Paul Solman interviewed David Stockman on the PBS NewsHour broadcast.
We recently interviewed former President Reagan budget director and private equity executive David Stockman about his recent tome, “The Great Deformation.” In it, Stockman argues that the American economic system is broken, corrupted by debt, crony capitalism, and government intervention. He blames the Federal Reserve in particular for keeping interest rates artificially low. As a result, he says, we’re in a speculative bubble that’s bound to burst and cause another economic meltdown. Stockman explains how we can avoid collapse in the following excerpt from the transcript of our full interview.
David Stockman: My prescription is to bench the Open Market Committee in the Fed, get them out of interest rate management, get them out of bond buying, out of the debt market and let’s get the free market back into finance, and let’s get discipline back into Wall Street. Let’s get incumbents out of Washington. The only way you can do that unfortunately is to have long terms [in office] and a limit, one time, [and] you never raise any money, you never go to the PACs.
Paul Solman: PACs?
David Stockman: Political Action Committees. You run for office on public money. No private money, not rich guy, not poor guy, not unions, not corporations — public money. You run once. You serve a six year term. You go back to where you came from. You have a citizen legislature. That is the only way that we’re ever going to get money out of politics.
Paul Solman: Alright, so the Fed goes out of business?
David Stockman: It goes into its original business, which is passive liquidity supply on good collateral from banks that have actual loans to business not government debt. Government debt is nuts.
Paul Solman: You severely restrict what the Fed does, you restrict citizen legislators to six years…
David Stockman: One term, no campaigning, no raising money. The third thing is break up the big banks. If they’re too big to fail they’re too big to exist. Reimpose Glass Steagall. I call it Super Glass Steagall, basically saying a bank can make loans to businesses or local homeowners and take deposits, that’s it. It can’t trade. It can’t own a hedge fund. You can’t have a proprietary desk or a large balance sheet. If it wants to do that then it can call itself a hedge fund, which is what hedge funds do, be out in the free market and without deposit insurance, without access to the Fed window. We need desperately to get this massive, overgrown, bloated, dangerous banking system under control.
Paul Solman: So, what else?
David Stockman: Well, look at it, I’m saying we have to get rid of crony capitalism, which means we get the government out of tax subsidies. We get the government out of energy subsidies, [agricultural] subsidies. We basically get back to a free market system and we maintain that discipline. Next, I say if we want to help people do it through the safety net, we need to have actually a more generous, a more stable and a more adequate safety net for people who cannot pass the means test — whether they’re old, whether they’re poor or whether they have a job and need to supplement what they’re earning under minimum wage.
Paul Solman: So, you don’t want me or you to get generous — or maybe any — Social Security at all?
David Stockman: No, I want to cut you off from Social Security.
Paul Solman: And yourself?
David Stockman: And myself and anyone who has enough assets, or a pension, or other income to have a decent standard of living. So therefore, I say, abolish social insurance. I realize that’s radical.
Paul Solman: I’m glad you realize that!
David Stockman: Of course I realize that. I was down there and fought the wars all those years, but we’re going to get to that point anyway when we get into the 2020s and 2030s and we have this massive retirement generation. We have millions of people who are being driven out of the labor force today. They’re on food stamps. They’re on disability. They’ll never get back in.
The burden of supporting a welfare state is going to be so massive that only those who pass the means test can get it. So, that’s another one. I would get rid of half of these federal agencies we have. Energy Department, Small Business Administration, Labor Department, Commerce Department. They’re all a big waste of money as far as I’m concerned.
We have to focus the limited resources we have on the safety net. That’s what needs to be done. Defense — it’s obscene the size of the defense budget 25 years after the Cold War ended. It is 80 percent bigger in real terms than (President) Eisenhower had in 1960 when he was up against the real industrial state enemy. So, we need to have a massive demobilization of the defense establishment as part of getting back to fiscal balance.
Paul Solman: And as a betting man, and you have been a betting man in your career, what would you say the odds are that anybody is going to adopt your program here in America?
David Stockman: I would say slim to none because the whole system is geared the other way. It’s geared to bailouts, it’s geared to easy money, it’s geared to entitlements for lots of people that don’t need them and [which] we can’t afford. It’s geared to massive intervention in the private market which shouldn’t happen.
So, as long as we are run by a political system that’s based on money, and PACs, and organized special interests, I don’t think the American people can ever reclaim their democracy, and if they can’t reclaim their democracy, and if we can’t reclaim control of the Fed, which is basically a tool of Wall Street, that’s the nub of it, then, I don’t see how any of the items that I’ve mentioned could happen. I mention them only as kind of a standard to show how far we are off in the other direction.
Check back here soon for a response from Nobel Prize winning economist and New York Times columnist Paul Krugman.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions