Robert F. Kennedy Jr. and economist David Stockman dissect Trump’s economic policies in this episode.
David Stockman, a Republican economist, was the Director of the Office of Management and Budget under President Ronald Reagan. Stockman is also the New York Times and Wall Street Journal bestselling author of The Great Deformation
I'm very excited to have David Stockman back as my guest on the show.
And I think the last time I had him on, I described him initially as a nemesis of mine back in the 1980s when he was Ronald Reagan's budget director.
And I blamed him for dismantling a lot of the environmental infrastructure that And cutting the budget, many, many social programs that were sacred cows to my generation of liberals.
And our views on most issues today have coalesced in a way that I'm very happy about because David is an extraordinarily eloquent articulator and leader of people who want to bring sanity back to government.
I'll tell you a few biographical facts about him.
He was born in Florida, Texas.
He graduated from Michigan State University, attended the Harvard Divinity School, and then went to Washington as a congressional aide in 1970.
David was elected as Michigan congressman in 76 and joined the Reagan White House in 1981, serving as budget director.
He was one of the key architects of the Reagan Revolution.
Plan to reduce taxes, cut spending, and shrink the role of government.
He joined Solomon Brothers in 1985, later became one of the early partners of Blackstone Group.
During nearly two decades of Blackstone and a firm he founded Heartland Industrial Partners, Solomon was a private equity investor.
He is the author of three best-selling books, The Triumph of Politics, The Great Deformation was the corruption of capitalism in America.
The triumph of politics, incidentally, is followed by the subheading, Why the Reagan Revolution Failed.
And then his 2016 book, Trumped a Nation on the Brink of Ruin and How to Bring It Back.
And now his recent book, Peak Drum, The Undrainable Swamp in the Fantasy of MAGA, that's 2019, is currently a publisher of a daily blog called Contra Corner, which is a blog, one of the few blogs that I read faithfully.
One is because it's brilliant, but also it's beautifully written.
David writes like a poet, and he's very, very fun to read.
And it's described as the place where mainstream delusions in Kent about the welfare state, the bailout state, bubble finance, and beltway banditry are rift, refuted, and rebuked.
I would describe the principal nexus for where our views have coalesced are the abhorrence that both of us share for corporate I think?
And you explode a lot of the claims that President Trump makes about having brought prosperity and jobs to our country.
Let's talk about that a little.
Okay, happy to do it.
It's great to be back on the podcast with you.
It's interesting that we've all come a long ways in the 40 years Since the early 1980s and the issues that you were citing then.
And you were kind enough now, you know, to write a preface for my book, which we're going to talk about today, Trump's War on Capitalism.
And the other strong endorsement I got for the book was from Ron Paul.
So I think what it's telling us is there is a uniparty in Washington where both of the traditional political parties have kind of melded together in one big blob that likes to have forever wars everywhere, that really doesn't care that much about the public debt and the way we manage our fiscal affairs,
that's happy to have the Fed Grant enormous amounts of money, which basically has been a boon to Wall Street in the 1%, but has done very little.
He's harmed the Main Street economy and was happy to shut down the whole US economy in the spring of 2020 on the basis of some very bad advice from Dr.
Fauci and other government bureaucrats.
So that's what the Uniparty did.
They've made a real mess of it.
Trump sounded like he was going to be You know, the guy who rode into town, the outsider, the non-politician was going to drain the swamp.
But what I'm trying to say in my book, and really more or less give a wake-up call, especially to Republicans and MAGA supporters, is that he didn't drain the swamp at all.
He actually filled it deeper than ever before.
And so therefore, we had a four-year period In which the budget got totally out of control.
The debt soared.
The Fed was encouraged by Trump to print even more money, push interest rates even lower, inflate the bubble in the financial markets even greater.
He took credit for that.
It had nothing to do with what he was doing.
And then finally brought the whole thing to a crash-landing With the totally counterproductive and wrong pandemic and COVID lockdown policies in 2020.
But I do think the facts are important because I think a lot of Republicans, conservatives that I'm trying to reach and say he's not the answer to what you know to be wrong with America.
He is not going to drain the swamp.
They're willing to say yes, You know, he's a loudmouth, he's bombastic, he's unpredictable.
Often he strays tremendously from sound economics and sound money, but he had a great economy, the so-called MAGA economy.
In the book, we lay out very clearly that that's just political boasting.
It isn't remotely true.
In fact, It's upside down.
If you take all the presidencies, going back to Harry Truman, the average growth rate during the period that whole era, half a century, up through 2016, the average economic growth rate, real growth rate, was about 3.1%.
During Trump's period, it was 1.5%, half of Of the historic norm over that long period of time, 11 different presidents, nine business cycles, crises, wars, every other thing, but the norm was double what the economy produced in Trump's four years.
If we look at some other measures, you know, I think it's even more dramatic.
I think, ultimately, we care about the Main Street economy, where the middle class is going or not going.
A good measure of that is real GDP per capita.
And the fact is, it grew less than 1% per year during Trump's four years.
Which was not even 40% of the post-war average 2.5.
And then finally he bragged a lot about all the jobs he created.
