Scott Horton Show - Just the Interviews - 5/13/22 David Stockman on Washington’s Military Keynesianism

Episode Date: May 14, 2022

Scott interviews David Stockman about the war in Ukraine and the American economy. They begin by discussing the war in Ukraine. Stockman argues that the irrational motivator behind Washington’s actions is Trump-Derangement Syndrome — that Putin is a surrogate for Trump and you need to demonstrate blind hatred for him to be accepted. Next, they turn to the economy. Stockman recounts the trouble the American economy was in before the pandemic and war in Eastern Europe came about to make everything worse. Scott and Stockman end by discussing the painful path ahead. Discussed on the show: Mearsheimer’s short debate on PBS Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider David Stockman is the ultimate Washington insider turned iconoclast. He began his career in Washington as a young man and quickly rose through the ranks of the Republican Party to become the Director of the Office of Management and Budget under President Ronald Reagan. After leaving the White House, Stockman had a 20-year career on Wall Street. He is the author of Trumped!, The Triumph of Politics, and his history of the financial crisis, The Great Deformation: The Corruption of Capitalism in America. This episode of the Scott Horton Show is sponsored by: The War State and Why The Vietnam War?, by Mike Swanson; Tom Woods’ Liberty Classroom; ExpandDesigns.com/Scott; EasyShip; Free Range Feeder; Thc Hemp Spot; Green Mill Supercritical; Bug-A-Salt and Listen and Think Audio. Shop Libertarian Institute merch or donate to the show through Patreon, PayPal or Bitcoin: 1DZBZNJrxUhQhEzgDh7k8JXHXRjYu5tZiG. Learn more about your ad choices. Visit megaphone.fm/adchoices

What did your ancestors really do all day? Beyond names, what were their lives like? With Ancestry's global historical records, you can discover incredible stories about how your ancestors lived and worked, and for a limited time, you can explore select occupation records for free. Imagine finding your great-grandfather's RCMP records or discovering your ancestors' name in the UK and Ireland Nursing Register. Don't miss out.

Free access ends August 24th. Visit Ancestry.ca for more details. Terms apply. All right, y'all, welcome to the Scott Horton Show. I'm the director of the Libertarian Institute, editorial director of antire war.com, author of the book, Fool's Aaron, time to end the war in Afghanistan, and the brand new, enough already, time to end the war on terrorism. And I've recorded more than 5,500 interviews since 2000. almost all on foreign policy and all available for you at scothorton.4 you can sign up the podcast feed there

and the full interview archive is also available at youtube.com slash scott horton's show all right you guys introducing david stockman he is of course an author formerly a congressman and famously ronald regan's budget director he wrote his magnum opus is called the great deformations but he's got a bunch of other great books like that as well on Amazon there. And his website is Contra Corner, David Stockman's Contra Corner, and that's at David Stockman's Contra Corner.com. His latest is called Back to Square One. Welcome back to this show.

How are you doing? Very good. How are you? I'm doing great. Really appreciate you joining us here today. Hey, everybody, watch this. So, David, anything bothering you lately? Anything not bothering me would be a better question.

When you look around at the world today, you wonder how we got into this predicament. You know, Washington has just gone completely off the deep end, berserk, with this Ukrainian situation. And, you know, your audience knows all the details and the arguments. But we get to the point where they put 40 billion through with hard. sight on scene and not a single Democrat votes against it, including all of the ultra-left wingers that at least in the past, you know, the squad, AOC, and the rest of them, every now and then had sort of an anti-war posture. That's all gone.

That's on top of the $13 billion they've already sent over there. We're now at the point where we've voted, you know, enough money to equal 82% of the Russian defense budget for an entire year, which includes their entire military, all branches, their nuclear programs, and everything else. This is just absurd. It's not, you know, a question of foreign policy or, you know, a debatable argument about national security. This is purely a case of what I call the Trump derangement syndrome, TDS. You know, they still Washington, official Washington, and in that I include the bipartisan duopoly, the leaders of the Republican side as well, have not gotten over the fact that Trump won in 2016. they insist it was illegitimate due to Putin's intervention. Finally, Trump is gone, and so Putin has become kind of the surrogate, the avatar, to attack, basically to prove that you hate Trump with all your heart. And so you're going to turn Putin into a demon and forget, you know, all the facts, all of the, analysis, all of the realism about the world that would pertain to this situation and the Ukraine

