Contrarian David Stockman: There’s a gallery of economic villains, Franklin Roosevelt, Richard Nixon, Milton Friedman, Arthur Burns, Art Laffer, Lawrence Summers, George W. Bush, John Mack, Henry Paulson, Jr., and Barack Obama. Now let’s look at the gallery of economic heroes, Carter Glass, William McChesney Martin, Dwight Eisenhower, George Humphrey, C. Douglas Dillon, William Simon, Paul Volcker, Bill Clinton, Paul O’Neill and Sheila Bair.


David Stockman’s view [anti-Keynesian]:










Keynesian economists often argue that that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. Keynesian economics advocates a mixed economy – predominantly private sector, but with a role for government intervention during recessions – and in the developed nations served as the standard economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s.   The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought.





Paul Krugman identifies as a Keynesian and a saltwater economist, and he has criticized the freshwater school on macroeconomics. Though he applies New Keynesian theory in some of his work, he has also criticized it for lacking predictive power and for hewing to ideas like the efficient-market hypothesis and rational expectations. Since the 1990s, he has promoted the IS-LM model as invented by John Hicks, pointing out its relative simplicity compared to New Keynesianism and continued currency in practical economic policy.

In the wake of the 2007-2009 financial crisis Krugman has remarked that he is “gravitating towards a KeynesFisherMinsky view of macroeconomics.” Post-Keynesian observers cite commonalities between Krugman’s views and those of the Post-Keynesian school.    In recent academic work, he has collaborated with Gauti Eggertsson on a New Keynesian model of debt-overhang and debt-driven slumps, inspired by the writings of Irving Fisher, Hyman Minsky, and Richard Koo. Their work argues that during a debt-driven slump, the “paradox of toil“, together with the paradox of flexibility, can exacerbate a liquidity trap, reducing demand and employment.










*     David Stockman


STOCKMAN: Well in the great sweep of this book and I’m trying to discuss the last 80 years of fiscal monetary financial history. How we got into the massive bubbles and fiscal and monetary crisis we’re in today. I basically use a standard of three-fold items, free markets, fiscal rectitude, which means balanced budgets and not making excuses for deficits because you think the economy is not performing up to your doctrinaire expectation, and sound money, which is not using the Central Bank in order to try to centrally manage the economy and coddle Wall Street and encourage risk taking and all of that.

LAMB: So those -–

STOCKMAN: So everyone on the, these are not bad people or good people. These are good policies or bad policies embodied in well-known careers. My book is long and the history was convoluted. Not one party or one doctrine caused this whole problem. So I took these individuals as examples of fiscal rectitude. And that’s why Clinton’s on there. That’s why Eisenhower is on there. I have a huge problem with too much defense spending and an aggressive foreign policy. I think the warfare state is a problem. That’s also why Eisenhower is on there.

On the other hand, using government to inflate the economy, to bailout the private sector from its mistakes and so forth is bad, I think. And that’s why Nixon’s on there. That’s why Roosevelt’s on there and frankly that’s why Obama is on there.

LAMB: But you know there’s somebody that is not on either list.

STOCKMAN: Well he kind of fits in the middle.

LAMB: Ronald Reagan.

STOCKMAN: Yes. He fits in the middle.

LAMB: What about George Herbert Walker Bush?

STOCKMAN: You know he did a good thing and a bad thing. I don’t agree with the first Persian Gulf war. It wasn’t our business whether the 49th province of Iraq which was created by the British Foreign Office in 1919 anyway, whether Kuwait was part of it or not. Who cares about the Emirate of Kuwait? It was just as nasty a dictatorship as Hussein, Saddam Hussein.

So we shouldn’t have been in it so I gave him a bad mark for building up the warfare state and creating the monsters of Cheney and all the rest of it that came the next time around with the next Bush. On the other hand, he did try to balance the budget. And he did move his lips, even though he said he wasn’t going to. And I give him credit for that. So therefore it’s a draw. He’s not on either list.

Ronald Reagan, I think, massively made mistakes on defense. The defense budget was not just a waste of money in those eight years, it’s what created the war machine that we’ve used to create so much havoc in the world and create so much, you know, anger and problems throughout the world that were totally unnecessary. That made us an imperial, hubristic imperial power. So that was a real negative.

On the other hand he did, for the first time since Eisenhower, stand up for limiting the state. You know the government, big government, the state is not the solution to every problem. In fact it can weigh down the private economy. And therefore the idea of entrepreneurs, the idea of technological change, the idea that people should make their own decisions without some big nanny in Washington.

He stood for all those things. I agree with those things. And so that puts a plus in his column. And so the negatives, of course fiscally he lost it. He really needed to stand up for closing more of that deficit. The idea that, Ronald Reagan spent a lifetime before 1980, as the greatest scourge opponent of deficit spending there ever was.

And he left a legacy of massive deficits which permitted his followers to say, Reagan proved deficits don’t matter. That was a historical you know, error of enormous proportions. It was an unfortunate, you know, deformed, if I can use that term from my book, legacy of his era. So when I stack it all up, you know, it’s a wash.

LAMB: This book is 743 -–

STOCKMAN: Well that counts the index.

LAMB: It does.

STOCKMAN: You don’t have to read the index.

LAMB: But you didn’t have footnotes.


LAMB: Why not?

STOCKMAN: Because basically almost everything on here is either out of my personal recollection, experience, judgment. Most of this book is about the big picture frameworks, the flow of history. The facts in it are pretty well you know public domain facts. I have a little note in the back about most of these economic numbers are from the National Income and Product Accounts or BLS or Commerce Department, regular statistical publications.

