David Stockman doesn’t like what he sees coming

Probably with good reason. I’m a little curious to hear a man who lives in Conyers Farm on wealth accumulated in his days as a leveraged buyout guy at Blackstone railing against Wall Street, excessive debt and the low taxes we all pay but as I try to gently (and so futilely) tell Dollar Bill, address the argument, not the man.

Q: Why are you so down on the U.S. economy?

A: It’s become super-saturated with debt.

Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-’90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP.

[snip]

A: Let the Bush tax cuts expire. Let the capital gains go back to the same rate as ordinary income. (Capital gains are taxed at 15 percent, while ordinary income is taxed at marginal rates up to 35 percent.)

Q: Why?

A: Why not? I mean, is return on capital any more virtuous than some guy who’s driving a bus all day and working hard and trying to support his family? You know, with capital gains, they give you this mythology. You’re going to encourage a bunch of more jobs to appear. No, most of capital gains goes to speculators in real estate and other assets who basically lever up companies, lever up buildings, use the current income to pay the interest and after a holding period then sell the residual, the equity, and get it taxed at 15 percent. What’s so brilliant about that?

Q: You worked for Blackstone, a financial services firm that focuses on leveraged buyouts and whose gains are taxed at 15 percent, then started your own buyout fund. Now you’re saying there’s too much debt. You were part of that debt explosion, weren’t you?

A: Well, yeah, and maybe you can learn something from what happens over time. I was against the debt explosion in the Reagan era. I tried to fight the deficit, but I couldn’t. When I was in the private sector, I was in the leveraged buyout business. I finally learned a heck of a lot about the dangers of debt.

I’m a libertarian. If someone wants to do leveraged buyouts, more power to them. If they want to have a brothel, let them run a brothel. But it doesn’t mean that public policy ought to be biased dramatically to encourage one kind of business arrangement over another. And right now public policy and taxes and free money from the Fed are encouraging way too much debt, way too much speculation and not enough productive real investment and growth.

6 Comments

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6 responses to “David Stockman doesn’t like what he sees coming

  1. Dan

    Just cause you’re smart and have a great memory doesn’t mean you know what’s coming, but he makes good points. I don’t think his pessimism is unwarrented.

  2. AJ

    How money is created as debt, and can never be paid off, or why we’re all f*cked:

  3. Anonymous

    Lots of allegedly wealthy aren’t as wealthy as popularly perceived/assumed….nor did many pay much in taxes (in total dollars or effective rates) during their peak earnings years

    Lots of wealthy who choose to spout off on cnbc or msm have various wealth/racial guilt and/or hypocrisy issues as they opine on tax rates or leverage for someone else, yet many are notorious for being underpaying employers/slaveowners and having own personal leverage/liquidity issues….all about “fairness” and “giving back” and “prudence”, right? How better than via “charities” and other tax deductible scams which merely offset tax burden onto less resourceful taxpayers? All while buying taxpayer-subsidized “generous” guy image…ala Warren or Billy, etc

    Crony capitalists are as despicable as union commies and community organizers…

  4. Demmerkrat Patriot

    Crony capitalists are as despicable as union commies and community organizers…

    We need to stop attributing brilliance to those who have made a ton of cash during the real estate run-up. Many of them are (were) con artists and scammers with no more smarts than the bus drivers. I attribute the same level of smarts to some of the hedgies in town. It doesn’t take a lot of smarts to hire MIT mathematicians to build models to trade stocks.

    The extremes at both ends (capitalists and commies) tend to be zealots for their causes. The smart ones tend to be more moderate in their social and fiscal views. To bad those moderates don’t create good sound bites ….

  5. Out Looking In

    There came into Egypt a Pharaoh who did not know….He did make a decent attempt to stop the voodoo supply side Reagan deficits from exploding, but it is still funny to see the “converted” Stockman in all his bullshit glory…I wonder how he felt about overfunded pensions back in the day?