David Stockman: "The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt"
Politicians lie, but the national debt clock always tells the truth. David Stockman interview with the Fiscal Times. Plus a monster anti-Bernanke quote.
Update: Stockman was on 60 Minutes Sunday...
David Stockman, the former budget director during Ronald Reagan’s first term, speaks out on the Obama presidency, the state of the economy, the Bush tax cuts, and what the midterm results might do to the Democratic agenda.
The Bush tax cuts are “unaffordable,’’ he says. Extending them would be a “travesty.” President Obama’s stimulus program was “futile.” Ben S. Bernanke, the Federal Reserve chairman, is undermining the whole economy.
Today, Stockman says,
- “I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.”
Stockman, Reagan’s budget director from 1981 to 1985, initially became famous for his zeal in slashing government spending on almost everything except defense. Less government and lower taxes, he fervently believed, would ultimately mean more prosperity for everyone. But he will be best remembered for confessing, in an interview with William Greider for The Atlantic Monthly, his disillusionment with the “supply-side” economic policies that led to soaring deficits under Reagan. “None of us really understands what’s going on with all these numbers,’’ he declared, along with many other criticisms that nearly got him fired.
The Fiscal Times (TFT): What should the president and Congress do about the Bush tax cuts this year?
David Stockman (DS):
- The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt. The Republicans were utterly untruthful when they recently pledged no tax increases for anyone, anytime, ever. The Democrats are just as bad — running their usual campaign of political terror on social security and other entitlements while loudly exempting all except the top 2 percent of taxpayers from paying more for the massively underfunded government they insist we need.
- In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion, which represented a 3.6X leverage ratio against national income or GDP.
The fact is, the Bush tax cuts were unaffordable when enacted a decade ago. Now, two unfinanced wars later, and after a massive Wall Street bailout and trillion-dollar stimulus spending spree, it is nothing less than a fiscal travesty to continue adding $300 billion per year to the national debt. This is especially true since these tax cuts go to the top 50 percent of households, which can get by, if need be, with the surfeit of consumption goods they accumulated during the bubble years. So Congress should allow the Bush tax cuts to expire for everyone. By doing nothing, the government would be committing its first act of fiscal truth-telling in decades.
TFT: Should the government provide more stimulus for the economy, or cut spending to bring the deficit down?
DS: We are not in a conventional business cycle recovery, so stimulus is futile and just adds needlessly to the $9 trillion of Treasury paper already floating dangerously around world financial markets. Instead, after 40 years of profligate accumulation of public and private debt, and reckless money-printing by the Fed, we had an economic crash landing, which left us with an enduring structural breakdown, not just a cyclical downturn.
- The only solution is a long period of debt deflation, downsizing and economic rehabilitation, including a sustained downshift in consumption and corresponding rise in national savings.
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