David Stockman a former Republican congressman from Michigan was President Reagan’s budget director from 1981 to 1985. Having been selected for this important position at a young age he was considered somewhat of a budget prodigy. Recently he has authored a book under the caption “The Great Deformation: the Corruption of Capitalism in America.” Stockman represents the right wing in his economic views.
This report focuses on a pessimistic op-ed account by Stockman of America’s economic future, “Sundown in America”, published recently in the New York Times. Stockman states that “over the last thirteen years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later – within a few years, I predict – this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains will explode too.”
Continuing his critique, Stockman opines that the Main Street economy is failing while “Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.” Stockman states further that the “American machinery of monetary and fiscal stimulus has reached its limits. Japan is sinking into old-age bankruptcy and Europe into welfare-state senescence. The new rulers enthroned in Beijing last year know that after two decades of wild lending, speculation and building, even they will face a day of reckoning too.” Interestingly, as many economists tend to do, which is to suggest remedial measures which would overcome economic problems, Stockman in his op-ed instead, just wrings his hands. He ends his piece by suggesting that “when the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”
Not unexpectedly, Stockman’s views encapsulated in his book and in the above NYT article, set off some furious comments in Washington. According to the Financial Times the reaction left and right was scathing. Espousing the liberal view Jared Bernstein, former economic adviser to Vice President Joe Biden said that Stockman was “about 11.8 percent absolutely and totally on target” with his criticisms of crony capitalism but the rest was “a horrific screed, an ahistorical, dystopic, Hunger Games vision of America based on debt obsession and willful ignorance of macro-economics and the impact of market failure.” From the right, David Frum a speech writer for former President George W Bush called Stockman’s views primitive as economics, silly as advice and diagnosed Stockman with a mild case of elderly depression.
The history of economic thought is replete with fiercely held views of left wing and right wing economists on how governments should or should not tinker with monetary and fiscal policies to create growth and prosperity. Stockman’s warnings that the modern Keynesian state is broke have been echoed by some other economists and financial thinkers. These Cassandraesque prognostications do not however, reflect mainstream economic orthodoxy which argues that an activist policy helps stabilize the economy and diagnoses the primary US problem as lack of demand. The advancement of divergent views on the economic state of any nation is a healthy sign because it is through sustained debate – even passionate ideological debate – that governments, who are at the helm of their nations fiscal and monetary policies, are given the opportunity to develop more clarity and to hopefully implement the necessary course corrections where required.