Podcast Summary
Former Reagan budget director David Stockman and I find common ground in opposing corporate crony capitalism: Despite political differences, Stockman and I agree on the need to address crony capitalism and its influence on government, with Trump's policies deepening the issue rather than draining the swamp as promised.
David Stockman, a former budget director under Ronald Reagan, and I, despite our political differences in the 1980s, have found common ground in our opposition to corporate crony capitalism and its influence on the American government. Stockman's latest book, "Peak Trump," critiques President Trump's economic policies, arguing that they did little to help the average American and instead deepened the swamp of government corruption and cronyism. Both Stockman and the podcast host agree that both major political parties have formed a "uni-party" that prioritizes endless wars, disregards fiscal responsibility, and caters to Wall Street and the 1%. Despite Trump's promises to drain the swamp, the host argues that he actually made it worse by encouraging the Fed to print more money and inflate financial markets. The conversation highlights the importance of recognizing the dangers of crony capitalism and the need for genuine political change.
Trump's Economic Policies Fell Short of Promises: Trump's economic policies underperformed, with real growth below average and job market decline, despite his claims of a 'great economy' or 'MAGA economy'.
Donald Trump's economic policies during his presidency did not deliver the growth promised. Despite his claims of a "great economy" or the "MAGA economy," the real economic growth rate was significantly lower than the historical average, with an average of 1.5% compared to the long-term average of 3.1%. The job market also saw a decline, with the number of nonfarm jobs shrinking by 3 million during his tenure, which is the only time this has happened since the early 1930s. Trump's pandemic response, including the lockdowns, further disqualified him from another term due to their negative impact on the economy. Instead of focusing on private sector investment and productivity, his policies relied heavily on government spending and immigration restrictions, leading to a stagnant economy and a struggling middle class. It's crucial to acknowledge these facts and consider alternative candidates who can bring about meaningful change for the economy and the middle class.
Tax cuts led to revenue loss and slower growth, but defense spending increased debt: Despite tax cuts, economic growth slowed and debt surged due to increased defense spending and COVID-19 bailouts
While the corporate and individual tax cuts resulted in significant revenue loss, the investment growth rate actually slowed down in the following years. The speaker argues that tax cuts should be earned and paid for through spending cuts, such as in defense, where the budget could have been reduced without compromising homeland security. Instead, the defense budget was increased significantly, leading to a massive increase in public debt. Trump inherited a debt of $20 trillion and left office with $28 trillion, an amount that surpasses the total debt accumulated from the founding of the republic to 2005. This massive debt could have been used to fund private sector investment to boost economic growth, but instead, it was largely used for COVID-19 bailouts. Today, the public debt stands at $34 trillion, which is over 130% of GDP, and will greatly impact future generations.
The unsustainable public debt and revenue loss due to crony capitalism: The current path of continuous wars, growing defense budgets, and crony capitalism's revenue loss could lead to a public debt of up to 200% of GDP and a $21 trillion revenue loss by mid-century, burdening future generations
The current path of continuous wars, growing defense budgets, and other related spending is leading to an unsustainable public debt that could reach 100 trillion dollars or even 200% of GDP by the middle of this century. This is a major challenge that requires a significant political force to address, as it will burden future generations. Additionally, crony capitalism and its dominance in Washington, with its various loopholes and giveaways, is contributing to a massive revenue loss of $21 trillion over the next decade. To put things in perspective, this is as big as the entire projected deficit over the same period. A major shift towards a more fiscally responsible and equitable tax system could help mitigate this issue.
U.S. Government's Structural Deficit: A Ticking Time Bomb: Addressing tax loopholes, subsidies, and preferences could generate significant revenue, reducing the U.S. government's structural deficit and freeing up resources for investment. Ignoring this issue could lead to a national debt crisis, with the cost of servicing it reaching astronomical levels.
The U.S. government faces a significant structural deficit, which could reach catastrophic levels if not addressed. This deficit is largely due to tax loopholes, subsidies, and preferences that together amount to nearly 40% of the potential tax base. If these "weak claims" on the budget were addressed, significant revenue could be generated, reducing the deficit and freeing up resources for investment. The national debt, currently at $34 trillion, is already a major concern, with the cost of servicing it equivalent to the military budget. If the debt doubles and interest rates rise, the cost of servicing it could reach an astronomical $3 trillion per year. This is a stark reality that cannot be ignored, especially as the Fed can no longer keep interest rates artificially low to finance the government's deficit. The consequences of inaction could be dire, dwarfing the costs of social programs and military spending.
Questioning advisors during critical moments: Leaders must challenge advisors and make informed decisions, even during crises, to avoid catastrophic consequences.
During critical moments in history, it's essential for leaders to challenge their advisors and question decisions on a granular level. In the discussion, the example of the Cuban Missile Crisis underscores the importance of thorough examination and the potential catastrophic consequences of hasty decisions. Conversely, during the COVID-19 pandemic, President Trump's failure to question his advisors led to a lackluster response, causing an unprecedented 34% decline in real GDP in Q2 2020. History demonstrates that leaders must have the capacity to stand up to their bureaucrats and make informed decisions, even when faced with opposing opinions. Ignoring the big elephant in the room, such as ballooning public debt or potential disastrous consequences, can lead to dire consequences.
