David Stockman’s Scathing Indictment Of GOP Fiscal Policy

Twenty-five years after retiring as President Reagan's Budget Director, David Stockman is back with a scathing indictment of Republican fiscal policies over the past four decades.

David Stockman, Ronald Reagan’s first Budget Director, has a rather devastating critique of Republican economic policies going back some 40 years in today’s New York Times:

IF there were such a thing as Chapter 11 for politicians, 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. Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

Barry Ritholz summarizes the basic charges of Stockman’s indictment, although the entire article is definitely worth reading in full regardless of which side of the argument you’re on:

• The total US debt, including states and municipalities, will soon reach $18 trillion dollars. That is a Greece-like 120% of GDP.

• Supply Side tax cuts for the wealthy are based on “money printing and deficit finance — vulgar Keynesiansism robed in the ideological vestments of the prosperous classes.”

• Republicans abandoned the belief that prosperity depended upon the regular balancing of accounts — government, trade, central banks private households and businesses.

• Once fiscal conservatism was abandoned, it led to the serial financial bubbles and Wall Street depredations that have crippled our economy.

• The Nixon administration defaulted on American obligations under the 1944 Bretton Woods agreement.

• Who is to blame? Milton Friedman. In 1971, he persuaded President Nixon to unleash on the world paper dollars no longer redeemable in gold.

• According to Friedman, “The free market set currency exchange rates, he said, and trade deficits will self-correct.” What actually occurred was “impossible.” Stockman calls it “Friedman’s $8 trillion error.

• Ideological tax-cutters are what killed the Republicans’ fiscal religion.

• America’s debt explosion has resulted from the Republican Party’s embrace, three decades ago, of the insidious Supply Side doctrine that deficits don’t matter if they result from tax cuts.

• The GOP controlled Congress from 1994 to 2006: Combine neocon warfare spending with entitlements, farm subsidies, education, water projects and you end up with a GOP welfare/warfare state driving the federal spending machine.

• It was Paul Volcker who crushed inflation and enabled a solid economic rebound — not the Reagan Supply Side Tax cuts.

• Republicans believed the “delusion that the economy will outgrow the deficit if plied with enough tax cuts.”

• Over George W. Bush 8 years in office, non-defense appropriations gained 65%.

• Fiscal year 2009 (GWB last budget): Tax-cutters reduced federal revenues to 15% of GDP — lower than they had been since the 1940s.

• The expansion of our financial sector has been vast and unproductive. Stockman blames (tho but not by name): 1) Greenspan, for flooding financial markets with freely printed money; and 2) Phil Gramm, for removing traditional restrictions on leverage and speculation.

• The shadow banking system grew from a mere $500 billion in 1970 to $30 trillion by September 2008 (see Gramm, above).

• Trillion-dollar financial conglomerates are not free enterprises — they are wards of the state, living on virtually free money from the Fed’s discount window to cover their bad bets.

• From 2002 to 2006, the top 1% of Americans received two-thirds of the gain in national income.

Now, Stockman is no stranger to being a bit of a gadfly in Republican circles. Less than a year after he had taken to the office, he was famously “taken to the woodshed” by President Reagan after being quoted in a long Atlantic article making comments critical of the very policies he was charged with implementing.  Stockman stayed in office until 1985 and largely disappeared from public life at that point, however he has resurfaced recently as a strong critic of the policies his party has implemented over the past decades:

Stockman is especially severe on his former House colleague Dick Cheney, who as vice president insisted: “Reagan proved deficits don’t matter.”

“There are big questions about how good Dick’s view of foreign policy was,” Stockman tells me, “but his possible errors there are nothing compared to how far off base he was in economic policy. That is a clueless statement, and symptomatic of why I hold the Republican Party so responsible for the mess we’re in. The Republican Party is supposed to be the conservative party. The Democratic Party is supposed to be the irresponsible party. But somehow we lost that.”

Indeed, and I think it’s on that simple point — rather than on his critiques of Friedman’s monetarism which may or may not be historically correct — that Stockman is most right. At some point along the way, the GOP lost its way when it came to fiscal conservatism. If it ever actually had it.

