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Taking Stockman: How Nixon, Reagan, Bush and their GOP Demolished the Economy

| August 1, 2010

ronald reagan richard nixon george bush

Horsemen of Stockman's apocalypse.

Back in 1981 David Stockman was the wonderkid of the Reagan administration–the director of the Office of Management and Budget who’d craft in actual budgets the trickle-down miracle Reagan had promised on the campaign trail: lower budgets, lower spending, higher tax revenue. But trickle-down economics was a wish, not a reality. It’s never worked. Lower taxes don’t generate more revenue. They generate deficits.

pierre tristam column flaglerlive Reagan knew it. So did Stockman. So did their guru, Friederich von Hayek. The deficits were intentional all along. They were edsigned to “starve the beast,” meaning intentionally cut revenue as a way of pressuring Congress to cut the New Deal programs Reagan wanted to demolish. “The plan,” Stockman told Sen. Daniel Patrick Moynihan at the time, ” was to have a strategic deficit that would give you an argument for cutting back the programs that weren’t desired. It got out of hand.”

A 1985 interview with von Hayek in the March 25, 1985 issue of Profil 13, the Austrian journal, was just as revealing. Von Hayek sat for the interview while wearing a set of cuff links Reagan had presented him as a gift. “I really believe Reagan is fundamentally a decent and honest man,” von Hayek told his interviewer. “His politics? When the government of the United States borrows a large part of the savings of the world, the consequence is that capital must become scarce and expensive in the whole world. That’s a problem.” And in reference to Stockman, von Hayek said: “You see, one of Reagan’s advisers told me why the president has permitted that to happen, which makes the matter partly excusable: Reagan thinks it is impossible to persuade Congress that expenditures must be reduced unless one creates deficits so large that absolutely everyone becomes convinced that no more money can be spent.” Thus, he went on, it was up to Reagan to “persuade Congress of the necessity of spending reductions by means of an immense deficit. Unfortunately, he has not succeeded!!!” Those three exclamation points, unusually effusive for an economist, are in the original.

Keep in mind: Hayek is speaking his disillusion with the GOP’s misapplication of his theories in 1985. To this day he remains a favored mask of budget-wreckers pretending to be fiscally conservative while pushing for more tax cuts. Those wreckers are at work in Congress today as they argue for an extension of the Bush tax cuts of 2001 and 2003, which were far larger than Reagan’s of 1981 and 1986 (in 1986, Reagan agreed to some tax increases, but mostly in the Social Security payroll tax, meaning on the middle and lower classes).

david stockman

David Stockman

Stockman resigned from the Reagan administration in 1985, himself disillusioned. Today in The New York Times, he writes a damning piece that sums up Republican duplicity on budgets and fiscal responsibility going back to the Nixon administration. “IF there were such a thing as Chapter 11 for politicians,” Stockman begins, “the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing. The nation’s public debt — if honestly reckoned to include municipal bonds and the $7 trillion of new deficits baked into the cake through 2015 — will soon reach $18 trillion. That’s a Greece-scale 120 percent of gross domestic product, and fairly screams out for austerity and sacrifice. It is therefore unseemly for the Senate minority leader, Mitch McConnell, to insist that the nation’s wealthiest taxpayers be spared even a three-percentage-point rate increase. More fundamentally, Mr. McConnell’s stand puts the lie to the Republican pretense that its new monetarist and supply-side doctrines are rooted in its traditional financial philosophy.”

In a piece entitled “Four Deformations of the Apocalypse,” a clever play on the biblical image of the four horsemen of the apocalypse, Stockman outlines four major Republican breaks with discipline that set the stage, then compounded, American bankruptcy, beginning with Milton Friedman convincing Nixon to  default “on American obligations under the 1944 Bretton Woods agreement to balance our accounts with the world. Now, since we have lived beyond our means as a nation for nearly 40 years, our cumulative current-account deficit — the combined shortfall on our trade in goods, services and income — has reached nearly $8 trillion. That’s borrowed prosperity on an epic scale.”

