Reagan’s Budget Guy: Wall Street Giants Are ‘Wards of the State’

In a searing op-ed piece in Saturday’s New York Times, David Stockman, who directed the Office of Management and Budget for Ronald Reagan, essentially said that there’s not much that’s “free” about the so-called free enterprise system that Tea Partiers and Republicans alike hold sacred:

But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.

Stockton goes on to explain that two-thirds of the profits reaped in the 2002-2006 Wall Street bubble went to the top 1 percent of Americans; the bottom 90 percent (and that’s a pretty hefty “bottom”) gained only 12 percent.  “This growing wealth gap is not the market’s fault,” he writes. “It’s the decaying fruit of bad economic policy.”

Stockton opens his essay with a shot across the bow at the Republicans’ attempts to continue the Bush tax cuts for America’s wealthiest citizens:

If there were such a thing as Chapter 11 for politicians, the Republican push to extend the unaffordable Bush tax cuts would amount to a bankruptcy filing.

Don’t get me wrong; Stockton is no liberal, and he doesn’t have much love for the Democrats’ ideas about the economy. But what’s significant about Stockton’s role in this discussion is that he was the steward of the Reagan tax cuts, which he famously admitted, while in the administration, were not only failing to stimulate the economy; they were adding to the national debt. His heresy got him “taken to the woodshed” in 1981 when he expressed it at length to William Greider in the pages of The Atlantic Monthly.