The facts are when Trump was sworn in in January 2017, there were 145.2 million non-farm jobs, you know, the kind that are reported once a month by the BLS. 145.2 million jobs when he left.
There were 142.2 million jobs.
In other words, the job count shrunk by 3 million during his tenure.
The only time that that's happened was in the early 1930s under Herbert Hoover.
So the bottom line is this.
We have a huge growing problem with our warfare state, our debt, A Washington that is run by a uniparty that's undermining the middle class and Main Street living standards.
We need a big change.
Trump talks about being the man to do it, but actually his policies went all in the opposite direction.
He's proven that he doesn't really have any policy Compass anyway.
He flies by the seat of his ample britches.
He makes it up as he goes along.
And most of the time, he comes up with expedients that are either ineffective or counterproductive.
This is an important message.
We're going into a Huge election here.
We have the Uniparty's two wings offering candidates that are just more of the same old thing.
I can't really speak to Democrats.
I probably don't have that much credibility from over the years.
But I'm trying to speak to Republicans and say, you have to look elsewhere.
Donald Trump had four years.
And he committed, among all the other errors that we've talked about here, the unpardonable sin of shutting down the economy in an unconstitutional, abrupt, capricious way on the basis of bad advice that he should have been able to see through in March and April of 2020.
The pandemic policy, the lockdowns, the huge COVID policy mistakes disqualify him from another term in the Oval Office.
So those are a few points.
There are a lot more, but those are a few.
I mean, one of the things that you point out is that the growth that did occur during the Trump years was mainly government spending.
It was the $2 trillion of extra cash that was printed, the Operation Warp Speed and the CARE and the CARES Act and all of these government spending programs to keep the country alive during the lockdowns, and that actually During his term, it's the first time in American history, or at least modern history since the Great Depression, that the private market payrolls have shrunk.
That's never happened before.
You know, it had never happened before.
And, you know, I think it's important to understand that if we don't get jobs growing again, we're not going to get the middle class lifted off from the morass that it's in today.
And you can't get jobs growing again unless we have more workers and more investment and more productivity.
And of course, Trump's policy was to keep potential workers out of the country by building a wall in Mexico when the problem could be solved very easily.
With an orderly, organized guest worker program, rather than investment that we desperately needed in the private sector to fuel productivity and to fuel expansion of capacity, all the available funds were absorbed by these enormous deficits that were run on his watch, including the big tax cuts Which weren't paid for.
It was $1.7 trillion of revenue loss from the corporate tax cut and the parallel measures for individual taxpayers.
But if we look at actual investment, it actually slowed down.
The growth rate of investment slowed down in the five years after the tax cut rather than before.
I've said all along, tax cuts are good, but they have to be earned.
They have to be paid for.
You have to do the tough business, for instance, of looking at the swamp at the Pentagon.
There's a big swamp on that side of the river and fine spending cuts that can offset the revenue loss.
Well, what did he do with defense spending?
He inherited a $590 billion defense budget from Obama, which was already way too big.
You know, for a world in which we have no real industrial technologically enabled competitor or enemy.
That can seriously threaten our homeland security.
I mean, Russia's got a 2 trillion GDP. Ours is 26 trillion.
China's got a bigger economy, but it also utterly depends on 3.5 trillion a year of exports.
To the United States and the West in order to keep this great Ponzi that it's created over there from collapsing.
So we're not going to be invaded.
We're not going to be attacked.
The homeland isn't under any kind of serious peril.
And so we didn't need a $600 billion defense budget.
We could have cut it by 50% back to what I call the Eisenhower minimum.
In other words, if you look at what The great President Eisenhower, who was the only great general ever to, you know, lead the country in the last century, he said that the budget in 1961 was already big enough in today, it was 60 billion in those dollars,
and today, today's money would be 400 billion, and that would be more than enough because back then, The Soviet Union was still at the peak of its industrial power, and it had a lot of pretty nasty weapons pointed at us.
All of that is gone.
The Cold War is over.
The Soviet Union disappeared into the dustbin of history and so forth.
So we barely need Ike's budget, the $400 billion.
Trump inherited $600 billion.
What did he do?
He raised it to $750 billion, 25%, on the rather silly theory that he was a tough guy and that he could negotiate with the rest of the world, but he needed a bigger stick.
So he invited the generals to come up with all the spending schemes that they could imagine.
They did.
He took the defense budget way up.
He got both parties behind it.
And here we are a couple of years later under Biden, and it's no different.
It's now $900 billion.
So a point that I'm getting at is that if we're going to get the private economy moving again, if we're going to get some growth in middle class and Main Street economic prosperity, then we're going to have to get this massive treasury borrowing then we're going to have to get this massive treasury borrowing level out of the
I want to give just one final number on that that I think, because raising the public debt sounds like an old-fashioned Republican kind of issue, something that Barry Goldwater talked about back in the 60s and so forth, but it's not really anymore because it's gotten so big.
Trump went into office with a $20 trillion public debt, which was already pretty big, you know.
310% of GDP. By the time he left office, it was $28 trillion.
Now, $8 trillion of growth in four years.
I'm sure it's hard for people to get their arms around.
