 This is the Reason Interview with Nikolas Payne. Thanks so much for coming out. Our guest tonight is David Stockman. He is a former congressman, a two-termer from Michigan, south of Grand Rapids, probably best known in the public eye for being Ronald Reagan's first budget director who made the naive, idealistic, and absolutely wonderful mistake of believing that Ronald Reagan wanted to cut the size, scope, and spending of government across the board. He wouldn't say this, you would. He wanted to cut the welfare warfare state, right? Welfare part. Yeah, and what happened when you were like, okay, and this is, before we get into his fantastic book, a real stinging critique of Donald Trump, Trump's war on capitalism, in preparing for this, you, as budget director, you came in and you had to cut $40 billion from a $700 billion budget in 1981 to give you a sense of how quaint that is. The defense budget now is above $700 billion. I think we may be approaching that just an interest on the debt, but you were scrounging around to find $40 billion to cut. What happened? Well, I think the problem was Ronald Reagan believed in small government profoundly, except for the Pentagon side of the Potomac River, and he was really a hawk, a real unreformed, unrequited Cold War hawk. The defense budget was about $140 billion when we got there by the time he left. It was $350 billion, massive increase on the theory that the Soviet Union was developing first strike capability. None of that was true. That was the origination of the whole neil-con view of the world. That's where all these characters originally got their stake, their start in the process. And so by the time we got to 1988, the defense budget had eaten up and then some all the domestic cuts and the Republicans who were willing to stand up for domestic spending cuts and title reforms and so forth were so demoralized by seeing these massive increases year after year for the Pentagon that they basically threw in the towel and the whole thing was kind of a wipeout. If you wanna get the numbers on it just to kind of cap off the point. When Jimmy Carter left the White House after all those years of big spending by the Democrats first Carter and then before him, of course, LBJ and Guns and Butter and all the rest, domestic, the domestic budget, non-defense was 15.4% of GDP. So way up compared to historically. When Reagan left, it was 15.3. So he made one tenth of one percent difference and that's about all we got. You know, I would recommend everybody read the triumph of politics, David's memoir of his time. The subtitle is called Why the Reagan Revolution Failed and it is, if you're interested in political economy as well as gossip, it's really one of the great memoirs. But the book we're talking about tonight is Trump's War on Politics and what Trump's War on Capitalism, excuse me. And this, the title says it so well there isn't even a subtitle. Why don't you start by telling us what was Trump's War on Capitalism? He is a businessman. He talked about having the greatest, the biggest, the best economy ever when he was president and things like that. What's the essence of Trump's War on Capitalism? Well, the question I think you were getting at is why did I write it? And the answer is I had already written three books trying to expose the fact that Donald Trump isn't remotely an economic conservative, doesn't believe in small governments. I don't think he believes in free markets and certainly he had no affinity whatsoever for sound money or fiscal rectitude. So in 2016, I wrote a book called Trump to warn people. In 2018, I wrote another book called Peek Trump to say that I was right. And in 2020, I wrote a third book called Dump Trunk. Dump Trunk. And I figured... You are starting to sound like the Buffalo Bills in the Super Bowl. This is your fourth one. No, I was starting to think that, well, the fourth time would be the charm. And my book came out five days before the Iowa primaries, it was two lines. But there is a bigger point to it and that is we're never going to get the kind of government I think that all of us believe in the kind of society, the kind of liberty, the kind of economic prosperity, the kind of market capitalism and so forth, unless there is an honest contest in the process of democratic governance in the United States between one party that more or less lines up as the government party, the party of the state, the party of the political class, the bureaucratic class, the apparatchiks in Washington. And there's a second party that represents the hinterlands and all of the impulses that go with us to leave us alone, to tax us less, to spend less, to intervene less, to get out of our way to allow the private society and economy to breathe. So we really need a government party contesting with an anti-government party. The problem is today we have a uniparty in terms of the career leadership of the Republican Party in Washington. When I look at McConnell, who's been there 55 years on the government payroll, I can't really tell any difference between him and our senator from New York, the leader on the democratic side. And so what I think the great danger is that the problems in the United States today in terms of our position in the world, which is a disaster, in terms of our public debt, and we can get into a lot of those numbers in a minute, in terms of a rogue central bank that is totally out of control, that if we wanna address any of that, then we can't have continued rule of the uniparty. We need to break it up, but Donald Trump, despite all of his rhetoric and all of his loud boasting about draining the swamp and being the outsider and coming in to clean up the whole thing, is just as much a status when it comes to all the key issues, and we go through them in the book as most of the mainstream politicians in Washington, so the last thing we need is not a fight in 2024 between Trump and Biden, it's pointless, it's useless. We need to have a clean break in the Republican Party, blow it up if we have to, and not allow the second party in our democracy to be Trumpified because if it's Trumpified, then we get more of what we had during the four years that he was there. I've got a lot of data on that, but let me just cap it here with one and then we can go into some of the details. When Trump became, it was sworn in, the public debt was 20 trillion already and it had been swelling rapidly for several decades. When he left, it was close to 28 trillion, so let's just call it eight trillion in four years. Now someone might ask, when we have numbers like this, just like you are saying that, numbers of this magnitude are almost hard to grasp to understand, but here's how to understand it. The first eight trillion, equivalent to the eight trillion that Trump racked up in four years, had taken from the first day of the Republic to 205 to a crew. That is the first 43 presidents in 216 years generated eight trillion of public debt. Trump replicated that in four years, not only because of huge tax cuts that he didn't try to offset with spending, but because of the whole disaster of the pandemic, the COVID, the lockdowns and six and a half trillion worth of bailout and relief and free stuff that came out of the effort to try to tell people, yeah, we're sending everybody home, don't worry, we'll send you money too. So that's the heart of the matter. Anybody that could generate eight trillion in four years of additional public debt, equal to the first 43 presidents, and there were some real rascals, obviously, in bad guys in that lineup, including FDR and LBJ and a lot of others in between, that's the kind of number that grasps you by the collar, it tells you, this guy is part of the swamp, he's not part of the solution. What, just briefly, what is wrong with running up massive debt, especially if the government or if the United States dollar is still the reserve currency of the world, it's a lot of debt, but hey, we can kind of cover it. Just briefly. Well, yeah, I