A Man for all Parties.

April 22, 2013

David Stockman is post-political. He always was.
After Michigan State, he attended Harvard's Divinity School. He was a congressman by 30. At 34, he was the wunderkind budget director for the Reagan administration, where he earned a reputation for his independence and brutal honesty. Stockman had no qualms about revealing the deficiencies of Reagan's administration. He was content to point out the administration's political calculations, as well as their ideological ones.
Exiting government in 1985, he embarked on a career with the Blackstone Group. He avoided the public sector for 23 years. Until, in 2008, President Bush bailed out Wall Street. Stockman had seen enough.
Truth teller. Contrarian. Businessman. Politician. Author. Stockman has once again taken to the public stage.
His new book, "The Great Deformation: The Corruption of Capitalism in America" has our collective panties bunched. It seeks to show where our once-pure economic system has gone adrift. As well as to drive a stake into the heart of Keynesian economic philosophy, which has dominated American politics for 100 years.
Stockman points at the government's embrace of stimulative, Keynesian policies. He howls of the Fed's aptitude for printing money and creating bubbles. Both, he explains, are undoing the competitive, free market spirit upon which the nation was founded.
His thesis? That government and the one percent are in bed together. Why else would D.C. not allow Goldman Sachs, Merrill Lynch and other failed financial institutions to recede into the historical dust bin? Which is exactly where their actions leading up to 2008 would have landed them, had the Federal government not stepped in with a taxpayer-funded safety net.
Stockman shreds the long-held views of Keynesian economists, who assert that enough government intervention can cure any economic ailment that troubles us.
Keynesians, like Nobel-winning economist and NYT columnist Paul Krugman, insist that another '30s-style great depression is impossible because of our capacity for unlimited spending, infinite debt and money printing.
Such Keynesian beliefs stem from the myth that massive borrowing and spending during the 1930s helped end the Great Depression.
Meanwhile, Stockman and most sober analysts have consistently proven that premise false. There are no dragons. The world is not flat. The New Deal did not end the Great Depression. In fact, many objective analysts contend that those very Keynesian policies served to extend it.
Having begun after a period of hyper-money printing in the 1920s (sound familiar?), the Great Depression absorbed all of the excess dollars and ended the government's printing policies. Inflation became deflation. The economy collapsed. Unemployment skyrocketed, and remained high until the onset of World War II in 1941.
Some economists have insinuated that today's post-recession policies resemble many of the misguided Depression-era policies.
Consider the timeline.
In the early nineties, the Fed's money printing policies flooded the system with dollars. Like water running downhill, these dollars eventually landed in the vast caverns of Wall Street, contributing to the mania over anything with dotcom in its title - regardless of the lack of profits, revenue, or assets.
2000 saw the tech bubble burst. Followed by recession and a stock market implosion. Vast household wealth was destroyed.
2003 saw economic recovery. Interest rates, which had been artificially depressed to stimulate the economy, began to rise. By 2007, interest rates had risen to 6.25%, providing a five-year average that remained well below historical standards. Again, money was available. And everywhere. As excess liquidity fed the tech stock fires of the nineties, it soon found its way to yet another overbuilt asset class. Creating another bubble. This time in real estate.
Soon, the housing bubble popped. Recession ensued. Accompanied by another stock market collapse. Followed by the eradication of massive amounts of household wealth.
See a pattern? If my nine-year old son can recite the definition of insanity, why cannot Bernanke and the Fed?
Concerning the Fed, and its role in this fiscal charade, Stockman pulls no punches. He describes Bernanke's Federal Reserve as "a rogue central bank that has abandoned every vestige of sound money and has enabled politicians to enjoy 'deficits without tears' by monetizing massive amounts of the public debt."
The Fed's constant manipulation of business cycles, interest rates, fiscal and monetary policy has weakened our system for a generation.
Imagine a child that's never allowed to leave the yard. Ride a bike. Play sports. Suddenly? He's going to college. Entering the world. Expected to survive and prosper. Success is not likely.
Ditto for our coddled, manipulated economy.
Stockman's book purports that what is today accepted as capitalism is actually a quasi-tax payer-supported perversion of the ideal. The ideal was built on profit and loss. Success and failure. The idea that prudent, intelligent, risk-attuned companies will prosper. Think Procter & Gamble. Irresponsible, easy money chasing firms willing to load up on toxic instruments of which they know nothing, will fail. Think Merrill Lynch.
Today's system is crony capitalism on a Federal level. The government and the Fed depress interest rates under the guise of helping Main Street. But, Main Street loses, as its savings accounts and fixed income portfolios lose money to inflation.
Who benefits? Wall Street. Big banks. Both of which can borrow at all-time-low rates and then lend at a markup. And make a fortune. And fund campaigns. And lobbyists. And provide jobs to ex-politicians.
Rejecting the "anti-capitalist regime" known as "Too Big to Fail" (TBTF), Stockman asserts that there was no reason to bail out banks that got into trouble because of the greedy, ignorant behavior of the otherwise well-advised and hyper-wealthy adults who run them.
Nothing, he explains, would have focused the minds of future bankers like allowing Goldman Sachs and JP Morgan to fail. Instead, TBTF has given the government the rights to interfere with the free enterprise system whenever it chooses. Dictating what risks private companies can and cannot take, the government insinuates that not to do so would threaten taxpayers with the possibility of future bail outs. All of which allows a slow, insidious Washington takeover of Wall Street.
Consider that. The same group of debt-doesn't-matter politicians assuming control of the nation's financial heart. Scary.
Stockman believes that the military is too big. He believes that the government should own up to the idea that there is no Social Security trust fund. The trust is being funded from the future prosperity of our children and grand children. So that baby boomers can enjoy the fruits of a failed program. One that was never meant as a permanent entitlement.
Unlike our elected officials, Stockman provides solutions.
He backs means-testing for Social Security and Medicare. This would allow us to kill a regressive payroll tax that punishes workers and their employers as it lavishes money upon retirees playing golf in Florida.
He demands massive military cuts. Explaining that, as important as the national defense is, much of our spending and resources are redundant, ineffective allocations of national treasure that produce little in return. He asserts that we could cut a quarter of a trillion dollars from the defense budget.
That's real savings. Compare that with President Obama's pledge to return five percent of his salary. Amounting to $20,000. Essentially, a new KIA.
David Stockman is post-political. As such, he can be honest, intellectually intrusive, and ideologically offensive. His ideas speak to the right, the left, and the center. He doesn't want to end the Fed. Just change the Fed. He recognizes that party politics and fiscal responsibility are antithetical to each other. He is beholden to no one. Concerned for us all.
Somewhere, at this very moment, there must be a David Stockman-like figure with the youth and energy to stand up to our political duopoly and right the nation's course. Reading Stockman's book, one realizes how far from that ideal we are.

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