode Island, Lowell Weicker of Connecticut, John Danforth of Missouri and Robert Stafford of Vermont, barely withstood strong challenges. The fact that they finally won will ensure the survival of the party's moderate wing; the fact that they came so close to losing will cause colleagues to assert their independence of a President whose policies proved a burden at the polls.

The Democratic successes were most obvious in Governor's races. Stressing Republican responsibility for the recession, Democrats won seats from retiring Republicans in Minnesota, Michigan, Wisconsin, Alaska and Ohio. They also upset incumbents in Arkansas, Nebraska, Nevada and Texas. In all, the Democrats captured seven more governorships, to bring their total to 34. They also will control both houses of 34 state legislatures, six more than they do now.

As the vote was analyzed, it became clearer that the Republicans had suffered a more serious setback than first thought. By Friday, Pollsters Richard Wirthlin and Robert Teeter were telling the White House that on the local level the bottom had dropped out of the party. The pollsters were said to be "shaken" by how badly the G.O.P was routed in the statehouses and among crucial voting blocs. The only electoral group found to have given a majority to the Republicans was the one that earns more than $40,000 a year. One White House aide noted that "the Republican Party in Michigan has been set back 20 years," and that "we lost votes in the South that we've had since Richard Nixon."

Financial investors, meanwhile, were not so downbeat. The New York Stock Exchange tallied a record leap on Wednesday, and a record volume the following day (see ECONOMY & BUSINESS).

The swing of the pendulum back toward the Democrats reverses a trend that began in earnest in 1978, when voters sent a message that they wanted lower taxes and less government. Republicans took over three additional Senate seats and twelve more House seats that year, riding a wave of discontent symbolized by the Proposition 13 tax revolt in California. The G.O.P. hoped that the 1980 Reagan victory, which brought them twelve more Senators and 33 Congressmen, signified a new conservative electoral coalition made up of traditional Republicans, blue-collar workers and those concerned with social issues such as abortion and school prayer.

But the failure of Reagan's program to avoid the shoals of a treacherous recession caused people to vote their pocketbooks and restored, at least temporarily, the traditional Democratic coalition. Blue-collar workers in particular returned to the fold with a vengeance. Says Tony Pinello, a local union president in New Jersey: "A lot of our members, maybe as many as 50%, were swingers in 1980 and voted Reagan. They came back because of unemployment, unemployment and unemployment."

On a few occasions, Reagan resorted to raising the social issues in the campaign. In a final broadside at the Democrats, he spuriously charged that "they even drove prayer out of our nation's classrooms," somehow seeking to saddle his political opponents with responsibility for a 1962 Supreme Court decision.

But Reagan realized early on that he could not avoid the economic issue. As Gloucester noted in Shakespeare's King Lear: "I am tied to the stake, and I must stand the course." Reagan's stay-the-course theme emphasized his philosophy of reducing spending and the role of Government, and attempted to encourage voter patience with his economic prescriptions. Says Pollster Wirthlin: "Of those we surveyed, 58% said they believed the President's program would work eventually. It became a question of playing to the future."

The strategy was also one of playing up the past. Reagan blamed the Democrats for getting the country into its current economic crisis. Said he on his final campaign swing: "We are clearing away the economic wreckage that was dumped in our laps."

The Democrats responded by counterattacking. Tip O'Neill and Senator Edward Kennedy both raised the specter of a secret Republican plan to reduce Social Security benefits. But in general, the Democrats concentrated on assigning responsibility for the recession to the Republicans, calling Reagan's program a failure and inequitable. "It's not fair, it's Republican," proclaimed their ads. It was a case they couldn't fully sell.

The intensity of the debate over national issues, as well as heated state contests and ballot referendums, contributed to a slightly higher voter turnout than in past mid-term elections. Curtis Gans, an analyst of voting trends, estimates that 41% of those eligible turned out at the polls Tuesday.

Congressional elections tend to be a parochial mixture of personalities and local concerns, and are usually not settled by national issues. But to a large extent the national recession came home to America, like it did to Peoria, as a local issue this year. This was particularly evident in Michigan, where the 16.1% unemployment rate is the highest in the nation. In Pontiac, where the devastated auto industry has created a whopping 31.7% unemployment rate, former Democratic Congressman Robert Carr handily won a rematch against the Republican who upset him in 1980, Jim Dunn. "Of course this was a referendum on Reaganomics," said Carr the day after the election. "Voters don't want to bear the burden of this experiment any longer." Agreed Dunn, whose literature avoided even mentioning his Republican affiliation: "Unemployment was the No. 1 issue."

