Economics Explored host Gene Tunny speaks with David Stockman, who was President Reagan’s first director of the Office of Management and Budget. Stockman discusses his new book, “Trump’s War on Capitalism,” and shares his frank and fearless commentary on the former president’s economic policies. In his foreword to the book, Robert F. Kennedy Jr wrote, “Stockman has become one of the nation’s most steadfast and eloquent crusaders against the corrupt merger of state and corporate power.”
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What’s covered in EP224
- Trump and capitalism. (0:04)
- Trump’s fiscal and monetary policies. (4:41)
- Government spending and lockdowns during the Trump presidency. (10:04)
- Trump’s handling of the COVID-19 pandemic and its economic impact. (15:06)
- COVID-19 response and blame game. (20:05)
- US economy under Trump, job growth, and performance. (25:51)
- Economic growth and tax cuts during Trump’s administration. (30:10)
- Monetary policy and inflation during Trump’s presidency. (36:26)
- Corruption in US government and military spending. (41:56)
- Alan Greenspan’s legacy and economic challenges. (49:54)
Takeaways
- David Stockman argues that while Trump portrayed himself as a capitalist, his fiscal and monetary policies like large tax cuts, increased spending and pressure on the Fed to keep rates low were reckless and a threat to capitalism.
- According to Stockman, the data shows the US economy was not in its strongest position ever pre-COVID, as Trump claimed, with key metrics like GDP growth, job growth and investment lower under Trump compared with some previous presidents.
- Stockman believes Trump bears responsibility for the unprecedented pandemic spending and deficits, as he could have resisted lockdowns but instead endorsed huge stimulus packages.
- Stockman views Trump as the worst president for sound money policy due to his pressure on the Fed to keep rates low.
Links relevant to the conversation
Amazon page for Trump’s War on Capitalism:
https://www.amazon.com/Trumps-War-Capitalism-David-Stockman/dp/1510779329
William Greider’s famous 1981 Atlantic article “The Education of David Stockman”:https://www.theatlantic.com/magazine/archive/1981/12/the-education-of-david-stockman/305760/
Transcript: Reagan’s Budget Boss David Stockman on Trump’s Economic Policies – EP224
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
David Stockman 00:04
He’s campaigned against the Fed, but he wants an easier fed, okay, I want to read the Wall Street doesn’t like totally different I want a Fed that’s proven that pursues sound money policy Trump wants a fed that prints even more money than the flood we already have.
Gene Tunny 00:28
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny. I’m a professional economist and former Australian Treasury official. The aim of this show is to help you better understand the big economic issues affecting all our lives. We do this by considering the theory evidence and by hearing a wide range of views. I’m delighted that you can join me for this episode, please check out the show notes for relevant information. Now on to the show. Hello, thanks for tuning into the show. My guest this episode is David Stockman, who was President Reagan’s first director of the Office of Management and Budget. Prior to the Reagan administration, he had served as a congressman. And after he left the administration, he had a career in private equity in business. David has a new book out titled Trump’s war on capitalism, and I was delighted to speak with him about it. David is a frank and fearless commentator, and I was never left wondering what he really thought about the former President’s economic policies. Indeed, David has a long history of Frank commentary. He first became famous for some frank remarks he made in 1981, to journalist William Greider about the Reagan administration’s budget strategy is also tangled with Paul Krugman, among other prominent commentators in the US. I really enjoyed this conversation with David and I hope you do too. Regardless of whether you agree with him or not, I think you have to respect his ability to argue his points. And he will demonstrates that ability in this conversation. I get the sense he is incredibly resilient as he’s copped a lot of criticism over the years, he’s had to make a multimillion dollar legal settlement with the SEC. He’s even a defender of criminal charges, they did end up being dropped by the SEC, I should note, all of this is to say that he’s had a very interesting career and life experience. And he’s someone worth hearing from, in my view. Now, David expresses some very thought provoking views in this episode, and I expect you’ll have some thoughts on what he says and you may have some thoughts on some of the things I say. So please get in touch and let me know your own thoughts. My contact details are in the show notes as our links related to the book and about David Righto. We’d better go into the episode. I hope you enjoy my conversation with David Stockman about Trump’s war on capitalism. David Stockman thanks for joining me on the programme.
David Stockman 02:46
Very happy to be with you got a lot to talk about here, I think. Absolutely.