Republicans came close during the Reagan era, but even Ronald Reagan was not strong enough to even try to take on the New Deal or the Great Society. For example, instead of eliminating the Department of Education, as he had promised during his Presidential campaign, Reagan ended up turning it into a bully pulpit and increasing the budget. Today, that Department is as secure in it’s existence as any other in the cabinet.

Then, when the GOP took control of Congress in 1994, and the White House in 2000, the desire to use the levers of power to create “compassionate conservatism” won our over any semblance of fiscal conservatism. Instead of tax cuts and spending cuts, we got tax cuts along with a trillion dollar entitlement program, a massive expansion of the Federal Government’s role in education, and two wars. That’s not fiscal conservatism it is, as others have said, fiscal insanity.

Stockman closes with what he foresees as our near-term economic future:

The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.


As much as some might protest, it would appear that the Keynesian impulse in the GOP that started with Richard Nixon never really went away.

FILED UNDER: Economics and Business, US Politics, , , , , , , , , , , , , , , , , , , ,
Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. Zelsdorf Ragshaft III says:

    Who gives a flying F**K what David Stockman has to say.  Peggy Noonan was once semi sane also.  Stockman criticizes GOP policy.  The Russians,in 1989 ended the same policy the Democrats are trying to move this country toward.  Did you know it was the founder of the ACLU who favored communism and that is the aim of that organization.  I wonder who should go up against the wall first?  The Ph.D’s or the politicians.  I favor the Ph. Ds as they are the ones who did the most to undermine our system.

  2. Dave Schuler says:

    I keep hoping against hope that some ordinary members of some political party will recognize that elected officials have little or no interest in restraining either the power of government or spending.  The primary differences between Democrats and Republicans on this issue are more their rhetoric and how they want to spend the jack rather than whether they want to spend it.  So far I’ve been disappointed.

  3. Tim says:

    These were the policies of the Republican Party, the policies the Tea Party detests, but Tea Partyists are just crazy and stupid. You have Obama now, you should be ecstatic.

  4. john personna says:

    Was that the same Tea Party that wants to keep Medicare and NASA spending, Tim?
    NASA?  Seriously?

  5. steve says:

    ” The primary differences between Democrats and Republicans on this issue are more their rhetoric and how they want to spend the jack rather than whether they want to spend it.”

    To that let me append that Democrats are the tax and spend party. Republicans have become the tax less, but spend just as much party. I have tended to assume that Republicans will become more rational once they regain power, but the current front runners are not very reassuring.


  6. tom p says:

    thanx doug, will read it later.

    Who was it who said, “To continue doing what you have always done, and expect different results, is the definition of insane.”?

    Let me paraphrase: “To continue cutting taxes, and expect that either party is going to cut spending, is not only insane, IT IS ABSOLUTE, UTTER, AND COMPLETE STUPIDITY!!!”

    So what are we going to do?

  7. tom p says:

    “Who gives a flying F**K what David Stockman has to say.(?)”

    Zels, let me ask you a question: Who gives a flying F**K what you have to say?

    For my own self, I rather doubt many here care much one way or the other what I think… but I have managed to nudge a conversation or 2 (in other words, something I said got somebody thinking, pro or con, it doesn’t matter). You? I am sorry, but the conversations you have influenced…. Well, you became the converstion. 

    As to the answer to your question: Me.

  8. anjin-san says:

    Who gives a flying F**K what David Stockman has to say.
    Reagan did. But the right has no real use for the man that Reagan actually was, a pragmatist who could work across the aisle. They are only interested in pimping his memory to promote an agenda that probably would have made Reagan ill.