A study of individual House races shows that discontent over Reagan's handling of the economy played a major role in most Democratic gains in the industrial Midwest, Pennsylvania, West Virginia and Texas. One Pennsylvania showdown featured Eugene Atkinson, who crossed the aisle last year to become a Republican convert at the height of Reagan's popularity. The voters resoundingly turned out the turncoat (61% to 39%) when he attempted to defend Reaganomics to the unemployed steelworkers.

Unemployment also helped pave the trail for Democratic gubernatorial victories, particularly that of former Peace Corps Director Richard Celeste in Ohio. His opponent, Congressman Clarence Brown, was an ardent backer of Reaganomics, not the most popular philosophy in a state where 13.8% of the work force is idle. A wave of discontent from the depressed steel towns of western Pennsylvania almost deprived Republican Governor Richard Thornburgh of what was supposed to be an easy reelection. New Jersey Businessman Frank Lautenberg hammered away at Reaganomics to help overcome Republican Millicent Fenwick's personal popularity and win a Senate seat.

Many Democrats seized on an ill-advised G.O.P. fund-raising letter sent out by Republican Congressional Leader Guy Vander Jagt of Michigan asking voters if they would like to see Social Security made "voluntary." But the issue failed to cut as strongly as the Democrats hoped; the elderly voted Democratic in no greater numbers than usual (about 57%). Democrat George Sheldon, for example, tried to make the sanctity of Social Security the central theme of his losing race for an open seat near Tampa. Said one voter: "Even the old folks like Reagan too much personally to buy all the wolf cries."

Despite the overriding concern over national economic issues this year, many major races turned, as is often the case, into contests of personalities. The biggest factor in Jerry Brown's defeat for the Senate was the flaky image that pestered him like a persistent Medfly. Connecticut voters passed judgment on maverick Republican Lowell Weicker's feisty attitude and sent him back to the Senate. Adlai Stevenson in Illinois, who held a significant lead in early polls, was hurt by the perception that he might be a wimp, a notion not dispelled when he publicly denied it.

Perhaps the most important political factor in the elections was incumbency, particularly in the Senate races. In 1980, 45% of all Senate incumbents won; this year the figure was 90%. "That seems to me a measure of the search for stability," says Democratic Pollster Peter Hart.

"I think the results should produce a soul searching by both parties," says Hart. "For Reagan and the Republicans, the message is that staying the course is not acceptable. The voters want to get people back to work. For the Democrats, the message is that this is not a broad mandate. People do not want to go back to the past. The voters want a mid-course correction and some constructive changes."

From a regional perspective, the races last week strengthen the national political pattern in which Democrats and liberals dominate in the North and East, Republicans are generally favored out West and the South juggles a conservative, generally Democratic mixture.

In the Northeast the most important Democratic victory was retaining, with unexpected difficulty, the governorship of New York. Lieutenant Governor Mario Cuomo, a soft-spoken but forthright liberal, put together the region's traditional Democratic base--union members, the poor, blacks, Jews and intellectuals--to beat back a strong challenge from a bright and brazen supply-side disciple, Lewis Lehrman, the millionaire owner of a chain of drugstores. The same coalition gave Lautenberg his New Jersey Senate seat.

In the Midwest, of ten governorships at stake, eight had been held by Republicans. Assuming that James Thompson holds on to his slim margin in the final Illinois tally, the G.O.P. will end up with only three. Democrats Celeste in Ohio, Anthony Earl in Wisconsin and Rudy Perpich in Minnesota won by margins of more than 15 percentage points, and James Blanchard in Michigan won by 7 points.

The South displayed the rest of the nation's mixture of annoyance with the handling of the economy and loyalty to both Reagan and his ideals. The conservative Democratic dominance of the region continued, but not as a rejection of the President or his policies. A typical Georgia voter, who had just cast her ballot for Democratic House and gubernatorial candidates, professed her faith in Reaganomics: "I say let him have the chance for the rest of the four years."

