At the very start of Ronald Reagan’s presidency, David Stockman debunked the myth that Reagan and the modern Republican Party were dedicated to small government.
In 1981, the 35-year-old Stockman gave up his Michigan seat in Congress to become the new president’s budget director. A vocal critic of what he continues to call the “welfare-warfare state,” Stockman had signed on because he believed in the limited-government principles that Reagan so vigorously espoused. Once inside the White House, however, Stockman became disenchanted. In his first year as budget guru, he gave an interview to journalist William Greider that became the basis for an explosive Atlantic article in which Stockman admitted that Reagan’s tax cuts for most Americans had been a ‘Trojan horse’ used to bring down the top rate. In his 1985 memoir, The Triumph of Politics, Stockman chronicled and criticized Reagan’s reluctance to fulfill his campaign promise of shrinking the size and scope of government and balancing the budget. During Reagan’s two terms, the budget was never balanced, net government spending was never cut, and the gross federal debt tripled.
Last fall Stockman was the GOP defector du jour once more, arguing against extending George W. Bush’s tax rates in The New York Times and on 60 Minutes, The Colbert Report, Parker-Spitzer, ABC, NPR, and MSNBC. Stockman’s argument —that it’s irresponsible to cut taxes when cumulative U.S. debt is steadily mounting as a percentage of GDP—is based on the principle that budgets can be balanced only when revenues meet expenditures. If we are not willing to actually shrink government spending, he says, then we should pay full freight now, rather than forcing our children and grandchildren to foot the bill.
Here is what didn’t come across in Stockman’s media blitz: Since writing The Triumph of Politics he has, in his words, “completed his homework” by reading such libertarian economists as Ludwig von Mises, F.A. Hayek, and Murray Rothbard. He thinks the Troubled Asset Relief Program (TARP) was a crony-capitalist boondoggle, that the bailouts of GM and Chrysler were unconscionable, and that stimulus spending is a hoax. He sees the abandonment of the gold standard in favor of floating exchange rates as the root cause of both the country’s fiscal problems and the 2008 financial crisis. He says Rep. Ron Paul (R-Texas) is the only politician today “who gets it,” and he’s hopeful that Paul’s growing influence may begin to shed light on “the scholastic arrogance” of the Federal Reserve. He is still against the welfare-warfare state, and he still thinks government should be cut down to size.
After leaving the White House, Stockman joined Salomon Brothers and the Blackstone Group before creating Heartland Industrial Partners, a private equity firm. In December, Nick Gillespie, editor in chief of reason.com and reason.tv, sat down with Stockman in his Greenwich, Connecticut house for a wide-ranging discussion of politics and economics, both past and present. A video version of this interview can be viewed and downloaded at reason.tv.
reason: You’ve emerged as a fierce proponent of letting all of the Bush-era tax rates expire and going back to the Clinton rates. Why do you want to revert to higher tax rates?
David Stockman: In pure philosophy, lower tax rates would be better. The problem is that we’ve had a 30-year referendum on spending—every aspect of the welfare state. We made a tiny bit of progress in ’81 that was restored over the course of the next couple of decades. Then we finally had Republican government in the Bush era, both in the Congress and in the White House, and nothing was cut. Everything was ratified. In fact, they added to Medicare through the drug benefit.
reason: Bush raised total federal outlays about 60 percent in 2010 dollars.
Stockman: That’s exactly right. So now we’re at the point where we have this large welfare state that seems immutable politically and this expanding warfare state that both parties seem to want to fund. In that environment, you’re kidding yourself if you think cutting taxes today is really cutting taxes. We’re simply deferring massive tax increases into the future, unfairly and immorally putting huge debt burdens on future generations, and that is just wrong.
(Article continues after the video.)
reason: There’s a presumption there that if we raise more federal revenue, it would actually go to fund existing programs, as opposed to just expanding into new areas.
Stockman: That’s always a risk, but I think there isn’t much pressure for structural expansion of the budget right now, and there hasn’t been for years—other than the one or two initiatives during the Bush period.
reason: Does there need to be, though? Medicare is set to continue to expand, particularly after 2020. So there doesn’t need to be a politician saying, “Let’s create whole new entitlements,” because we’ve got ones that are on autopilot to explode.