Moderation – in consumption; in taking on debt; in speculation; and, oh yes, in language – is a wonderful thing. And poor David Stockman, sounding at times like a man gone off his Xanax, was allowed by the kindly editors of the New York Times to work himself into a reality-TV-like tantrum on the cover of the newspaper’s Sunday Review section this past weekend.
“The future is bleak,” he warned. “The United States is broke – fiscally, morally, intellectually.” He likened our situation to “an end-stage metastasis.”
Eeesh, Dave. Chill a little. Stockman -- budget director under Ronald Reagan, one-time CEO of an auto parts maker that ended up in bankruptcy, and most recently an active, bipartisan scold – gets some things right in his rant and some things not so much. Or, as Paul Krugman, the economist and New York Times columnist, gleefully wrote of Stockman’s article:
“ . . . pathetic and embarrassing. It’s full of big numbers that are scary because they’re big numbers.”
“I thought there would be some kind of real argument, some presentation, however tendentious, of evidence. Instead it’s just a series of gee-whiz, context- and model-free numbers embedded in a rant — and not even an interesting rant. It’s cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge.”
As an aside, if it takes a crazy rant from David Stockman to get Paul Krugman writing about economics again, instead of politics, well, it’s worth it, eh?
Anyway, Stockman (notice he said the country is “morally” bankrupt?) hates debt and he hates what people who already have money call “easy money.” (What’s the point of being rich if anyone can borrow large sums and buy stuff and invest as if they’re rich, too?) And, you’re right, Dave, total U.S. debt has skyrocketed and, as a nation, we like to buy-and-consume a lot more than we make-and-export, so our balance of payments is perpetually negative.
Stockman kicks Alan Greenspan around for keeping rates “too low for too long,” and that’s certainly hard to argue with. The stock market liked Greenspan, until it didn’t:
Stockman has unkind words for the economic stewardship of George W. Bush, noting W’s Medicare expansion and tax-cuts have been, well, costly. The wars weren’t cheap, either, Dave.
And Stockman mentions how Wall Street firms, in the days before they had to become bank holding companies regulated by the Fed as a condition of being bailed out, had been allowed to expand their assets dangerously, with capital lagging, during the Bush years. Picking on the strongest, here's the numbers on Goldman Sachs (GS).
Stockman is also nostalgic for the gold standard, which of course constricted the supply of money and thus kept crazy lending down, mostly, and this is a sweet sentiment. But given the arbitrary thinking behind currencies being tied to a substance we dig out of the ground (why not tin?), it seems a little fusty given our current level of data mastery and technological competence.
There’s plenty more, but suffice to say Stockman is horrified at the levels of public and private debt, the imbalance of economic gains favoring the wealthy, and politicians’ inability to right the ship. Righty O, Dave.
Where he loses me is his apocalyptic view of the future. We do, indeed, seem challenged in the critical thinking department these days, as a nation, but we’ve had these periods before. Social Security was nicely fixed, if not permanently, under Reagan, and some relatively modest adjustments to the program would fix it again. Medicare is a harder nut to crack, but, goodness (two in my immediate family are employed in healthcare) there’s a lot of low-hanging fruit, cost and efficiency-wise. And if we started picking some of it, we’d become emboldened and learn to reign in health care costs. Our opponents in these matters are ourselves, after all, not some Soviet leader armed with nukes. So, really, despite the poor manners exhibited by so many in Washington, we can do this.
Where I could almost join Stockman in despair is how the availability of easy credit leads to asset bubbles, and how Wall Street’s amazing efficiency seems to be making those bubbles bigger and bigger. We desperately need to shrink big banks, limit what they can do with insured deposits, and find some banking regulators of sufficient stature to tell the likes of Jamie Dimon, of JPMorgan (JPM), to sit down and shut up. (Dave is wrong, I believe, in saying “there will be no new round of bailouts” when the tapioca next hits the fan. Despite all the talk – and it really is just talk – about no more bailouts, until the FDIC insurance fund is big enough to liquidate a top-five bank, or two, us taxpayers will be on the hook.)
Yes, foreign governments holding our Treasuries in huge quantities pose a risk, should they decide not to roll over those positions. But U.S. government paper, during all the recent crises, and despite the fact that it yields squat, has remained the world’s favorite haven.
Stockman’s most attractive quality is his willingness to flay everyone, regardless of political party. The 2008-09 bailout and subsequent economic stimulus package, an effort that started with W. and then was taken up with enthusiasm by Barack Obama, “is the single most shameful chapter in American financial history.” Stockman thinks we would have been just fine to let the fur fly. He’d have liked to see speculators get what they deserved. There’s that morality stuff again. The stimulus was certainly half-assed and saved too few jobs. But I’d buy the argument that unemployment would have been a lot worse without the banking bailouts and goosed government spending. Punish the speculator, Dave, and the little guy feels it, too.
If you want something to be encouraged about, read a sampling of the 379 comments that follow Stockman’s Times article. For the most part, they’re reasonable, well-mannered and intelligent. The Times actually monitors its comments, presumably deleting the nuttier and more profane entries (you have to identify yourself, so that helps), and one could imagine sending such a monitor down to Washington to bring some moderation to the too-frequently shrill debates about how to fix our economy. It’s far from hopeless.
Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at firstname.lastname@example.org.
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