Gene Tunny 02:50
Well, you’ve written a very provocative book a very, very in depth book looking at the policies of the former President Donald Trump and prospects for a new term if the minute is looking very possible that Donald Trump could be in the White House again next year. So your book is called Trump’s war on capitalism. Now, this is, this is interesting because too many of us, Donald Trump is the exemplar of the American capitalist. And yet you argue that he is undertaking a war on capitalism. And even more strongly, well, strongly. You argue that is a clear and present danger to capitalist prosperity. Could you explain David, how do you how can we reconcile these things? I mean, Donald Trump does seem to be the exemplar of a capitalist, but yet he’s a threat to capitalism. How do we reconcile these facts?
David Stockman 03:58
Well, those are great questions. I don’t think really, he’s an exemplar of capitalism. And we can get into that. I think he’s an exemplar of getting lucky when the Fed created so much inflation and asset prices and made debt so cheap that if you were a speculator, in New York City, real estate or elsewhere, you possibly made a lot of book, wealth, but I don’t think it was capitalist genius behind it. That’s the first point. The second point is that his policies were really almost anti capitalist in some common sense notion of conservative economics. To have a healthy capitalist economy. You need three things. One, fiscal rectitude, you can’t be running up the public debt, spending like there’s no tomorrow and having the government grow and mushroom and impinge in every direction on the economy. You can’t have easy money and a central A bank that is flooding the system. With cheap credit and excess liquidity, you can’t have a government that is really anti free market, which is what, you know, trade protectionism is all about. And he’s the biggest protectionist in the White House. You know, since I don’t know Hoover set, and Smoot Hawley in 1931. So all of his policies were really in the wrong direction. Now, I do concede in the book, that the one abiding virtue that Donald Trump has is he’s got all the right enemies, okay. The establishment hates him, The New York Times The Washington Post, CNN, The Washington, what I call you, in a party establishment, the leadership and the long standing careerist of both parties can’t stand him. But basically, it’s because he’s an outsider is because he’s unwilling to conform, and he’s pretty obnoxious, and unpredictable. That’s why they’re against him. The point of the book, though, is none of his power. And his policies were wrong, even if he had the right enemies. And nothing that he did help the economy or addressed, the huge long term problems we have of a runaway public debt of a government is way too big and too costly and too intrusive. And especially at the heart of the matter, a central bank that is out, it’s a rogue Central Bank, it’s out of control. And yet Trump was constantly on their case, demanding even easier money, lower interest rates, even more, you know, of the same that got us into, you know, the huge bubbles and troubles that came from them. So, the point of my book was to say he had a chance he’s got her four year record we can look at it is terrible, it offers nothing in terms of remediation of our great problems and putting us in a different direction for the future. So, you know, don’t waste the opportunity. And you know, that’s about where I come out.
Gene Tunny 07:13
Right. Okay. So you write about what you call the Donald’s reckless fiscal and monetary policy. So we might talk about fiscal first. Now, among other things, you talk about the most grotesque act of fiscal malfeasance in American history. So that was something that Trump was associated with you argue? Are you talking about the the big tax cut the Trump tax cut in 2017? Is that Is that something you see as as reckless,
David Stockman 07:44
and that’s part of it, but I’m looking at the overall picture, and the data, the big top line data on spending and borrowing on the public debt. Now, let’s just take it down to the core metric, which is the public debt. I mean, if you’re running huge deficits and spending, far beyond your willingness or ability to tax, it comes out in the public debt. When Trump became president in round terms, that public debt was about 20 trillion. When he left it was 28. That’s 8 trillion of growth, a trillion of debt, public debt. In four years, you let me ask the question, when did when did we get the first 8 trillion of public debt? And how long did it take us to get there? The answer is in two or three, it took us 216 years 43 presidents to rack up a trillion in debt. He did it in four years. That’s kind of the bottom line. It puts it in perspective, in terms of how big the air was. If we look at other more conventional measures, you get