Everybody can Google this today. Anybody that doubts any facts in here. Why mar the text with all these footnotes. I’m not an academic, I’m not trying to prove anything. As I said in the note on sources, this is a polemic. This is a interpretation of how history evolved really from the founding of the Fed in 1914 through the Depression through the Eisenhower Golden Era, as I call it. Through the Reagan errors that occurred and into the bubble finance of Greenspan and then the collapse of 2008 and so forth.

So I think the facts can easily be checked. And the interpretation is an argument that it appears the Keynesians don’t like.

LAMB: I want to ask you about what you did after OMB. But first, you wrote a book, and here you are at the Press Club back in 1986.


UNIDENTIFIED PARTICIPATE: You talk about the loyalty issue. Who’s your loyalty to right now?

STOCKMAN: Well I think I’ve discharged whatever obligations of loyalty I had. You know loyalty, least of all according to your lights, can’t be a blind thing. Loyalty doesn’t require that you rationalize nonsense, that you whitewash deliberately reality. That you justify what you personally feel can’t be defended. And therefore, that’s where I am writing this book. I can’t justify what happened. I can’t rationalize the outcome. So I have to explain it as I see it. And if somebody thinks that that’s disloyal then they’ve got a rather crabbed view of loyalty.


LAMB: What do you think?

STOCKMAN: I think that was a pretty good statement.

LAMB: But go back to that time period. You imply there you were getting beat up by the press. Were you getting beat up by the press and what’d you think of it?

STOCKMAN: No I don’t think I was beat up by the press that much. I mean the book was very controversial and you know there was a lot of negative stuff written. Because remember that was right after Morning in America. Everything was coming up roses. People were under the illusion that the Reagan program was working. And therefore, how could you possibly write a book saying all of these huge mistakes were made? That’s the way I saw it then. That’s the way I see it now. I think history vindicates what I said. The Reagan era was simply a massive deficit stimulus that did boost the economy, bolster the economy for a while. And it left a lot of debt that we’re still dealing with today but worse, an ideological legacy that neutered the Conservative Party. That disabled the Conservative Party from doing it’s job. And this was the great debate by the way that I had with the supply siders.

They said the Conservative Party has to stop being, you know, the party of root canals, of saying no, of dispensing pain. Why don’t we become the party of Santa Clause and give people tax cuts and other kinds of good things? And grow our way out of the spending problem? Well I think that legacy, that debate was one of the bad things that came out of this era. I tried to lay it out in my first book. And I think it’s pretty obvious now. Look at the folly of New Year’s Day this year when both parties extended the Bush tax cuts that we couldn’t afford. And even the Obama White House and the Progressives and all the Liberals who campaigned for 10 years against the Bush tax cuts, now extend them. Four trillion of deficit that our children are going to pay so that people, middle-class people, the top half of the households, the bottom half don’t even pay income taxes. The Progressive half of the population, the polity, could go out and buy some more flat screen TVs or some other consumption expenditure. It doesn’t make sense. But that’s the bad thing that came out of that era that I was trying to call attention to when I wrote the book in ’86.

LAMB: You went on to Wall Street yourself.


LAMB: You worked for Goldman Sachs?

STOCKMAN: No Solomon Brothers.

LAMB: Solomon Brothers. Where is Solomon Brothers today?

STOCKMAN: Well it got ingested into the maw of the great Citibank, Citigroup Super Bank. It was bought by first, Smith Barney and then that was merged into Citibank, remember when they repealed Glass-Steagall in 1999? One of the crucial errors of the modern times. To repeal that, to allow investment banks and trading houses to become part of a commercial bank with deposit insurance. And all the moral hazard of that.

And the Fed window bring, terrible error. But that’s where Solomon Brothers eventually ended. But it was the original big time trading house that came out of the era of easy money and floating currencies around the world that Nixon initiated in 1971 at Camp David. Which is another whole part of the story.

LAMB: You went to work for Blackstone?


LAMB: What is that?

STOCKMAN: It’s a, it’s the biggest private equity house in the world. It was just being founded then. I was in the leveraged buyout business from 1988 through 2005. So I was caught up in the bubble like everyone else. And as long as Greenspan was printing money and making Wall Street boom and debt was there for the taking, a whole business developed of going out, buying companies, stripping out, loading them up with debt, stripping out the cash, paying the interest, eventually reselling them on the public market as an IPO or to the next guy who thought he could do better. Take the capital gain and move along.

Now there’s nothing wrong with private equity if you have an honest market where debt isn’t unduly cheap and a level tax playing field where debt and equity are treated by the tax code the same. But what evolved in the ’80s and ’90s was the easy money policy of the Fed made debt dirt cheap. And then that dirt cheap debt was deductible. And so therefore you could load up these companies with too much debt and then when you sold them, you would take the capital gain and only pay 15 percent.

It was the biggest way to launder ill-gotten gain. And it’s the government’s policy. It wasn’t something nefarious that people did. So I was in that business caught up doing it. And I finally had some companies that blew up. I had some serious issues that I had to deal with after those bankruptcies.

And in the wake of that I began to realize, how in the world did this happen in the first place? Why did I believe that you could put five or six times leverage on companies in the auto business for instance? Which is violently cyclical. So it made me realize that bad policy causes good people, or just everyday guys trying to earn a living, whether or they’re on Wall Street or a hedge fund or a buyout fund, to really do counterproductive things.