It's so big.
It's such a gargantuan number.
But here's the way to look at it.
When did we get the first 8 trillion of public debt?
The answer is 205.
In other words, from the beginning of the Republic in 1789 to 205, 216 years, 43 presidents generated the first 8 trillion of public debt.
Trump did, duplicated, replicated that $8 trillion in four years.
That's a measure of how things were out of control.
And all of that cash went into funding of the $6.5 trillion that he put into all these COVID bailouts rather than into the private sector investment we need.
So that's just one of the many particulars that we go through in the book that I think people really need to understand.
And David Stockman's new book is Trump's War on Capitalism.
I wrote the preface for it.
Two short questions.
One is, we're now at a $34 trillion debt that our kids are going to have to be saddled with and pay back, which is going to really impact their lives dramatically.
What is the relationship of $34 trillion to GDP? Okay, that's a good question, because it is now 120-130% of GDP. And that sounds pretty bad.
But you see, if the Uniparty in control today continues...
And they keep all the wars going, and they keep this $900 billion defense budget growing.
In fact, you know, we've talked before, if you look at everything that goes into national security, including all the foreign aid and the security assistance, the fact that we have a huge veterans budget because we have to pay for all the men and women who become injured or Disabled as a result of these forever unnecessary wars, it's $1.3 trillion.
The point that we need to get at here is that that huge debt, because of the warfare state and all the other spending we have, is heading towards, and I'm not exaggerating or trying to create some kind of panic notion,
But it's heading from the $34 trillion we have now to $50 trillion by early in the 2030s, just around the corner, the decade around the corner.
That would be 150% of GDP. And if we don't fundamentally change direction, not a little bit of change here, a little bit of adjustment there, but a big realignment, reset of what we think we're doing in the world and what we're trying to do to get our economy back on its feet at home, if we don't have a big reset there, we're going to end up with a public debt of $100 billion.
A hundred trillion, I mean, and, you know, 200% of GDP by the middle of this century.
So we're on a path that's dangerous, unsustainable, is creating a burden on future generations, our kids and grandkids, that is totally unsustainable, and we won't get there.
Something will blow up in between, and that's why we have to start Attacking these huge structural deficits.
This isn't, you know, Republican rhetoric from 40 years ago about deficits, but these massive deficits that we can't afford.
Now, let me put it in perspective.
During Trump's four years, the deficit averaged 9% of GDP. That is a startling number.
Because the average in the post-war period was 2.5%, and I looked it up the other day, when your uncle John Kennedy was president, the deficit averaged 0.9% of GDP. In other words,
during the four years of Trump, who supposedly was the Republican, going to curtail all of this excess that allegedly occurred during Obama, the deficit ended up 10 times bigger than it had been in the early 1960s.
So we're in uncharted water and this has to be addressed.
And it has to start by bringing the empire home.
And not a little, you know, chipping away here and there at the defense budget, but we could cut 400, 500 billion out of the defense budget by going back to what I call the Eisenhower minimum in a homeland defense that says, you know, we're not going to have bases all over the world.
We're not going to be We're good to go.
To the Uniparty to start there.
Another thing we've both talked about a lot, crony capitalism and its dominance in Washington.
You can't get rid of anything that they've got their fingers in, even the Export-Import Bank.
I try to get rid of that.
Most of the money goes to Boeing and General Electric.
They don't need it.
It's a tiny fraction of Of their net income and even of the money they put into stock buybacks, but especially all these giant loopholes in the tax system.
I just looked those numbers up and it turns out that over the next 10 years, and this is not a number that's coming from me or somebody on the right, so to speak.
These are U.S. Treasury numbers from Janet Yellen.
Janet Yellen's Treasury Department herself, they came out last spring.
The total revenue loss over the next decade from all of the so-called tax expenditures, I call them loopholes, a lot of them are just crony capitalist giveaways, is $21 trillion.
That is a huge number.
It's a startling number.
It's as big as the entire projected deficit over the same 10-year period according to CBO. Look at it another way.
If we had what you would call a very Flattish tax system, where we had the rates that we have today, they're not too low in my judgment, 21% on the corporate and the taxes we have from 37% on down on individuals,
but if we had the entire base available at those modest rates, We would be generating about 55-56 trillion of revenue over the next decade, just from the income tax and the corporate tax, and that would go a long way to filling the hole in the deficit.
But we're actually, according to CBO, and this is the part that is startling, We're actually only going to collect $35 trillion from the income tax on corporations and individuals.
In other words, not $56 trillion, but $35 trillion.
The difference, that's almost 38% of what would be the full tax base is going to loopholes and tax expenditures and preferences and Subsidies for black energy, green energy, purple energy, and all kinds of other things in between.
So what I'm getting at here is that if we were willing to take on What I call the weak claims on the budget, rather than just the weak clients, you know, poor people and poverty programs, but the weak claims, which is really what I was talking about way back in 1981, and got, you know, drowned out again by the politics of the beltway.