  9. TangoMan says:

    <i>I have tended to assume that Republicans will become more rational once they regain power, but the current front runners are not very reassuring.</i>
    1.) Have you investigated this issue or are you letting the media inform you?
    2.) What are your benchmarks?
    Here is a front-runner who hews to the <a href=”http://gov.state.ak.us/omb/08_OMB/budget/Enacted/FY2008_ConfComm_Less_Vetoes_Fiscal_Summary.pdf”>old style fiscal common sense</a> that used to appeal to fiscal conservatives. You know, like cutting budgets before a recession arrives, like living within a budget (and not spending through supplemental budget processes – Line Item #27) like increasing allocations to debt service, like kicking in $200+ million to fund teacher retirement accounts that were neglected during boom times (Line Item #19
    Here’s the same front-runner who demonstrated a record of weaning the State Government of Federal Appropriations. Predecessor requests for <a href=”http://gov.state.ak.us/omb/10_omb/budget/10%20PDFs/FFY07_Approp_Requests.pdf”>FY2007</a> totaled $349.5 million for 63 projects; Front-runner’s first budget in <a href=”http://gov.state.ak.us/omb/10_omb/budget/10%20PDFs/FFY08_Approp_Requests.pdf”>FY2008</a> requests came to $256 million for 52 projects; the next budget, <a href=”http://gov.state.ak.us/omb/10_omb/budget/10%20PDFs/FFY09_Approp_Requests.pdf”>FY2009</a> requests came to $195.1 million for 31 projects; the budget for <a href=”http://gov.state.ak.us/omb/10_omb/budget/10%20PDFs/FFY10_Approp_Requests.pdf”>FY2010</a> requests were $69.1 million for 8 projects.
    Let me ask you Steve, what’s not reassuring about that budgeting performance and the trends established? We see here more fiscal discipline than we see in many state administrations, even Republican governed states, which grew state government spending faster than inflation, gdp growth and population growth. Here the trend is actually demonstrating retrenchment of government. Moreover, in terms of scale of cutbacks, compare two front-runners.
    <blockquote><a href=”http://en.wikipedia.org/wiki/Sarah_Palin#Budget.2C_spending.2C_and_federal_funds”>In June 2007</a>, Palin signed a record $6.6 billion operating budget into law.[98] At the same time, she used her veto power to make the second-largest cuts of the construction budget in state history. The $237 million in cuts represented over 300 local projects, and reduced the construction budget to $1.6 billion.[99]
    In 2008, Palin vetoed $286 million, cutting or reducing funding for 350 projects from the FY09 capital budget.[100]</blockquote>
    <blockquote><a href=”http://cltg.org/cltg/clt2004/04-06-26.htm”>Governor Mitt Romney</a> vetoed $108.5 million yesterday for healthcare contractors, the Massachusetts Water Resources Authority, courts, and alcohol- and tobacco-control programs, as he signed a new $24.5 billion state spending plan….

    In addition to striking the $108.5 million, which amounts to less than one-half of 1 percent of the overall budget, Romney also rejected a proposal to allow undocumented immigrants to pay in-state tuition rates at state colleges and universities and another that would prohibit outsourcing by vendors doing business with the state. He also followed through on his pledge to veto a moratorium on the opening of new charter schools.

    Democratic lawmakers, who form a supermajority in the House and Senate that is able to override the governor’s veto, vowed to begin the process of overturning most of Romney’s vetoes immediately …</blockquote>
    Front-runner Palin vetoes $237 million from a $6.6 Billion buget.
    Front-runner Romney vetoes $108.5 million from a $24.5 Billion budget.
    With budget scale corrected, Palin’s vetoes were 8.1x larger than Romney’s. Palin’s performance looks pretty reassuring to me.

  10. TangoMan says:

    I know you guys are working on the site but what is going on with comment formatting. My html links don’t link but embedded links from Wikipedia (which don’t show in the comment box) appear as links.
    At this point I’m longing for the days before you ever embarked on redesigning your blog.

    You can format text using the buttons above the comment box. It auto-links obvious hyperlinks. Apparently, though, the WYSIWYG editor now won’t let you input raw HTML. I’ll need to get that fixed when my guy gets off vacation. – jhj

  11. DJ says:

    This just in: Libertarians support fraud!
    On March 26, 2007, federal prosecutors in Manhattan indicted Stockman in “a scheme … to defraud [Collins & Aikman]’s investors, banks and creditors by manipulating C&A’s reported revenues and earnings.” At the same time, the Securities and Exchange Commission brought civil charges against Stockman related to actions he took while CEO of Collins & Aikman.[