and just plow full steam ahead and Nancy Pelosi shows up for a three-hour photo op with a whole tag-along group of Democrats last weekend, you know, cheering the Ukrainians on to, you know, to the death of the very last Ukrainian so that we can have a proxy war with this evil Putin who's really Donald Trump in disguise. Now, this may sound a little far-fetched, but the fact is this is the objective reality of what we face, and it's a damn dangerous thing to be waging a proxy war with this massive attack, you know, in the form of what I call the sanctions war. that's really upending and roiling the entire world economy. And that's all going to feed back right into our domestic economic situation,

which is what we opened with. We were in deep trouble already because of the roaring inflation that the Fed and other central banks have fostered over the last several years, if not longer. And we have an economy that's so far. freighted down with debt, both household corporate and government, that growth is very hard to come by to begin with. Now we throw into the mix a complete breakdown of the global dollar-based payment system and the trading system, and we send further spanners into the global supply chains,

which were already badly dislocated by the COVID. And we've got a real sort of world-class economic mess coming right down, you know, right down the pike at the Main Street economy and average Americans who are not by any stretch of the imagination being consulted about this or being represented, represented. in any way by, frankly, either party that's having so much fun making a proxy war in Washington. Yeah. All right. Well, so many great points to follow up on there. In fact, I'm going to go back to the war for just one second.

Sure. You may have seen this clip, but even if you didn't, you'll get the gist here, of Professor John Mearsheimer, the realist from the University of Chicago on the PBS News Hour in a sort of debate with Evelyn Farkas from the Obama years. And the premise of it's very simple, it's not like they have much time

for an in-depth discussion, but the premise is simply that, one, Putin says he would never use nooks unless he saw an existential threat to the Russian state, in which case he very happily would. And two, he could very well see

a loss in Ukraine as an existential threat to the Russian state. And so he might use nukes. And three, we're pouring in as much weapons as we can because we're determined to force the Russians to lose the Ukraine war no matter what. And Mearsheimer says, well, this is completely crazy. I mean, in the Cuban Missile Crisis, we negotiated. And what the hell are we doing? And Farcas says, nah, come on. He ain't going to use nukes, or at least, you know, he would signal first if he was going to. But I think Sergei Lavrov has said three or four times recently that like, yeah, we could end up using

nukes here, which seems like a pretty clear signal to me, Stockman. So I was just wondering, I mean, you used to live there among these people. Just how stupid and crazy and wrong can they be? I'm a bit out of a loss here, you know? Yeah, I am too. And that's why I resort to this Trump derangement syndrome explanation. I mean, this isn't rational. This isn't adult. This isn't analytical in any way. It's they have so demonized one person on this planet of seven billion some people, Vladimir Putin. They have made him a proxy for all of their political ambitions and frustrations and resentment about, you know, losing control of the machinery of government, at least for four years when Trump won, that, you know, they can't think logically or rationally

anymore. Why would you drive someone with 6,000 nuclear warheads, 2,000 of which are actually usable and active to a state of existential threat over a piece of territory in the eastern half of Ukraine that has no bearing whatsoever on the true security and liberty of the American homeland. I mean, this would have been so easy to solve. They could have said easily in December when Russia and Putin laid out the case for a new security arrangement. They could have easily said no NATO ever again in Ukraine that will follow the Minsk process and if it results in the partition of the country, so be it because, you know, the Donbass in the eastern part of Ukraine has been Russia.

for 300 years in its Russian speaking and its Russian culture and its Eastern Orthodox religious religiously and it's not a country that was built to last anyway. It was an artificial creation as I've often said of three of the worst people in world history, Lenin, Stalin, and Khrushchev put together the bits and pieces of what is now Ukraine that now the entirety of the imperial city in Washington, as I call it, insists that these borders are sacrosanct and must be defended and prosecuted to the extent of, you know, threatening nuclear war. I mean, it's just crazy, but that is, you know, that is the great deep hole that Washington has worked itself into. We can only hope that there's such a resounding,

