Monday, April 1, 2013

David Stockman, Former Reagan Era Budget Director, Goes Bonkers in the New York Times

Sorry David, There is Just No Other Way to Say It

The current so-called budget guru, Rep. Paul Ryan of Wisconsin had a predecessor.  That was a Congressman from Michigan, David Stockman whose so-called budget expertise enabled him to become budget director for Ronald Reagan, and produce the highest budget deficits ever seen in peacetime until George W. Bush' last year in office.  Now Mr. Stockman, out of the public service for over a quarter century has produced a commentary on the current economic conditions. 

He has been allowed substantial space in the New York Times opinion section to set out these views.  The ideas and concepts are so, well, crazy, that one can only speculate that the Times simply did not have anything to fill some space on the Easter weekend, and so went with Mr. Stockman out of desperation and the hope that maybe it being Easter no one would notice.

In Mr. Stockman’s world, which fortunately is not the real one, America is headed towards a total economic meltdown.  The impetus dates from the Roosevelt administration.

The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.

But the worst sin was when Richard Nixon took the U. S. off the gold standard.  Really.

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline and the start of a four-decade spree during which we have lived high on the hog, running a cumulative $8 trillion current-account deficit. 

Now a full explanation of the Nixon change is beyond the scope of this Forum, but Nixon did not end the convertibility of the dollar into gold.  He simply ended the convertibility at a fixed price of $35.00 per ounce.  Why?  Because the U. S. did not have enough gold to sell to everyone at that price!!!  Really, it's that simple.   Exactly what would have happened when the U. S. ran out of gold is never explained by people like Mr. Stockman.  Maybe he envisions a world where the U. S. government sells gold for $35.00 an ounce forever, except no one can buy any because the U. S. government has no gold to sell at that price, or at any other price.  Yeah, that would have been effective economic policy.

So the future, according to Mr. Stockman is one of a near total collapse of America (and presumably the world, since America is in much greater shape than Europe thanks to Europe following policy, well, policy that Mr. Stockman advocates.)

The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. 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.

And no, Mr. Stockman is not a partisan, his screed blames everyone (except himself of course)

Less than 5 percent of the $800 billion Obama stimulus went to the truly needy for food stamps, earned-income tax credits and other forms of poverty relief. The preponderant share ended up in money dumps to state and local governments, pork-barrel infrastructure projects, business tax loopholes and indiscriminate middle-class tax cuts. The Democratic Keynesians, as intellectually bankrupt as their Republican counterparts (though less hypocritical), had no solution beyond handing out borrowed money to consumers, hoping they would buy a lawn mower, a flat-screen TV or, at least, dinner at Red Lobster.

Were there any good guys?  Yes, Eisenhower and his Fed Chairman.

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed.

But history (yeah, those awful facts that get in the way of a good opinion piece) tells us that the Eisenhower years produced low economic growth, and that the major contribution to the economy in that period was the initiation of the Interstate Highway System, one of the great economic projects ever and one or course done by government.

Ok New York Times, you made a mistake publishing something that should have only been printed in the newsletter of the store, “Crazies are Us”.  It’s ok, everyone does something stupid every now and then if they publish for public consumption.  Just look at some of the Posts on this Forum.


  1. Stockman might be right about one thing. Since his piece got published in the Times, the U.S. does appear to be intellectually broke.

  2. I'll have to agree with RM and TDPE. Just love this site and being deep in the deep south you have no idea how valuable intelligence is aroud here, especially when it comes to economic theory...I mean Economic Scientific Fact as its known to much of this country!