Video: David Stockman on TARP, the Fed, Ron Paul and Reagan

Federal Reserve Chairman Ben Bernanke's decision to pump even more money into the economy was quickly followed by a stock market surge and a U.S. credit rating downgrade

Back in 2011 Reason TV sat down with Reagan budget director David Stockman to discuss the Fed's growing involvement in the U.S. economy and the dangers of stimulus spending. 

Here is the original text from the January 11, 2011 video:

At the very start of the "Reagan revolution," David Stockman exposed the myth that Ronald Reagan and the modern Republican Party are dedicated to small government.

In 1981, the 35-year-old Stockman gave up his Michigan seat in Congress to become Reagan'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 rhetoric that Reagan espoused. Once inside the White House, Stockman quickly became disenchanted, and gave an interview to journalist William Greider that became the basis for an explosive Atlantic Monthly article in which Stockman admitted that Reagan's spending cuts had been a "Trojan horse" used to justify tax cuts. In his 1985 memoir, The Triumph of Politics, Stockman chronicled Reagan's reluctance to fulfill his campaign promise of shrinking the size and scope of government and balancing the budget. The result? The gross federal debt tripled while Reagan was in office.

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, 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 simple principle that balanced budgets come only when revenues actually meet expenditures. If we're 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 down the line.

Here's what didn't come across in Stockman's media blitz: Since writing The Triumph of Politics he says he has "completed his homework" by reading libertarian economists such as Ludwig von Mises, Friedrich Hayek, and Murray Rothbard. He thinks TARP was a big-government boondoggle and the bailouts of GM and Chrysler unconscionable. 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 that Rep. Ron Paul (R-Texas) is the only politician today "who gets it" and he's hopeful that Paul's growing power may begin to shed light on "the scholastic arrogance" of the Federal Reserve. He's still against the welfare-warfare state and he thinks government should be cut down to size.

Reason.tv's Nick Gillespie sat down with Stockman for a wide-ranging discussion that touched on tax cuts, monetary policy, TARP, Ronald Reagan, his tenure as a Michigan Congressman, and the gold standard. The complete 42-minute interview is here.

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  • Draco||

    Stockman was an idiot then, and he's an idiot now. Reagan was told he could do two of the following three things: 1) topple the USSR, 2) cut taxes/spur growth and 3) have a low deficit. He wisely chose (1) and (2), leading to the end of one of the most evil (and liberty destroying) empires in history and to an unrivaled period of economic growth. This made Reagan one of the greatest presidents of all time, and one of the greatest human beings of all time.

    As far as the ballooning of the debt during the Reagan era, it had no deleterious consequences (as we can see from the fact that the debt is much, much bigger now, still with no deleterious consequences). It's a number, and has no similarity to the debt that the private sector (like households) accrues. Therefore, any appeal to analogy with private sector debt is moronic.

    Returning to the gold standard is the ultimate in idiocy, so it's no surprise to me to see Stockman plumping for that now, too.

  • obijuan||

    Stockman says that the USSR didn't need toppling, that it was always "built on a house of cards." Do you agree with Stockman that Communism doesn't work?

  • VG Zaytsev||

    Somehow it managed to stumble along for decades until pushed rhetorically and economically by Reagan.

    Would it have collapsed anyway? Probably but who knows how much longer it would have lasted and how violently it would have ended.

    Oh, and Pol Pot's regime in Cambodia was less viable by at least an order of magnitude but still required a military invasion to be overthrown.

  • ||

    I've read that critique as well: that the USSR would have fallen anyway, even without the U.S. competing with them. It makes sense, given what we know of the Soviet economy. The same critiques note that our competition with them might have sped up the fall, though.

  • Surly Chef||

    Supply-side economics, it's structurally different than Neo-Keynesian economics, because of short term tax cuts!!!

  • ||

    Right, right, public debt has no deleterious effect.

    *COUGH* Europe *COUGH*

  • obijuan||

    It's like that line from the other Marx, the secret to success in life is sincerety, if you can fake that you've got it made. Once people stop believing that you are sincere about paying your debt, that's when the trouble begins.

  • Draco||

    The US government, as a currency issuer, can always make payments on the public debt. There is no reason to ever pay down the debt, but of course a very good reason to make the interest payments. There is no crisis here. Just a gigantic misunderstanding. People who think "we have to pay off the debt someday!" just aren't thinking straight.

  • ||

    People who think "we have to pay off the debt someday!" just aren't thinking straight.

    I'll tell my credit card company straight away. I'm sure they'll be very understanding about my virtual theft of their money.

  • Draco||

    While you are coughing, you should take time to remember that no country of the Euro zone is a currency issuer, just a currency user. And that makes all the difference.

  • ||

    *COUGH* Europe *COUGH*

    First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP.1 Above the threshold of 90%, median growth rates fall by 1%, and average growth falls considerably more. The threshold for public debt is similar in advanced and emerging economies and applies for both the post World War II period and as far back as the data permit (often well into the 1800s).

    You misspelled "USA"

  • ||

    as we can see from the fact that the debt is much, much bigger now, still with no deleterious consequences

    Umm I do not thinks so.

    In fatc i know you are dead wrong:

    First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below 90% of GDP.1 Above the threshold of 90%, median growth rates fall by 1%, and average growth falls considerably more. The threshold for public debt is similar in advanced and emerging economies and applies for both the post World War II period and as far back as the data permit (often well into the 1800s).

    http://www.voxeu.org/article/d.....-revisited

  • VG Zaytsev||

    Haven't watched the video yet so maybe Stockman made this point, but I doubt that he did.

    Reagan had a hostile Congress for his entire presidency. The Democrats in 80 and 84 explicitly campaigned on increasing the national debt as a way to 'full employment'. The budgets submitted by Reagan were routinely declared dead on arrival by Tip O'Neal. And Reagan made a grand compromise to increase taxes in exchange for spending cuts, which never materialized.

    Claiming that Reagan increased the deficit and debt in the face of all that is highly disingenuous. At worst, you could say that he failed to restrain the democrat Congress.

  • Draco||

    I thought it was George H. W. Bush who agreed to raise taxes, but otherwise (as usual) I agree with you Zaytsev.

  • VG Zaytsev||

    So in 1982, Reagan struck a deal with the Democrats to raise some business and excise taxes — though not income taxes — in exchange for $280 billion in spending cuts over the next six years. As Reagan wrote in his diary at the time: “The tax increase is the price we have to pay to get the budget cuts.”

    But, of course, the Democrats were lying. Instead of cutting $280 billion, they spent an additional $450 billion — only $140 billion of which went to the Reagan defense buildup that ended the Evil Empire.

    http://www.humanevents.com/201.....ase-today/

  • ||

    only $140 billion of which went to the Reagan defense buildup that ended the Evil Empire.

    GDP in 1982 was only 3.2 trillion. $140 Billion was a lot of money back then.

    Otherwise excellent point

  • ||

    Revenues grew after the Bush tax cuts. They did not decline.

  • Killazontherun||

    You would think from the media rhetoric that the most bountiful year was 2000, the last year of the Clinton administration, but the highest revenue received on record were for 2007.

  • Killazontherun||

    revenues -- plural was intended, to keep the noun verb formation correct.

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