Jared Bernstein on Stockman's rant
David Stockman Goes Way, Way Over the Top
Mar 31, 2013
He has a featured piece in today’s NYT which, while about 11.8% absolutely and totally on target, is mostly a horrific screed, an ahistorical, dystopic, Hunger-Games vision of America based on debt obsession and willful ignorance of macroeconomics and the impact of market failure.
The first sign of a problem here comes from a mash-up of statistics in the introduction that looked wrong. I’m not sure what he did, but business investment is up 1.4% per year since early 2000, not 0.8% as Stockman claims, and why start there anyway (he seems to do so because that’s when the stock market last peaked—whatever…)? Actually, business investment has been a pretty strong performer over this expansion, up 6.6% per year since 2009Q3. To measure payroll growth from the early 2000s also masks huge variation. Stockman claims almost no growth annually, but private payrolls are up over 2% per year since they started growing in early 2010.
But here’s the challenge with a piece like this: despite the better statistics you get when you chose different dates, there’s no question that the American economy is seriously underperforming and that bad policy is implicated. It’s just that the culprits aren’t the ones he thinks they are.
In fact, like most crazed rants, it’s hard to pick out the argument, but I think it’s this: for almost a century, economic policy makers have…um…made policy, and that’s led to cheap money, high indebtedness, crony capitalism, and econo-moral-turpitude.
Everyone’s implicated, left and right. Keynes didn’t understand macro, Nixon abandoned the discipline of the gold standard, Bush II spent recklessly, Greenspan and Bernanke’s were and are reckless monetary hippies, even Paul Ryan’s a big spender (!), Obama’s policies are “hopelessly glib” (whatever that means), and the central banks of China and Japan are “monetary roach motels.”
Eisenhower gets some love, presumably for running some budget surpluses, though Clinton’s larger surpluses (as a share of GDP) are not mentioned.
It’s a long piece, bursting with passionate fire and brimstone, but again, at least to me, there’s no cogent argument in here, just assertions: sovereign debt is bad; you’ve got to let the market work out its failures without trying to fix them (there must be “a sweeping divorce of the state and the market economy”); no government investments in industry; central banks shouldn’t mess with the money supply.
One could take each one of those apart. Sovereign debt is neither bad nor good–its assessment must be situational. Despite the fact that policy makers are working hard to forget this lesson, is well established that allowing market failures to heal themselves causes protracted and unnecessary economic pain that can be avoided with temporary stimulus. Private investors will under-invest in innovative sectors due to uncertain returns, central banks have played a critical stabilizing role, etc…
So what does he get right? Of course, all of the above can and are sometimes done badly. Our debt is in no small part a function of our uniquely inefficient health care sector, not to mention the supply-side, trickle-down, economic snake oil that Stockman himself helped to sell back in the Reagan days. As Dean Baker has documented, we are awash in crony capitalism—the best parts of Stockman’s screed inveigh against this, with resonant connections to Wall St.—and that leads to government failure alongside market failure. Some Asian (and German) central banks in particular have contributed to destabilizing global imbalances.
But by mushing this all together under the rubric of evil debt and interventionism instead of analyzing the details—differentiating smart borrowing from wasteful borrowing, giving fiscal and monetary stimulus their due (he’s welcome to point out where they go wrong, but his blanket condemnation is nonsensical)—I suspect most readers will react the way I did: it’s like hearing a crazy person on a street corner ranting against whatever: they invariably stumble on some profound and piercing insights, but it’s mostly nonsense, and instinctually, we keep our heads down and move on.
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