Former Reagan budget director David Stockman is out with a new book, "The Great Deformation," that says we will soon be pushing our few meager belongings around in grocery carts and trying to keep the cannibal hordes from eating our children, all because of debt. And the Fed. And fiat money.
Like you do, Stockman has been drumming up interest in his book for the past few days by spreading his terrifying message of DOOOMMM all over the TV and the Internets. He even got several acres of prime real estate in the Sunday New York Times to build his cathedral of DOOOMMM.
So, on the Debtpocalypse Threat scale, with one being "don't worry about a Debtpocalypse" and 10 being "run down to the Stop-and-Shop and grab a loose grocery cart because you're going to need it," how worried should we be? Negative five, that's how worried. Because Stockman has apparently lost touch with huge portions of reality, as demonstrated by at least four of very specific dumb things he says:
Dumb David Stockman Thing One: Capitalism has been corrupted by government: The main thesis of Stockman's book, right down to its subtitle, "The Corruption Of Capitalism In America," is that a series of evildoers in the government, from FDR to Stockman's old boss Ronald Reagan to the Mr. Magoo of global finance, Alan Greenspan, stole the innocence of capitalism. This is almost precisely upside-down. Capitalism gradually took over the government, after long decades of political spending and lobbying and think-tank founding and general whining.
This process dates all the way back at least to the founding of the American Enterprise Institute (then American Enterprise Association) back in 1938, an influential think tank whose express purpose was to roll back FDR's New Deal and financial regulations, on behalf of companies such as Chemical Bank (now JPMorgan Chase), Paine Webber, Bristol-Myers and more. The tradition was carried through the following decades by other capitalists, including the Koch Brothers, who founded the similarly influential Cato Institute in 1974. They helped bring to power Reagan, along with Stockman, who oversaw Reagan's own budget destruction via massive tax cuts. The Democrats have their share of capitalist influencers, most famously Robert Rubin and his acolytes, whose many dizzying trips through the revolving door of government and finance helped push some of the worst government ideas of the past few decades, including the financial-market deregulation fever of the 1990s.
The process continues to this day, with banks spending $646 million in political contributions in the past two years, according to Open Secrets, and nearly $1 billion in lobbying, to push their views on financial regulation.
Dumb David Stockman Thing Two: We should return to the gold standard: Stockman declares that the 1933 decision by FDR to get the U.S. off the gold standard was the start of the country's 80-year descent into destruction (aside from some fleeting moments of glory, such as winning the Cold War and World War II and building the world's biggest economy). He calls President Nixon's decision to end gold convertibility in 1971 "arguably a sin graver than Watergate," the cause of everything from the runaway inflation of the late 1970s to the swollen budget deficits of today.
But returning to the gold standard as Stockman would have us do is an absolutely terrible idea that has been thoroughly rejected by sane economists on the left and right because it chains government policy to the whims of the global gold supply. The gold standard directly contributed to the Great Depression, which is why FDR (and leaders of many other countries) killed it in the first place. As Matthew O'Brien of The Atlantic points out, being on a gold standard seems to result in quite a lot of depressions. Then again, that appears to be Stockman's aim: Having depressions is the only way to punish us for our sins, as Calvin Coolidge would have wanted it.
Dumb David Stockman Thing Three: Letting all the banks fail in 2008 would have been no big deal: Stockman believes that the bailout of the banking sector after the collapse of Lehman Brothers was totally unnecessary. "There was never a remote threat of a Great Depression 2.0 or of a financial nuclear winter, contrary to the dire warnings of Ben S. Bernanke, the Fed chairman since 2006," he wrote in The NYT. "The Main Street banking system was never in serious jeopardy, ATMs were not going dark and the money market industry was not imploding."
The money market industry was in fact on the verge of imploding, with the value of a share of the venerable Reserve Primary Fund having fallen below the sacrosanct one-dollar level -- "breaking the buck" -- with 78 other funds at risk of breaking the buck at the time, according to a Boston Fed study. Letting Lehman Brothers fail threatened to crush money funds and set off a chain of failures, from AIG to Goldman Sachs, that would have indeed wasted the economy and potentially thousands of Main Street banks. As it was, even with the bailout, we suffered the worst recession since the Great Depression, and nearly 500 Main Street banks failed.
Dumb David Stockman Thing Four: Federal debt will explode in the next decade: Stockman warns that federal debt will "hurtle" and "soar" from $17 trillion to $30 trillion in the next decade, or 150 percent of GDP. Sounds scary, but these numbers are misleading. For some reason Stockman is counting gross federal debt instead of the debt held by the public, which is the debt we really need to worry about. The debt held by the public was $11 trillion last year and is projected to rise to nearly $20 trillion by 2023, according to the Congressional Budget Office. That's a lot of money, but it will be 77.7 percent of GDP in 2014 and 77 percent of GDP in 2023, according to the CBO. In other words, as a percentage of GDP, the government's public debt will hold steady over the next decade.
Stockman offers many, many more such dubious ideas, including the idea that the General Motors bailout didn't save jobs (actually, it saved more than one million), or that we should abolish bank-deposit insurance (which, just, no).
There are a couple of good ideas mixed into this goulash, like overturning Citizens United and 100 percent public financing for political campaigns. He is not wrong that we should be on the lookout for new bubbles being created by the Fed's extremely easy money. But Stockman's thin handful of good ideas are smashed into cutlets by the pounding of his many, many bad ideas and his fundamentally flawed premise, that government is the corrupter rather than the corruptee.