think those are great questions. Someone asked me that in 1970 when I first went to work on Capitol Hill. I ran for Congress in 1976 against the deficit, Jimmy Carter, or I mean the outgoing four deficits, which were large, and the question was raised and here we are and it's now 34 trillion and rising and so maybe it's no problem after all. No, the answer is there are two ways to finance the deficit, both of them bad. The first way is the honest way, you finance it in the bond pits by borrowing out of the private savings stream. The effect of that though, everybody understood when I was first on Capitol Hill in the 70s and into the early 80s that when you finance the public debt deficits the honest way, it causes crowding out. It forces up interest rates higher and higher because whatever the given supply of savings is at the moment, Uncle Sam has the sharpest elbows, gets first call on the money, the crowding out happens, rates go up, that's where we got the famous bond vigilantes and so forth and that's why actually when we were trying to cut taxes in the early 70s, the what I called the college of cardinals, the established seasoned Republican leaders in the house, Bob Dole, Senator Domenici, people of Howard Baker who was the Senate leader, people that they said, no, we've got to be careful here because if we finance all of this tax cut with red ink and borrowing, we're gonna crowd out private investment, we're gonna hear from our car dealers, they can't finance their lot, we're gonna hear from our home builders that whose customers can't get mortgages and so forth. So the point is if you finance it the honest way, you cause crowding out, you get an early reaction economically. You basically suppress productive investment and you shift society's resources to government investment if you think that's a word and I don't, I think it's an oxymoron. So the other thing about it that's really important to understand without getting too deep into this but it's why Trump is so bad is that in the honest way of financing the deficits, which by the way had to be done in the late 70s and early 80s, because Paul Volcker was sitting in the chair at the Fed and he was not about to monetize the debt. And as a result, we had an environment in which the political reaction function if you wanna use that kind of term, the feedback was almost instantaneous and early. Run big deficits, drive up interest rates in the bond pits, those spread to the banking sector, those spread to the hometown car dealers and home builders and SNL bankers and just regular consumers. And it causes a political reaction that it tends to create a constituency in the political system in Congress for reining in the deficit. Okay, that's the first way. The second way is to issue all kinds of public paper and have the central bank buy it, okay? And that's called monetization. And that's exactly what we've been doing ever since the late 70s or late 80s, effectively after Volcker left. And let me just give you some idea of how much has been monetized. When Greenspan took over, and you remember this is 1987, he was allegedly at one time a great believer in the gold standard and an Anran disciple and a lot of other things. He sort of lost his economic virginity somewhere along the, you know, he was kind of a nerdy clarinet. But I think we're paying for the abortion now, right? Yeah. He was some kind of nerdy clarinet player who couldn't get the girl and he decided that if he was the toast of the town in Washington, it might work out better and it actually did. But in any event, the balance sheet of the Fed, and this is important to understand was 200 billion. And this is 1987. So, you know, that's something like 70 years of the Fed's existence and taken 70 years to get to 200 billion. And I'm gonna talk a lot about the balance sheet of the Fed and people will say, well, that's what kind of, you know, what does that mean? Why is that such a big deal? The balance sheet of the Fed is simply the track record of how much cumulative money they've seized out of thin air, printed, you know, a fiat credit over time. So we had 200 billion to cut this story short until they decided that inflation was out of control about a year ago and began to pull back the balance sheet of the Fed had reached 9 trillion. Now, this is in a lifetime. I'm looking out here. I can see probably quite a few people that might have been around in 1987. And we're all here tonight and you went from 200 billion, you know, to the 9 trillion. That's 45X, 45 times growth in that period of time, several decades at a point when the GDP was only increasing by 5X, okay? So when the money printed by the Fed goes up 45 times and the size of the economy goes up five times, you are way, way, way out of kilter, out of skew. And it is that massive continuous money printing which monetized all of the debt being created by, you know, a reckless Congress and White House that allowed us to continue to run these huge budget deficits year after year, but eventually it catches up with you as well. In other words, you know, there's this famous thing in I think it's Hemingway's book where, you know, he's asked how did you go, one of the characters asked, I can see you're shaking your head. A lot of people know this one, how did you go bankrupt? And the answer was slowly at first, then of a sudden, okay? And what I'm trying to get at here is the honest way to finance the deficit will cause problems very quickly. What we're doing is the slow way but we've created massive financial bubbles, massive, you know, misallocations of resources, tremendous amounts of speculation that should never happen in a healthy economy and wouldn't happen and has permitted this to go on much longer than would have been the case if we had done it the honest way. But now we're at the point where I think the chickens are coming home to roost because even the Fed has stopped printing money because the inflation was out of control. So to bring it back to Trump, you know, Trump made a big deal about, you know, caring about the forgotten man, talking about Main Street versus Wall Street, all of that. Your book makes the case that whatever he's saying he's actually helping kind of Wall Street or the financial sector far more than, you know, the production sectors and service sectors of the economy. Talk a little bit about his tariffs. Yeah. Tariffs and his immigration policy and the way that that, in the name of helping people, like he's trying to help small producers and is saying we're gonna keep China from dumping cheap products here so you can have your industry here. Why is that wrong? Well, you know, that's a great question and there's a huge amount to unpack and if I get too far off the beaten bath here, you know, reel me in and we'll get to some of the other points. But the big irony about Trump is that he was the outsider who's campaigning against the status quo, the establishment, the deep state, you know, the political class. And that all made for good rhetoric and it actually resonated with the public. But when you look at what his policy solutions are, they have nothing to do with draining the swamp. Trump's basic take on why all these people were left high and dry and fly over America and in the rust belt and why we lost millions and millions of jobs and why manufacturing has gone to China and elsewhere. His basic take is that this was all due to the work of nefarious foreigners. That is foreign governments that were cheating and unfair in their trade practices, immigrants coming across the border in hordes who were allegedly bloating our welfare state and undermining our economy and undermining our security. That's always the great thing, right? Immigrants are simultaneously coming here for welfare and then outworking us. They're like, you know, which isn't, right? Yeah, but see, so the point is you can't, you can have the right theme drain the swamp. Then you better go to the swamp and change the policies, ask what they are