But if we took on the weak claims at defense, And all of these loopholes, and all of these subsidies like the Ex-Im Bank, and all of these big subsidies that go to, you know, wealthy farmers and all the rest of it,
we could dramatically reduce the size of the structural deficit, stop the public debt from continuing to grow, And free the resources that would be available for investment in productivity and in new capacity and new jobs and getting our economy back on track for the middle class.
I mean, going back to the last discussion, so people can put this in context, we now have a $34 trillion national debt, and the annual costs of serving that debt are approximately equivalent to our entire military budget.
Yeah, yeah.
You know, if we double that debt, we go to 50, you know, basically our entire budget is going to be at some point servicing the debt with nothing left over for any social programs, any military programs, nothing.
That's right.
In fact, without sounding too alarmist, it's actually worse because we have to bring in the other factor here that's enabled all this.
I mean, politicians want to be fiscally irresponsible if they can because that's the easier route, obviously.
But the Fed in the last two or three decades has enabled This by pushing interest rates so low that the cost of servicing this ballooning public debt that we've been talking about was pushed to rock bottom.
Even like two or three years ago when the debt was well over $20 trillion during the Trump period, the servicing cost of the interest cost was $350 billion a year.
But now what's happening is inflation got out of control.
It went to a 40-year high.
The Fed had finally belatedly needed to shut down its printing press.
It was no longer buying in all the public debt.
We call it monetizing and therefore financing the government deficit on the cheap.
And as a result of that, interest rates are way the heck up.
You might remember two years ago, the key government interest rate on the 10-year bond or note It was down to 1.3%.
And of course, today it's over 4%, and it's probably going to go higher.
Now, if the debt goes from $34 trillion to $50, and the average interest rate, which is still because it's embedded in the portfolio, it'll take time to turn over, It goes from 2% to 4% or 5%,
then we're going to end up paying, and this is a startling number, but it's the reality that we're facing, we're going to end up paying not $300 billion a year in interest on the public debt, but $3 trillion.
And I want to repeat that number.
$3 trillion.
At $50 trillion of debt at a reasonable interest rate, we'll be paying $2 trillion to $3 trillion of interest, three times more than Social Security, far more than even this quoted defense budget.
It would dwarf everything.
That is the danger if we don't finally face up to this monster.
That was exacerbated by Trump, and that's a lot of data for that in my book, but it really is the product of 30 or 40 years of uniparty governance, where they basically pretended that the public debt didn't matter, future generations would, you know, have to But it wouldn't be that expensive because the Fed would be able to finance it on the cheap by keeping interest rates at rock bottom.
All of that is gone.
That, you know, that fantasy is over.
We're now being forced to face, you know, the true facts of economic life.
And it's creating a nightmare fiscally that they haven't even begun yet.
To face up to.
And so what are they doing?
They're playing games down there now, trying to figure out how they can add $100 billion in money for the Ukraine and for building the wall, which isn't the solution to the border problem and all the rest that we don't have.
And they're ignoring the big elephant in the room, which is this ballooning public debt.
I want to go back again to talk about how President Trump, and this is embedded throughout your book, was rolled repeatedly by his bureaucrats.
You know, he appointed a bunch of swamp creatures like John Bolton, who is probably the single greatest advocate of aggressive, bellicose military country and pharmaceutical companies.
Lobbyists like Scott Gottlieb to run FDA, but throughout the bureaucracy.
And then he was unable to stand up to his own bureaucrats.
And I, you know, it made me recall this story of my uncle during the Cuban crisis in the XCOM committee that met at the White House.
My father was part of it, but they were the gray beards of the intelligence apparatus in the military, the Joint Chiefs of Staff, etc., people like Dean Acheson, who were the Right.
These kind of deified diplomats in American history who had been at Yalta and Casablanca.
They were at the creation, as it was called.
So they were all in the room, and on the first day...
They voted 11-2 to invade Cuba.
We now know that if they had invaded, it would have been the end of the world, because there were 64 nuclear missile sites there, and strangely, insanely, the Russians had given each of the missile crew commanders Oh.
Independent authorization to launch if they felt themselves in danger.
So you have to assume at least one of them would have launched.
That would have begun a cascade.
That would have resulted probably within 24 hours, 30 million American deaths, 130 million Russians.
So they met for 13 days.
On the last day, my uncle asked for a final vote.
And they voted eight to six to invade.
And my uncle said, the sixes have it.
He was able to take advice from people who were the experts to go deep.
You know, he asked to see the aerial photographs.
He questioned people like, You know, if those are Russian gun crews, we kill Russians, isn't Khrushchev going to have to come into Berlin?
And really question them on a granular level about each decision.
And, you know, I think one of the problems, I think Trump was well-intentioned when he went in to try to drain the swamp, but I don't think he had the capacity to stand up to his bureaucrats.
And he said at one point...
Hydroxychloroquine works.
He said at another point, we shouldn't have lockdowns.
That's crazy.
But when his bureaucrats pushed back on him, he caved in.
Yeah, there's so much evidence for that.
On March 11, 2020, he wrote a whole, he put out a whole big tweet about, well, you know, we have every year we have the flu season and some years bad, some years good.
Sometimes 30, 40,000 people unfortunately die from it.
But we'll find our way through this.