the same picture, the average deficit to GDP and that’s another good ratio, you know, how big is the deficit or surplus relative to the national economy? It will the deficit average two and a half percent of GDP for all the presidents from the early 50s through 2016. The deficit under Trump’s four years average 9% of GDP, almost four times more than it had been the average going back for. If you look at spending, I think that’s important. And again, let’s take the inflation out of the picture and looked at it in inflation adjusted for real terms real spending. Trump average 7% per year during his tenure, for instance, big spending Obama right before him was 2% per year in real terms. Reagan when I was there was 3% per year. In real terms, the average was two and a half. So again, Trump was you know, three times, in some cases four times more In terms of the growth rate of spending then haven’t heard historically. So you know, if when you go through those kinds of measures, and then of course, it all culminated, I just want to put this last point. And in 2020, when he made the huge mistake of shutting down, locking down the economy based on very bad advice from some very bad doctors that worked for the federal government, if he had any principles about, you know, property rights and personal liberty and constitutional due process, he never would have ordered a lockdown to the economy. But in any event, he did that in 2020. And as a result of that, we had just an explosion of spending to bail out the economy that the government had ordered to close. And I’m talking about the 2 trillion worth of stimulus measures that were passed with his urging, you know, with his support in 11 days, I mean, this was an $800 800 page, I mean, Bill that contain 2.2 trillion, where the so called Cares Act, you know, banned unemployment insurance benefits, that checks 200 million households, massive amounts of money to education, health, other institutions. The point is, they passed 2.2 trillion in spending and 11 days, nobody read the 800 pages. And that was just the warm up. He then, you know, insisted on the second stimulus or COVID Relief bill in December that he signed right before he left, that was another 2 trillion. And it paved the way for the last 2 trillion that Biden put on top of it, when he came in, basically to implement an extension of all of the freebies and free stuff and giveaways that Trump had put into place during 2020. Well, the reason I’m dwelling on this is it added up to $6.5 trillion of spending, almost sight unseen in terms of legislative review, and scrutiny, it happened in 12 months, march 2020, to march 2021. And that in itself was equal to 150% of the pre existing budget. In other words, in 12 months, they passed the emergency spending that was 1.5 times bigger than the entire federal budget, defence, Social Security, interest payments, student aid and all the rest of it. This is how far it was out of control. And he was sitting in the Oval Office with a veto pen in his hand, theoretically, but obviously, his stubby little fingers never gotten here, the veto pen, he didn’t veto anywhere in either he waved it on. And so therefore, you have to blame him for the most outrageous edge Regis outbreak of fiscal madness that we’ve ever seen in peacetime or wartime in this country. And when you prove that’s where, you know, that’s where you come out that you know, as his record is undeniable, the facts are all there. Why in the world, the Magga fans and Republicans or the Republican rank and file, want him to have another chance is really beyond me. But I wrote this book test, just in case someone cares about, you know, the reality and about the facts, that if they do put him back in, they’re probably going to put him on the ticket. And if the country puts him back in the Oval Office, there is no, it should be no confusion about what you’re getting, you’re getting a worse, you’re getting a exacerbated case of all the problems that we have already today. Rod,
Gene Tunny 14:05
okay. In terms of that spending, I thought that was interesting. You compare the growth rate of spending under Trump versus other presidents, including Reagan. And I was surprised it was. Yeah, there was that stark difference that’s due to that, that pandemic stimulus is that that, you know, one and a half times the budget that was approved in whatever, 11 days or however many, there was an extraordinary fact you mentioned there. Now, one thing I’d like to ask you about because I’m in Australia, so I’m less familiar with exactly what happened in the States than I am here. I mean, I’ve seen it, you know, I saw all the commentary and but you said that you blame Trump for the lock downs or partly, you blame Trump for the lock downs. i The impression I got was he was king piny against the lock downs. Am I wrong on that? I thought it was done by the states.