that have caused all of this disorder, distress, and failure and that would have pointed exactly to the Federal Reserve because it's been pro-inflation since the 70s and then it made inflation official with its 2% target and it was that pro-inflation policy decade after decade that priced us out of the world market. It's that simple and I look at one statistic that I've got in the book which looks at the cumulative increase in unit labor costs over the decades and that's important because remember what unit labor costs are. It's wage cost increases, benefits and pay, less productivity because if you have wage increases and you have equal productivity gains, then the cost of production doesn't change and a business can go on and expand and thrive without raising its prices. But if wages are increasing dramatically more rapidly than productivity because you have a pro-inflation policy being run by the central bank, then over time unit labor costs get totally out of control and here's the startling number. From 1970 when we basically flushed sound money down the drain at Camp David in 1971 actually Nixon. From then until the present unit labor costs in the United States have risen 275%. And as a result of that we have priced ourselves out of both the services market because all the services have gone to India and other low wage countries to say nothing of the merchandise goods market that has gone to Mexico and China and so forth. I have one little thing in the book that gives a pretty good example. IBM was the great monster of the midway at one point in terms of making the computer hardware which is the modern economy. But between 1990 and the present their employment in India has gone from zero to about 180,000 and their employment in the United States has been cut by more than a third. So that's on the services side to say nothing of what happened to these massive year in, year out merchandise trade deficits. Why did that happen? It all happened because the unit labor costs increasing at these rates. It happened because you had a pro inflation rather than a pro deflation central bank. And ironically it happened because Milton Friedman gave Richard Nixon tricky dick as we all fondly call him some very bad advice. He said, okay we're gonna unlink the dollar from its base, from its link to gold. But don't worry about that because the free market will take care of exchange rates. And what that really meant was that if we inflated too much domestically relative to the rest of the world our exchange rate would go down. All of a sudden imports would cost a lot more our exports would be less competitive and there would be a disciplining mechanism, a breaking mechanism that would prevent huge increases in the trade deficit and the offshoring of production. Now that's what Friedman told Nixon. Now in theory he was probably right but in practice he was utterly wrong because what happened over the last five decades is all the central banks of the world have engaged in dirty floats. And so there never was a free market in exchange rates. Could you explain what a dirty float is? A dirty float, yeah it sounds. Kind of intriguing actually. Yeah it sounds kind of intriguing. But a dirty float basically says rather than let the market clear in terms of the exchange rate between say the dollar and the yen or the dollar and the euro or the dollar and the Mexican peso central banks step in and try to peg the exchange rate in a way that they believe and it's another part of the evil in the world that we're dealing with sort of Keynesian economics and status and economics and so forth. They believe if they peg their exchange rates low it'll help their export factories, it'll help jobs, it'll help prosperity, they can export more to the rest of the world. And so that's called mercantilism and what the Fed has done after 1971 is spread a massive monetary disease in the world called mercantilist monetary policy and as a result of that and I've got a lot of examples in the book of why we've lost so much production and jobs to Mexico, I have to say nothing of China is basically because the Fed said it's okay to manipulate your currency, it's okay to increase your domestic money supply at huge unsustainable rates because we're doing the same thing here. And so as we flooded the world with fiat dollars as the Fed's balance sheet went as I said just in that short period of time from 200 billion to nine trillion the rest of the world, these other central banks, but particularly the Asian ones and also the Persian Gulf oil Petro central banks bought in dollars hand over fist but the secret of that whole thing is when they were buying dollars to keep their exchange rate from rising they were basically creating and selling their own currency to the domestic market. In other words, the Fed was exporting inflation and the other central banks reciprocated by buying up the dollars and inflating their own money supplies. Now, why am I going into all this? Because that meant that what Friedman said was the automatic adjustment mechanism of the free market and exchange rates was short circuited. It was, you know, blocked. And so the adjustment never came and as a result from 1974 onward we have not had one year of a trade surplus and it's gotten worse and worse and over the period of time it was 15 trillion of cumulative trade deficits. And if you even throw in the surplus on current on services that we have in the world it's still 11 trillion over the last 40 years. Well, what is 11 trillion a big number? Well, if you put it in today's purchasing power it's 20 trillion. And so therefore basically we have borrowed 20 trillion from the rest of the world to keep this whole game going. So that's why this is how we got into the mess on trade and this is why Trump as I say in the book had it totally upside down. The problem was, you listen to the speeches it's these nefarious evildoers in the US trade administration or in the commerce department or lobbyists sneaking around the banks of the Potomac that made bad trade deals and gave away the store with all of our competitors. And that's why we're in such a big mess and that if you put a guy who really knows how to negotiate and for instance not pay his bills which was one of his negotiating techniques if you put a tough guy like me in the Oval Office I'll negotiate good trade deals and before you know it everything is gonna be better. Well, he negotiated NAFTA as you all remember and there's a lot of hoopla about that. Basically if you look at it it just got a new name nothing changed. And secondly if you look at what happened to the deficit with Mexico it doubled after you know. And is that a bad thing though? I mean he did he renegotiated NAFTA and we kind of I guess got worse terms on some level but we got more stuff cheaply. Well yes but you know I think that's true but there is a free trade position that says don't worry and you know there's a certain kind of libertarian free market free trade that ignores the monetary side of this. And so it says well and there is this point and I used to make it and I think half of it's valid the other half isn't. The point we used to make in the 70s and 80s was well if other countries are stupid enough to fill their harbors with rocks you know it's sort of figuratively stop trade well why should we reciprocate and be as stupid as they are? And so therefore if they wanna subsidize their exports like the Chinese or others well more power to them because they're basically transferring wealth to our consumers domestic welfare is better off and so that's fine. Well that's half of the equation but the other half of the equation is that when you have a net export imbalance of 20 trillion over a period of time you have exported a huge amount of your production productive base to the rest of the world. And unless you can keep borrowing at larger higher and higher rates that isn't sustainable as an economic matter first but as a political matter and this is the point and