The social services sector lost over 42 years worth of jobs growth in one month: The social services sector, including bars, restaurants, movie theaters, etc., suffered massive job losses during the lockdowns, equivalent to over 42 years of growth in one month.
The economic impact of the lockdowns hit the leisure and hospitality sector, also known as the social services sector, particularly hard. This sector, which includes bars, restaurants, movie theaters, and more, lost over 42 years worth of jobs growth in just one month in April 2020. Despite Trump's "America First" stance, his inability to implement policies due to conflicting advisors and the ongoing presence of US troops in Syria serve as examples of his inability to bring the empire home and run a fiscally responsible national security policy. Furthermore, the historical context of Taiwan's relationship with China challenges the notion that the US should provoke a potential conflict over Taiwan's independence. Instead, a clear and consistent policy is needed to avoid the risk of nuclear war and maintain peace in the region.
Peaceful resolution needed for Taiwan-China tensions: The Taiwanese economy could thrive like Shanghai's, but peace is crucial. China's economy has grown remarkably but faces a debt crisis, and US defense budget is inflated due to military-industrial complex.
The speaker believes that the Taiwanese economy has the potential to thrive like Shanghai's, but tensions between China and Taiwan should be addressed peacefully rather than militarily. Regarding China's economy, while it has experienced remarkable growth, the speaker warns that it is built on a massive debt structure and is heading for a period of reckoning. The Chinese economy may not be a military threat to the US, and the ongoing defense budget is inflated due to the military-industrial complex creating new threats and the influence of think tanks and NGOs. The speaker suggests that there is a need for a more rational and calmer approach towards China and China's economy.
Debt Levels in US and China Reach Unsustainable Heights: The US debt-to-GDP ratio has tripled since 1970, burdening households, businesses, and government with increased debt service costs. Reforms like reducing military spending, reining in the central bank, and implementing campaign finance reform are necessary to address this issue.
The accumulation of debt in both China and the United States has reached unsustainable levels due to easy monetary policies and a culture of borrowing. In the US, the ratio of debt to GDP has skyrocketed from 150% in 1970 to over 360% today, leading to a significant increase in debt service burden. This debt is held not just by the public sector but also by households, businesses, and finance institutions. The consequences of this debt load become particularly problematic when interest rates rise, as the additional debt service costs do not go towards investment, household budgets, or government spending but instead add to the overall economic burden. To address this issue, significant reforms are needed, including reducing military spending, reining in the central bank, and implementing campaign finance reform to restore citizen democracy. The Supreme Court decision in Citizens United, which equates political contributions with free speech, has worsened the problem by allowing unlimited corporate and interest group influence in politics.
Discussing the need for constitutional amendments in the US: Speakers advocate for constitutional changes to tackle money's influence, address public finance, term limits, and agency capture. However, they acknowledge the challenges, including intense lobbying efforts, and express concerns about the Fed's role and wealth disparities.
The current political system in the US, influenced heavily by money and interest groups, requires a constitutional amendment to address issues like Citizens United, public finance, term limits, and the capture of government agencies by self-benefiting interests. The speakers agree on the need for change but acknowledge the challenges, including the immense lobbying efforts against it. Additionally, they express concerns about the Fed's role in funding wars, increasing wealth disparities, and destabilizing democracy. The BRICS (Brazil, Russia, India, China, and South Africa) are mentioned as a potential threat to the US economy, but the conversation primarily focuses on the need for domestic reform.
Fed's Lack of Transparency and Accountability in Monetary Policies: The speaker advocates for a more modest Fed role, limiting it to providing emergency liquidity to the banking system, and allowing markets to price economic growth and profit outlooks.
The lack of transparency and accountability at the Federal Reserve, particularly in their monetary policies, is a major concern. The speaker argues that the Fed's actions, such as printing money and monetizing debt, are leading a race to the bottom for other central banks around the world. He suggests that we need to go back to a more modest central bank, like the one designed by Carter Glass in 1913, which would limit the Fed's role to acting as a last resort source of liquidity to the banking system at a penalty rate of interest. This would allow the market to price economic growth and profit outlooks, rather than relying on the Fed's decisions. The speaker also mentions BRICS countries and their potential threat to the US dollar as the global reserve currency, but he is not overly concerned about it in the near term. Instead, he believes the focus should be on addressing the root cause of the problem, which is the Fed's expanding role and lack of transparency.
The Importance of Limiting the Role of the Federal Reserve: Returning the Fed to its original role as a backup to the banking system could mitigate negative consequences for the economy, and accurate information to the public is crucial for informed public discourse.
Key takeaway from this discussion with David Stockman is the importance of limiting the role of the Federal Reserve in financial markets. Stockman argues that when the Fed is too deeply involved in markets, it becomes influenced by Wall Street and its traders, speculators, and gamblers. This can lead to negative consequences for the economy. To mitigate these issues, Stockman suggests returning the Fed to its original role as a backup to the banking system. This change, he believes, could make a significant difference. Additionally, Stockman emphasizes the importance of getting accurate information to the public, despite efforts at censorship and silencing voices. He believes that as more people become informed, they will better understand the realities of various situations, such as the role of the Fed or the actions of public figures like Dr. Fauci. Stockman's work, including his book "Trump's War on Capitalism," can be found on his blog, Contra Corner, and through his publisher, Tony Lyons. Overall, the conversation highlights the importance of maintaining a healthy balance between government intervention and market forces, as well as the significance of informed public discourse.
