I’m reading David Stockman’s book The Great Deformation — the Corruption of Capitalism in America. Stockman was Reagan’s Director of the Office of Management and Budget. He criticizes the GOP for its militarism and its whoring for the rich. He says there was no need to bail out Wall Street. The speculators who would have lost out deserved to lose and the contagion wouldn’t have spread beyond the canyons of Wall Street. The Great Deformation

Progressives would agree with much of what Stockman has to say.

“[T]he Republican Party was hijacked by modern imperialists during the Reagan era. As a consequence, the conservative party cannot perform its natural function as watchdog of the public purse because it is constantly seeking legislative action to provision a vast war machine of invasion and occupation.” (p 688)

“The Republican Party has totally abdicated its job in our democracy, which is to act as the guardian of fiscal discipline and responsibility. They’re on an anti-tax jihad — one that benefits the prosperous classes.”  “How the GOP Became the Party of the Rich”. Rolling Stone.

But Stockman is a true conservative.  He doesn’t believe the government should be involved in bailing out business or stimulating the economy.  He opposes Keynesian macro-economic policies and thinks that government does more harm than good when it meddles.  He also opposes Social Security, Medicare, Medicaid, and the minimum wage.

“At the heart of the Great Deformation is a rogue central bank that has abandoned every vestige of sound money. In so doing, it has enabled politicians to enjoy ‘deficits without tears’ by monetizing massive amounts of public debt.”

Stockman calls the bailout, the stimulus, and the Fed’s printing of money “a de facto coup d’etat by Wall Street” whose purpose was to re-inflate the financial bubble.

“The Detroit-based auto industry was debt-enfeebled house of cards that had been a Wall Street playpen of deal making and LBOs for years, including my own. ”  He thinks the there needs to be a rollback of the “preposterous $100,000 per year cost of UAW jobs.”

Stockman spent twenty years after leaving the White House in the leveraged buyout business.  He was indicted for fraud when a business he invested in went bankrupt. After a two year battle, prosecutors decided to drop charges. Stockman says the business failure was due to stupidity (his) and market decline, not fraud.

In the last chapter, Stockman proposes the following radical policy changes which, he admits, have almost no chance of being enacted in the current political climate.  Some of the changes (such as overturning Citizens United, the establishment of federally funded elections, and a wealth tax on the rich) would be eagerly welcomed by progressives. Other changes (such as the elimination of Social Security, Medicare, and income taxes) would be strongly opposed by progressives.

  1. An end to the Feds expansionist monetary policy and a return to a gold-backed dollar.
  2. An end to deposit insurance and an end to Fed’s lending federally insured money to speculating banks.
  3. Adopt “Super Glass-Stegall II”, erecting a wall between investment banking government funds (“insured deposits or access to the Fed discount window”).
  4. An Omnibus Amendment that limits Congress members to a single term of six years in office and eliminates the Electoral College (“bringing the nation into the modern world of one person, one vote”).
  5. Require Congress to balance the budget, except in case of a declared war.
  6. End Keyesian macroeconomic expansionism and allow the free market to set wages and levels of production.
  7. Abolish social insurance bailouts, and economic subsidies.
  8. “Eliminate the Departments of Energy, Education, Commerce, Labor, Agriculture, HUD, Homeland Security, the SBA, DOT, and the Ex-Im Bank.” Also eliminate Fannie Mae, Freddie Mae, the FHA, the homeowner’s tax deduction, and subsidies for Amtrak.
  9. “Erect a study cash-based means-tested safety net and abolish the minimum wage.”
  10. Abolish all forms of health insurance, including Medicare, Medicaid and Obamacare, and replace them with “cash-based transfer payments.”  Also eliminate tax subsidies for employer-funded health insurance. All these forms of insurance, says Stockman, mostly serve to prop up the corrupt medical-industrial complex. “The cancerous growth of the medical care complex would be halted and reversed.”  He believes the free market will devise innovations to provide efficient care. “The one necessary concession to socialism would be a system of federally licensed catastrophic insurance funds would automatically cover the means-tested safety-net population.”
  11. “Replace the warfare state with genuine national defense.”
  12. Establish a 30% wealth tax on the rich in order to reclaim the trillions they extorted from the US Treasury and the middle class. “Needless to say, $14 trillion of national debt reduction could never be achieved under any known ordinary fiscal device; it would require a one-time wealth tax, essentially a recapture of part of the windfall wealth gain that has accrued to the top of the economic ladder during the age of bubble finance.”
  13. Repeal the Sixteenth Amendment (income taxes) and finance “the beast” via consumption taxes.

By the way, Stockman isn’t the only former Reagan economic adviser to argue against GOP tax policy. Former Labor Secretary Barry Bluestone thinks the GOP tickle-down economic policy is a failure. He says “The wealthiest people spend maybe 30% of their income. Poor people spend 100%, working people spend 98%, so as we move money away from working families towards very wealthy families, we take more and more consumption out of the economy, means slower and slower growth, means higher and higher an extended unemployment.”