defeat of the Democratic Party in November that somehow Washington gets sobered up and a remnant of Republicans led by Rand Paul and some others, you know, bring us back to our census because, you know, there is not much that passes for adult or rational thinking coming out Washington, and it was all brought together this week with this ridiculous rush to judgment on 40 billion of sight, unseen money that's going to go down the rattle in the Ukraine. I mean, it's almost like a form of military Keynesianism. We're going to pump tens of billions of weapons in there. Most of them won't make the trip from, you know, the eastern, western border, I mean,

comes across from Poland to the war front. It's going to be blown up on the way. And what does get to the front and the Donbass will be used up in a matter of days. So, you know, I don't know what they think they're doing. It's not going to change the outcome in the Ukraine. Sooner or later, the Russian forces will prevail. But in the process, they're going to, you know, flush tens of billions of dollars down the rattle because Washington has really lost its mind when it comes to foreign policy, dealing with Russia, dealing with Putin, and thinking rationally about what's really at stake in this really civil war in the Ukraine between the nationalists from the western and central part of the country and the Russian-oriented Russian-speaking population

of the Donbass in the south that's been under attack by the Kiev government for the last eight years ever since the CIA State Department sponsored coup in February 2014. So this is a world-class mess and there is no doubt about where the responsibility law. It's come right out of the policymaking forums in Washington, D.C. Yeah, give me just a minute here. Listen, I don't know about you guys, but part of running the Libertarian Institute is sending out tons of books and other things to our donors. And who wants to stand in line all day at the post office? But stamps.com?

Sorry, but their website is a total disaster. I couldn't spend another minute on it. But I don't have to either, because there's easy ship.com. EasyShip.com is like Stamps.com, but their website isn't terrible. Go to Scott Horton.org slash Easy Ship. Hey, y'all Scott here. You know the Libertarian Institute has published a few great books. Mine, fools errand, enough already, and the great Ron Paul. Two by our executive editor Sheldon Richmond, coming to Palestine and what social animals owe to

each other. And of course, no quarter, the ravings of William Norman Grigg, our late-great co-founder and managing editor at the Institute. Coming very soon in the new year will be the excellent voluntarious handbook edited by Keith Knight, a new collection of my interviews about nuclear weapons, one more collection of essays by Will Grigg

and two new books about Syria by the great William Van Wagonen and Brad Hoff and his co-author, Zachary Wingard. That's Libertarian Institute.org slash books. Book club on Monday. Jim on Tuesday. Date night on Wednesday

Out on the town on Thursday Quiet night in on Friday It's good to have a routine And it's good for your eyes too Because with regular comprehensive eye exams at Specsavers You'll know just how healthy they are Visit Spexsavers.caver's.cai to book your next eye exam Eye exams provided by independent optometrists

Well, I know what'll lick your inflation? A couple of H-bombs but maybe there's a better way. But now, so listen here, Stogman, as an economist, I'm a great anti-war guy. And, you know, I get this whole Austrian theory of the business cycle. It makes sense to me since I read Jackal Island in 1995 or whatever it was. The government prints up all this money. They cause a giant artificial boom.

A lot of people don't even get to enjoy the benefits of the boom during the boom times. But they just, you know, have to suffer rising prices and whatever. but anyway, if you own assets, then you get, you know, a lot of free welfare basically out of that, right? Right. You didn't build that. Your house just increased in value four times, and then you sold it, you know, but that's just government money, right? But so in my experience, in my limited experience, I've seen the crash of the 1980s, especially here in Texas, there's a huge real estate crash that came with the oil crash in the, I guess, an aftermath of the stock market crash of 87. and then there's a crash in like another kind of further recession in like 92 era after rack war one

and then of course the big one in 99 and the bigger one in 2008 but I guess I'm trying to get to here is most of those seem like sort of simple textbook boom bust boom bust but now I think something's different now we're going back to more of a 70s model where it's not really boom but it's We don't get to feel, and nobody gets to feel the artificial prosperity, really. I guess some people owning assets get inflated prices there. But we have these kind of crashes, but the inflation is never licked. And so it's sort of one bigger boom with smaller corrections all the time like we're suffering right now. But no true, you know, I don't know, bare market or true recession that it would take to really stop the inflationary pressure from all.