Friedman, a Nobel laureate also worshiped like von Hayek by free-marketeers, , had promised Nixon that markets would do what governments couldn’t–help deficits self-correct. They never did. “In fact,” Stockman writes, “since chronic current-account deficits result from a nation spending more than it earns, stringent domestic belt-tightening is the only cure. When the dollar was tied to fixed exchange rates, politicians were willing to administer the needed castor oil, because the alternative was to make up for the trade shortfall by paying out reserves, and this would cause immediate economic pain — from high interest rates, for example. But now there is no discipline, only global monetary chaos as foreign central banks run their own printing presses at ever faster speeds to sop up the tidal wave of dollars coming from the Federal Reserve.”

And that was before the great recession.

The second change was America’s shrugging off its public debt, which was just 40 percent of the size of the economy in 1970 (or $425 billion). It was more than 25 times that size by the time the second Bush left office, with the consequences of his tax-cutting policies and an even larger embrace of “the welfare state and the warfare state” not yet accounted for. Obama had his share of considerable deficit spending, but nowhere near the cumulative wrecks of his predecessors, who had the benefits of growing economies to bank on as Obama does not. “This debt explosion,” Stockman writes, “has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.”

By 2009, the tax-cutting ideology had reduced federal revenues to 15 percent of the size of the economy, the lowest level since the 1940s. “Then, after rarely vetoing a budget bill and engaging in two unfinanced foreign military adventures, George W. Bush surrendered on domestic spending cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier. Republicans thus joined the Democrats in a shameless embrace of a free-lunch fiscal policy.”

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That’s  before accounting for the third major change–the deregulation of financial markets and government’s complete abandonment of oversight for the largest ponzi-scheming institutions in the nation’s (and the world’s) history–on taxpayers’ backs. “As a result,” Stockman writes, “the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008. But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.”

Fourth destructive change, and the one most familiar to those who lengthen unemployment lines these days: the off-shoring of high-value jobs in trades, transportation, technology and professions, a sector that’s shrunk from 77 million jobs to 68 million jobs. “The only reason we have not experienced a severe reduction in nonfarm payrolls since 2000,” Stockman writes, “is that there has been a gain in low-paying, often part-time positions in places like bars, hotels and nursing homes.” That’s the Floridanization of the American economy.

“It is not surprising, then,” Stockman concludes, “that during the last bubble (from 2002 to 2006) the top 1 percent of Americans — paid mainly from the Wall Street casino — received two-thirds of the gain in national income, while the bottom 90 percent — mainly dependent on Main Street’s shrinking economy — got only 12 percent. This growing wealth gap is not the market’s fault. It’s the decaying fruit of bad economic policy.”

And still, Republicans in Congress and across the country are staking their fortunes on more tax cuts, including–and especially–for the richest. That’s sacrifice. That’s fiscal responsibility. They know they have a winning platform because their voters want the free money, too. That’s the American economy of the past 40 years, an economy living so far beyond its means that it wouldn’t recognize a day of reckoning if it was baking it brighter and hotter than Florida’s noonday sun.

Pierre Tristam is FlaglerLive’s editor. Reach him by email here.

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44 Responses for “Taking Stockman: How Nixon, Reagan, Bush and their GOP Demolished the Economy”

  1. Mary says:

    Now THAT was a piece I could get behind


  2. NortonSmitty says:

    And we can believe him because if you remember, he was the only one of Reagans inner staff to get publicly fired. For telling the truth. “The tax cuts are just a Trojan Horse for the rich” comment, to the Atlantic magazine if I recall.


  3. Kevin says:

    The photo of Ronald Reagan is excellent. I’m not saying anything else about the article because it has the potential to get ugly:o)


  4. A parent says:

    Once again FlaglerLive hits it out of the park!


  5. BottomLine says:

    Once again FlaglerLive spins reality. What did Carter do for the economy? Obama is having a great time. Clinton.. I actually liked him when he went to the middle to get things done.