No talk about lockdowns, no talk about a bubonic plague about ready to wipe out the nation.
Four days later, he declared an emergency, gave a speech calling for, you know, the two weeks to flatten the curve, unleash Dr.
Fauci and that whole gang of malpracticing doctors, and then set back and let it happen.
And not only let it happen, but allowed the White House to be used day after day as a bully pulpit.
You remember the Coronavirus Task Force every day had a reality TV show.
And they scared the living daylights out of the American public.
So between the state bureaucracies ordering everything to be shut down and the public being scared to death by this daily show, the whole economy went into an abrupt halt.
I have some data in the book that people need to remember how bad it is and why it should never happen again.
In the second quarter of 2020, when the lockdowns really hit in April, May, and so forth, real GDP declined by 34% at an annual rate in one quarter.
Is that a big number?
Well, let me tell you.
The worst recession in the postwar period, of course, was the Great Recession.
And in the worst quarter of 2009, 2008-209, The decline was 8% on an annual rate.
So this was four times worse than what we thought was the most severe recession.
The apocalypse.
Yeah, and also another one, I mean, obviously ground zero of the lockdowns, which were ordered from the White House Oval Office.
So, you know, I go by the Truman Doctrine.
You're familiar with that.
The buck stops here.
He had that famous, you know, slogan on his desk.
The buck stops with him because the lockdowns hit the What you would call the social services sector of the economy like a ton of bricks.
The BLS calls it, you know, the leisure and hospitality sector.
It's big.
17, 18 million jobs.
In the month of April 2020, Employment, and this is the index of hours, so it's not even counting halftime jobs and 20 hours at, you know, burger flipping somewhere.
The index of hours declined by 58% in one month.
From where it had been in February 2020.
58%.
I mean, that is like a cyclone going through the employment system.
It wiped out 42 years worth of jobs growth in that sector, the ground zero sector, bars, restaurants, movie theaters, and so forth.
Now, that's the one thing.
The other point, because it's very relevant to this moment, Trump said, you know, America first, let's stop these forever wars.
So he, at least directionally, he got it a little bit.
But as his Attorney General Bill Barr said, if Trump even agrees with something you think is important, don't expect it to happen.
Because nothing follows through.
Nothing happens.
And the greatest example of that was he realized there was no point of us being in Syria.
You know, we weren't invited there.
We're there illegally.
The authorized government of Assad obviously didn't want us there.
So he said he was going to bring the forces home.
Well, guess what?
They're still there.
There's a couple thousand people.
Troops in Syria, and now we're in the middle of this fight.
Yeah, the point is he won't be able to implement even some of the better ideas he has because, you know, as you said, you put John Bolton in as national security advisor.
That is the very opposite of America first.
That's sort of globalism first.
That's the great hegemon First from, you know, the empire first, I would say.
But it wasn't just John Bolton.
He then brought in to head the CIA Mike Pompeo, who is the most bloodthirsty, you know, unreformed cold warrior that I've seen in a long time.
And then he became Secretary of State.
So if you have Bolton and Pompeo running your foreign policy, what does that have to do even with this vague notion of America first?
And it's the very opposite of what I think the right policy is, bringing the empire home, shutting, closing all these bases, bringing our forces back to the homeland, and running a national security policy on an Eisenhower ration, fiscal ration, That would be half of what we're spending today.
David, let me ask you this.
And this is, you know, like 60,000 feet.
If we survive what's happening now in the Mideast, which I think all of us are worried about, you know, maybe sleepwalking into a nuclear war.
But the neocons have already said that Taiwan is next.
And let me ask you about that.
You know, give us...
Give us the argument for why nothing's going to happen.
The Chinese are not going to invade Taiwan unless we provoke them into doing it.
Well, I think that's exactly right.
You know, we've become a slave to bad history.
And let's remember how this whole Taiwan thing came about.
There was a civil war, a bloody, nasty, long-drawn-out civil war in China in the 30s and through World War II. It finally ended in 1949.
Mao won, for better or worse.
Chiang Kai-shek, the leader of the Nationalists, retreated his army in tatters to the offshore island of Taiwan.
And at the time, some of the people who loved war, let's just call it the warfare state, the war party, said, let's rally behind Chiang Kai-shek, draw a line in the Taiwan Strait, urge him to form an independent country.
And then we'll keep him secure from whatever the mainland might do.
Now, here's the thing.
Taiwan had been settled by Chinese Han, Han Chinese, three or four hundred years earlier.
It was thoroughly Chinese by the 20th century.
Japan came in in the early, you know, in 1895, Occupied the island and finally was liberated by the Chinese in World War II with American help in 1945.
It was Chinese again.
So the idea that this is a separate country, that we ought to be putting the world on the brink of nuclear war because Taiwan and China need to be kept separate, I think is totally wrong.
And we, you know, we have this thing called strategic ambiguity.
That's our policy, if you like that.
Now, that's a good message to send to the world.
In other words, you don't know what we're going to do, so, you know, anything could happen.
That is a terrible policy.
We ought to say, and I know this is probably a little bit controversial, but let's face the fact that At the end of the day, the Taiwanese economy would thrive probably as well as the Shanghai economy is today, which has been booming.