In this election, Texas was a district unto itself. With unemployment at 8.3%, higher than in Frost Belt states like Massachusetts and New Hampshire, Texans were feeling the brunt of a national economic downturn for the first time in more than two decades. Democrats came out in droves to help Populist Attorney General Mark White ambush Republican Governor Bill Clements. White roused the voters not only over the economy but also with the somewhat spurious charge that the Governor should be held accountable for high utility rates. The Texas G.O.P. took a "shellacking," said the defeated Clements, who was one of Reagan's most loyal boosters.

The Rocky Mountains provided a generally safe sanctuary for incumbents of whatever stripe. In Montana, Liberal Democrat Pat Williams, who ran against Reaganomics, and Conservative Republican Ron Marlenee, who defended the program, were returned as the state's two Congressmen. The state's house of representatives, however, switched into Democratic hands, partly because voters blamed Republican members for the cuts in state-run social services, the consequence of reduced federal funds for some domestic programs. Despite the region's Republican leanings, two Democratic Governors were reelected: Colorado's Richard Lamm and Wyoming's Ed Herschler have both been able to balance he requirements of growth and environmental protection, and were helped to third terms because fit.

The Far West was dominated by two races in California. In a convoluted battle of personalities, Republican Gubernatorial Candidate George Deukmejian focused his attacks on the outgoing Democrat, Jerry Brown, despite reminders from Democrat Tom Bradley that he, Bradley, was the opponent. Brown, in turn, aimed most of his attacks at Reagan, except one tactical nuclear assault on Republican Opponent Pete Wilson, who he implied was in favor of the nuclear-arms race. It ended up a G.O.P. sweep.

Many of the nation's Republican losers were on the phone with the White House last week seeking new jobs. Among them: Senator Schmitt, Governor Clements and Clarence Brown, who lost the Governor's race in Ohio. Some asked to be appointed to replace outgoing Energy Secretary James Edwards. But last Friday the President nominated Donald Hodel, a friend and top assistant to Interior Secretary James Watt, to take the Cabinet post.

The Democrats seem to believe that the election is not a mandate to reverse Reagan's policies completely, and do not plan to push for big spending programs this session. Noted Barney Frank of Massachusetts, one of Congress's most outspoken liberals, after beating Republican Margaret Heckler: "We are not asking the Federal Government to spend more money. We are asking that what is spent be spent with a better sense of equity."

In fact, the limited nature of the Democratic victory contained a silver lining for some party members. Tip O'Neill was privately relieved that Robert Michel was returned, because Democrats feel he is not an unbending ideologue. Other Democrats also professed some relief that they did not take a slim majority in the Senate, and thus face having to initiate their own alternative programs. Says Democratic Senator Paul Tsongas of Massachusetts: "It's better not to give Reagan a Democratic Congress to run against. And by being in the wilderness for another two years, we will be a stronger party. The rethinking process must go on."

It is less clear how Reagan will interpret the new political alignment. California Democratic Congressman Tony Coelho recalls that in Reagan's second term as Governor, when the Democrats took control of the legislature, Reagan moderated his policies in order to pass some far-reaching bipartisan initiatives. Says Coelho: "He'll be forced to do the same in Congress." Indeed, the accommodation he reached with the House leadership last August on the $99 billion tax hike illustrates that he can compromise. As the President said the day after the elections: "The truth of the matter is, we've had some mid-season course changes."

But Reagan did not give any substantive signals that he will moderate his course, either as he watched the election returns or in subsequent White House meetings on the budget. He followed the results with his closest advisers and their wives in the family quarters at the White House, the guests balancing plates of beef stew as they watched the network reports. "Hey, look at that!" he said excitedly when an exit poll showed that half of the voters felt the President's program needed more time to work. This view became the prism through which he interpreted the night's returns. Other than a few individual disappointments ("Gosh darn it," he muttered when Nebraska Governor Charles Thone lost), Reagan was satisfied with the results. "There was nothing to suggest a need to change the basic course," said Counsellor Edwin Meese, expressing Reagan's sentiments

Nor did the President indicate any desire to moderate his views during last Wednesday's meetings on the fiscal 1984 budget, to be submitted in January. Said one top aide: "He will submit a budget completely consistent with his program and philosophy, and it will probably get shot down pretty quickly." Reagan appears still adamant on the two key budget issues: not raising new taxes and not trim ming the increase in defense outlays. But in his Saturday radio broadcast, he did emphasize: "Jobs must be our most urgent priority."

