In his massive new tome, The Great Deformation, former Reagan budget director Stockman outlines the ways a renewed Keynesianism has corrupted the Reagan Revolution’s ideal of an economy based on free markets.
You went to Harvard Divinity School in the late ’60s. Did studying theology influence your beliefs about government or the private sector?
I was a radical protester—a member of SDS—utterly convinced Vietnam made no sense. That was the peak period of ferment. I did think about becoming a philosopher or theologian...I answered an ad for a job as live-in housekeeper. It turned out to be for Pat Monyihan. That’s when I became alienated by the radical movement. He was a credible, legitimate intellectual: anti-SDS, anti-Marxist. It was the first time I discovered you didn’t have to be a hidebound Republican to be an intellectual. When an ROTC building was set on fire, it turned me off to the New Left. I decided to get away from street protest.
You allege the Fed Reserve is captured by “forces” undermining free market & democracy; could you name those forces?
It’s an intellectual capture: Greenspan & Bernanke shifted to managing the economy on a daily basis with great degree of precision through Wall Street and the stock market. That’s totally inconsistent with sound money and sound banking. Even though 12 people on the Open Market Committee believe they are the policy makers, they are in thrall to demands of traders, fast money operators and hedge funds.
You critique leverage buyout culture after decades of experience working in that industry. What’s the proper role of leveraged buyouts?
It is just one form of capitalizing a company. I believe in free markets; investors and businessmen should be able to organize their assets any way they want, but I don’t think public policy should be biased. That is real distortion of an honest free market. The market should set interest rates. Interest rates are so low it makes debt insanely cheap for leveraged buyouts. Debt is a form of capital. The interest payments are a deductible.
Which of your suggestions do you believe is most essential to stopping your feared state-wreck?
We are stuck in the current dysfunctional system; I don’t know how you’d get a constitutional amendment passed. The mice figured they’d be safe if they could get a bell on the cat’s neck, but they could never figure out how to put the bell on the cat’s neck. The Fed has to get out of the business of being immersed in every aspect of the US economy. It should only be there to provide emergency liquidity when banks request it. There would be no balancing wheels in the scenario I’m painting. Break up the banks. If they’re too big to fail, they are too big to exist. Otherwise, we’re never going to restore capitalism; we’re never going to restore fairness. We don’t have anyone anymore with resolve and practical understanding that you can’t run an economy by constantly kicking the can down the road.
Who’s your ideal reader, given that you are not optimistic government will change?
The great audience not involved in running the Fed who are totally perplexed about what they’re being told, who think this doesn’t add up. How is Goldman Sachs making record profits? How did the economy reverse course in nine months? A lot of people believe the mainstream narrative is not on the level. Let’s go back to basic principles, not romanticized histories. Krugman would have you believe the New Deal was a wonderful thing that stopped the Great Depression. It did not.
Do you see yourself returning to policy making? What’s next for you?
The most useful thing I can do is be an outlaw commentator.