you may think it sounds a little flippant but I don't think it is I think that Milton Friedman was the godfather of Donald Trump because Milton Friedman basically told Nixon sever the link to gold and I'm a gold standard man I think you might have noticed that and we don't need to worry about the ancient relic or barbarous relic or whatever Keynes called it because we have a market a free market that'll set the exchange rates right. Well, he was wrong about that. We exported massive amounts of our industrial base and I'll give one statistic on this that I think is telling. We exported massive amounts of our industrial base we created a burned out zone in much of the Rust Belt the upper Midwest, Pennsylvania, New England was long gone I was from the auto state of Michigan and that was totally burned out but where did Trump get elected in 2016? On the margin he got elected in the Rust Belt precincts of Pennsylvania, of Michigan, of Wisconsin, of Iowa in all the places that got left behind because we had an unsustainable set of economics with the rest of the world and it was caused by the central bank that Friedman was willing to let free. Now of course, Friedman thought that all of the central bankers that is the members of the Fed would be just like him they would be Milton Friedman clones and they would be very punctilious about the rate at which they were expanding Fed credit and he had all kinds of rules of thumb and so forth but of course that was a pipe dream, that was naive that people that get appointed to the Fed are basically there to do the business either of Washington politicians or Wall Street speculators and that's essentially what we've got. I feel a little bit bad because the last one of these recent speakings we had was with the biographer, Milton Friedman and we were generally saying nice things about him so I feel like we're kind of whispering but your point is taken. Can I just say one thing? Okay, I'm not really trying to trash Milton Friedman because he's a great hero. I thought it was Trump's war on campus, not Friedman. Yeah, but in terms of free markets and the understanding the rudiments of a free society you can't beat Milton Friedman. But the problem is he had a view of central banking and a view of the Federal Reserve that I think was totally wrong and that became the fulcrum for all of these things that happened. One of the other things you talk about I mean because this all of certainly all the problems with the Federal Reserve or the central bank predate Trump and you know a fascinating thing that you pulled together in the book as you note from 1947 to 2000 real growth annual economic growth average 2.45% since then it was under Bush it was nine tenths of a percent Obama basically 1% Trump 1% so you know whatever has been going on in terms of economic growth has been bad for a while but you talk a lot about how TARP at the end of the Bush administration and the beginning of the Obama one handouts to automakers I mean lock them into place so could you talk a little bit about how Trump you know and then Trump did something similar with COVID but is part of the problem when you talk about the Midwest or the Rust Belt that these parts of the American economy haven't been really you know they end up owning creative destruction like they just they they get wiped out but they're not allowed to change and adapt because they get various kinds of programs that are designed to help them kind of make it through to the next paycheck or something like that. Yeah well I mean that's kind of the problem of crony capitalism for anybody that might be interested I wrote a 640 page book called you know on that whole topic that was released in 2013 but I think you know the the issue that we need to find a way to understand is that everything goes back to central banking and when the central bank makes it so easy to borrow money and we end up with a economy that had when Greenspan left or got there there was about 10 trillion of total debt on the economy public and private this is household business government finance okay and that was less than 200% of GDP today it's 96 trillion okay in other words they have kept interest rates so low they've suppressed you know they've had such deep and long lasting financial repression that the economy has become a giant LBO okay and when you do an LBO I was in the private equity business so I know when you do an LBO there can be prosperity for a couple years and but if things don't work out right you're gonna have interest payments that begin to become more starting to see that interest as a percentage of the federal budget for years interest on the federal debt was like 200 or 300 billion it is now the run rate in the last few months has been a trillion okay and it's heading to much bigger to bring it back to Trump's specific policies you know what he came into office saying he was not only gonna stop illegal immigration but he was gonna cut legal immigration in half what is bad about that? Why is that part of a war on capitalism? Okay because essentially it raises a whole issue of supply side policy and I was a supply sider back in the 1980s with Reagan and then I got run out of the supply side church because I didn't follow all the precepts exactly but the issue that we have today as to why growth has been so tepid and why living standards have sort of stagnated and why there's so many very alienated people out there in the flyover America wanting to get behind Trump you know the reason that this has been happening is because we've got huge deficiencies on the supply side of our economy in terms of labor and capital investment. Now the native born workforce is actually shrinking it peaked in 2015 and it's shrinking and that's because for better or worse or for whatever reasons we can get into huge cultural discussions here native born women and families are not having babies and so our labor force is shrinking and since historically half of economic growth, GDP growth has been labor the other half is productivity our economy is grinding to a halt because the labor supply is shrinking unless we allow immigrants who want to work to come here and become part of the workforce. Now this is how we got where we were at the peak of things and I got a number that I think is kind of startling when you hear about the flood of immigrants coming in and we're being overrun and America's being somehow turned upside down if you go to 1870 we finally got out of the civil war and all the chaos that that generated there were only 39 people, 39 million people left in America, North, South, all the states the union reunited over the next 40 years to the eve of World War I we had 25 million immigrants. So relative to the population in 1870 the immigrant population in a few decades was two thirds of the population that you begin with. Now how many immigrants do we have today? We have legal immigrants of about a million a little over a million. We have a population of 328 million people 335 million people. So immigration today is less than one third of 1% not 66% or 60% or 40% In a given year Pardon? In a given year Yeah, but even if we take 10 or 20 years it's still a couple percent. So that's the first point. The second point is we have a totally broken ridiculous immigration policy that comes right out of the swamp in Washington and that if Trump really understood what he was saying when he said I'm gonna drain the swamp the first thing you would do would be to change the basis for immigration from, to get here you either have to be a family unification which is about 400,000 out of the million or you have to be a PhD or some high-tech skilled worker to get a couple hundred thousand more slots or, and this is the big or you have to be a refugee or an assailee and that's the only way that unskilled workers can get into the United States today when we desperately need unskilled and low-skilled worker because our native workforce is declining. Last year, in the last year that the data is available 2022 only 4,000 green cards were issued under the category things called E3 and E6 for unskilled worker. 