When David Stockman’s book “The Great Deformation — The Corruption of Capitalism in America” came out in 2013, economist Paul Krugman denounced it as “the ravings of a cranky old man.”
“Doesn’t he know?” Stockman’s 86-year-old mother asked her son. “You were a cranky young man, too.”
Within its first week, the book rose to No. 4 on the New York Times best-seller list. Stockman, who served as President Reagan’s budget director from 1981 until 1985, concluded that there must be a lot of cranky people in America.
Speaking at the Hotel Jerome on Friday during the Aspen Business Luncheon, Stockman gave a rundown on why he thinks the outlook for the U.S. economy is much different from “the mainstream narrative.” During his 40-minute talk in front of more than 250 people, he called the Federal Reserve a “serial bubble machine.” In the first 86 years of its existence, the Fed’s balance sheet rose to $500 billion, “money it’s creating out of thin air and injecting into the economy.” In the past 13 years, the balance sheet has grown to $4 trillion and is rising at almost $100 billion a month.
“The fat lady’s already singing,” Stockman said. “It’s just a question of how long she can hold the note and when she’s going to run out of air.”
Other indicators he pointed to are the slow growth of compound gross domestic product and the quality of jobs being added to the economy. In the past 13 years, the U.S. has seen 1.7 percent of compound growth in real GDP, the lowest 13-year rate recorded in American history.
In 2007, there were 138 million payroll jobs reported. During the recession, that number dropped to 130 million, which is closer to 2000 levels. In 2014, the job count is back to 136 million, but Stockman said most of the jobs are part-time retail, restaurant and bar gigs. He said the recession eliminated 6 million jobs in construction, manufacturing, finance, insurance, real estate and other white-collar professions and has only recouped 1.7 million of them since.
Stockman, who started his career in Washington in 1970, left the Reagan administration for Wall Street in 1986, joining the investment bank Salomon Brothers. He later became a partner at the Blackstone Group, a private-equity company.
Known for his criticism of both political parties, Stockman on Friday said that the Republican and Democratic parties have copped out, creating a stalemate. As an example, he cited defense spending, which has increased by 80 percent since 2000. He said no new global threats have appeared since then. He called Russia a kleptocracy “run by a consummate thief who is more interested in stealing from his own people than from his neighbors.” China, he said, would not dare bomb 3,000 Walmart outlets in America because its economy would collapse in six months or less.
“We have been fired as the policeman of the world, and finally, the American people have said ‘no,’” he said.
Since 2000, the national debt has risen from $5 trillion to $17 trillion. Stockman offered a consumption tax as one part of the solution. He said due to the “political-maneuver kabuki dance,” no new revenue is going to be generated and new tax needs to be created.
“The conservatives ought to be beating the drums for a consumption tax because obviously our system’s got way too much consumption and way too little savings,” Stockman said. “Yet there is no voice anywhere in the system recognizing the need for revenue and the need for a new tax to generate it efficiently. As a result of that, you have a fiscal situation that is in total paralysis and dysfunction.”