David Stockman: Ben Bernanke Is The Most Dangerous Man In US History
David Stockman, formerly a leading conservative Reaganite, now blames some of the economic program that he once supported for the 2008 meltdown and sluggish recovery. But liberal Democrats who may be excited about a Stockman defection will be sorely disappointed: His critique of the Obama economic program is just as strong as what he says about his erstwhile friends in the Republican Party.
With his new book, The Great Deformation, published today, Stockman positions himself as a whistleblower of the highest order, offering a scathing appraisal of what’s happening in Washington. His history gives the story an unusual perspective. In the late 1970s, as a young Republican congressman from Michigan, Stockman was in a group of politicians, economists, and journalists who championed supply-side economics — the theory that cutting taxes will lead to an economic boom. Ronald Reagan embraced the theory in his 1980 campaign for the presidency, landing Stockman a spot in Reagan’s inner circle of advisers. After Reagan won, he appointed the then-34-year-old Stockman to one of the most influential positions in Washington: director of the Office of Management and Budget. From that position, Stockman led Reagan’s economic program for the next several years. Stockman became an object of controversy in part to the remarkable cover story in the December 1981 issue of The Atlantic, a behind-the-scenes look at the making of budget policy in the capital. “None of us really understands what’s going on with all these numbers,” Stockman told author William Greider.
That article, coupled with Stockman’s break with the supply-siders in the mid-1980s, made him persona non grata with many Reaganites. He later joined Salomon Brothers and the Blackstone Group.
In Sunday’s New York Times, Stockman wrote an arresting diagnosis of the country’s economic condition: It’s worse than everyone thinks. And he argues that it’s only getting darker. I visited with him to discuss his outlook, the 1981 Atlantic story, and the long journey that brought him to this point. The interview has been condensed and edited.
A couple of months ago, in the State of the Union, President Obama said, “After years of grueling recession, our businesses have created over six million new jobs. We buy more American cars than we have in five years, and less foreign oil than we have in 20. Our housing market is healing, our stock market is rebounding …. We have cleared away the rubble of crisis, and can say with renewed confidence that the state of our union is stronger.” Obviously, you don’t agree with his conclusion.
He’s dreamwalking. I agree with a few of the things he said, particularly getting out of Afghanistan as fast as possible. But in terms of facing down the real domestic issues, I think he missed the boat. He has this idea that’s been peddled to him by his advisers that we’re making great headway on chiseling away at the deficit, but that’s based on a rosy scenario that makes the one we used in 1981 look pale by comparison. If you do an honest projection, the deficit over the next decade will be $15 to $20 trillion. He’s lost.
You and the late Jude Wanniski were some of the original champions of supply-side economics. What would he think about your new book?
He would probably denounce it because what I’m saying is inconsistent with the free lunches and economic magic that is the essence of supply-side.
But aren’t incentives important? Won’t people work harder if they get to keep more of their own money?
Incentives are important. Ultimately, economic growth, wealth, and prosperity come from the supply side of the economy and not the demand. But Jude turned that into something superficial. He argued that Republicans didn’t have to be the party of root canals, warning the public about the dangers of deficit financing, or always saying no. Why don’t we become the Santa Claus Party and give tax cuts to everybody? We’ll win elections and live happily ever after — well,I think that’s just another variation of the Keynesian magic that the state can solve everything. There needs to be discipline. Economic growth, wealth, and prosperity take a lot of effort, sweat, and real-world endeavor over long periods.
The GOP program has the supply-side, low-tax position at its core. If it won’t generate the results they promise, why is it still such a part of the Republican agenda?
Because Republicans claim that we had this great Golden Age in the 1980s, that there was a boom in the 1990s, and that everything was going well during the George W. Bush era until some mysterious comet came in from deep space and caused a meltdown in 2008. My argument is that this was mostly a phony prosperity built on massive additions to public and private debt. That so-called prosperity came from the printing press in the Eccles Building run by Alan Greenspan and Ben Bernanke. The “prosperity” didn’t come from tax cuts made by Republican policy makers.