4,000 out of the million 118,000 legal immigrants that got here to say nothing of the hordes that are on the border. Now, the hordes on the border if you look at the, you know if you can stand it, you look at Fox News every night you know most of them are pretty strong back to able-bodied young people and their families or middle-aged but it's a unskilled, low-skilled workforce looking for a job and a better economic opportunity but it's the policy is equivalent and I wrote about this in my blog the other day it's equivalent to trying to drive a dump truck through a pinhole. In other words, there's millions of people at the border trying to come in there's only 4,000 slots for unskilled workers so all of them are at the border being forced to pretend that they're assailees that they're refugees and the only way you can become a refugee is to cross the border, break the law get arrested and then be put into the queue that takes months and months in fact years of determination in a totally clogged up court system in order to get certified that you're a asylum seeker and to prove that you have to prove for instance that if you come from Costa Rica as an example you're in endangerment of life in limb if you stay I bring up Costa Rica because I checked the other day a couple of my family members were down there on vacation seems to be the hotspot and it turns out you can get a ticket from Costa Rica to Kansas City if there was some job openings there for $214 on Delta so if we had a guest worker program of the kind that makes so much sense today that would allow people to go to the U.S. Council at in Costa Rica get a guest worker permit and be matched up with someone looking to have higher people for lawn care work or warehouse work in Kansas City they could get there for $214 no fuss no must no chaos at the border no border patrol people chasing around in the middle of the night and we would open up that little pinhole to the economic rationality that we need to have in other words if they simply reform the system to make it economics-based rather than asylum-based which is politics make it economics-based and you have a guest worker program and if people come here and they're making a payroll and their employer is certifying it month after month, year after year for ten years I'd say give them a citizenship and let them stay and the whole problem would be solved the hordes at the border are millions of people that want to be economic immigrants that are being forced to be political refugees and they're creating a mass and the reason I mentioned the $214 Delta ticket is you got to get from Costa Rica to the real grand you got to pay the coyote $4,000 to $10,000 to get you there when Delta would be happy to do it for 214 if we were only smart enough to have a rational economics-based immigration system but there you go again immigration control the whole Byzantine convoluted control system is statism at its worst it's run by the lobbies in Washington Google gets everybody they want they get all the PhDs they get all the smart young techies coming out of you know South Korea or Taiwan or wherever else they're coming from they take care of their needs the Fortune 500 takes care of their needs because there's four or five categories for advanced degrees, PhDs unusual skills, blah blah blah they all get in three or four hundred thousand a year but employers that need to have people working in fast food joints or in lawn care businesses or in warehouses or in agriculture can't get anybody here legally so you get the whole mess that we have today I've got one more question before we go to the audience so in the book Trump's War on Capitalism you also you talk about how he Trump who you define as a Caesarist politician he's like Caesar very imperial in that sense he overreacted to COVID both in terms of lockdowns and signing off on that but also giving people lots of money not to work which you know Lord knows I want to be in that situation someday but it's probably not good public policy defense spending he's a big advocate of more and more defense spending regardless of the actual threat to the national security or our borders but my question for you before we go to the audience is so Trump is awful I can't speak for this audience I know for myself I didn't vote for Trump I don't expect to vote for Trump I'm not moving to Canada and I'm not moving to Cuba if he wins or anything like that but isn't the other alternative as bad or worse because it's going to be Joe Biden and is this just this way you have like your next book half written already where it's like Biden's war well first of all if you have to suffer through another Democratic administration might as well have a senile guy in the chair because very little is going to get done but that's a little facetious but we have to start thinking I think from our point of view in the world that four years is not the end of history and that if we don't get a non-statist or an anti-statist party reassembled, realigned out of the mess of the Uniparty that we have today well then there really is no hope because you know you will continue to do the same old thing over and over again which Einstein said you know is the perfect definition of insanity so I say what we need to do in 2024 is blow up the Republican party it needs to be purged it is a gang of you know cultural right-wingers neocon, warmongers and basically careerist politicians who use the party as a fundraiser do you still consider yourself a Republican? well you know I think no this party needs to go this is a libertarian audience broadly so explain quickly too you talked about social conservatives and stuff like that in the book you mentioned the drug war is stupid can you just give us 10 seconds on that what's the Zapruder film version of why the drug war has been made I'll give you three seconds really goddamn stupid and again this is part of the whole Trump shtick you know he came down the escalator in 2015 talking about the murders and the rapists and the drug dealers coming across the border as I lay out my book quite clearly if the drug part of it is a problem you know deregulate drugs and let the teamsters ship the stuff in keep it legal I think they might even be post-altria now they're not like their 10th name change yeah I know bring it above ground make it legal take out all the premium profit that basically goes to funding the criminal organizations that are necessitated when the government decrees that a desired product shall be artificially scarce so you know that's part of all the rhetoric too I mean everything you hear about all the drugs coming across you know that is a different issue and we need to separate them out the economics of immigration versus the economics of the stupid war on drugs and the drug control laws that we have and you know the fact that people don't probably remember this I don't think any of us could we're not been around long enough but until 1918 you didn't have to have a passport to come to America there was no passports I like to blame my parents for that change once they got in they're like okay this isn't working all of this immigration control really began then and it's created its own you know its own bureaucracy and its own set of politics so if we got back to sort of economically driven border policy which is what we had to our great benefit until 2023 when they passed the first immigration act half of the most of this problem would go away and I had a little thing about this the other day I sort of about maps and I said hey this terrible thing that's going on right now they're trying to get 60 billion more for this you know utter insanity of the Ukraine proxy war and they're tying it to 15 billion more border control money for the right wing Republicans so that somehow the you know party can scrape together the money it needs to keep the