And if they can find some way to accommodate themselves just like they did in Hong Kong, That's probably where the world is going.
And we can't start a war over it.
We can't keep sending American warships into the Straits of Taiwan, trying to provoke the Chinese into taking an imprudent action.
We need a president who's going to say, enough of this.
The Civil War ended 70 years ago.
Let's normalize and provide a pathway For Taiwan and China to reconcile one way or another.
Because it's not in our national security interest to, you know, expend massive amounts of blood treasure and risk nuclear war over an issue which is, at the end of the day, ancient history.
And what is the Chinese economy like right now?
Well, the Chinese economy looks prosperous and it sure as hell is a lot stronger and bigger and more productive than it was in the 1970s when Mao was creating famines throughout the countryside.
But I still think it's a house of cards because it was built on a massive eruption of debt that has no parallel in human history.
Let me give you the numbers.
In 1995, the Chinese economy maybe had a half a trillion of debt, 500 billion.
Today, it's 50 trillion.
In other words, over the last three decades, they've essentially increased the public and private debt, and it's all over the place there because their accounting isn't transparent.
Some of it's the so-called local province-level debt and so forth.
Some of it's on the companies, some of it's on the central state.
But it's $50 trillion, so it's up 100-fold.
And from that, they built a massive new economy.
We built airports and railways and highways and public facilities of every type from one area of the country to another.
They built massive apartment complexes everywhere.
But if you look at it today, you see there's huge amounts of factories that are idle.
There are literally 60-70 million Apartment units that are empty that were basically built on speculation because the whole thing was one big speculative Ponzi.
So I think the Chinese economy is heading into a period of reckoning.
I don't think it's going to disappear down a black hole.
But I think the whole miracle is over because it was based on unsustainable debt, spending, and investment that wasn't really profitable or cost-effective.
So the reason I mentioned this is they may have a $16 trillion economy, as it's Computed up, but they are not a military threat to the United States because just like we learned after the 60s and 70s, the Soviet Union was a house of cards because communism doesn't work at the end of the day.
Overcentralization, government dominance doesn't work.
The same thing is true in China today.
So let's allow this Ponzi to unwind on its own.
And not get all this paranoia going about the Chinese threat and the idea that they're going to be landing on the shores of California any day now.
None of that's going to happen.
You know, they have two aircraft carriers.
We have 12.
The two that they have are 1980s vintage.
They were rust buckets bought from the old Soviet Union.
So we need to get a little bit more rational, a little bit calmer about what we're dealing with over there and recognize that if we really believe in, you know, I do, in capitalism and free markets and limited government and constitutional limits on what the state can do, Then look at China and you realize it's a failed project.
At the end of the day, what they're doing today just isn't going to work and they're not any kind of serious long-term military national security threat to America.
So we don't need this $900 billion defense budget monster because of the China threat.
But what does the military industrial complex do?
They just invent one new threat after the other.
If it's not Iran, it's Russia.
If it's not Russia, it's China.
They never stop inventing them because here's the reason why this defense budget needs to be butchered, you know, really rolled back, cut back.
There's so much extra money, when you think about it, in $900 billion of spending that there is tens of billions going to all these think tanks and all of these NGOs and all of these quasi-lobbies that are all in the business of buttering their own bread, of making the case for a huge defense budget.
And so I called it once, it's like a self-licking ice cream cone.
You've got to melt the damn thing.
And, you know, that's really why we need to have a sweeping cutback of this defense budget.
What is the GDP to economy ratio in China?
The GDP, you mean to the government?
It's very hard, you know, to answer that question, because when you have a system that is controlled directly and indirectly from the center, as regimented as China is, I mean, they tell the central bank to print the money, the money is printed, is handed out to all these private companies, they build factories, apartment buildings, railroads, airports, and so forth.
So I think it's very hard to say, but their debt, The $50 trillion that I'm talking about is more than, you know, it's 400% of GDP, even a higher ratio than we have.
Now, people think, when they think of debt, we have to remember, it's not just the public sector or federal debt that's important here, the $34 billion.
But the Fed has made it so easy to borrow and has created so much speculation on Wall Street.
That all sectors of the economy, including households, have loaded up on debt like never before.
So we have now, this is a startling number, $96 trillion of public and private debt in the United States on households, businesses, government, and finance.
Now, that is 360% of GDP. And by the way, in 1970, when we started down the road of all this Fed accommodation of easy money and debt, the ratio was 150%.
In other words, the debt was 150% of GDP. It had been 150% for a century.
We had had a lot of prosperity, you know, in the previous century, going back to 1870.
But, and this is kind of the big issue that is, you know, the elephant in the room that's not being addressed.
Essentially, since 1970, the American economy has gone through a giant LBO, leveraged bio, and we took the debt from $155 trillion and 150% of GDP to $96 trillion and 360% of GDP. These are all big numbers, I know, but let's just ask this question.
Had we stayed on the straight and narrow with a modest leverage ratio in our economy, the same one we had when your uncle was president, when the great prosperity of the middle class In the 50s and 60s and early 70s was very evident to everyone.
