March 31, 2013

Stockman's End Of World Scenario

David A. Stockman is a former Republican congressman from Michigan, President Ronald Reagan’s budget director from 1981 to 1985 and the author, most recently, of “The Great Deformation: The Corruption of Capitalism in America.” has an editorial in the April 1, 2013 issue of the New York Times concluding that our economy is about to collapse. It is worth reading. I do not agree with him, although action is needed now, and here are some of my thoughts.

1. We were at a near depression in 2008 and are still crippled by chronic unemployment. Congress refuses to do anything about this and therefore the only tools left to combat this near depression are controlled by the Fed.

2. Our debt problem is getting closer to being solved with both Congress and Senate finally passing budgets that need to be reconciled. We can control our debt in an orderly fashion over a 15-20 year period.

3. Stockman mentions little about the larger threat of emerging middle classes in the world including China and India. We need to invest now in education and infrastructure if we are to keep up.

4. Keynesian economics has been misapplied and this must change. We should be reducing debt during good times that was built up during bad times. The time is not now.

5. Mr. Stockman forgets that the good times of the 1950's was manly brought about by being the last industrialized country standing after World War II. It was not the great policies of Eisenhower; however, he did seize the opportunity.

6. Stockman was right, we did allow ourselves to become intoxicated with cheap Asian money that contributed to our current economic crisis. One has to wonder whether Nixon and Kissinger were out witted by the propensity of the Chinese to be long-term thinkers.

7. Stockman is wrong that we should have let the financial sector collapse in 2008. That would have resulted in a worldwide depreciation. We made errors before and after, but the bailouts were correct decisions.

8. Stockman is wrong about the inability to reach a grand bargain on the debt. It will happen, especially with both the senate and congress finally passing budgets. Obama needs to step up and take the lead. He needs to put a plan on the table and explain it, in fireside chat fashion, to the American people. It is not time for grandiose speeches it is time for detailed discussion done in increments.

9. The end of the world is not at hand. However, there is much to do.



1 comment:

  1. I completely agree that we need fiscal stimulus to rebuild infrastructure NOW! IMO, Stockman accuses the wrong culprit (except when he criticizes Bernanke’s QEs). We don’t have a “modern Keynesian state.” It wasn’t Keynesianism; it was the Neoliberal growth model that started in about 1980. Although Republican in origin, this model was embraced by both political parties (Bill Clinton epitomized the model with NAFTA). Neoliberalism plus crony capitalism (on both sides of the aisle due to our hijacked electoral system) was the proximal cause of the crisis. Tom Palley has a great discussion of this in “From Financial Crisis to Stagnation.”

    However, there’s an even deeper root cause. It is our bank-debt, interest-bearing money system, which we don’t need to have. Mathematically, debt with interest REQUIRES an exponentially growing economy or else more and more people are left standing at the end of the game of musical chairs. It’s a “Success to the Successful” strategy that takes money away from the middle class and poor and puts it in the hands of the already rich. See http://www.lietaer.com/2010/09/effects-of-interest-based-currencies/ Here’s an example: http://realcurrencies.wordpress.com/2012/01/17/budget-of-an-interest-slave-2/

    Stockman does not understand the basic economic math of a fiat money system. The government is NOT like a household. At the moment (only because of Congressional restrictions on debt-free money—see next part of comment), government is more like a growing business. See Josh Barro of Bloomberg: http://www.bloomberg.com/news/2013-03-22/why-don-t-republicans-love-deficits-anymore-.html

    The US, as a sovereign nation with fiat currency, does not even need to create money through bank debt. That was a decision (conscious or not??) of Congress when we went off the gold standard. There’s a LinkedIn website called Systems Thinking World, where we’re discussing the pros and cons of different economic and money systems, including the problems with a bank debt system and interest-bearing money, from all different perspectives: (http://linkd.in/ZviHHZ) Come join us if you mean what you wrote in a prior post: “I only have questions, help me fill in the answers. It is one thing to be in favor of capitalism when wealth is changing hands within our borders. The game changes some when there are no borders.” (IMHO, the present game is rigged even WITHIN borders.)

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