forever wars going in Ukraine so I said well let's look at some of the maps and most of it's about Ukraine we won't get into that now but I said here's a map it's a map of Mexico and where the US consulates are located and there's actually 10 of them and they're spread all over Mexico and I said could you imagine what would happen to the crowd at the border if you were allowed to go to the consulate or embassy in your area and apply for a guest worker permit just like you can do now to get a visa if you're a skilled worker or to get a visa if you're the wife of an American citizen who got stranded in Argentina some way if we could if we used this massive expense and most of it I think is a waste of our state department and all of our embassies so the consulates we'd have everywhere if we put those bureaucrats to useful work which would be to interview and vet people who wanted to get a guest worker permit and also make it possible for them to connect digitally or otherwise in this modern world with employers or their agents in Kansas City or Spokane or Detroit, Michigan what would happen to the 300,000 a month or whatever they're having at the border my answer is it would probably go down to about 5,000 a month and it would be who would be left, well drug dealers criminals and insane people as Trump's always talking about so 95% of the business in terms of the hordes at the border would disappear because they would be handled and just Mexico is one example they would be handled by the U.S. consulate that's a system all over Central America Latin America and elsewhere in the world lets go to audience question why don't we Morgan can you go back here to Daniel and please just ask a question sure you mentioned when you were talking about the monetary system on economics how you thought some of the returners were too focused on issues to the monetary system. But don't you think you are committing the same mistake but in the opposite direction of blaming everything that's happened negatively economically in the US on the Federal Reserve and on the monetary system? Isn't the decline of some industries and a lot of economic changes that have happened in the US simply a fault of relative changes in population, productivity, comparative advantage around the world and evolution since World War II? Yeah, I mean I'm gonna say it's not the only thing going on but the honest to goodness fact is it is the main thing going on that is shifting the location of economic activity. Yeah, technology changes but if we weren't inflating the domestic wage cost price structure and we had investment that we need the technology change would not cause business industrial activity or business activity to migrate to Mexico if they're assembling cars or to China if they're making you know computers or Apple products that wouldn't happen it could happen here but the two things that we have and I was getting into that is we have a constricted supply side one because we don't have the labor, two because we have the inflation that has caused an export of our industrial base and three because there's so much speculation generated by easy money and all the money printing by the Fed that we're not getting domestic investment in technology, plant, equipment, workforce upgrades and so forth that would allow us to remain competitive and I'll give you one number that I think again it's part of the indictment of the Trump era. From about 1955 to 2000 the average rate of net business investment net real business investment now every part of that phrase is important real because you take the inflation out of the numbers and net because if you're simply replacing the capital stock you're consuming this year that is depreciation amortization that doesn't get you anywhere that just keeps you where you are but the net numbers that the commerce department publishes are gross capital investment after depreciation after amortization after inflation the number during the Trump four years was three tenths of one percent not one percent three percent or five percent as it was historically but it was point three so essentially one fifteenth of what the historical norm was so what we got during the Trump four or five years is a vicious anti-supply side program anti-supply of labor anti-supply of competitive goods from abroad and anti-supply in terms of investment in productive plant and equipment Trump was you know boasting all the time about the stock market being sky high but that was because all of the capital in the system was being diverted to speculation on wall street financial engineering if you look at the increase in stock buybacks if you look at the increase in dividends earned in honor if you look at the massive explosion of m&a activity most of it totally unproductive just putting companies together and then they take them apart four years later and both of them are it claimed to be in the shareholders interest if you got the the financial engineering out of the system the capital would be flowing to productive investment but it's not because of the federal reserve therefore too much speculation and financial engineering too little investment and then because of import policy and immigration policy too little labor to make goods here and then we're even taxing consumers for the goods that were required to let's uh go to question up here oh hold on i'm sorry i was actually pointing behind you hi there my name's uh brook and and in 1990 i went to japan to run a trading desk for merrill lynch and the thing that i observed um back then it was japan not china right that was eating our lunch was how easy it was for us to move capital into japan and yet labor couldn't move into japan and it was hard to get capital out of japan you could get profits out maybe but not capital you could put ip and i think what you're saying is that really labor has to have freedom to of motion first and then capital can follow and i agree with that so here's my theoretical question and i'm looking forward to this right because ever since and i think it was under carter we and not carter um clinton we have we we've made it uh student debt impossible to discharge in bankruptcy now what if uh china europe japan the rest of the world just said look it's not a crime to discharge student debt in bankruptcy if you're an american come here you can't be extradited right so we lose all of our native because i i see you know you i have a border and you know i rent a room to a to a 55 year old who's working as a night nurse to pay off student loans oh my god yeah so she can eventually not die right and i'm like yeah i think there's probably a bigger story there than no there isn't and you're talking to somebody who you have a history of doing that because you know on the point about this guy who's your guy who's still working and i didn't say what the gender was nor mine so um the but but i think that that's a way for the market to actually adjust because if these countries do that we're gonna have to face the fact that we're doing the wrong thing which i think is what we're talking about i couldn't agree more and about your guy who's working this you know there's actually several million people on social security who are in danger of having their social security tech check garnished because they're behind on their student loan repayments okay and some of them are never going to make it now the bigger point i'm making is that uh the 1.8 trillion or whatever the number is now that has been pumped into the system for student loans since the 1990s when the thing really took off is basically subtracting labor supply from our economy because people become perpetual students they really do and as long as you're in student status you don't have to service uh or pay back your loan and so one of the numbers that i looked at i look at uh is and without getting buried in it right now i look at the real unemployment rate in america and the way i get it is i take the total adult population let's say 