Had we stayed on that path, which was one and a half times leverage or 150% debt to GDP, had we stayed there today, there would be about 46 trillion of debt in the US economy, public and private, not 96 trillion.
So what we have It's about $50 trillion of extra debt.
Households have it.
Businesses have it.
Governments have it in spades.
It's in, you know, the Fannie Mae's, the Freddie Mac's, all of the quasi-government agencies.
We just have so damn much debt that as interest rates now go up necessarily to try to, you know, rebalance the economy, every 1% of interest It raises the debt service cost in the economy, every 1%, by $1 trillion.
And that is $1 trillion that doesn't go into investment.
It doesn't go into household budgets or wages.
It doesn't go into government spending for things that people might support.
It basically is an increase In the debt service burden of our economy.
So that's just another sort of metric or measure about why three things have to happen.
The warfare state has to be dismantled.
The rogue central bank at the Fed that's printed all this money, made all this easy interest rate, fueled all this speculation, fostered all this debt, has to be drastically curtailed.
And we need to get the Uniparty out of the dominance that it has today and restore some notion of citizen democracy in the United States.
Donald Trump isn't going to do that, but I think what we're really going to need is a complete revamp of our electoral system.
We've got to get money out of politics.
I'm for public finance of elections, which I'm sure a lot of conservatives have a hard time with.
But I don't mean just handing out big wads of money.
I mean, having the government.
I worked on this when I first went to Washington in 1970.
It was a big reform.
And John Anderson, who I worked for, and Stuart Udall, Democrat had a bipartisan plan to match small contributions, let's say up to $250 today, from millions of people, one-to-one with a government trust fund set of money.
And then you ban corporate contributions, you ban Big contributions above 250.
You get all the interest group and lobby money out of the system and try to restore what I would call citizen governance in America rather than what we have today, which is the permanent political class that's so deeply burrowed in in the beltway in Washington.
Yeah, I mean, that obviously is the solution we should be striving for.
The problem is, the big problem is the Supreme Court decision in 2010 and Citizens United that equates political contributions with, gives, endows them with First Amendment protections as free speech, which no other country in the world looks at, you know, money, which is just legalized bribery as speech.
I agree, but you know, that's why it calls attention to the fact that this is hard.
We need a constitutional amendment to liberate our election system, our political system, from the money and interest group and crony capitalist politics that dominate today.
To overcome that Citizens United decision, there's no way around it.
You need a constitutional amendment.
And so I say, let's try to figure out what needs to go in that amendment to fundamentally, you know, reshape and reset government in America, put it in that amendment, and then move it through the system, because I think the public is ready for it.
And I would do too.
You may be right.
You may be right.
I mean, you may be right.
Of course, the lobbying against it.
Would be enormous, but I agree with you.
Because our republic can't survive if it's just run by, you know, corporate.
And it changed our whole capitalist system.
So everybody is now profiteering.
I mean, government has become a profit center for business.
Absolutely.
Absolutely.
It is the profit center on Wall Street.
I mean, the Fed is enabling the worst behavior and You have an entire sector of the economy that is now, instead of looking at production figures and demand figures, they're looking at what the Fed is going to do next.
Exactly.
You know, as I said, the Fed has become a total captive of Wall Street.
Pricing in the stock market or the financial asset market generally is based on the last wink and nod From when Paul has his presser after a monthly meeting, and they're trying to figure out what he's saying between the lines, and that's what's driving the market.
That is totally crazy.
It's terrible.
Yeah, but to go back, I know it's a tall order.
It's sort of like the mice who decide they'd be safe if they put a bell on the cat's neck.
And the problem is they never figured out how to do it.
But there is got to be a way to do a constitutional amendment.
And while you're at it, not only do you override Citizen United, not only do you make public finance, you know, legal and constitutional, but I would put term limits on public office as well.
Six years for the House, six years for the Senate, one six-year term for president.
Nobody runs for re-election.
And I want to tell you, I was an incumbent, I know.
And the minute we got elected every two years, we'd hold a meeting.
The morning after to decide how to raise money for the next election.
And as long as that's what's driving the system, we're going to end up with uniparty dominance, which is basically incumbent self-perpetuation.
After all, what did the Republican Party under McConnell stand for today that's that much different than the Democratic Party under, you know, Schumer from New York?
The answer is they're both machines to raise money to elect incumbents.
Once you get beyond that, it's hard to know why they're there.
So we need to deal with the incumbency system.
We need to deal with money in politics.
We need to deal with With this massive dominance of interest groups and capture of government agencies, including the Federal Reserve, by self-benefiting interest groups, in this case Wall Street.
Yeah, I need to be convinced on term limits because I don't think that that's the...
The panacea, I think.
The new guys get captured by their staff and by, you know, the bureaucracy because they don't know their way around Washington.
And certainly in California, it hasn't freed them from, you know, corporate influence where they do have widespread term limits.
But we can leave that for another time.
Sure.
Let me ask about BRICS. What do you see happening with BRICS? How big a threat is it to the US economy and to our economic model?
By the way, I share all of your worries about the Fed.
The Fed is also what funds the war machine.