    • Mark Warren says:


      Carter inherited a very volatile economy that had spent billions of dollars and tens of thousands of American lives in an illegal war in ‘southeast Asia’. At the same time, the mid-east was starting to realize that America had cheated them out of THEIR land and THEIR oil. And they demanded more for their efforts. It wasnt a Carter policy that caused the oil crisis.
      And then we had Iran. Iran was very angry with America because we had forced their people to accept a dictator known as ‘The Shah’. He got filthy rich as did American oil company CEO’s and the country did without. Kind of like how diamonds cost blood now. And Iran decided that they were taking their country back, away from the Shah and we were in the way.

      You really should study history and not just listen to the foxbot. With Obama taking office in the heat of the biggest downfall in history, if you include the rest of the world and the largest recession in America since the last republican depression in 1929. And you want to blame liberals just like the barons did in the 20′s, while floating on their tax free yachts.

      And I am sure you ‘actually liked Clinton’… when he was threatened with impeachment and forced to deal with ‘the contract on Americans’ written by Nueter Blinggrinch.


      • Rick Shannon says:

        And remember that Reagan used the CIA via George Bush to make deals with Iran over the hostages, to keep them until after the elections then release them. Part of the network of lies that included the Iran/Contra affair. That ugly business not only traded arms with Iran to fund the Contras, with evidence it established the Caribbean cartels and developed the American cocaine markets, producing another black market revenue stream. The people of the US were at this point shaken in their belief in their government by not only the war, but the crimes of Nixon and his disgrace, resignation and pardoning. The growing far-right agenda crowd organized against Carter like they have against Obama, destroying him with lies and political chaos. They tried the same thing with Clinton, but he was just too wily, savvy, and connected. He was also not that far politically from moderate and liberal Republicans.


      • Anonymous says:

        You never answered the question. What did Carter do? Okay he inherited a bad hand. Did he show leadership and make it better or flounder and make it worse?


    • Anonymous says:

      Carter brought in Volcker, who undid nixon’s runway inflation. In fact, he did such a good job at the Fed that Reagan reappointed him. Once inflation had been brought under control Volcker released the controls fueling an economic boom that helped Reagan win 84 in a landslide.


    • Anonymous says:

      The article wasn’t about Carter, Clinton, or Obama.
      Hence … your confusion about the author’s failure to mention them.

      If you wanted info about Carter, Clinton, and Obama … then reading an article entitled “How Nixon, Reagan, Bush and their GOP demolished the economy.” … is probably the worst place to look for that info. You would get better results if you read an article that was specifically about those 3 presidents, rather than one about 3 different presidents..

      I can’t believe that you actually need this to be explained to you! Maybe you should just go over to fox “news” and get your anti american, communist conspiracy fetish stroked.


  6. Taxman says:

    I would say that they shouldn’t be any room to dispute the facts. On the other hand there’s always one in every crowd.


  7. Greg Ransom says:

    Were did you get a copy of Profil 13 — and who published it?

    I’d like a copy of this Hayek interview.


  8. NortonSmitty says:

    Kevin your probably right. But then again, pretty was never my strong suit.

    What ya’ got? So far I’m disappointed.


  9. NortonSmitty says:

    I guess it;s up to me to get this party started.

    BottomLine, what facts do you think were twisted specifically? Don’t forget this is coming from David Friggin’ Stockman, Reagans Budget Director who was one of the initial planners of the greatest transfer of wealth within any society in the history of man. The shifting of the tax burden from Capital to Labor, from the Investment Class to the Working Class.

    But tha’ts too long an argument to document here, and forever will be to most working-class Republicans.

    But Stockman was the Golden Boy back then. An economic genius who was so good, he was put in charge of The Plan. Tax cuts that would increase the taxes collected. Capital Gains cuts that would allow the rich to plow their money back into American factories and not penalize them with taxes. Deregulation! Good times!

    Even though Stockman didn’t believe a word of it. Knew it was bullshit as an acknowledged economic prodigy even though he planned it. Then he helped sell it to a shellshocked American public reeling from 20% inflation, skyrocketing energy costs. Stagflation and Japan kicking our ass. Thanks Jimmy! (I’ll sorta’ give you that one)

    But he couldn’t help but try to convince his peers that he really didn’t believe anything that silly. So one night out after a few drinks, he told his buddies the famous line that cost him his job eventually. That the tax cuts were a Trojan Horse for the rich, and was quoted in a magazine. He committed the one eternal and unpardonable sin in Washington, he told the truth. And even worse, he let it get out to the Rubes!