But I don’t want to regulate them. I want to remove the incentive for all of this debt and all of this speculation and all of this leverage and you can only do it if you get an honest Central Bank that is not basically in thrall to Wall Street, which is what we have today. And we have, as a result, a Central Bank, that’s basically a serial bubble creator.

It’s not helping the Main Street economy. It’s not raising the living standard of the American people. It is simply creating bubble after bubble, serial bubble. With the one percent make a huge windfall off of them and everyone else suffers the periodic consequence when we have a crash.

LAMB: On your personal life, when did you meet your wife?

STOCKMAN: In Washington, while I was in Congress.

LAMB: What was she doing?

STOCKMAN: She was working for IBM. And actually we met because I needed to buy a computer for my office, 1977; I was a young, eager beaver Congressman. Wanted to be progressive and advanced, be the first Congressman with a computer in my office.

LAMB: We have a picture of the two of you at a dinner, I assume up in New York, we’re going to put on the screen. She’s all involved in -– that is your wife I assume?

STOCKMAN: Yes, yes.

LAMB: You looked startled there for a minute.

STOCKMAN: No I was looking at the wrong screen.

LAMB: And we have another picture of her here where she’s by herself. I don’t know where that event is. But it looks like that she’s right in the middle of social New York. Is she still President or Chairman of the Guggenheim Foundation?

STOCKMAN: Yes she’s President of the Guggenheim Museum. I’m very proud of her and the work that she’s done there. You know, art has got a financial aspect, but it also has a cultural and an aesthetic aspect. And that’s why she’s in it. She’s an avid collector. She knows the artists. She knows the galleries. She knows the people involved in this world. It’s a very fascinating, it’s an intellectually based world.

Now there’s also all the bubble aspects of it and the high prices and the auctions. But that’s not the totality of it.

LAMB: You dedicate this book ”to my daughters, Rachel and Victoria, who’s future inspired me to write this book and my wife, Jennifer, who patience and loving support, enabled me to complete it.” Tell us about Rachel and Victoria and why did they inspire you?

STOCKMAN: Well they’re our two daughters. They’re in the middle now of launching very budding careers and we’re quite proud of them. Rachel is actually a journalist, she’s in your business. Went to one of the great journalism schools at Northwestern, the Dill School. She’s moved through the ranks, Green Bay, Phoenix, now at a big station in Atlanta. So very inquisitive, really interested in journalism, in law, in covering constitutional issues. So you know, she’s terrific. I’m very proud of her.

And Victoria is a budding scientist and she’s just been accepted to the PhD program in neuroscience at Columbia and will be spending a lot of years working on her research and degree. And really wants to make a contribution in the field of science.

So we couldn’t be more proud or pleased with the way our two daughters have pursued their own, very different kinds of careers.

LAMB: This book is published by the Public Affairs Book Publisher which is known for not paying high advances. In other words, you got to make it on your own. I assume that this is not a, because of that, do you expect to make a lot of money on this?

STOCKMAN: That wasn’t the purpose OK? If you’re expecting to make a lot of money, I would say, don’t be an author. You know, there’s some more -–

LAMB: When did you start this? When did you start thinking about -–

STOCKMAN: I started thinking about this when I was really so put off, even, I would say close to outraged when the TARP bailout occurred. And when the Bush White House totally collapsed and essentially allowed a coup d’etat to take control of the government led by Wall Street, Hank Paulson, all those Goldman-ites running around the Treasury building.

That offended me deeply because it was a total betrayal of everything that free market conservative people had been trying to do ever since the Great Depression, the New Deal, for crying out loud. And how in a moment of, a spasm of panic, that couldn’t be justified. I got chapter after chapter in there that shows all the urban legends and basically the lies that Bernanke and Paulson told the exaggerations, and the horror stories that weren’t real.

Like Great Depression 2.0 was around the corner. That’s the economic equivalent of WMD. There never were any. It wasn’t going to happen. It wasn’t a prospect, it was simply a rationalization for the crazy bailout things they were doing to stop the hissy fit on Wall Street. Because they weren’t willing to allow Wall Street to take it’s medicine. And I think it should have.

So that really mobilized me. And I got to work after that. Spent a lot of time re, reviving my history. I’ve been kind of a buff of monetary fiscal history ever since I was in graduate school. And then outlining this story. It started really as mainly a polemic against the bailouts. But as I got into and asked, how did the whole government get buffaloed?

I mean how did Bush sit there in the White House clueless and -–

LAMB: How did he?

STOCKMAN: That’s the question that I had to deal with and I began to realize that the seeds had been planted deeply over many years and many bubble episodes. In 2001, why did they panic when the crashed? The economy was in fine shape. The recession of 2001-2002 was minor. You have to have that in a capitalist economy every now and then to wash out all the excess.

And yet they panicked, Greenspan cut the interest rate to zero. Started the housing bubble and then you got to 2007, 2008. So then I went back to 1998 and the bailout of long-term capital. Then I went back to 1994 and the bailout of Citibank and the rest of them. So my point was, I began to work my way back into the roots and through different periods of the Fed and Congress and different administrations. Until I got myself back to 1914 and the founding of the Fed.

And the reason I did it was not simply as a matter of economic archeology, but also because I believe the partisans today, with the crisis that we have, have mythologized enormously golden eras that didn’t exist. Keynesian economics in the New Deal first was not implemented. And second, it didn’t end the Great Depression. Reagonomics in the 1980s wasn’t the greatest thing since sliced bread. It did not create the great boom of the ’90s and 2000. Money printing by the Fed did, in my judgment.