all the new money that they created. So I guess what I'm really just trying to ask you is, could you help me to sort of visualize where we are on this boom bus cycle, how it is that this is working now, and what people can expect to see coming, you know, in the near and medium term here? Yeah, those are good questions. And I would say first, we did have a boom,

but it ended up, it manifested itself in two places that were different, not the mainstream street economy. First, the boom happened on Wall Street. As all this money was pumped into the canyons of Wall Street, most of it never left. It went into this tremendous speculative increase in the price of all financial assets, bonds, stocks, derivatives, everything in between. And as a result of that, you know, the market value of the stock market alone,

in the United States went from about 15 trillion at the bottom of the 208 crash to upwards of 45-50 trillion today. So that's the first part of the boom. It didn't, it didn't, you know, impact or benefit the average middle-class family. It didn't manifest itself on Main Street. It ended up in this unprecedented financial bubble that emanated from Wall Street. The second thing is, all the excess purchasing power that did make its way into the economy ended up, you know, creating a boom in China and in its supply chains around the world, not here. In other words, the Fed has the, you know, obsolete Keynesian view, in my judgment anyway, that when it

pumps stimulus into the domestic economy that that purchasing power stays here. It creates more purchases of goods and services which create profits and wages, which then get spent and you have a virtuous cycle and all that. But on the margin, that is not what happens today in a world where we have, you know, in the range of $3.5 trillion worth of imports a year, and where much of our productive base has been exported or offshoreed to use the correct term to China and elsewhere. So now when the Fed pumps up spending and demand on Main Street, the purchases end up, you know, in the bank accounts of producers in China and elsewhere around the world.

Now, that meant that during the interim, let's say from 2012, when the Fed had officially, adopted inflation targeting, you know, this vaunted 2.00% target, which is not justified by any economics that I know of. It certainly isn't validated by empirical history, but in any event, they had the 2% target. And for the next seven years through 2019, inflation appeared to be low in a goods and services sense, even if Wall Street was inflated to a... fair they will. But the reason for that was the one-time shift of production to a global supply chain based on ultra-cheap labor that brought the price of goods down like never before in history. Actually, from 2012 to 2019, the deflator, which is what the Fed looks at, the PCE deflator,

personal consumption expenditure deflator for goods declined by 40%. Now, I think part of that was just screwball methodology at the BOS, but the point is that was what was in the numbers, a 40% drop over about seven years in the price of goods, most of which were being imported. So that held down the overall CPI and PCE deflator, it allowed the Fed to not only pat itself on the back, but to constantly moan and complain of low inflation that they were missing their inflation target from below and therefore needed to keep pumping money. But the problem was the one-time gain, the one-time deflationary impact of exporting our production. based to China and elsewhere is over and done. We then got COVID. We then got the Ukrainian

war. We then got a tremendous, you know, dislocation and upheaval in the global supply chains. And all of a sudden, rather than importing deflation, as we did for about seven or eight years, we're now importing inflation that's coming out of, you know, the global commodity situation. supply chains that have been totally upended. So therefore, if you really look at the underlying numbers, the CPI says 8.5% year over year. But I think we're in double-digit inflation. If you look at what's coming up the pipeline, that is to say commodity prices and producer prices, which are the next level up, which will show up in a few months in the CPI. And, you know, what we might call a street level or retail level inflation.

And the Fed is going to have no choice. This is as bad as it was in the late 70s and early 80s when you were seeing the chaos that happened in Texas afterwards. I was in Washington, and we were attempting to cope with this. It's every bit as bad as it was then, except the Fed is so far behind the eight ball that it's going to spend the next year or two, you know, reluctantly tightening until it finally throws the economy into recession.

So I think we're going to have a big one. It may take a few quarters or even years to get there, but the Fed is so far behind the curve that it will have no choice except to push interest rates far, far above what is now expected, and that will finally bring down the economy because we're now, you know, lugging around so much incremental debt compared to what we had the last time we experienced double-digit inflation in the late 70s and early 80s. As a matter of fact, in a piece that I did yesterday, I demonstrated that when Volker pushed the federal funds rate to 19%. The actual inflation rate at that time measured on the

