It might be hard to imagine President Ronald Reagan agreeing with President Barack Obama's take on wealth inequality. But Reagan's first director of the Office of Management and Budget, David Stockman, says that the disparity in household wealth is a major problem that ought to be addressed. He just has very different ideas about how to deal with it.
Stockman's specific concern is gains in the stock market, which he say have contributed massively to wealth inequality. Since he maintains that stocks have been propped up by the actions of the Federal Reserve, he has a problem with the money that Americans have made from rising stocks.
Profits off of stocks are "totally ill-gotten gains," Stockman said Thursday on CNBC's "Futures Now. "
"This is a massive windfall to the 5 percent or 1 percent" wealthiest American households, he said. "This prosperity we've had in the top 5 percent—and that's where most of the consumption growth has been—is entirely a function of artificially ballooning stock prices and other risk assets."
Meanwhile, "the 'Main Street' households in America are not doing well. Their incomes are not growing."
In making this point, Stockman sounds a bit like Obama, who criticized low tax rates on capital gains in his recent State of the Union address.
"Let's close the loopholes that lead to inequality by allowing the top 1 percent to avoid paying taxes on their accumulated wealth. ... We need a tax code that truly helps working Americans trying to get a leg up in the new economy," the president said last week.
But Stockman says blame lays not with the tax code (indeed, he pioneered a trickle-down approach to taxes under Reagan) but with the Fed.
Obama "is talking about a symptom, but he's clueless as to the cause. The cause is not capitalism. The cause is not some entrepreneur out there trying to invent something and improve the performance of his business. The problem is in the Eccles building [home to the main office of the Fed] and in the 12 people sitting there and thinking that interest rates are some magic elixir that'll cause this very troubled and difficult economy to revive," Stockman said.
"It's not true," he said. "These people are dangerous and destructive, and they're creating this massive income inequality that, sooner or later, is going to cause a huge political reaction."
That said, because Stockman thinks that stocks are set to plunge, he believes that those who have their money in the market are set to lose a great deal of it.
"We've had two huge bubbles that collapsed already in this century," he said. "When this third bubble collapses—and surely it will—I believe that will be the day of reckoning. The credibility of all this central-bank-dominated, Wall-Street-coddling policy will be totally repudiated, and maybe then we can clean the slate and start over."