  12. Nick Taylor says:

    For the record, Reagan was a crook. I know. I was there – he should have gone to prison over that Iran/Contra thing. The flat-lining of wages, the gutting of the middle-class… all started under his watch. The American Dream? The Reagan era was when it started to die…
    … so now you’ve got a situation where people have to work several jobs to still be poor – in a country where the social infrastructure is so bad that being poor is actually a life-threatening condition… so you’ve got a guard-economy that has become so powerful that it now lobbies for minimum mandatory sentencing… giving The Land of the Free the biggest prison population in the world.
    And it’s getting worse.
    You can thank Reagan for a lot of that.
    re: “fairly screams out for austerity and sacrifice”
    No it doesn’t, it fairly screams out for ending two wars. You’ve got a military that takes 50% of your tax revenue, and spends more than the rest of the world put together – and you’re fighting packets of religious nuts, with beards and home-made bombs… and it’s taken longer than world war 2, and you’re still losing.
    It’s not about beating the taliban or “insurgents” or the estimated 100 or so members of AQ – it’s about maintaining the budget.
    1% of the people in the US have all the wealth, so when things get hard… the answer is “impose austerity on the other 99%”. Really? Back in the sainted era of Reagan, South America was being punished by the IMF – by imposing austerity measures… and now otherwise sensible people in the US are demanding that the same punishment is inflicted upon them as though it’s some sort of moral imperative?
    @Zelsdorf – personally I’m harbouring this notion that America is becoming too stupid to survive – and you’re a classic example of why. You want to kill intellectuals because you think Obama is communist? Really? You really think that? You do know that he’s more right-wing than any right-wing party in the rest of the world don’t you?
    Obama represents a constituency of the ruling elite (the 1%) who people like you tend to do slightly better under – the kleptocracy is a little less brazen… and you think this is communism?

  13. Scott says:

    David Stockman gave Bruce Bartlett a huge hardon with that column.

  14. steve says:

    Tango- Total state and local spending went up under Palin. Did not bother to calculate percentages, but it looks faster than under her predecessor. Of course they did have record oil money, so that made it easier to spend. She bugged out when revenue got tighter, so neither one of us knows what she would do in a down economy.
    I believe all of the presumptive front runners have spoken out in support of Medicare at one time or another recently. I do not count Paul.

  15. steve says:
  16. Tano says:

    “Republicans came close during the Reagan era..,”
    Came close to what?
    Reagan RAN, in 1980, on the voodoo economic theory that he could greatly increase defense spending, and give huge tax cuts – and the result would be a balanced budget.
    Reaganism was/is the problem

  17. Tano says:

    “To continue cutting taxes, and expect that either party is going to cut spending, is not only insane, IT IS ABSOLUTE, UTTER, AND COMPLETE STUPIDITY!!!
    So what are we going to do?”
    Raise taxes to a level sufficient to pay for all the spending that the American people clearly want.

  18. Michael Reynolds says:

    Thank God for Stockman and Greenspan.  These are two Republicans willing — finally — to tell the truth.  Democrats are too gutless and incoherent to do it.
    We have a very simple problem in this country.  We want $2 worth of services and are only willing to pay $1.  Irresponsible, delusional Republicans have convinced too many people that this is possible.  It’s not.  Sooner or later if you want $2 worth of goodies you’re going to have to pony up the two bucks.
    Here are some things we are NOT going to do:
    1) Sacrifice our military pre-eminence.
    2) End or significantly (eligibilities are a tweak) alter SS or Medicare.
    3) Let the poor die for lack of medical treatment or food.
    4) Cut off veterans.
    5) Stop enforcing federal law, including laws against poisoning the air or water.
    We aren’t going to do any of those things.  And the part of the federal government that isn’t any of those things is minuscule.  So we’re going to have to pay for those things.  We’re going to take care of old people and poor people, and although we can very definitely cut our military, we aren’t going to abandon the #1 spot or screw our veterans. So we have to pay for all that.  Which means we have to pay more taxes.  So let’s do that and quit fantasizing.

  19. Juneau says:

    Another launch into the realm of distraction by Mataconis – the democrats have controlled the economics of taxing and spending in this country for the last 4 years. Their ideas are the only ones that have been implemented for the last two years, and have turned a really bad situation into an “unsustainable” one.  