David Stockman 15:06
No, but yeah, it’s a great question. But if you go back and look at the calendar, the Tick Tock day by day, week by week, it’s very evident that another reason why Trump is on Fit is that he doesn’t have any principles. He doesn’t have any guiding philosophy, he flies by the seat of his ample britches, and whatever seems to strike is fancy at any moment in time, he goes with me because he’s so damn arrogant, that he doesn’t even begin to understand what he doesn’t know. And basically, when it comes to economics in the world, and governing a $26 trillion economy, he knows very little that maybe he sees basically ignorant. So when when the COVID came along for a few days, he was saying, Well, you know, the flu every year to X number of people, 38,000 50,000 people succumb to the flu one way or another, we’re used to this very, what’s the crisis, six days later, as a result of a lot of pressure that came into the Oval Office led by, you know, his son in law, Jared Kushner, bringing in a couple of scientists who wanted a chance to really exercise some power, I convinced him that it was not only not the flu, but it was something like the Black Plague, and that every all stops had to be pulled out. And that’s on the 16th of March, he gave this speech, you know, two weeks to flatten the curve and turn Dr. Fauci and Dr. Burks and the rest of that crowd of Mal practising doctors loose on the country. And before we know it, the entire economy was on its knees and I got data in the book that lays out how severe this was. Two measures, I think, give you a dramatic a pretty dramatic indication of the hammer that Donald Trump brought down on the US economy and therefore the world economy at the end of the day, on March 16, when he authorised you know, two weeks to flatten the curve and turn the CDC loose on daily economic life. First in the second quarter, when it hit that was ground zero of the lockdown second quarter 2020 GDP in the United States declined at a 34% annualised rate, what does that mean? Well, in the worst recession that we’ve had in the post war period, which is the Great Recession, you know, in 208, the annualised the redonk, fall in GDP was 8% during the worst quarter, okay, the worst quarter was 8%. And in the second quarter of 2020, because of the government ordered lockdown, not some kind of cyclical, you know, tumble of the economy, the government ordered the Trumpler lockdown, GDP declined at a 32% rate just, you know, startling, you know, on precedent. Now, the other measure I use a lot in the book is if you look where it hit the hardest lockdowns, it was obviously in my I call the social interaction venues, restaurants, bars, sports, arenas, gyms, malls and the rest of it. in that arena, that area of the economy in the BLS statistics, Labour department’s statistics is called leisure and hospitality as you know, all those industries are in that grew in April 2020, which is ground zero, the heart of the lockdown hours worked in the leisure and hospitality sectors declined by 56%. Compared to the previous month, half of the employment half of the out and not just headcount answer people but actually hours worked, disappeared. Now how big is a 56% decline in employment in that core sector of the economy? Well, it’s so big that it reduced the actual working level. In other words, the hours work the number of people on the pay pay clock to a level not seen since the spring of 1979. In other words, it rolled back the clock 43 years in terms of the slow and steady and relentless growth that occurred in that sector. Are was wiped out in 30 days and it’s taken years to recover. And we’re still not back to where we were in February 2020. So the lock downs are fading, you know, because as time passes things that seemed pretty bad, right at the moment they were happening suddenly, you know, see maybe not so bad, but the lock downs were dramatic. Yeah, they were, you know, the biggest, you know, Thunderbolts to hit the economy. I think it ever at least in the United States, so, he that was the consequence of Trump. swivelling on a dime from nothing to worry about to the sky is falling. And then And here’s where I really put the pin the tale of the donkey, so to speak. He created this thing called the White House Coronavirus, Task Force. And it met day after day and they had a big press conference. At the end of the day. It was like a reality show from the White House Press Room day after day in which Fauci was up there. Burks was up there, and it Hance Vice President Pence and others. And they just scared the living daylights out of the country, even as all of these orders from the public health departments were being implemented at the urging of the CDC and the White House. So this, this whole lockdown catastrophe, was born, bred and perpetuated from the Oval Office, and I go by the famous aphorism you might not be as an Australian might not be aware of it. But Harry Truman, famous president, you know, at the end of World War after World War Two, and had this had this slogan on his desk that said, the buck stops here. In other words, I am going to take responsibility for what happens? Well, in this case, the buck stops with Trump on the whole disaster of the COVID response to pandemic response to lock downs, the damage that it did to the economy and the costs that were generated in terms of borrowing and deficits and the public debt, you know, all of it, you have to ultimately put on his doorstep. Because if he had stuck to his guns, listen to this, this is unbelievable. If he had stuck to his guns of March 11, when he said, you know, this will be handled in the normal way. We’re used to these, you know, viruses coming along, and we can handle it. If he had stayed with that position. None of this disaster would have happened, right? It wasn’t the virus that caused the economy to plunge into a black hole. It was the lockdowns.
Gene Tunny 23:08
Right, just on the what Trump could have done. I think this is an interesting perspective. And it’s Yeah, I think this is probably this might be the perspective that gets you the most pushback or reaction. I think it’s an interesting proposition. What I’m interested in is whether like, say Trump just said, Okay, we’ll ignore the we think there’s a minor virus. I’m not saying necessarily it is. Let’s say Trump says that. Could he have actually directed the states? Could he have directed? Who was at Andrew Cuomo and Gavin Newsom to open up? Could he have done anything? Did he have the levers to be able to do that? Yes.