So part of the book is basically designed to demystify the legends of both the left and the right and try to get at the truth.

LAMB: Let me go to though something that seems to keep happening all through the years. Politicians are elected, Presidents, members of Congress, stand up and say, this is the way it is. But we learn for instance, when you were saying this is the way it is, you were telling Bill Greider the other side of the story. And so many people wait until they’re out of office to say, I didn’t really mean it then. I just had to say this because that’s what we were doing as an administration.

I mean when are we going to get, from your perspective now, the truth? Do we have to wait until people get out of office?

STOCKMAN: Well it’s always a dilemma because when you’re in office, and I was in the middle of that, first of all, as I tried to explain before, I wasn’t telling Bill Greider I didn’t believe in what we were doing. I was saying that problems are developing, balancing all these elements is going to be difficult.

But then as I realized how off course we were, you always have the belief that if you just dig away at it, pretty soon everybody else is going to see the light. Pretty soon the decision makers, in this case the President, will come around. And you’ll correct the problem. And that’s the better thing to do because you are invested with all the knowledge and the to and fro of what went on that led to the mistake. Now the point is, after a decent interval, a sufficient period of time, when it should be obvious to a rational person that you’re not going to turn this around. You’re not going to correct the error. That the decision makers are not listening. Then you have an obligation to stand up, leave, and you know, resign, and tell the truth. Now I resigned in 1985 because I kept trying and we did have a tax increase in ’82. You had another one in’83. You had another one in ’84. We did make some headway. But then when Reagan won the election overwhelmingly and all the Reaganites with their Adam Smith ties, the Meese wing, all those California right wingers, came in and said no more talk of raising taxes. The deficit will take care of itself. We won the election. It’s morning again in American and all that stuff. I said, that’s it for me. I did the best I could for one more budget cycle, got out of there.

LAMB: If you had to run today, what label would you put on yourself?

STOCKMAN: There is a, I wouldn’t run in either party. I’ve said, and I believe, that both parties today have totally failed. They’re corrupt. They’re essentially glorified concierges who introduce politicians to the money, the PACs and K Street, so they can get re-elected and stand for nothing. When a Republican party bails out Wall Street or General Motors, it stands for nothing. When a Republican party says deficits don’t matter, it stands for nothing. When a Republican party appoints a Greenspan and a Bernanke and all the rest of them to the Fed, who print money like there’s no tomorrow, it has no principles.

So why do we need a Republican party -–

LAMB: Could you be a Democrat?

STOCKMAN: No. Couldn’t possibly be a Democrat because at least they admit they’re for big government. And I’m totally against it.

LAMB: You were criticized over the years, the last couple years, for not dealing with your own failure with the companies that you were running. But in this book it’s buried. I’m not accusing you of burying it, but it’s in the Willard M. Romney chapter, about five pages, where you deal with the whole business of Collins & Aikman. And I’ll read a little bit, ”I was afforded exactly that experience in the spring of 2005 when the largest LBO, limited buyout, in my equity fund, blew up in bankruptcy. And not just an ordinary one, the company Collins & Aikman was a supplier to Detroit of the automotive interior components such as instrument panels -–” Rather than me read it, why did you put this in here and were you stung by the criticism that you didn’t, over the years.

STOCKMAN: No the reason I put it in there. And I think the part you didn’t read, the preface is, I go through the Willard M. Romney and the Truman Show of bubble finance. In other words, I was trying to make the point that even Romney who was involved in LBOs from 1984 to 1999, didn’t realize that he was fortunate and had all these successes because Greenspan was inflating this massive bubble in the stock market that made it possible to buy something cheap, two years later flip it out in an IPO and take home a killing. Now I accused him of being therefore, the wrong candidate in 2012, being clueless about how he made his money and that it wasn’t a sound basis to run an economy. That he wasn’t a job creator, he was simply a cash stripper. Then I took myself on, and I said, I was in the bubble too. I was doing all this stuff. And I talk about all that. For years, until finally when Collins & Aikman blew up and I was sort of sprawled out on the street below and I had to think how all of this happened. And think about the dangers of the kind of bubble finance debt-ridden -–

LAMB: You were indicted.

STOCKMAN: Yeah but they dropped the case because, you know, there was a nole prosequi which means we made a mistake. They don’t send you a note of apology, but you know there was some young prosecutor who didn’t understand accounting. They dropped the case and you know, it’s one of those things that happens in a bankruptcy.

LAMB: Why did you have to pay $7 million in nuisance money you said?

STOCKMAN: It was mostly nuisance money because whenever you get the Justice Department after you or the SEC, the private bar piles on with all these class actions suits. And that’s essentially where all this settlement money came from. You know, I can either spend the next three or four years, contesting all these class actions suits that were piggy backed on top of the government case, or settle them. And so I settled them. And then the SEC claimed credit for the settlement.

LAMB: How much did it cost you for your legal business? Defending all of this?

