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In an exclusive interview on The Hutchinson Report Newsmaker Hour with host Earl Ofari Hutchinson on KTYM 1460 AM Los Angeles on February 11, David Stockman, Office of Management & Budget Director under President Ronald Reagan.
Transcription by Annette Lockett, McAl Typing Service
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EOH: What are some of the things you expect to see in President Obama’s proposed budget?
DS: I don’t have all the details, but from what has been indicated, it will be a great disappointment. We are facing a severe fiscal crisis in this country. We have a $1.5 trillion deficit, 10% of GDP, which means 1 cent out of every 10. This has been developing all the way back to the early ‘80’s. The budget will have spending of about $3.7 trillion, but only revenue of $2.2 trillion. This massive gap of red ink means that we are going to be borrowing 40 cents of everything we spend in the coming year to run the government; the Justice Department, Defense, Agriculture, Education, Social Security, everything up and down the line. We are dependent on the world economy to buy all our debt to cover that difference. The Chinese and the oil states are not buying our debt, so the Fed is basically printing money and buying this massive amount of debt itself. This is really dangerous and the most alarming thing that has happened with our fiscal and economic policy since the 1930’s. I don’t see the Obama administration even beginning to face the issue or propose things that would make a difference.
EOH: How much of the budget is sound fiscal management versus political posturing and rhetoric?
DS: I think it is political posturing, people waving their arms but not really facing the facts. Obama wants to freeze the discretionary spending budget at last year’s level and the Republican’s want to cut it by $100 billion. That needs to be put into perspective. When we say the discretionary budget, it’s domestic programs from education to social services. That only adds up to $450 billion, about 12% of the budget. They’re not talking about cutting Medicare, Social Security, various retirement entitlements, farm subsidies, etc. That’s about $2 trillion dollars. And they’re not talking about cutting the $800 billion yearly defense budget in any material way. The defense establishment today is far too big, given the new world we live in. Neither the Republicans nor the Obama White House is proposing to do anything about that or the big entitlement programs. They are ignoring the three issues that can make a difference; entitlement reform, defense cutback, and raising revenue one way or another. Until they face up to the real facts, we’re going to continue to add to the national debt. In 1981 the debt was $1 trillion, now the national debt is $14 trillion.
EOH: Did we see the same type of fights over the budget during the Ronald Reagan Era?
DS: I think then it was a lot more constructive. Here was a new president with a new philosophy. Reagan said it’s time to take a look at if there are areas to reduce the overlap, eliminate programs that are not effective, and shrink the burden to the tax payers. Congress was willing to listen and give the review a chance. After that it got very partisan. We have now reached the point where spending seems like it is not controlled by anyone, and the system of government is broken. I feel that until we get a wakeup call we’re not going to have any change on this posturing from both parties.
EOH: Have we gotten to the breaking point?
DS: We are at a breaking point. I was appalled when President Obama threw in the towel and renewed all tax cuts, $800 billion dollars we could not afford. If President Obama could not stand up to Congress and say we can’t afford this, then who will? Ronald Reagan supported the biggest tax cut in 1981 and then learned we could not afford it. In 1982, ‘83 and ‘84 he signed bills to increase taxes amounting to $400 billion a year. If we could do half that today it would make a big difference.
EOH: You have been accused of being a traitor to Reagan Economics. What is your response?
DS: This is nothing new. Those same words were applied in 1982 when it became apparent that the program we had launched had not worked out the way we intended. The deficit was beginning to break out and we needed to back off defense and raise some revenue because we cut taxes too far. I was called a tax grabber, traitor. But we did the right thing. It’s a shame that the history of that era has been distorted and perverted by what I call revisionist history. People today don’t realize that push come to shove, President Reagan was willing to do what was necessary.