David Stockman (cc photo: Tarek Rizk/Aspen Institute)
Former Reagan budget director David Stockman is outraged–outraged I tell you!–by the Federal Reserve increasing the money supply. In a lengthy op-ed on the front page of the New York Times Sunday Review (3/31/13), he condemns “the mad money printers at the Federal Reserve” with their “egregious flood of phony money” and “a radical, uncharted spree of money printing.” The Fed’s “panic-stricken melee of…money-printing,” he writes, is part of “the single most shameful chapter in American financial history.”
For all this moral indignation, however, he never gets around to explaining what exactly is wrong about “printing money.” It’s certainly possible for an economy to have too much money–that’s how you get inflation, generally. But doesn’t it stand to reason that if you can have too much money, you can have too little? And maybe you might have too little if your economy has just lost $10 trillion in wealth due to the collapse of a housing bubble? (Stockman complains about how the Fed “digitally printed new money at the astounding rate of $600 million per hour”–which would replace the wealth lost in the bubble’s collapse in a less-than-astonishing two years.)
Stockman rejects the idea, though, that increasing the money supply might be a solution to chronic high unemployment, writing that the “modern Keynesian state” is “mired in empty ritual incantations about stimulating ‘demand'”–putting “demand” in scare quotes as though it were some kind of preposterous confabulation rather than one of the central principles of economics.
What little documentation Stockman provides tends to be self-contradictory. Stockman is what economist Dean Baker refers to as a “numerologist”–someone very concerned with the number known as debt-to-GDP ratio. Stockman’s Exhibit A–his only exhibit, actually–is a chart showing all debt, public and private, as a percentage of GDP.
New York Times chart: “Indebtedness Dwarfs the Economy.” Each section of the graph represents a decade, from the 1950s on the left to the beginning of the 2010s on the right.
But when you try to match the graph to Stockman’s American economic horror story–you have problems. After the “bloated” state of the World War II era, there was a “brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House.” But “then came Lyndon B. Johnson’s ‘guns and butter’ excesses,” made worse by Nixon going off the gold standard–“arguably a sin graver than Watergate.” Then there was “a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.”
But look at that chart. Indebtedness was basically flat during the ’50s, ’60s and ’70s; indeed, it seems to have mostly grown during the “golden era” of Ike. When did you see a big jump in debt? Right, during the “iron resolve” period.
Something sure seems to have happened to the U.S. economy starting around 1981–when Stockman was budget director–but it doesn’t seem to have anything to do with the story he wants to tell.
This is as good a time as any to re-read “The Education of David Stockman”. Bottoms up!
Oh, and I too am guilty of occasionally “putting “demand” in scare quotes as though it were some kind of preposterous confabulation rather than one of the central principles of economics.” Only that it tends to be to point out that demand is driven not in a democratic manner, but by the decree of the extraordinarily wealthy and their friends in advertising and public relations.
And who was President during the majority of the 80’s? Oh yah! As always the thieves return to the scene of the crime and point fingers at everyone around them.
Jim – you totally missed Stockman’s point that the very culprits that caused the financial crisis (the fat cats on Wall Street) are the beneficiaries of the Fed policy of QE-Infinity. This ongoing QE is causing a distortion in the financial markets where bank profits are soaring, the stock market is soaring, and yet incomes for the average American are still declining in real terms. That “demand” isn’t being stimulated because the money isn’t making it to the people – its trapped at Goldman Sucks and the other Wall Street entities. Did you even read this article? And what the hell are you even talking about when referring to the chart in your article? The era of Ike was the 1950’s moron…the debt began to explode in the 1980’s which is coincidentally why Stockman quit as budget director…and he is nothing if not honest about it. Did Volcker (who was a Carter appointee by the way) not squash inflation? Inflation has nothing to do with the government debt…SPENDING does. The downturn in inflation rates was actually instrumental in the debt exploding in the 1980’s because budgetary assumptions were made using high inflation rates and corresponding increases in wages and tax revenues. When inflation dropped (as did salary increases) tax revenues came in far lower than projected and the deficit (and debt) soared. Do you know any history at all? Seriously – how did you get this article published?
you should reprint the “Indebtedness Dwarfs the Economy” chart so that the years are showing… your point about the indebtedness taking off in 1981 is lost because the years aren’t on the chart
The Right Wing including the Libertarian wing are four square behind >b>Stockman sneering at Paul Krugman as just a figurehead for the evil powers that want to stamp out the gold standard and keep hard workers from making their millions.
The father of trickle down economics revealed at last!
Tiger: Spending has to do with government debt? Surely you need a modifier. Certain kinds of spending will not only not contribute to debt but will decrease it. That would spending that basically is an investment: education, improving infrastructure like the energy grid, inducements to innovation, and–even–juicing the social safety net when times are rough–since that money is recycled into the economy readily. Granting subsidies to profitable industries and conducting wars of choice does nothing to create wealth: it only consumes it. By the way if SPENDING increases debt as you say, then why isn’t inflation going crazy now? Neither you nor Stockman quite get it.
I do not think you understand the principal effect of Quantitative Easing. That the money supply goes up is a technicality. The net value to the Treasury is in the reduction of interest expense it pays on the debt which it sells to less than 1/2 the stated rate of inflation (1/4 the true rate of inflation if you include the things real human consumers need to live). In other words, Treasury can sell as many T-Bills as they like via buying them back (thus keeping the value high, and hence the interest rate low). Consider,the banks are lending almost none of that “excess” money, in part because they are doing just fine as it is, and also because they know what is happening in the economy at large: namely, that at least another 20% of the public has been written off by government and big business. One of the first gifts Obama gave to Republicans – in the middle of his first term – was to cut the heating fuel allowance for the poorest of the poor in half. His utter failure to do anything to stem the foreclosure tide (perhaps 12 million families – 30-odd million people – will ultimately lose their homes) is a continuation of the same policies. If I where a bank? I would only lend to the “New” Middle Class – which today means a net worth that only 5 to 7 years ago meant “Rich.” All the rest of us will be the New Poor. I’m not poor yet, but I’m aging, and ultimately that will lead to the self-same denouement.
It amazing, but the debt ” EXPLODES ” (boooooom!!!………….lol) right at the election of saint Ronnie Rayguns – 1980 and continues to skyrocket under the continuing neoliberal economic regime…a return to the economic sanity of the 50’s and 60’s is obviously whats needed
In the old days, when a bank was robbed, it had to be refunded. The bigger accounts had to be refilled first, but eventually the bank was restored. These days the banks are constantly robbed, and the Fed is constantly trying to restore them, but not hard enough to finish the job. The government refuses to prosecute the robbers at one end and to compensate the robbed poor on the other. The result of that policy is the reason the economy cannot recover.
I see by this response to Stockman’s article that Fair is just another elite controlled propaganda outlet pretending to represent average citizen. (see “Tiger’s” comment below.
Idiots…….Anyone who is not a slack jawed moron knows we cant print ,borrow ,and spend our way into anything but an early economic grave for this country.If anyone actually believed that keneysian economic would work when Obama came in ,you would certainly expect them to be dead and buried by now.But no- the liberal elephant with a bucket on his head runs into a tree till he is dead.He knows no other path.Idiot!
Good to have you back in the mix, dude. Same erudite stuff, as usual.