Stockman: Bush Administration and Paulson Destroyed Last Vestige of Fiscal Responsibility We Had in the Republican Party
As William Cohen noted, David Stockman continues to make the rounds after bucking with the Republicans on tax cuts for the rich last summer.
David Stockman has never been one to shy away from a roaring economic-policy debate. The former boy-wonder budget director in the first Reagan administration and the architect of Reagan’s supply-side economic policies, Stockman has been very busy lately rejecting the tax-cutting recommendations of Republicans in Washington and arguing that we must get our fiscal house in order or watch our way of life continue its decline. As an “imperialist power,” he says, America is in danger of being at “sundown.” Stockman, who turned 64 on Wednesday, has always been ahead of the curve on tax and fiscal issues, and it appears that he is ahead of it again this time, too. Read on...
Stockman continued his media appearances with CNN's Fareed Zakaria and went after the GOP for their single minded devotion to tax cuts.
As Congress prepares to take up extension of the Bush tax cuts during its lame duck session, Republican lawmakers have been unanimous in demanding that the cuts for the richest two percent of Americans be extended, claiming they are necessary for economic growth and that tax cuts (miraculously) pay for themselves.
While independent economists have shown these arguments to be false, today on CNN’s Fareed Zakaria GPS, President Reagan’s former budget director took on his own party for pushing this faulty logic. David Stockman, who led the all-important Office of Management and Budget under Reagan and was a chief architect of his fiscal policy, criticized today’s GOP for misreading Reagan’s legacy by adopting a “theology” of tax cuts. Stockman has spoken out before, but took perhaps his strongest stance yet against his own party today, saying “I’ll never forgive the Bush administration” for “destroying the last vestige of fiscal responsibility that we had in the Republican Party.”
Transcript below the fold.
ZAKARIA: And we are back with David Stockman, Ronald Reagan's Budget Director, the architect of the Reagan tax cuts. We're going to talk about what to do now.
You say the only solution, logically, is you have to cut spending and raise taxes.
STOCKMAN: That's correct.
ZAKARIA: That simply that the hole is too large that you could - you can indulge in the fantasy that you just do one or the other, but part of what you want to do is you really feel very comfortable raising the taxes - raising taxes substantially on the rich because you feel that there has been a real divergence in the fate of - of Americans over the last 25 years.
STOCKMAN: Yes, because this wasn't a real solid, sustainable, productivity, technology-based prosperity. Much of this was a debt- fuelled money - easy money bubble. In fact, it was a serial bubble. First, the dot-com and then the housing and consumer credit and the ATM machine and everybody buying, you know - borrowing from their house in order to buy things they couldn't afford.
So all of this ended up, strangely enough, shifting wealth and income to the very top strata of our society in a way that we've never seen in history. Because it wasn't real, sustainable, mainstream economic growth and prosperity. One number that I think is shocking is that in 1985 the top five percent of households had $8 trillion of net worth. By the peak of this bubble in 2007 they had $40 trillion.
ZAKARIA: So from $8 to $40 trillion.
STOCKMAN: Eight to 40. Five fold in 25 years.
ZAKARIA: And the economy didn't -
STOCKMAN: A $30 trillion gain.
ZAKARIA: Right. And the economy didn't grow five fold.
STOCKMAN: The economy didn't grow five fold, and it was because of the bubble valuations of assets, stocks and bonds and real estate and all of the other speculative classes.
I'm saying that it is now so distorted that to get the economy back to health, we're going to have to reset some basic parameters of our economy, and one of them in this environment would be a higher tax burden on the upper income than a conservative, like myself, would ordinarily advocate.
But right now, this isn't about growth. This isn't about Morning in America in 1980. This is about solvency. This is about cleaning up the mess the morning after from a 30-year binge that wasn't sustainable as we've learned.
ZAKARIA: And one of the problems at the Republican Party, it seems to me, is, as you say, is tax cutting has become a kind of theology and so that when you - when you bring up the fact that if you do extend the Bush tax cuts or if you have further tax cuts, you will lose revenue. People say, no, no, no, that's not how it works. You know, if we cut taxes, we will get more revenue. Reagan did it, and they often point to the Reagan tax cuts.
STOCKMAN: Yes, and, unfortunately, that was one of the unfortunate legacies of the 1980s that I don't think was really intended. After 1985, the Republican Party adopted the idea that the tax cuts had solved the whole problem and that, therefore, in future deficits didn't matter and the tax cuts would always be the solution of first, second, and third resort.
And I think once that got embedded and a whole generation of new Republican congressmen and senators became drilled in that catechism and then became positioned politically on that proposition, it really led the party out into the wilderness.
And then when Dick Cheney, who should have known better, in the 2001 debate, I think it was, about the Bush - first Bush tax cut, it was totally not need. He said, well, Reagan proved that deficits don't matter. Reagan proved nothing of the kind, and, yet, that became the mantra and it just led the Republican Party away from its traditional sound money, you know, fiscal restraint principles that were really the heart of the Republican Party and its job in our system.
The Republican Party's job as the Conservative Party is to be the party that says no, the party of restraint, the party of fiscal responsibility. The others can be the party of, you know, dealing with social issues and so forth, and that's necessary as well. But when you have both parties playing the Santa Claus and you have no one willing to spend political capital on fiscal and financial restraint, we end up with the situation we had by 2008.
ZAKARIA: You're pretty critical of the bailouts themselves. You think that they did a lot of damage. I mean, Warren Buffett said we should thank the United States that it intervened, saved the system, but you are very concerned about it, and I say - and you say this as a Michigan congressman who voted against the Chrysler bailout.
STOCKMAN: The first one in 1979 and I think history proved that that was correct. I am strongly opposed to bailouts, but particularly bailouts of Wall Street. And the idea that Wall - that the government ought to be thanked as Mr. Buffett said last week, for the bailouts as just so much humbug.
The panic that occurred in September, 2008 was not in main street America. It wasn't businesses about ready to close their doors because they didn't have cash to meet payroll. That is all urban legend. It's mythology. The panic that was going on was in the fifth floor of the Treasury Building. It was in the Eccles Building where the Federal Reserve and Bernanke reside, and they created the panic. They stirred up Congress. They were so concerned about where the stock price of Morgan Stanley and Goldman was that they didn't look at the bigger picture.
If a couple more banks had gone under, they would have gone under. If the Golden stock had gone down to $10 and stayed there for a couple of years, it wouldn't have been the end of the world. But when we did that, that was the waterloo for fiscal policy because how can you ever tell a congressman from Alabama to cut cotton subsidies after you have bailed out every one of the major banks and not only bailed them out, but within a year they were back to a picture of rosy pink health and paying bonuses which they will this year of $144 billion, nearly the highest in history.
And I'll never forgive the Bush administration and Paulson for basically destroying the last vestige of fiscal responsibility that we had in the Republican Party. After that, I don't know how we ever make the tough choices.
ZAKARIA: David Stockman, pleasure to have you on.
STOCKMAN: Thank you.
ZAKARIA: We will be back.