PPI or wholesale price index was about 14% in change. Today, in April, the number that came out yesterday was 15.5%. In other words, the year-over-year inflation coming up the pipeline is worse today than it was when Volcker, you know, stood at the barricades. Yet the Fed has had, you know, so much lack of gumption that they have the interest rate at 0.83%, not 19%. Man, so just to kind of zoom out here a little bit, I remember being four or five years old watching he-haw and watching, I still remember the ads for new cars in trucks and especially A1 mobile homes, and now I understand why there was a big boom in mobile

homes at that time. People couldn't afford a home. So they would buy mobile homes from A1 is number one. That was the slogan for your mobile homes. But then, and I remember the truck commercials, just 19% financing and whatever. And then I read, see, I was too young to really understand, but then I read William Greer, this is the Washington Post version of the creature from Jekyll Island, is Secrets from the Temple. And it's the story of how Paul Volker, how he was quite deliberately, I guess you would argue honorably, I understand your point of view, quite deliberately forcing America into a Great Depression. He was taking America and he was strangling it to death and they kept stats on the suicides and the divorces and the foster care

and the bankruptcies, personal and business all across the land. And they had to do it. And you're sitting here telling me now they don't have the courage to do it again. Because this is the crisis that these same sons of this have put us in again where the only solution is to force a crash worse than the lockdown crash that they created two years ago. Yeah. Well, see, the

thing is, in Volcker's defense, he was put in on an emergency basis by Jimmy Carter. I mean, the Democrats never would have taken a sound money man like Volker, but they were desperate in August 1979. When

he came in, the inflation rate was running about 11%, and even the Fed, the dovish Fed of William Miller, had the funds rate at 10%. But he said, this isn't going to work. If inflation is still running higher than the funds rate, it means the real interest rate is negative, and people are going to keep borrowing and spending, and the inflation isn't going to be contained and curtailed. So he pushed the interest rate up, not because he was some kind of, you know, a guy that wanted to make people suffer, but he saw no choice coming to the game that late with the Fed so far behind the curve. So he pushed the interest rate to 19%. And it did bring the economy down, and it did purge

the inflation. And by the first quarter of 1986, the inflation rate was running about 2%. Now, the lesson there is not that you need a Volker, you know, to slam on the brakes and to be, you know, heroically steadfast at the bridge. You need not to get behind the curve. But, you know, again, they have not learned the lessons of history. And here we have, you know, Paul, who's number one responsible for this. you know, led the Fed to a situation where inflation is pushing double digits and he has an interest rate that is less than one. I mean, that's about as dumb. That's about as counterproductive and pusillanimous as it comes.

And so we're right back in probably worse shape than where Volcker was when he came in, when he was put in on a desperation basis. in August 1979. Now, let me go back to something you said about, but the national debt and every other debt is so high now

that if you were to do that again, the blow up the world, right? Yeah, yeah. Now, that's the thing I pointed out yesterday. Roughly in early 1981,

when Volker finally broke the back of inflation and had the federal funds rate at 19%. There was about $5 trillion of debt on the economy and $3 trillion.

and change of GDP. So the leverage ratio, debt to GDP or debt to income, was about 1.5. And that's where it had been historically, through good times and bads, prosperity and lack of prosperity. But that was kind of the golden mean that was more than 100 years standing. Today, we're at 3.7 times debt to GDP, 85 trillion of debt. excuse me, 88 trillion of debt versus 24 trillion of GDP. Now, what that means is that we have two turns of additional debt on the economy relative to income

compared to what we had when Volcker had to, you know, hit the brakes hard. In dollar terms, if we had the same ratio, same national leverage rate, 1.5 today that we had back then, there would be 38 trillion of public and private debt, not 88 trillion. In other words, the economy is lugging 50 trillion of extra or incremental public and private debt that will be hit hard when the Fed finally has to crank up interest rates to a level that will be sufficient to break the back of inflation and get the price level moving. uh, you know, uh, downward in a convincing direction. I'm sorry, David, I, next time we do this, we definitely got a schedule an hour, but I am sorry.

I have to go to my next guy here. Okay. But thank you, thank you so much for your time. I've learned a hell of a lot already, and I hope we can follow up here pretty soon. Is that all right? We'll definitely do that. Okay. Thank you so much, sir.

I really appreciate it. Okay. All right, you guys. That's the great David Stockman. He's at David Stockman's Contra Corner and seriously, I had a ton more stuff here, but I knew that was going to happen. But check him out. It's worth the price for the subscription there

at David Stockman's Contra Corner.com. The Scott Horton Show, Anti-War Radio, can be heard on K-P-FK, 90.7 FM in L.A. APSRadio.com, anti-war.com, Scotthorton.org, and Libertarian Institute.org.