STOCKMAN: I mean it was just incredible. It’s one of the things that’s wrong with the current system. Not only me, but there were four other people who worked for me at the company, totally innocent people doing their job, head down every day. We had this company way over levered and were bailing and bailing and bailing to try to keep it stable. But we couldn’t. Four of them got indicted and you know their lives were ruined. They were bankrupted by it. And then the government drops the case against me and says, oh we made a mistake. You’re not indicted now, you’re unindicted. And four other guys pled guilty because they were coerced and browbeat into it by the government. And they had their guilty pleas withdrawn. Why? Because the government said, oh there wasn’t a crime, so I guess you confessed to something that didn’t happen. Now it took $100 million for all of those people and the whole process to finally bring some nuisance money to the class action bar and some justice. I can handle myself. But some justice to these innocent men and women, men actually in this case, who were indicted or coerced by the government into a guilty plea. When by it’s own action it withdrew it’s indictment, nole prosequi.

LAMB: Where are those people today?

STOCKMAN: They’re out there -–

LAMB: Are they still broke?

STOCKMAN: Yeah they probably are. I mean once, you know, it’s pretty easy for me to explain myself. I get a forum here and there. Once you get indicted or you plead guilty to a crime, no one remembers that you had it withdrawn because the government decided that they made a mistake. This was a huge mistake. So the attorney who brings this, somebody who had been prosecuting drugs and gangs, didn’t know the difference between gap which is accounting and rap which is what she was dealing with in these gangs on the street. And she ruined the lives of all these people. Before she ever brought the case, she quit, goes hangs out her shingle at a big time Wall Street law firm and now makes a huge amount of money working for the other side. It’s really despicable.

LAMB: How, how are you financially at this stage in your life? Are you whole? You live in Greenwich, Connecticut which is a nice place.

STOCKMAN: Yeah, well you know. I think at this point, I was very fortunate over a long career. But I’m not sort of in the money-making business now. I’m trying to assess a pretty unique career. Forty years, half in Washington, half on Wall Street. I think I understand finance. I think I understand what goes on in the interstices of the system in Wall Street. Plus I had long, long experience at the top level in the fiscal monetary Washington process. So putting the two together, I think is pretty unique. And therefore I had something to contribute.

LAMB: You were 34 when you were OMB Director. You’re 67 now?


LAMB: 66? Soon to be 67.

STOCKMAN: For the moment, yeah.

LAMB: But what do you do for the rest of your life if you’re out of this business of running companies? Do you still have funds that you’re working with?

STOCKMAN: I mean I have investments and I’m trying to stay out of the market because I think it’s totally unsafe for men, women and children and even the robots that trade on the Street. But you know, there’s a lively debate going on in the country. I think I’ve kicked some of it off with articles I’ve been writing over the years. This book certainly will add to it. The Keynesians are going nuts. I’m making a pretty strong, detailed, in depth, historical statement that the current wisdom, you know, this recentcy bias that is extent in current policy, is wrong. And there’s a lot of people who love the status quo because it’s either their brainchild or they benefit from it. And I think the status quo is very dangerous and I’m trying to give them reasons why.

LAMB: We only have a minute. Were you a crony capitalist?

STOCKMAN: I guess you could say that. I was in the bubble. That’s why I wrote what I did. I was an unwitting crony capitalist in this sense, that if debt hadn’t been deductible, if the madness of the Greenspan Fed hadn’t been happening, at Blackstone and then my own firm, we never would have borrowed nearly as much money as we did. The leveraged buyout business wouldn’t have been anywhere near it’s current size. There would be some leveraged buyouts because it can work well for some companies that need to be shaken up. So yes, I’m a, I guess a lapsed crony capitalist.

LAMB: The name of the book is ”The Great Deformation.” The subtitle is ”The Corruption of Capitalism in America.” And our guest has been David A. Stockman, and we thank you.

STOCKMAN: Thank you.



BRIAN LAMB: David Stockman, author of the book, ”The Great Deformation.” What is the residual for you from 1981 when you were Budget Director for Ronald Reagan?

DAVID STOCKMAN: I think the lesson was that the machinery of governance in the United States is pretty brittle. And if mistakes are made, and clearly we made a huge mistake when the tax cut got, double the size we originally intended, people forget that. But that was true. But once it got put into law and then people began to take partisan positions and Republicans took everlasting credit for it. The deficit widened and it became almost impossible to reassemble a coalition to undo the damage that had been done or the harm that might occur down the road. And we did, you know, several times have small tax increases that closed some of the gap. But what I learned is that if big mistakes are made in this Madisonian Democracy that we have, with divided powers and all the vetoes and checks and balances then it’s very dangerous. So that’s why it’s so, the lesson is so apropos to today. Because

after 30, 40 years of this, we’ve created a massive Keynesian State as I call it, dedicated to constantly medicating and stimulating and boosting and propping the economy. As a result of that, we have a trillion dollar deficit, both sides are dug in.

Everybody knows this can’t last. It’s dangerous to keep, you know, rolling down the road. And yet the system has a serious inability to make compromise. To find packages that, you know, you can assemble a governing majority. So it was a very limited scope issue in 1981 to ’85, when I was there. But writ large, the lesson from that time is what the clear and present danger is today. Our fiscal process is paralyzed, dysfunctional, broken. And that’s why I called the budget a Doomsday Machine, something that’s going to roll on and no one can seem to stop it.

LAMB: 34 years old though. OMB Director. Is there a personal residual where somebody today still doesn’t like you from what happened back then?