David Stockman 23:50
Because they responded, I don’t think they were sitting there in Albany, New York, where Cuomo was where Sacramento and said, hey, you know, this, these reports, we’re getting sound like this is a pretty terrible virus. We’re gonna start systematically closing bars and restaurants and malls. And they were doing that in response to the guidelines, the recommendations, and the pressure from the CDC, which was the federal government, and it was controlled, obviously, by Trump, and the CDC and in turn was responding to the White House Coronavirus Task Force, which was being run by Fauci, which was being run by dance is as delegated by Trump. So it was all coming right out of the oval office there. They wouldn’t. I don’t think and I’ve been in politics since the 1960s in America. So I think maybe my judgement is not totally bad. But I’m absolutely certain that without the imprimatur without the urging without all the hysteria, coming from Fauci in that White House Task Force, these people would have not, they wouldn’t have stuck their neck out and closed down their economy, because every one of them was creating political problems for themselves. It wasn’t you know that this was like some great winning political opportunity. Let’s close down all the gyms and in the state, like they did New Jersey and New York, and let’s shut down the malls and let’s put the restaurants out of business. They’re sitting there saying, Yeah, this would be some real good politics for us and forced that the governors weren’t saying that. They were doing it all ultimately, because they were being pressured. They were being encouraged by the federal government and particularly by the Trump White House.
Gene Tunny 25:51
Okay, we’ll take a short break here for a word from our sponsor.
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Gene Tunny 26:26
Now back to the show. crass now about one of the things that President Trump would claim was that he had the greatest economy ever the economy was in the strongest position ever. And then it was the virus that COVID that came along and, and wrecked everything. But you, you actually question that you don’t think that the US economy was the greatest economy ever pre COVID? What What’s your what is your analysis? Show you there? You haven’t What do you conclude there?
David Stockman 27:00
Yeah, good question. I don’t question it myself. The data proves it. In other words, I just did a lot of research and served up the data that comes out of the statistical mills of the US government. And you can measure it seven different ways. And you get the same answer. But let’s start with real growth. After all, that’s the big, you know, summary metric for economic performance and health. And real growth of the economy was grew at 1.5%. During Trump’s four years, the lowest rate of any presidential term, going back to Harry Truman, again, to 1950, the average over that entire period, no, nine presidents 11 business cycles during that period, recessions and recoveries, we had a couple of wars during that period, we had any number of crises. So in other words, what we’re talking about here is the long term trend performance of the US economy from 1954 to 2016. Right before Trump got in it averaged 3.04% Or double the growth that occurred during the Trump period. So you can on that on that summary, you can’t make that statistic go away. That’s that’s the major the whole ball of wax. And his growth rate was half of the norm. It was a third, basically, of the highest performance with Kennedy Johnson was 5%. It was maybe 40% of what I remember during the Reagan period, when the growth rate was 3.5%. So the idea that he kept Tweety and keeps to this very day complaint, you know, talking about the great Magga economy that he brought the greatest economy ever is totally refuted contradicted by the facts. Now that’s one of them. We can look at job growth. And of course, the answer there is pretty interesting. He’s the only president since Herbert Hoover, in which there was no job growth. You’d never know that from listening to Donald Trump’s boisterous speeches, but the fact is, when he took office in January 2017, there were 145 point 5 million jobs, non farm jobs in the US when he left office in January 2021. There were 142.5 in other words, the job shrunk by 3 million jobs during his term nothing like that ever had before every other president, there’s more jobs than when they start, not because of their virtue. Do necessary or are there policy is because a capitalist economy unless it’s really thwarted, tends to expand and grow and create more jobs. Trump was the exception. Now you can say, Well, again, it was the lock downs, and it was the spring of 1920 20 catastrophe. But even if you take that out of the picture, and you look at Trump and pretend his, his administration handed in February 2020, which is, you know, the month before the COVID, the pandemic hit, he averaged 145,000 new jobs a month, in that period, until the eve of the COVID, or pandemic hit to the economy. Obama had 215,000. So he was a third shorter than Obama. And Obama was considered pretty bad. If you look at overall employment growth, even taking the pandemic period out, the growth rate under Trump was about 1.4%. And it average two and a half percent in the decades and decades before. In finally, I think the, the, you know, the bottom line measure of economic health. And, you know, the this standard of living on Main Street, you know, for the broad middle class is really per capita, GDP, real GDP per capita, if it’s rising, that means the living standards are rising. And if it’s not, you have a problem. But the average again, during the 60 years post war was 2.5%. And during Trump’s period, it was 1%. In other words, the growth rate was, you know, barely two fifths of the normal rate on this basic metric, which is real GDP per capita. So when we can look at other things to the savings rate collapsed during his administration, despite the big tax cut, we haven’t gone into in detail yet. But despite that, investment growth was lower during the Trump period, than in any other administration going back again to 1950. So, you know, when you ask the question, Where’s the proof? Is it in the pudding? The answer is no. There’s there’s no proof whatsoever of his boast. You know, about the greatest economy ever. So what I say in the book, is it wasn’t the greatest economy ever. It was really the greatest con job ever. Right.
