David Stockman's fiscal view from -- whoa! -- 80,000 feet

  • Article by: CLIVE CROOK , Bloomberg
  • Updated: April 7, 2013 - 5:49 PM
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David Stockman

Photo: Kathy Willens , Associated Press

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David Stockman first came to prominence in the early 1980s as Ronald Reagan’s publicity-prone director of the Office of Management and Budget. In the decades since he was fired from that job, his career in the leveraged-buyout business has been of no great distinction, except that it included an indictment for fraud. (The charges were dropped, and he paid $7.2 million to settle a civil case brought by the Securities and Exchange Commission.) Now here we are discussing his new book on the corruption of American capitalism, “The Great Deformation.” The interest in his book and in the long column promoting it in the New York Times recently are a tribute to something, I suppose. I’m not quite sure what.

Let’s see. Stockman has a reputation, acquired during that spell at OMB, for speaking truth to power. That’s rare enough in Washington to leave a lasting impression. He’s unusually smart. His judgments of people he disagrees with, a group that includes almost everybody, range from memorably blunt to gratuitously offensive. That works, too. The main thing, though, might be the trait that has defined him all along and which is stamped all through “The Great Deformation”: Stockman is a man who loves a theory.

Not just any theory. It has to be a theory of everything.

William Greider saw this propensity in a famous article for the Atlantic back in 1981, “The Education of David Stockman.” That piece caused a sensation: The new OMB director was startlingly frank about the Reagan administration’s shortcomings as a fiscal manager — “None of us really understands what’s going on with all these numbers.”

Stockman told Greider about his evolution from far-left radical to moderate Republican to supply-side revolutionary to premodern fiscal conservative. (A lot of evolving for somebody who was still only 35.) “I guess I always had a strong intellectual bent, so I needed a strong theory of how the world worked.”

The new book is as full a statement as you could wish of where that strong theory now stands. It turns out to be Ron Paul libertarianism, give or take. Stockman is both impressive and infuriating in just the same way as Paul. He makes valid criticisms of many policies, but his ideas form a sealed intellectual system. Everything depends on everything else. Things can’t be improved here and there. Suggesting palliatives is missing the point — the entire body politic is sick and has to go.

The fundamental problem, says Stockman, is easy money. Former Federal Reserve Chairman Alan Greenspan’s low interest rates caused the bubble, hence the crash. Current Fed chief Ben Bernanke’s low rates and quantitative easing are reinflating the bubble, hence the next crash (which will be worse). Cheap money obliterates the signals on which capitalism depends. Everything that’s bad in public affairs, from political corruption to explosive growth in public and private debt and the depredations of private-equity firms (like the one Stockman ran), follows from the Fed’s monetary indiscipline.

It’s a grave indictment of modern central banking and no laughing matter — even when you’re asked to read sentences like this: “During 2009-2012 the vultures feasted gluttonously in the Fed’s killing fields.”

The book describes an 80-year arc of fiscal and monetary recklessness. Dwight Eisenhower wins praise for fiscal solidity, but every other president was a knave. Stockman is nominally a Republican, but his party disgusts him as much as the Democratic Party. There’s no partisan rancor in the book: The rancor is sustained and intense, but entirely nonpartisan.

The book closes with Stockman’s prescription. Put the dollar back on the gold standard. Move to a form of “narrow banking.” Amend the Constitution to provide for single six-year terms for all members of Congress and the president; outlaw most private political spending; forbid former holders of federal office from lobbying, and balance the federal budget on a two- year cycle.

Oh, and no more macroeconomic management. Abolish subsidies. Abolish Medicare and Medicaid. Abolish the income tax, replacing it with a tax on spending. Eliminate “much of the federal government.” Stop policing the world. Impose — get this — a one-time wealth tax of 30 percent to pay down the national debt once and for all.

It really doesn’t do this view justice to call it utopian. It’s so flamboyantly impossible, it’s unhinged. Like Paul, Stockman is self-sufficient in his pessimism. Yes, he smiles, we’re doomed — and if doubt it, here’s what it would take to save us.

The scope of the critique, while crazy, is undeniably impressive. It has a kind of logical integrity. Everything is worked out, all the connections explained. Stockman has been reading his economic history and Austrian economics. Crucially, a lot of what he says really does make sense. In understanding the crash, the Austrian school’s emphasis on the role of the credit cycle looks right. Most of Stockman’s observations about Washington’s self-replicating morbidity are accurate.

Frustration arises mainly from the way this mode of analysis resists reform at the margin — the only kind of reform that can actually happen. This relieves Stockman, just as it relieves Paul, of the need to engage in government as we know it. Instead, they can contentedly contemplate our destruction from a great height.

And in another way, of course, their utopian alternative isn’t really thought through at all. Credit cycles as well as booms and busts also happened under the classical gold standard. Just how well this system would work in modern conditions is never examined. One sign of this gap nags constantly at the reader — the tactical ambivalence about crashes and their consequences. Are economic slumps good or bad, avoidable or unavoidable? Apparently, a crash caused by government inaction is cleansing and good for you, but one caused (or delayed) by anything the government actually does leads vultures to feast on you gluttonously.

I find the moralizing off-putting, too. Personally, I don’t feel I deserve a conflagration to cleanse me of all the overborrowing you have done. The punitive dimension found in many all-encompassing social theories is central in Stockman’s worldview. At this point, a lesser reviewer would refer to the author’s time at Harvard’s divinity school — another stage in his intellectual evolution. It’s tempting, but I’m honor-bound to mention that he says he was just hiding from the draft.

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