STOCKMAN: Well you know I’m sure there are. Because it’s the one job in budget that should have a hat sitting along the desk that says ”Mr. No.” I mean there is no other place in our government where the buck stops. Where choices have to be made and pain dispensed let’s say, or allocate, or priorities set. The agencies are advocates. The Congressional process is divided into dozens and dozens of subcommittees who all become advocates for their little piece of the pie. Who like the log roll, you help me, I’ll help you. The Congressional process is a great log rolling machine. The Cabinet departments aren’t much better. There’s one little place, it used to be 6 or 700 people, I don’t know what the staff is today. Probably not much bigger, which is at the kind of junction switch of this great and massive government that we have. Where there is a dedicated force of people whose job it is to examine, to second guess let’s say, and to say no, or to make priorities. And that’s a pretty weak read. Ultimately OMB has no power. Today OMB can’t even get their budget out in time anymore. It comes out months late. It’s dead on arrival.

LAMB: Right before you were named Director of the Office of Management Budget, you ran for Congress how many times?

STOCKMAN: Three times. I was elected twice, served two terms. I was elected the third time in 1980. It was right after I had voted a very controversial vote to, against the Chrysler bailout, the first one. I think I was right at the time. There were 19 members in the Michigan delegation, I was the only one to vote no. I had a lot of Chrysler district, plants, there were suppliers in my district. But the odd thing was the rank and file and the businessman on Main Street knew they weren’t going to be bailed out. Because they weren’t a big enough squeaky wheel. And as a result of that, I got the largest vote I ever received in 1980. So I learned a lesson. And that is, you can say no to the squeaky wheels. That lesson and I don’t say it’s heroic or virtuous, I think it’s just true. But that lesson has been lost. And today our problem in government is no one will say no to any squeaky wheel because these immense lobbies of K Street, these immense PAC, the enormous billions of money that flow in to the process, make it almost impossible.

LAMB: Let’s just take a clip of you back in that confirmation hearing before the United States Senate back in 1981.


STOCKMAN: The tax burden today, in my view, is so debilitating to the kind of activities, investment, savings, risk taking, innovation, entrepreneurial activities that our economy needs to grow. That without a growing economy, we simply can’t hope to achieve a balanced budget. And so therefore, our economic program that we shape together has to be an integrated program. One that diagnoses the problem correctly and then includes those elements and those policies which can help achieve the goals that we want.


LAMB: At that time in the process, you were already sitting down with Bill Greider and I think I read that 18 times you had breakfast with him or talked about it.


LAMB: When did you decide to do that?

STOCKMAN: I think it was very, it actually started when I was nominated for the position in December, 1980. I had been kind of an enterprising young politician Congressman. I liked to write. I wrote Op-Ed pieces for The Washington Post quite often when I was a Congressman. So I knew you know the editorial staff there. And I knew Bill Greider from that. He was then editing the front page of ”The Washington Post.” I knew the Reagan Program. We were going to cut deeply. I wanted to reform everything from food stamps to farm subsidies and export/import bank and everything in between. It would be presented in a biased way as basically an attack on poor people, rather than what I thought, what I was trying to do, an attack on weak claims. Not weak clients. So my, I guess naïve aspiration at the time was, I’ll sit with him, off the record. Try to give a persuasive and clear and balanced view of what we were trying to do. Because I knew it was going to leak. Government leaks like a sieve. So it was going to be leaking every day. I wanted to get ahead of the leaks. It was off the record. And unfortunately it worked. I think we got a better front page coverage, a fairer coverage out of the Post for months and months than you might have expected from the first kind of conservative government in several decades. But we didn’t have unfortunately, a clear understanding of when we called it, off the record for the season. We didn’t define the season. I saw it as something that would last for years, he apparently saw it as something that would last for months. He wrote the Atlantic Monthly article, I was shocked. There was a few loose quotes in it. Mainly what I said in there wasn’t heretical really. I wasn’t you know dumping on the program. I wasn’t trashing the program. I just was frustrated with the Pentagon. I called it a swampland of waste. It was then. It still is today. I didn’t really call the tax cut a trickle down machine. I said that would be one effect of it. But the rate cuts were meant for everybody, not just the wealthy. Anyway, a lot of this got distorted and I guess I learned a lesson. You have to be very careful with the press.

LAMB: I got the old, this is ”The Education of Bill Stockman” which came out later by Bill Greider. Supposedly, and then you wrote your own book and you talked about having been taken to the woodshed by Ronald Reagan. I’ve asked for years about Ronald Reagan here and you never quite get what Ronald Reagan was like up close. Tell us from your experience, how many times did you meet with him?

STOCKMAN: Practically every day for a long, for most of the time that I was there.

LAMB: Start with the woodshed thing. I mean, when you were taken to the woodshed because you had talked to Bill Greider off the record, what did he actually say to you? What was it like?

STOCKMAN: Well first of all, as I laid out in my book, and it’s no secret after all these years. That was a photo op. It was an orchestrated press campaign that the handlers at the White House came up with, actually when I had the lunch, I went through the same explanation of the Greider story that we’ve just talked about. And he was totally sympathetic. And he, the two of us were in the Oval Office, no one else. Having our lunch, soup, whatever it was. He said, you know that reminds me of when I was President of the Actors Guild and we were having a, what I thought was an off the record meeting, of the Executive Committee and there was some press guys in there. And all of a sudden I had a firestorm on my hands. I know what happens when you get betrayed by the press. So. We had, we had a very amicable lunch. Then he said, oh by the way, the fellas want you to do something to calm this down.

LAMB: Did you know that this was a setup to get a photo op?

STOCKMAN: Well I said, well why don’t I say you took me to the woodshed after supper? He said, oh that’d be great? You would say that? I said, yeah I’ll say that.

