You wrote that at the start of Reagan’s presidency, “For the first time since the New Deal, everyone was talking about cutting the budget instead of adding to it.” What has to happen for the country to have that conversation again?
That was a fleeting moment. The only way we can get back to the narrative of 1981 is if we have a massive financial market conflagration that suddenly shakes everybody out of the current frame of mind.
So you think this conflagration is inevitable?
It would be extremely destructive and unpleasant. At some point, the market is going to lose confidence that the Fed and other central banks can keep buying $85 billion of securities backed by the Department of Treasury and mortgages. The minute they lose confidence that the central bank can keep everything medicated and propped up and some of the smart money starts selling, then the opposite dynamic will set in. There will be a real crisis in the bond market because it’s totally artificial. Nobody owns the bonds — they all have it for a trade. And the minute people think the price of bonds is going down and the yield is going up, they’ll sell them as fast as they bought them.
When you were director of OMB, some Democrats felt that deficits were out of control and sided with you and President Reagan. Do you see anything like them in today’s party?
Not so much. That faction was called the Boll Weevils. They were mostly from Southern and rural areas — they weren’t big-city Democrats. Today, the Democrats and Republicans have eliminated the middle-of-the-road. That’s what happened because of several decades’ worth of redistricting. Also, most of the Democrats who lost in the GOP landslide of 2010 were the so-called Blue Dog Democrats. They had a modicum of middle-of-the-road fiscal restraint in their playbook. Moderate Republicans lost in ’06 and ’08, so now we have almost no basis for agreement on fundamental fiscal issues. Democrats are dreaming they don’t have to cut Social Security and Medicare. Republicans are dreaming that all they have to do is cut taxes enough and the economy will grow out of the problem. Neither is true.
You were a freshman in Congress in 1977. If you were starting in Washington this year, would you view your role as hopeless?
Yes. Hopeless. Because both parties have lied to the public for so long. The things that the base of each party believes are fundamentally untrue. Pat Moynihan taught me a phrase — “everybody is entitled to his own opinion, but nobody is entitled to his own facts.” What the Democrats and Republicans believe about the fiscal issue is so detached from the facts that there’s no basis for governance.