18 to 70 and i calculate the hours at a standard work year 2000 hours a year and i get a number and then i look at the number that the labor department says labor hours they actually track this that are being used and the uh today in our economy and the answer is the unemployment rate on an hours basis for the total population forget about whether the BLS says they're in the labor force or not in the labor force forget whether they're on disability because they got a uh a corporal tunnel problem with their left finger uh forget about whether their students at 35 still working on their second phd if you just take it on an hours basis for the total society because people ought to work and support themselves the unemployment rate is 40 and the 40 unemployment rate is a function of welfare state policies that subtract uh that delete labor supply from the market because you get a student loan or you're getting the whole package of welfare benefits or you're getting early retirement under social security uh etc etc so half of the problem that we have to deal with here is a kind of welfare state blob that is drastically undermining the supply side of the economy by causing huge speculation and financial engineering to dissipate capital on wall street and driving labor out of productive employment on main street and when you have capital uh that's uh being uh depleted and when you have labor that's being depleted and shrunk then you don't have a good recipe for prosperity and you you have another you have another picture you have another part of the analysis as to why statism is ultimately uh the problem uh that we're dealing with uh a question sir first as as one who greatly applauds your main concerns uh strategically I believe that it's that it's true that you want us all to vote for RFK junior absolutely RFK senior is not available yeah because he's not despite the fact that he's daft on the subject of climate change could you outline that brilliant strategy of why we've got to vote for that guy okay that's that's where we were getting all night and I never got there slowly return okay well I just to put it a little biographical the first campaign I worked on is an anti-war SDS student protester in 1968 was RFK's candidacy for the presidency on the ground that he wanted to bring the empire home uh and he was the anti-war candidate so here we have RFK junior and we have the same problem only far worse today but my reason for supporting him is that the beginning of addressing all of this means you've got to have a tough skeptical attitude to the Fed and he does I'm advising him privately on a lot of things and I know from conversations that he does in second you have to understand we don't need a 900 billion dollar defense budget a 1.3 trillion total national security budget if you count everything and we need to drastically rein in the empire in all the bases and all the innovation Does he share your vision of free trade and free movement of people? I think he's not you know he's not where he needs to be on everything but you know I think you have to start with the fiscal monstrosity that we have and recognize there's a two-step thing to deal with it one is defense we should cut that by four or five hundred billion you know when Eisenhower said warned about the military industrial complex everybody knows that speech he gave in 1961 when he was leaving if you put the defense budget of that day which was at the peak of the Cold War the height of the you know Soviet Union actually was functioning still at the time that number would be about four hundred billion today and current dollars of purchasing power and Ike said that's enough in fact he said you know the danger is we're going to spend too much and if anybody knew about war and anybody knew about really understood defense president Eisenhower did the budget today is 900 billion and the same dollars of purchasing power and we don't have a you know industrial state technologically empowered enemy like we had then you know the GDP of Russia is two trillion ours is 26 trillion the GDP of China is 15 trillion ours is 26 but China would you know collapse in six months if their exports were cut off so they're not going to just briefly where where do you have both parties you you know you've pointed out everybody believes in more defense spending I think everybody understands the existential threats to the United States are have not been growing you know what explains that kind of you know the willingness of either the democrats or the republicans to just keep goosing well I think at the end of the day it's the military industrial complex and the fact that the defense budget is like a self-licking ice cream cone okay there is so much money dripping off the sides of the cone going into the think tanks and the NGOs in the whole apparatus of Washington that then comes up constantly with reasons for more with threat assessments that are total baloney I mean you know really what what is the threat from Russia to the United States today and if it's a threat to Germany then the Germans can arm themselves and they basically were spending 1.3 percent of GDP and buying their gas until we convinced them to join the Ukraine proxy war because they didn't think it was a threat okay so the point is going back to the question about RFK you've got to bring the empire home you if you take the 400 300 400 500 billion out of defense and then stop all the interventions because remember we're spending 350 billion a year on veterans alone and that's just the deferred cost of war all these people that come home and they're permanently disabled or economically disabled we have to support them medically income-wise and so forth but that's a cost that ought to be charged to the defense budget and it isn't so you have to bring that home and if we do that then I think you can start to piece together some other things I do not think from my conversations that RFK would be opposed to a stronger means test on social security and Medicare for people that really you know with 100 000 300 000 a million 10 million of income should be getting it and so that would help in a big way because when you think about how much we're spending on those two programs alone something like 20 trillion over the next 10 years if you put a means test at the top of the income scale you would take you would take a lot out of that we really have left the supply side church right now it's cutting government spending really is more important than reducing taxes well at the end of the day that's where Milton was freedman was right he said the ultimate measure of you know the government problem is the spending level and that's another beef I have with Trump you know at the peak in 2020 and we didn't get into it a lot and I wish we could have but it's in the book when it when he went into the whole lockdown and then they bailed out everything with these massive stimulus bills spending reached you know 40% of GDP at the federal state and local level that's European social democracy level yeah I mean between 2019 the budget federal spending was 4.4 trillion in 2020 was 6.6 in 2021 6.8 so that's a massive increase yeah and that's just the federal level but also you know there was so much bait being put on the table to the states if you you know expand your Medicaid we'll give you more matching so you really have to look at the federal state local the public sector okay and it did reach 40 trillion I mean 40% of GDP another way to look at it is the the worst kind of spending we do even though it's socially necessary and why it needs to be constantly you know contained constrained is transfer payments and on the eve of the COVID lockdowns which were totally unnecessary the transfer payment rate in the they publishes every month of federal agencies was 3.1 trillion which is money that was flushing in from either borrowed or taxes flushing into Social Security Medicare food stamps housing all the rest of it at all levels of government