LAMB: And this was in ’81 or ’82?

STOCKMAN: ’81. This happened in the fall of 1981.

LAMB: And a lot of people were astounded he didn’t fire you. Were you astounded that he didn’t fire you?

STOCKMAN: Yeah, I was. But on the other hand, the White House staff was very divided. There was the pragmatic practical wing that actually accomplished the Reagan program, Jim Baker, Dick Darman, David Gergen, that group. Then there was basically the Mike Deaver keepers of the body, as they were called. They all wanted to fire me, the Meese wing, the California right wingers. But I think Baker prevailed because he realized that the whole Reagan program was being held together by bubble gum and bailing wire. That the, you know, the spending cuts had to be defended, explained. And we needed more of them, by then the tax program was already in effect and Defense was getting out of control. So he came to my defense. And the President understood that this wasn’t intentional. I wasn’t sabotaging the program. I began to realize that the things that my old boss Congressman John Anderson, who was the third-party candidate in the 1980 Campaign said, you can’t raise Defense, massively cut taxes and balance the budget too. I thought that could be done through honest math. By then I was realizing that it couldn’t be done, it was pulling apart. You know the teams of horses were going in different directions. But I was for a mid-course correction. I was still totally onboard with the idea of shrinking the government, lowering the taxes as far as we could, taking the waste out of spending and reforming entitlements, all of the rest of it. But I knew we were going to have to make compromises, adjustments and probably make some deals with the Democrats. And that’s where the Baker wing was. The Meese wing, you know, they like to wave their Adam Smith ties and think you could govern by waving your Adam Smith tie.

LAMB: What was Ronald Reagan like up close every day?

STOCKMAN: He was a very amicable guy OK? Tremendous personality. I’ve been in politics, I was in politics a long time. It’s a, you know, it’s a world of massive egos. Of people who are always looking around to see if they’re being slighted. And so forth. He was not that way. He was a strong man of conviction. I think he was wrong on many things, like the defense buildup and I’ve said it. And his stubbornness on repairing some of the excesses on taxes was wrong. But he had a tremendous personality, no ego that got in the way. And he was therefore a great politician. And if he had been a little more flexible on some of his good principles that were carried too far, like tax cutting, like the defense buildup that we really didn’t need, he would have been far more successful. Now I think the success that has been attributed to Reaganomics is totally unwarranted. We had the greatest Keynesian deficit binge between 1981 and the end of the Bush administration, the first Bush. Those first 12 years are all really the Reagan program. And so we did have an economy that rebounded because Volcker killed inflation and the deficits were enormous and they stimulated the economy. But they established a precedent for continuous, chronic, massive peace time deficits and put the Republican Party the old defender of the treasury gates, into the position that Cheney eloquently, so ineloquently expressed, deficits don’t matter. And that was the beginning of the end. Because in a democracy, if there’s not a conservative party that is defending the treasury, the tax payers, and fiscal rectitude. You’re going to have a free lunch competition between tax cutters, the Republicans, and spenders, the Democrats. And that’s why you have $17 trillion of national debt today. And why it’s out of control and why we have kind of a dooms day machine.

LAMB: How smart was he?

STOCKMAN: You know I’ve learned enough over the years on both Wall Street and Washington to say this isn’t an IQ game, IQ rating game. Because if you have an abysmal temperament as a political leader as the leader of the nation, and a massive IQ, you’re probably going to be a tremendous failure. And Reagan had a tremendous temperament. He had a pretty decent IQ. He had some fundamental convictions that philosophically were correct. But he had an inability to deal with facts. He had an inability to make practical choices when he, when his advisors were divided. When his advisors agreed and then took the decision in, there’s three choices, we go for the middle. He was OK. But when he had to make tough choices like on defense, I sat at the Oval Office desk at hours once. Cap Weinberger on one side, myself on the other. I wanted let’s say $220 billion in spending he wanted $250. He could not decide. We’d make our arguments, we’d move a little bit. He couldn’t make a decision. Finally I gave in because it was embarrassing. We were there all morning. You know, and the President of the United States couldn’t make a decision. So that was his problem when it came really to tough choices, Social Security. He thought, you know, that there was massive waste because there were too many dead people still getting benefits. So we would demonstrate to him, that’s not the problem. The problem is there are too many affluent retirees getting benefits that shouldn’t. And we’re going to have to means test it. And that’s not going to be popular. And basically, for the most part he was unwilling to take on the big parts of the welfare state. He liked to give the speech but he really wouldn’t go after the tough stuff.

LAMB: Who, did anybody that you saw when you were around him, did they make fun of him in any way? Those that didn’t agree with him, that were working around the way he operated? You know when they were out of the Oval Office?

STOCKMAN: Not really. I think there was, you know, a tremendous respect. Even though the White House staff was enormously divided between, as I say, the Adam Smith tie wavers and the pragmatic wing, the Bush-ites so called, Baker, Darman, some of those guys. But everyone had pretty good respect for him.

LAMB: I want to go back to this business of your controversy back in those years. Bob Novak has a few things, he’s deceased, but he had a few things he said about you. Let’s watch this and get your reaction.


NOVAK: We used to talk constantly on the phone. And we had breakfast at the Hay-Adams every other, every other Saturday. And the odd Saturdays, he didn’t talk to me, he talked to Bill Greider who was a left wing journalist. And he wrote an article on the, for the ”Atlantic Monthly” quoting David Stockman on the record, just attacking the Reagan administration. I said in the book it was like in the middle of the Russian Revolution if Stalin had turned against Marxism. And it was an incredible stab in the back for Reagan who didn’t fire Stockman. We couldn’t believe it! He believes Stockman hadn’t intended to do it. And he kept him on. He was a disruptive force for the rest of his time there in the White House.”


