David Stockman is a national treasure. Now 73, he was once the wunderkind of American politics, first as a young congressman from Michigan, representing the fourth district in the heart of the state, and then as Ronald Reagan’s first director of the Office of Management and Budget. He was all of 34 years old back then.
His mission for Reagan was to somehow increase defense spending, cut taxes, and balance the federal budget at the same time. A quick study, and an attendee of the Harvard Divinity School, Stockman latched on to the then trendy economic idea of supply-side economics—the convoluted notion that by cutting taxes, individuals would have more money to spend on goods and services, spurring companies to hire more workers, build more factories, sell more things, and make the economy hum. It didn’t work then, and the Trumpian version—slashing the corporate tax rate to 21% from 35% as part of the 2018 tax law—hasn’t worked now.
I’ve written about Stockman before. Once in 2010, in the New York Times, where he advocated for higher taxes despite remaining a Republican, and once in 2013, a profile in Bloomberg Businessweek, following the publication of The Great Deformation, his best-selling tome about the 2008 financial crisis and its consequences. In the Businessweek piece he told me about his “road to Damascus” conversion from a supply-side economics proselytizer to a debt and deficit apostate. He’s become one of the most rational—and yet outspoken—critics of Donald Trump and his dystopian level of economic mismanagement that has resulted in a federal budget deficit approaching $4 trillion and a national debt of $26.6 trillion.
In four posts to his Contra Corner blog, written during August and September, Stockman warned us, repeatedly, about the disastrous consequences of what he called the coming “Fiscal Armageddon.” He’s predicted severe economic troubles before, of course. And some people—particularly Paul Krugman, the Nobel Prize–winning economist and longtime New York Times columnist—regard him as similar to a broken clock, which is right twice a day.
Not me. I find Stockman’s repeated cris de coeur to be smart, thoughtful, and always timely—and therefore worth highlighting and taking to heart. When one of the smartest guys in any room sounds the alarm, it’s time to listen.
In the first epistle, on August 3, Stockman noted how, thanks to the policies of the Federal Reserve, the yield on the 10-year Treasury bond had fallen to 0.52%, the lowest in the history of our republic. “The lowest government bond yield since the founders were making their way to Philadelphia to draft the nation’s constitution juxtaposed with the most recklessly profligate fiscal policy in its entire history,” he wrote. “And, yes, what passes for fiscal policy in the Imperial City today does give the notion of ‘reckless’ an altogether new definition. And it also tells you why the self-proclaimed ‘king of debt’ currently domiciled in the Oval Office will long be known as the father of America’s fiscal demise.” He explained how the U.S. national debt as a percentage of GDP had gone from 28.9% in the fourth quarter of 1980 to, 40 years later,147.6% of GDP in the second quarter of 2020. He blamed Republicans for the fiscal irresponsibility. “The army of fiscal flakes and careerist pols who dominate today’s GOP” would like us to think the Democrats are to blame, he wrote, “but the figures do not lie”—some 84% of the gain is attributable to the Republicans; only 16% to the Democrats.
While the debt-to-GDP ratio has been ratcheting up for decades, Stockman continued, “the Donald has literally turned on the after-burners” since he took over. He blamed the increase in national debt—which Trump pledged to eliminate during the 2016 campaign and pledged to reduce in his rolled-over convention platform—on Trump’s “insane increases” in defense spending, which are his “pride and joy,” accompanied by $100 billion in “pork barrel” spending that he “gladly threw in the hopper” to get the defense spending he wanted. (It’s worth recalling that on Monday, Trump criticized the Pentagon leaders for wanting to feed the military-industrial complex when it was he who did so, not the military officials.) Stockman, no surprise, is not a fan of Trump’s $1.7 trillion tax cut “based on growth theories that were preposterous on their face.” And of course the recent $3.5 trillion “spending spree (with trillions more coming)” to “counteract the economic devastation of Lockdown Nation was also doubly Donald’s doing: He encouraged nearly every dime of it.”
Stockman is no fan of the Fed either. He disliked quantitative easing during the Ben Bernanke and Janet Yellen years, and he detests the explosion of the Fed’s balance sheet under Jerome Powell. “In a word,” he wrote in the second post, “the radically artificial bond rates that have been generated by massive central bank debt monetization have fostered the foolish belief in the Imperial City that the public debt is benign and that borrowing a trillion dollars at the tippy-top of the business cycle is no sweat at all. In truth, it has led to financial metastasis down below the surface. To wit, America has been eating its seed corn (private savings) to fund the most irresponsible spree of fiscal excess in recorded history.”
In “Lawless Madness on the Potomac, Part 1,” written on September 3, Stockman decried the overheated stock market, which had just had a blowout day, making the value of the U.S. stock market $36.6 trillion, or 187.8% of GDP, and putting it in “virgin territory where it has never gone before.” He wrote that when the inevitable crash comes—perhaps it has already started given the stock market trading in the last two sessions—“it’s likely to implode into the stubby-clutches of Donald Trump, who will go on a heated campaign of rage blaming the Dems, Chicoms”— the Chinese Communist Party—“the Fed, the Swamp and anyone but himself for the calamity that has gestated on the banks of the Potomac during his watch and that of several presidents before.”
He stated that “once the market crashes this time, all bets are off,” and it will make the problems of 2008 look like child’s play. Instead there will be “a decade of turmoil, dislocation, setback and reckoning.” His logic is largely impeccable: “The Fed has already shot its wad and then some”; “the nation’s fiscal accounts are in hideous tatters”; the culture wars have “rendered the nation ungovernable”; the last four years of Washington politics have “called into doubt the very legitimacy of the presidential election process”; and the “Covid-Hysteria” and “Lockdown Nation overkill” have turned an “already weak, hand-to-mouth economy into a struggling cripple, dependent upon massive life-support from Uncle Sam’s bankrupt treasury and the viciously quarreling partisan incompetents who occupy the elected offices on both ends of Pennsylvania Avenue.”
He wrote that, essentially, Washington has devolved into a state of lawlessness. “All regard for the laws of financial discipline, sound money, fiscal rectitude and free market economic governance have been abandoned by the purported” GOP, “paving the way” for the Democrats “to vastly fatten our Federal Leviathan first chance they get.” He also believes that “the Constitution, personal liberty and property rights” have all become “pretty much a dead letter.”
In Stockman’s fourth and final chapter of this, his summer of discontent, written September 4, he decried how Trump “and his minions” were “crowing” about the August unemployment number of “only” 8.4%, calling it “complete, unadulterated BS.” He wrote that the actual unemployment rate was closer to 18.2% given the Labor Department’s reported total weekly unemployment claims of 29.2 million and a workforce of 160.8 million. The White House claim that we’re in a “comeback economy” is also unsupportable by the facts. “The charitable retort would be that they must be smoking something,” he wrote.
“Unfortunately, the current economic and constitutional outlaw resident in the Oval Office doesn’t have a clue as to the fiscal disaster he has mightily helped to bring about,” he wrote. “But in the bye and bye, the history books will surely rue the tenure of the outlaw King of Debt.” There is more of course, and it’s well worth your time and the modest energy requirement to read. The bottom line, the Reagan right-hand man and Republican stalwart laid out to me in an email: “Two decades of monetary excess, soaring public and private debt, rampant Wall Street speculation, unspeakable windfalls to the 1% and free lunch fiscal policy set the table, but it was the Trumpified GOP that unleashed the final bacchanalia. Today’s madcap spending, borrowing, printing and Wall Street gambling will bring down the house, and it will happen because the so-called conservative party betrayed every principle and all common sense.”
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