Gene Tunny 32:47
Okay. So on the tax cut, you mentioned the tax cut before you mentioned that this didn’t. In your view, it didn’t lead to, you know, a, an economic surge or surge in investment. And can you explain what happened with that tax cut? And where did you where did the money go? You talk about that in the book?
David Stockman 33:10
Sure. Well, if you want to look at the tax cut, you have it was clearly skewed to encouraging reinvestment by business, both corporations and, you know, individual proprietors. That’s why the corporate rate went down from 28 and 21. Why they put in the equivalent 20% deduction for unincorporated businesses. Now in Aw that cost 1.7 trillion over the first 10 years in revenue loss. And that was supposed to then, you know, cause a surge of investment. But if I look at the investment rate, by that I mean, real investment in the business sector, in the five years before the tax cut became effective in 2018. It was actually well higher than the growth rate in the next five years after the tax cut took effect. So if you spend $1.7 trillion that you don’t have, because it was all deficit, finance, they didn’t cut spending to pay for the revenue loss, and you get not no gain at all, but actually a worse trend performance in real terms, inflation adjusted terms, then you have to ask, how could you possibly justify that if you were borrowing money for a huge rate of return? You might argue, well, let’s let’s try that. But if the rate of return is even smaller than what was already built in, it’s dubious now where the money went them because clearly, corporations and individual proprietors paid a lot less in taxes. The answer is into a record surge in stock buybacks, and in corporate m&a deals and in other forms of, you know, leverage recaps and so forth other forms of financial engineering that basically flow money to Wall Street and to the top of the economic ladder, because that’s where all the stock is owned. In other words, 93% of the stock in the United States is probably true in Australia as well, I’m not sure. But 93% is owned by the top 10% of households, and bout 48% is owned by the top 1%. So if you have a huge corporate tax cut 1.7 trillion, that produces no gains in investment and therefore, future growth and job creation, but instead ends up being flushed back into Wall Street, you know, in the form of stock buybacks and other financial engineering, which then flows to the very top of the income scale. You know, you’ve got a double bad, okay, you added to the debt that the whole public is going to be paying service charges interest on forever, and you put the money, you took the money out of the economy and Senate, to the top of to the very wealthy and to the most affluent people next. Oh, sense. Raw.
Gene Tunny 36:27
Okay. I’d like to ask you about a go back to this point you made in the book about the Donald’s reckless fiscal and monetary policies being doubly bad. We’ve talked about the fiscal policies, what were his monetary policy? So monetary policy is handled by the Federal Reserve, isn’t it? What’s what’s, what was Trump’s role there?
David Stockman 36:49
Okay, though, that’s, again, another important topic. As far as I’m concerned, the number one, number two, and number three policy problems in the United States today, and the world is the Fed and the other central banks, they’re out of control, they’re printing presses have been running red hot. For decades and decades, one measure that I think is startling, if you take all the central banks of the world and add their balance sheets together, in 20, in the year 2000, it was 3 trillion. Now, why is it important to take the balance sheets, look, because that’s just a measure of how much money they printed? Okay, you know, when they print money, they buy assets and put it on the balance sheet. That’s a good simple metric to measure how much money they’re printing, it was 3 trillion at the turn of the century is 44 trillion today. All right. So in barely two decades, they have, you know, they’ve just flooded the world financial system, you know, with freshly minted credit, that, you know, ultimately created bubbles and inflation of every time. So the question then is, what about Fed policy? Now, given that backdrop, and my point is yes, in nominally, the Fed is independent, and they make their own decisions. But my quarrel with Trump is twofold. One, he made enormous put enormous public pressure on them, you know, practically week after week, to lower interest rates, and to make money even easier than it already was. So he was making the wrong advice. And secondly, he was doing it at a time in the business cycle, when it was desperately important for monetary policy to be normalised. I never agreed with all the huge money printing that Bernanke undertook in 208209 to 10. But you know, people argued it was an emergency, it was a one time thing, and even Bernanke himself, said in 2011, we’re out of the woods now. And we’re going to normalise the balance sheet, and we’re going to shrink it back to something reasonable, because it was 900 billion when the, you know, great financial crisis started struck the Wall Street meltdown in September 208. And by the peak it was 4.4 trillion. And, you know, everybody agreed that it needed to be normalised and interest rates were being held practically to zero for years and years and years, and I document a lot of this in the book, and that they needed to normalise as well, because when you make money dirt cheap, you’re just inviting speculation on