LAMB: Disruptive?

STOCKMAN: Well you know Bob Novak was a microphone or megaphone even for the hard core cadre of supply siders of which there was about four. Jack Kemp who was a great guy, but unbelievably doctrinaire on tax cutting. And Jude Wanniski formerly of The Wall Street Journal who was the real Prince of Darkness, a fanatic. And Art Laffer, who was a charlatan. Who claims to be an economist and he waves his hands and talks magic and draws curves on napkins and so forth. And he’s still at it to this very day.

So that little group wanted to dominate Reagan policy and Novak was their public, you know, shill, the voice in print. And when I realized that we were going to have to backtrack on some of the supply side doctrine and some of the overage on the tax cuts, these guys that I’ve described, not so much Jack, but the other two and a few of their fellow travelers, used Novak to do whatever damage to me they could.

Unfortunately it wasn’t a lot, but it did obviously complicate my life. I became known as a tax grabber. All right? We were facing a deficit that was like six percent of GDP. In those days that scared the hell out of people. It was $200 billion as far as the eye could see, which would be equivalent you know of our trillion dollar deficits today.

And I was trying to work with the Congressional leadership to find the least damaging way to raise some revenue, combine it with some defense cuts, domestic savings, to close this gap at least to something that was sustainable. And what do I get for it? I get this little cadre of fanatical doctrinaire people using Novak to accuse me of being a tax grabber. Like I want to go around and raise taxes because it’s fun? You know?

LAMB: Can you give us a short definition of supply side economics?

STOCKMAN: Well the idea was it’s the opposite of demand side which I wholeheartedly agreed. Demand side was Keynesian economics. Keynesian economics said if you just have enough aggregate demand, great miracles of growth and prosperity will happen. The economy’s like a bathtub and if it’s only 97 percent full of demand, then the government should borrow the difference and send it into the economy.

Now that was wrong and the great thing that Reagan did, I thought, was kill the Keynesian predicate for a generation. And lo and behold, we didn’t. I’m still a supply sider. My whole book is a supply side screed in that respect, because it is an unrelenting attack on 80 years of Keynesian misguided policy.

LAMB: One small slice on the defense issue. When you were in the Office of Managing the Budget during those first four years, the Reagan administration went up to 500 and about 95 naval ships.


LAMB: We’re now down to 285 naval ships. And our defense budget’s way beyond what it was when you were there. What is that, I mean, how does that happen? What is the need of, yeah he wanted a 600 ship navy. And now how come we get along with 285 ships?

STOCKMAN: Because we never needed the 600 ship navy. That was part of the neocon you know, tom-tom, war drum, beating of the war drums. Part of a program to counter this alleged Soviet strategic nuclear threat. It turns out it was never real. That real, honest conservatives should have known all along that Socialism was bound to fail. The Soviet state was already in an advanced state of economic sclerosis and failure.

And yet in the early days the Reagan administration, we got this so-called top line, seven percent real growth, five years, we had a five year plan of defense spending, $1.4 trillion. It was agreed to the 10th day we were in office. Two guys in a room, Weinberger and myself, neither of us knew what we were talking about. We ended up agreeing to this $1.4 trillion because he demanded it. And it stuck for the rest of the term.

The Pentagon didn’t even know what to do with all that money and so the next thing you know, you get a 600 ship Navy. And then you get new, you know, attack helicopters. You get new main battle tanks. You get new armored vehicles. You get cruise missile programs. All of this. None of this was relevant to the unreal non-existent Soviet nuclear threat. This was conventional war machine. And it eventually ended up being used by the Bushes for their wars of occupation and invasion which are totally wrong.

The reason we have 300 ships today is they’re bigger and heavier and they’re more expensive. But we don’t need 300 today and we certainly didn’t need a 600 ship Navy then.

LAMB: This is an attempt at humor. We’ll see how funny you think it is. This is Saturday Night Live back in those ’80s when you were controversial. Let’s watch.


UNIDENTIFIED PARTICIPANT: Well first what is your evaluation of the economy?

UNIDENTIFIED PARTICIPANT 2: Well it couldn’t be in better shape. President Reagan’s economic policies are absolutely foolproof.

UNIDENTIFIED PARTICIPANT: OK Mr. Stockman do you think that the supply side theory of across the board tax cuts is workable in the face of increased defense spending, tax cuts, and a pledge to balance the budget?

UNIDENTIFIED PARTICIPANT 2: Oh positively. Supply side economics is definitely realistic and I see no problems at all in President Reagan’s plan.

UNIDENTIFIED PARTICIPANT: Well do you think the economy will actually expand by causing more savings, investments and risk taking thereby stimulating business enterprise activity?

UNIDENTIFIED PARTICIPANT 2: Oh no doubt about it.


LAMB: Do you remember that?

STOCKMAN: Yes. Not only do I remember it, but in today’s world of YouTube it’s all over. So you could, all this stuff you can find easily. But it does go to show that the one truth, agency of truth in our society is Saturday Night Live. It’s one of the few places that consistently will expose the foibles and the exaggerations and the overconfidence and so forth of both parties.

So you know, that was good fun. And you know we needed to defend what we were doing.

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