Fiat currency was invented to fund wars, and a war machine would stop overnight.
If the Fed wasn't there to fund it, the Fed also, the policies are designed to move wealth upward, increase these giant disparities of wealth that completely destabilize our democracy, and to do a lot of everything that comes out of the Fed is pretty bad, all of the ultimate impacts of it.
And we have to figure out how to restore sovereignty over the Fed to the public and how to ensure transparency.
There's no transparency and the kind of voodoo that these Merlins on Wall Street cook up and pretend that it's actual economic science, but other than just a formula for shifting wealth upward.
But talk about BRICS for a second.
BRICS, you mean the developing economies of the world?
Is that what you mean?
Well, the economies where they're switching off the petroleum dollar.
Yeah, yeah.
You know, the threat to the U.S. dollar is the global reserve currency.
Yeah, you know, the issue on the dollar, I look at it this way.
The dollar is probably the cleanest dirty shirt in the laundry room.
In other words, yes, we are printing all this money.
The Fed is kind of a rogue agency.
But if you look at the ECB or the Bank of England, or if you look at the People's Bank of China, or especially the Central Bank of Japan, I mean, they have gone nuts printing money and monetizing the debt.
So I don't think in the near term there is an issue.
of the reserve currency because we really don't have a reserve currency.
I know they all call that and that's the conventional wisdom but a reserve currency actually worked At a time when there was a link to gold.
And in the 30s, the British pound was a reserve currency, so people didn't want to hold governments, central banks didn't want to hold gold bullion.
They would hold sterling, and the Bank of England was willing to convert it reliably as promised.
Then they obviously defaulted on that in 1931.
The economy fell apart.
They recreated That kind of system with the dollar at Bretton Woods in 1944.
So for a few decades, the dollar was a reserve currency that could be used in lieu of maintaining your reserve assets in gold bullion.
And then we got into the mid-60s, late 60s, guns and butter with Johnson.
The Vietnam disaster in our foreign accounts fell apart.
Nobody wanted all those dollars they were accumulating.
They couldn't get gold as promised because we closed the gold window with Nixon in 1970.
And now we've been kind of in a world of floating currencies that are a dirty float because every central bank is constantly intervening to try to peg their currency in a way that's favorable, you know, to their export industries or the domestic economy. to their export industries or the domestic economy.
So I'm not worried about reserve currency.
I'm worried about the fact that the Fed, as the leader of the gang of central banks, Across the planet is leading a race to the bottom by printing all this money and essentially forcing everybody else one way or another to do the same thing.
Because if Japan doesn't print or the ECB doesn't print, their exchange rates will go way up.
Local export industries will start screaming and the politicians will be all over the central bank and it won't work.
So what we need to do is start at the heart, at the seat of the problem.
The seat of the problem is the Fed as the leading central bank of the world.
And we need to, this is another whole discussion I think for another day, But the shorthand for it is we need to go back to a more modest central bank like the one that Carter Glass, and a lot of people know the name from Glass-Steagall, that Carter Glass actually designed when he was chairman of the banking committee in 1913.
In the House and wrote the statute that set up the Federal Reserve in 1914.
And basically, that remit, that charter said the Fed is to act as a last resort source of liquidity to the banking system at a penalty rate of interest above whatever the market is setting.
It wasn't in the business of targeting precise inflation or targeting The precise levels of full employment.
It wasn't in the business of keeping Wall Street happy.
In fact, the whole Fed was set up in 12 regional banks away from Wall Street because Carter Glass understood the danger of capture.
He knew that way back in 1913.
I think that's pretty interesting.
We're a century later and we're still discovering the wisdom of Carter Glass.
But if we went back to a kind of notion, and I've written about this, that put the Fed in a very passive role of only providing liquidity at a penalty cost in a financial crisis, we wouldn't have these problems.
The market would be pricing Economic growth.
It would be pricing profit outlooks.
It would be pricing all of the to and fro and ebb and flow of real economic life on Main Street, not what Jay Powell and his merry band are likely to do at the next meeting.
We need to get the Fed out of all this activism, out of When the Fed is in the canyons of Wall Street, I say, cheek by jowl with all the traders and all the gamblers and speculators down on Wall Street, It is inevitably captured by all those good folks down there.
We need to get it out of Wall Street.
We need to get it out of the markets.
We need to put it back into the role of a backup to the banking system.
And if we could make that change, and it would be possible even under current statutes, it would make a world of difference.
All right, David Stockman, new book, His Trump's War on Capitalism, his blog, which I urge you to read.
It's a magical experience to read it every week.
It's called Contra Corner.
And what else do people need to know about you, Dave?
David and I have the same publisher, Tony Lyons, as Skyworks.
Yeah, that's where you can find our book, your great books.
And I can tell you, I was really enlightened back when your book on Fauci came out.
It was a tremendous book.
I think what we have to do, because we've learned from that, if we get the information out, the public event we can get through.
Now, there's all this effort at canceling voices and censorship and All the nonsense that went on in Silicon Valley and so forth.
But I think we're beginning to break through that.
I think the public is slowly beginning to wake up.
And so we all have to just keep working on it and try to inform the public about what the realities are.