The President's dealings with the 98th Congress could take one of three paths: forging a coalition with conservative Democrats, negotiating a true bipartisan consensus, or settling for a standoff. The first would by pass the congressional leader ship by working with Boll Weevil Democratic defectors, much as Reagan did to pass the budget and tax cuts in the past. White House Chief of Staff James Baker claims that despite last week's defeats, the President still has a pool of 245 sympathetic Congress men to draw upon to reach a 218-vote majority.

But most Congressmen of both parties scoff at the notion that the tenuous coalition with the Boll Weevils, which did not hold together on the tax-hike vote last Au gust, could possibly be assembled now that there is a 103-seat Democratic majority. Most of the incoming freshmen are more liberal than their colleagues. In a survey of the new members by the New York Times, 83% favored cutting back scheduled in creases in defense spending, 62% pro posed canceling next July's tax cut, 89% opposed trimming Social Security cost-of-living increases, and 58% opposed additional reductions in domestic social programs. Nor is there a solid guarantee that the Republican Senate would line up behind Reagan if he eschews compromise. Nineteen Republicans are up for re-election in 1984, compared with twelve this year. Says moderate Republican William Cohen of Maine, who is one of them: "The Senate is going to be more independent next year."

The second approach offers what both sides profess to want: a coalition including Democratic as well as Republican leaders. Says Republican Senator Robert Packwood of Oregon: "To the extent the President wants to get part of his program, he has to give. Now that he has a House that's adverse, there have to be negotiations." Senate Majority Leader Howard Baker feels compromise will be especially important on the defense budget. Says he: "There certainly will be a major effort to trim defense spending, and it will be cut more than the Administration wants."

For Reagan to achieve a coalition supported by the congressional leader ship, he would have to set aside some of his hard-line ideology. On the most important issue of all, controlling the deficit, the Democrats will demand that military spending cuts and tax increases accompany any trims in social programs and entitlements. If Reagan will not budge on these points, it seems likely that the two sides will run into a stalemate.

A true showdown between the President and Congress would cripple any chance of producing a workable budget. Such paralysis would convince private investors that the Government will not be able to control the deficit, interest rates would rise and the economy would suffer.

If such a stalemate occurs, Reagan may try to use Congress as a scapegoat in his 1984 campaign. Aides say that he is already thinking about his re-election bid, and last week he persuaded Nevada Senator Paul Laxalt, a close personal friend, to be the honorary chairman of the Republican National Committee. Others are also looking ahead. Kennedy used his easy race in Massachusetts to flood New England with a series of five-minute ads designed to dispel questions about his personality and character. Senator John Glenn of Ohio will get a boost in building a campaign organization by the election of his friend Celeste as Governor. Former Vice President Walter Mondale spent part of Tuesday evening phoning winners to of fer his congratulations. And Republican Senator Dole, in election-night network interviews, continued to stake out his role as a moderate and conciliator in the G.O.P. in what many see as an attempt to position himself for the presidency should Reagan decide not to run.

When the 97th Congress convenes in three weeks for a lameduck session, there will be indications of what many of the lawmakers will do when they meet as the 98th. It is probable that the pending defense appropriations bill for this year will be trimmed more than Reagan would like. Democrats may also push for their $1 billion jobs program, which seeks to put the unemployed to work rebuilding the nation's highways, bridges and other elements of infrastructure. In order to avoid increasing the deficit, there may be an effort to fund the program with a new gas or energy tax.

If the economy revives, Reagan will have no trouble finding congressional crew members to sail the course with him. But if the recession lingers, the chance of bipartisan cooperation is, though more necessary, less likely. "I don't see a stalemate," says Political Consultant Stuart Spencer of his longtime friend and client. "In the end, Reagan works things out." If there was any mandate at all for Reagan in this election, it was to do just that. --By Walter Isaacson. Reported by Douglas Brew and Evan Thomas/Washington

With reporting by Douglas Brew, Evan Thomas

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