"We Just Added And Added And Added To The Debt"
WSJ Video: Alan Murray with David Stockman -- Aired September 17, 2010
The Wall Street Journal Big Interview with former Reagan Budget Director David Stockman. To his credit, and though some holdout Keynesians will disagree, Stockman calls for a double dose of austerity -- spending cuts and tax increases.
Stockman's economic contribution during the Reagan years was known as 'trickle-down economics,' and deficits sky rocketed under Reagan, so his track record is not perfect. Still he provides an honest look at our fiscal future as we struggle to deal with as much as $200 trillion in unfunded liabilities.
Excellent clip. Keynesian takedown. Watch at least the first 2 minutes. Stockman starts out hot. Partial transcript included.
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Excerpt
WSJ: [You are] not very sanguine about the economic situation.
Stockman: Well, I think if you look at the fundamentals it's very hard not to be. We went through a thirty or forty year binge where it seems like every time there was a hiccup in the economy we had another stimulus program, we had some more monetary easing --
WSJ: There was a balanced budget --
Stockman: There was one or two years, OK, but the theory, if you go back to the 1960s or 70s, was we would have surpluses or balances [during] most of the time in the good years, and then when we needed to stimulate the economy in a downturn we would do that, but we would balance our affairs over time. We didn't do that. We just added and added and added to the debt. Today we...have $9 trillion worth of federal debt,...but we also have two or three years of absolute gridlock in front of us if the Republicans rout the Congress this fall -- which I think they will. Nothing will be done until 2013, which means that, really, we're not going to get a grip on the federal deficit until Fiscal Year 2014. There's three or four trillion more of debt that's baked in the cake. You add local and state debt, which is public debt, [and] we have $16 trillion of debt baked in the cake -- 100% of GDP. We're in a Greek-scale factual circumstance.
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Edward Harrison writes:
David Stockman was Ronald Reagan’s first Budget Director. He left the political world for things like Private Equity. Lately, he has been making headlines for his statements regarding the economy and fiscal matters. He says "In some ways Herbert Hoover got a bad rap." in this interview with the WSJ’s Alan Murray. Stockman lays out a merciless Austerian view of the economy with a plan for economic recovery and cutting spending, raising taxes, and allowing for years of austerity. It is a good interview, although the part 13 1/2 minutes through on fraud and Stockman’s personally benefiting from cheap money is very awkward. Watch for it.
Now, if Stockman had said "cut spending and cut taxes," for recovery, that might have sounded believable. But he’s not saying that; he’s asking for a double dose of austerity. This doesn’t sound like a recipe for recovery to me – more likely a debt deflationary spiral and GD II. But, hey, it is the road I am saying we may be on soon.
Apparently, Stockman is unfamiliar with the basic economic accounting identities that make plain that cutting spending and raising taxes leads to Depression – not recovery. He seems to understand this when he says “you can’t have growth and deleverage at the same time.” But he needs to go that extra logical step.
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Related reading:
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Sep 20, 2010 at 2:37 PM
Reader Comments (7)
Hat tip to financial armageddon for the transcript...
http://www.nytimes.com/2010/08/01/opinion/01stockman.html?_r=1
http://dailybail.com/home/kotlikoff-us-is-bankrupt-and-we-dont-even-know-it.html
Read this story...
Ireland rescued...in the nick of time...
http://blogs.wsj.com/deals/2010/09/17/elizabeth-warren-why-is-everyone-afraid-of-her/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fdeals%2Ffeed+%28WSJ.com%3A+Deal+Journal+-+WSJ.com%29
Great read...much more detail to the story...
The reality is we need a tax increase, but not where it's being targeted. The 10% of the population that will be affected by the tax increases that are looming can't carry the load. An incremental increase on the earners at or below $75k coupled with a modest decrease in public services is the answer. Only no one has the balls to stand up and say it.
So here is where we are and here is where we'll stay. And considering the "too big to fail" theory, who knows how much longer we can get away with it.
end the wars...
stop the stimulus...
cut the federal government by 10%...
Then we'll look at it again next year and see if we need more cuts...and the answer will be 'yes'...lather, rinse, repeat...