Wall Street and you’re inviting Congress to spend money it doesn’t have because it’s so cheap to borrow down in Washington. So it was time for normalisation the Fed was trying to To do that by slowly raising rates, and by getting out of the Qt business and actually our QE business and actually shrinking its balance sheet they had initiated before Trump got through something called Qt quantitative tightening, and they were slowly trying to shrink the balance sheet back, just like Bernanke had promised they would. And Trump was constantly on their case, not to do either. And as a result of that the Fed just kept interest rates at zero. It kept the balance sheet, massively, bloated, still around $4 trillion. And that paved the way for the huge inflationary mourning after that we had in 2020 2021 and up into the present. So it the timing of the cycles screamed out because we were well into the recovery, the longest recovery in history. It was it screamed out for normalisation get back to something that was sustainable. And Trump was pounding the table, you know, day after day, don’t you dare do it. And even you know, leaking to the press that he was investigating whether he could fire Powell or whether he could, you know, clean house at the Fed and so forth. So therefore, when it comes to something as fundamentally important as sound money, Trump is the worst president and I say this advisedly, that we ever had the very worst, you know, far worse than Jimmy Carter far worse than Lyndon Johnson. Far worse, as far as I’ve studied it, than FDR, he may be even William Jennings Bryan if he had been elected president. So you, that’s another big black mark on the record.
Gene Tunny 41:56
Okay. You don’t blame Richard Nixon for taking us out of Bretton Woods. off the gold standard? Yeah,
David Stockman 42:04
no, I do. Yeah. And I’m I don’t know how I missed that one. But he was he was he was even worse than Richard Nixon and Tim was bad enough. Right.
Gene Tunny 42:14
Okay. Okay. That’s a it’s a Yeah, that’s a lot. I think your discussion of the Fed and fed policies, it’s definitely worth reading. So thanks for that. David. One last thing. In the foreword to the book by you’ve got Robert F. Kennedy, Jr. He says that you’re a crusader against the corrupt merger of state and corporate power in the US. Is that? Is that? Is that how you see yourself? And like, How bad is it in the States? I mean, you’ll see here the talk about the swamp and you hear about the power of lobbyists and all of that, and, and the corruption. I mean, how bad is it, in your view in the US at the moment?
David Stockman 42:59
I think it’s, I think is terrible, because the two worst things we have going are the military industrial complex, this massively bloated defence budget, and the pretentions of Washington that were the hegemony of the world with bases all over, will forever wars all over it interventions everywhere. That is due to the capture of policy by the military industrial complex, that’s corporate power, merging with government power, that’s the first one. The second one is the Fed is a rogue institution that is basically captive of Wall Street. That’s why they keep you know, printing money like they have been doing for decades now. And, you know, that’s exactly what Robert Kennedy is talking about there as well. Total capture of government institutions, in one case, the national security apparatus, in the second case, the basic Central Bank, by private interests, and it leads to some very, very bad outcomes, both domestically and internationally.
Gene Tunny 44:11
Gotcha. These are things that these are things that Trump himself has been campaigning against, hasn’t he or he made he these are things that he uses in his
David Stockman 44:22
arguments. Yes. And no, that is a good point. He’s not campaigning against the Fed. He’s campaigned against the Fed, but he wants an easier fit, okay. I want to send a Wall Street doesn’t like it’s totally different. I want a Fed that’s proven that pursues sound money, but obviously Trump wants a fed that prints even more money than the flood we already have. When it comes to defence is weird. He talks about America First he talks about, you know, NATO should pay its fair share of the tab and all that. But when he got in, he inherited a defence budget of 600 billion which was already way too big bloated, beyond anywhere. Rational need, and he took it up date other than 50 billion. In other words, he never saw a request from the defence department from, from the generals for money that he didn’t like that he wasn’t ready to embrace lock, stock and barrel. Now, why was that? Well, because Trump fancies himself as the greatest negotiator to ever come down the pike. I guess he learned that in the Queen’s as a real estate developer in his early life. And if he hasn’t, you know, an $850 billion defence budget behind him, even if it’s a big waste unnecessary. He thinks he’s accomplished something. But he’s so wrong. Because when you give the defence department and national security apparatus and all those agencies, all that money, they use it to buy political support. That’s right. You know, they use it, basically to perpetuate their missions, their manpower, their budget levels, and so forth. So, you know, Trump isn’t very smart. To tell you the truth, when it comes to how the world works. You know, he may have been a street smart gambler from Queens and got lucky in the real estate business. But he’s never studied. He’s lazy. He’s uninformed. He’s impetuous. He’s fairly dangerous.
