04.07.11

Reagan Budget Guru: Shut It Down!

Former budget director David Stockman says America must deal with its mountain of debt, and faces an epoch of falling incomes and a stalled economy. “Bring it on,” he tells Lloyd Grove about the government shutdown.

Feeling depressed about the budget negotiations in Washington—the meaningless posturing, the colossal deficit, the looming government shutdown, and the nation’s collective inability to come to grips with the real problem?

Leave it to David Stockman, the acid-tongued former budget director for President Reagan, to make you feel even worse.

“Bring it on,” Stockman told me Thursday morning from his estate in Greenwich, Connecticut—some 40 hours before the midnight Friday deadline that, absent an agreement between President Obama, Senate Majority Leader Harry Reid and House Speaker John Boehner, will result in furloughs, federal dysfunction and untold harm to the fragile economy. “I think the Republicans need to stand rigidly firm and shut the government down for a few days. The Obama White House is weak. If the Republicans hold the line, Obama will fold faster than a lawn chair. And the Republicans will get their $60 billion in reductions.”

Stockman described the impending showdown as a “wakeup call”—the political equivalent of getting whacked in the head by a two-by-four containing a rusty nail.

“And then,” Stockman added in a tone of lethal glee, “they’re going to be calling their own bluff. Because at that point the problem will remain 98 percent as large as it was the morning before.”

The 64-year-old Stockman, who made millions as an investment banker after serving as a Michigan congressman and then Reagan’s fiscal guru in the early 1980s, makes Debbie Downer sound like a cockeyed optimist. During a conversation punctuated by mirthless laughter, he characterized America’s elected officials as “the fools inside the Beltway,” dismissed House Budget Committee Chairman Paul Ryan, generally celebrated as the GOP’s brightest policy star, as “an earnest young man” who offers discredited ideology over practical solutions, and predicted a long and agonizing epoch in which incomes will fall, the economy will stall and reality’s bite will leave painful tooth marks.

“If the Republicans hold the line, Obama will fold faster than a lawn chair.”

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Government Shutdown: Full coverage
“The real issue now is that the Tea Party needs to shut down the government or shut down Boehner,” Stockman said. “Boehner is as prone to cave as Obama. So how can we have any confidence that Washington is ever going to address anything when you have two guys who love to kick the can down the road?”

Stockman went on: “The Democrats are not doing anything about their guy either. They should be pounding the table—why aren’t we cutting the defense budget by $100 billion a year instead of this embarrassing pinprick [$78 billion over five years] that [Defense Secretary Robert] Gates has come up with? It’s unfortunate, but when you bury yourself in $52 trillion of debt—public, private, business, housing and government—you can’t make it go away. Because all the people who loaned you that money think they have a contract with you to pay it back. So we’re going to go through a massive workout, and during that process I don’t think the economy’s going to grow—it’s going to struggle and suffer. Those are the facts that Washington is unwilling to face.”

Stockman—who in 1981 wrote the guidelines for a government shutdown that, three decades later, are still the template for the action he favors—insisted that the economic consequences of temporarily laying off one-fourth of the country’s 4 million federal employees and closing the doors of various agencies, have been greatly exaggerated in the service of demagoguery.

“I think that’s a lot of baloney that’s being put out by the interest groups and lobbies and the White House,” Stockman told me, reacting to the Democrats’ dire claims of a new recession. “A few days or even a few weeks of a very few people on furlough—most of whom are likely to get back pay, because that has been the precedent in the past—once this crisis is over, how is that going to affect a $15 trillion economy?

“If the Smithsonian, the Parks Service and the Cherry Blossom Festival get delayed or canceled, it’s the wakeup call that we really needed. The fools inside the Beltway are borrowing $100 billion month in and month out, and there’s nobody left in the world buying except the central banks—the Fed and the people’s printing press of China. There’s no way that’s sustainable or viable. It’s simply building up pressure in the monetary system that’s going to blow sky-high.”

While cheering the Tea Party Republicans’ demand of $60 billion in cuts, Stockman lamented their insistence on attaching polarizing policy riders forbidding funding for Planned Parenthood and other right-wing pariahs. “I don’t agree with that. It’s unfortunate that these social issues get caught up in what essentially is the core fiscal question.”

Stockman took special aim at Chairman Ryan, who this week proposed a politically risky budget that Thursday garnered laurels from The Wall Street Journal for attacking the festering growth of entitlement costs, particularly through Medicare reform.

“I think he has a nice philosophical plan for the fiscal hereafter, two or three decades down the road,” Stockman sniffed. “But it is neither courageous nor relevant when it comes to the fiscal here and now… It’s a fine plan that starts in 2021. We need to deal with revenue, entitlements, defense and discretionaries, and the problem with his plan is it doesn’t address more than one of those appropriately. Discretionaries, yes, but it totally whiffs on the other three—which are much more important.”

Stockman points out that, at current levels, “Social Security and Medicare alone will cost $17.2 trillion over the next 10 years—a startling number. How much does this courageous budget cut from the entitlements over the next 10 years? Zero! None! Nothing! Ryan is taking a nice philosophical stand for the by and by—I call it the fiscal afterlife. But it’s not relevant to the wolf that’s at the door right now, and it’s going to exact huge amounts of political cost and baggage for no gain at all on the fiscal front.”

Also galling to Stockman: “The Republicans have come with a plan to reduce the deficit that involves cutting taxes by $4.2 trillion over the next 10 years. This is the Ryan plan: burying us that much deeper because of this Republican catechism about tax cuts, anytime, anywhere, for any reason.” Stockman said letting the current tax cuts expire, as called for in the next few years, will eventually produce $600 billion in deficit reduction. “The Republicans should just sit on their hands and let it happen.”

Meanwhile, Stockman told me that the abnormally low interest rate on the $14 trillion national debt—currently near zero—is likely to rise to normal levels in coming years by at least 300 basis points, or 3 percent. “This morning the European Central Bank started that process by raising interest rates—a little more enlightened than the Fed. It’s kind of ironic—an increase of 300 basis points, a few quarters or years down the road, increases federal spending by half a trillion dollars. All of the assembled congressmen of every stripe and viewpoint—from Tea Party to left-liberal—could not come up with $500 billion in cuts between them.”

As a former congressman, Stockman acknowledged that the prospect of a shutdown isn’t without peril for the House Republicans. After all, even right-wing firebrand Michele Bachmann, the de facto leader of the Tea Party in the House, is on record supporting efforts to avoid this severe outcome.

“Maybe the public doesn’t like this,” Stockman said. “You have this fight going on between the 83 youngsters, the Tea Party newbies, and the Boehner crowd that remembers 1995 well. If the public reacts badly to a shutdown, that will be a message to the Republicans that you are totally out to lunch, thinking you can address a $1.6 trillion deficit, and spending 43 cents on every dollar for borrowing, without tax increases. Because the public just shouted you down when you made the modest pinprick cut on your domestic spending, and to do that you shut down the government? We need to find out where the public is. ”

Doubtless, we will.

Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.