    But lets take a good hard look at what the GOP fiscal policy has been over the last 40 years.  Yeah.

  20. Herb says:

    Which means we have to pay more taxes.  So let’s do that and quit fantasizing.

    Amen.  One of the most annoying things about these debates is that Republican pols and their supporters seem to have a Pavlovian response to taxes.  You ring the bell, they bark out, “Not with my tax dollars.”  No thought behind it, just the conditioned response.  (Although, to be truthful, the Pavlovian response is influenced by how powerful the Democrats are.  It would have been somewhat welcome during Bush’s faith-based initiative days, or when he wanted to start a pre-emptive war on a country that didn’t have WMD. *)
    And as you pointed out, their agenda isn’t exactly based on austerity and robust cuts.  Indeed, the Republican M.O. –for going on at least 10 years now– has been to convince these “not with my tax dollars” folks to go along with a very expensive agenda and when it all goes pear-shaped, to start pointing fingers at other people.  (ACORN!)
    It’s a great way to win elections every few years, but it’s no way to run a country.
    *  This one still astounds me.  The size and scope of the trillion dollar bungle in Iraq should be a bigger issue, and a bigger liability for those who supported it.

  21. john personna says:

    Interesting.  DJ’s post is an authentic ad hominem, that is, don’t believe Stockman because he is a crook.
    Thing is, he didn’t tell the rest of the story:
    “Stockman suffered a personal financial loss, estimated at $13 million, along with losses suffered by as many as 15,000 Collins & Aikman employees worldwide. Stockman said in a statement posted on his law firm’s Web site that the company’s collapse was the consequence of an industry melt-down, not fraud.[4] On January 9, 2009, the U.S. Attorney’s Office announced that it did not intend to prosecute Stockman in this case.”

    So he is hardly convicted.  Even so, I think crooks often tell the truth.  It’s a rare crook that is all crook all the time.

  22. James Joyner says:

    <b>Testing bold</b>

    <em>Testing italics</em>

    <i>Testing italics using old-style i code rather than new-style em</i>

  23. The Q says:

    Your comments show you still have your head up your as$.
    Come on clown, fess up…conservatives are capable of screw-ups. Yet, in typical, knee jerk, kool aid sipping, fashion you are quick to try and defend in your infantile way, that which is manifestly false, i.e.  supply side trickle down works…And where did the inspiration for your splendid solution (kill Ph.Ds) come from? Perhaps its time to put down the meth pipe pal and clue into reality.
    And Juneau you’re an idiot right? Because if juneau don’t know, we certainly do. How do we know? Just by reading your ridiculous remarks.

  24. sam says:


    Was that the same Tea Party that wants to keep Medicare and NASA spending, Tim?

    And then there was the successful effort of Michigan Tea Party to shut down the National Tax Payers Union protest of the auto bailouts at the Detroit auto show in January:

    A group of Michigan tea partiers successfully shut down a protest of the Detroit Auto Show arranged by the National Tax Payer’s Union today on the grounds that it was more important to protect American jobs than it was to condemn the government bailout of the auto industry. The AP was on the scene at the protest and found just two tea partiers in attendance. That’s despite a national call for a rally at the show by the National Tax Day Tea Party last week…
    The Michigan Messenger reported Michigan tea partier and ex-GM employee Joan Fabiano’s Facebook posting urging her fellow protesters to stay away:

    “In conclusion it is my opinion that this protest is ill-conceived and quite frankly an attempt at attention grabbing grand standing by those outside and unfortunately inside of Michigan. … Why must some Americans boycott G.M. and throw INNOCENT people, such as myself, out on the street trying to find another job in this economy? Did I do something wrong? Would you like to see yourself out of a job if your company’s leadership made the errors and you had NOTHING to do with it?”

    As the Messenger reported, Fabiano, like most tea partiers, is opposed to the government bailouts of banks and the so-called “out of control spending” in D.C.. But when it comes to General Motors and Chrysler — two companies bought out by the government in the depths of the economic downturn — Fabiano said the protest could hurt the business climate in the one of the worst states for unemployment in the country.

    I guess all politics is local, even Tea Party politics.