Gene Tunny 46:27
Okay. Brought up Wow, man, this is, yeah, it’s been a real. A really great conversation, David, and very, very forthright. And I expect you’ll get a lot of reactions to your book for sure. I suppose one thing I’d like to ask before I leave. So you’re someone that you’ve, you’ve worked, you’ve been in Congress, you’ve been a representative, and you’ve also you’re a director of the Office of Management and Budget, management and budget in the Reagan administration. Correct. What was what was that? Like? I mean, what I mean, that’s, that’s a celebrated administration. I mean, obviously, one of your most distinguished or famous presidents and, you know, lots of really good people in that administration. What was it like on the ground working in it? Well,
David Stockman 47:18
it was a pretty exciting time, at least an effort was made to try to contain the behemoth that it build up on the banks of the Potomac. And it’s interesting to note that when Reagan was sworn in, in January 1981, I became budget director, the first thing we had to do, because we inherited this mess from Jimmy Carter, was to raise the national debt limit above a trillion dollars for the first time, we didn’t have any choice. But where are we today? Go public debt is 34 trillion. And we were struggling with one and we thought, you know, it was a world was going to come to an end. That’s how far things have drifted. Now, of course, the economy is three times bigger, but the public debt is 34 times bigger. So you know, it’s. And then during that period, we had our ups and downs. But at the end of the day, only some minor progress was made in shrinking the size of the federal budget, we cut taxes deeply. We were going to cut spending to match the tax cuts, the spending cuts didn’t happen, because the Republicans really, were not willing to walk the plank in Congress. And because defence spending, got totally out of control and ate up all the savings that we were getting domestically. So essentially, the fiscal calamity that the country is struggling with still today, and the Trump made infinitely worse, originated in the early 1980s, not by purpose, not by intention. But, you know, by the result of the political and policy battles that occurred in the Reagan era, but the one thing that was different is we had Volcker as chairman of the Fed. Volker was the last of the sound money Fed chairman. And he said, You know, I’m not going to finance the federal deficit. You guys want to run up the ready, then you’re going to fund it honestly, in the bond pits, interest rates are going to go up and it’ll be on your watch. And so he did bring inflation to heal, but he was the last of them and in fact, he was so unpopular with the Republican politicians who ran Reagan You know, by the end Reagan wasn’t with it that much of the last two years. They convinced him to not reappoint Volcker and put it Alan Greenspan instead. And, you know, the rest is history. Greenspan was a disaster.
Gene Tunny 49:53
Yes, I mean, he he certainly is his legacy initially After he retired he was seen as the the maestro, but then the financial crisis and there’s been a big reassessment of Greenspan’s legacy since then for sure, absolutely. I might have to cover that on a future show because it’s Yeah, it is a it’s a you know, there’s a lot of history a lot of to go over there. But then Stockman has been terrific. I really enjoyed talking about your new book. I think it’s an important book. It’s, it’s thought provoking. I expect it will be controversial and will should there should be prominent in the the upcoming debate over the rest of this year. So thanks so much for for participating. I’ll put a link in the show notes to your book. Is there anything you’d like to say to wrap up?
David Stockman 50:47
Well, I think we’ve covered a lot of good ground. But I think the answer is, you know, people really need to look beyond the headlines and what the mainstream media is telling you or what the politicians are boasting about, and get a grasp on the facts because we’ve got some pretty difficult economic times to grapple with as we go forward.
Gene Tunny 51:10
So David Stockman thanks so much for your time, really enjoyed it.
David Stockman 51:14
Very good. Thank you.
Gene Tunny 51:18
rato thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explore.com Or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting outlets you then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.
52:05
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Credits
Thanks to Obsidian Productions for mixing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au. Full transcripts are available a few days after the episode is first published at www.economicsexplored.com. Economics Explored is available via Apple Podcasts, Google Podcast, and other podcasting platforms.