    I remember the outrage. It was in all the papers for weeks. OUTRAGE!! No, not that the policies we were spoon-fed and would ruin the economy to this day, but outrage that this young punk would betra our beloved Ronnies trust ! So Ron, being the kind, forgiving soul we all love, took the boy “To the Woodshed” to straighten him out. It was all over every paper. I remember because THERE WASN;T ONE STORY ABOUT WHETHER THE GUY WHO FORMULATED THE SCAM WAS TELLING THE TRUTH!

    Not one. The more things change, huh?

    So now he has come out to confirm what we have had proven to us about the supply-side, trickled-on economic theories for the last thirty years. They don’t work, no matter how extreme you take the theory.

    Economic theories are at least consistent. Unfortunately, so are Republicans.

    PS. The things Clinton went to the middle on were NAFTA and repaling the Glass-Steagle act that kept banks from getting too big to fail, How;s that middle workin’ for ya?


  10. [...] Hayek on Reagan & “Supply Side Economics” in 1985 August 1, 2010 | Posted by Greg Ransom From the  March 25, 1985 issue of Profil 13, translated by an anonymous blogger: [...]


  11. BW says:

    What you left out was that President Obama was the reason that President Reagan’s plans did not work. You can pretty much pin every failure on Obama these days and it’s real easy to do. Just watch Beck’s afternoon wacky fiction extravaganza and you’ll see how creative you can get with it too. It’s fun. Give it a try.


  12. dlf says:

    When are we going to live up to fact that obama is the man in charge, has been for 18 months. What have we got, jobless rate between 9-18 per- cent, people still losing their homes, is there still a prison in Cuba, are we still fightong two wars, ts our tax rates going up? Yes, Bush may have been part of the problem but what the hell has the current man in charge done fo us, how is hope and change working out for you?,


    • Kathy Kelley says:

      Obama would have done more if the Republicans hadn’t dug in their collective heals to fight EVERYTHING he’s tried to do. They became the party of NO the minute Obama was elected and their plan was to block him at every turn in order to make him unsuccessful and thus look ineffective to the American public. Fortunately, many of us realize this selfish strategy. The Republicans care more about regaining the top office for the sake of power and wealth. They care nothing about the demise of this country or else they would have realized the country comes first and they must work cooperatively with their Democratic partners in government instead of blocking every bipartisan attempt Obama has made. Republican greed has killed this country!!! David Stockman was there at the beginning of this mess. He see’s what the rest of you refuse to see. It’s pathetic!!


    • Anonymous says:

      President Obama is the perfect candidate for the GOP. They had one goal – make him a one term president. They filibustered everything he tried to do, and now blame him for the failure resulting from their own policies. Pretty nice gig if you can get it.


  13. Mike says:

    Another thought provoking article. What a great web site. “Trickle down” economics has been assaulted by several economists, it just doesn’t work.

    As far as blaming Resident Obama for out troubles, we should be thankful he was in charge to lead us out of the worse recession since the depression of the 20′s. Thanks to President Obama we now have a health care bill, control over financial markets, complete coverage of money requested by the VA, a stimulus bill and 200 other pieces of legislation that has helped American families.


  14. dlf says:

    Mike: wait till you get the bill for all these wonderful, free, social programs you think you are entitled to.. None of these shams have produced one single job.


  15. Lin says:

    Where are the flattering portraits of Bill Clinton, Barney Frank & Chris Dodd for their contribution to the mortgage, real estate debacle part of our demolished economy?


    • Anonymous says:

      Probably because the bill you are referring to wasn’t Clinton, Frank, Dodd. It was Graham, Leach, Bliley. All Republicans might I add. Its also instructive to note that Republicans had enough votes on their own to pass the bill, and as a member of the minority party Dodd and Frank didn’t have a lot of say in how the bill was crafted.


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