uh when they passed the CARES Act and Trump said you know cash is on the way relief is on the way by April 2020 the transfer payment rate had gone from a steady state of about 3.1 trillion to 6.6 trillion and then in December Trump you know signed a second installment of the COVID relief and in the campaign said we got to give everybody another $2,000 per person check which most of it was paid for in the third installment which Biden happened to sign and he called it you know the American Rescue Act or whatever but it was simply the last installment of the Trump COVID relief bailout free stuff the reason I mention it is that when that became effective in the spring of 2021 the transfer payment rate from government in America rose to 8.1 trillion at an annual rate in other words from three to eight and so the difference the five trillion difference and they wonder why we have inflation because all the transfer payments weren't even buying public works they weren't you know they weren't buying anything they were simply money that was being basically extracted from future taxpayers and printed by the Fed you know slushed into the economy to create you know these numbers I think and at some point you know you can start to lose patience with them but the the point I'm trying to make is what happened during 2019 2020 2021 is out of this world it's off the the historic economic and fiscal radar screen and all of it generated because Trump had no principles and Dr. Fauci comes to him and says you know the pandemic is at hand we need to lock down the economy close the schools shut down the restaurants and bars and malls and so forth and Trump said okay let's do it and we were off to the races that that was an unforgivable sin okay I'm mainly trying to do analysis here but when it comes to preaching at the end of the night the unpardonable sin the unforgivable sin was the whole COVID lockdown policy and the and I buy very strongly here the Harry Truman doctrine he had the plaque on his desk it said the buck stops here all of that happened because Trump embraced it endorsed it tolerated it and let it happen I can't believe that anyone who was even a kind of milk toast you know Republican what do they call the rhinos rhino yeah I was anyone who was even a milk toast rhino would have thought you know we're going to destroy the business of millions of people that have been working for decades building up their local restaurant or gym or whatever else it might have been and we're just going to shut them down and destroy them we're going to tell people if they can't go to the mall even if they're healthy they can't go to a gym if they're 25-year-old weightlifter you know a even a as I said in the book a half-assed Republican but it said wait a minute we can't we can't do that and Trump basically and this is supposed to your point he's a caesarean and by that he thinks the great man on the horseback or sitting in the behind the resolute desk is going to make a whole the whole difference he's the guy that can negotiate he's the guy that can sit down with you know the leader of Korea or China or whatever and that is that's the danger yeah we've got time for one last question yes okay one of the offsetting factors of all this regulation spending has always been the underground economy very much depended upon cash and we're seeing less and less cash so a underground economy still exists is it going to grow or is are we going to lose it and then also the other thing is we've got all these immigrants coming in this country what are they all doing well I think most of them if they were if they were legal and they were given a guest worker permit would be working that's why they're coming here okay but since they that's illegal and they have they if you go across the border get arrested get in the queue for an asylum asylum determination you're not allowed to work for six months period and if something's wrong with your paperwork after six months and you're still waiting in the queue which almost all of them are you still can't work okay so we're basically making it impossible but if you're a blue state city or a blue state governor what you're doing is opening up the hotels and opening up the soup kitchens and everything else for the people who are coming here who are not allowed to work because it's against the law it's so damn stupid and crazy that you have to wonder how how you know people can really not understand what's going on but that that's that's where I think we are yeah yeah do you think uh is the underground economy growing shrinking will it be become more difficult to do in a world of uh kind of technology enabled central bank enabled surveillance yeah I think the the most dangerous thing that anybody's talking about at the present time is abolishing cash and of course when you hear people talking about government digital currency or the need to get rid of cash there was a big movement on a while ago from all the Keynesians and Keynesian economists who said we got to get rid of cash because that's the only way we can you know fine tune the GDP if we don't allow cash to flush through the system and behave in ways that we don't approve so the campaign to abolish cash or to replace it with digital cash which isn't at all the same thing you know dollar dollars that are in all our pockets here are bearer currency your name isn't on it your social security number isn't on it but it's accepted as hand to hand money because that's what we all understand you get rid of that the underground economy practically disappears and the powers that be say well we're doing this to get rid of all the bad things like terrorists and drug dealers well i don't know that the terrorists are using that much cash and uh you know the drug dealers i understand they like the discover card because it has you know really good features low interest rates yeah can i ask just to wrap things up you know the book is trump's war on capitalism i highly recommend it it has a forward by rfk jr who like trump and biden i will not be voting for but i appreciate your making the case your career is kind of as you were pointing out has done this kind of remarkable circuit where you know when you in the 60s when you were younger and beginning your career you were pushing for you know an end to the pentagon or a critique of that a critique of what used to be called the welfare warfare state um and you've come back to that i my question and you you in the book and i think tonight you've made really strong cases about why things are so kind of you know screwed up and everything but are we living in a better world than we were in 1968 materially and kind of morally and just on a day-to-day basis and if so how do you account for that capitalism yeah uh you know this is the one thing you get whenever you point out what's wrong with the state driven policy and you know the fed and deficits and trade policy and so forth well you're better off now than you were 20 30 years but it wasn't because of the state intervention it was despite the state intervention in other words capitalism is dynamic people want to improve their circumstances they invent things they create enterprise they find better mouse traps all of that continues and that's what keeps the economy crawling forward inching higher uh but what what the problem is is when the state gets too big too strong uh too um you know uh too too interventionist it slows that down in fact uh maybe even slows it to a crawl so uh yeah we've we're we're clearly better off materially I don't know if we're better off morally okay but we're clearly better off materially because that's what capitalism does and the thing is you can't allow the politicians to claim credit for what is happening silently day in and day out uh through the length length and breadth uh of a market economy that's now 26 uh trillion big and you know a hundred trillion worldwide all right we're going to leave it there David Stockman thanks for talking to me