04/07/2013 08:10 pm ET Updated Jun 07, 2013

Crackpot Realism and the Education of David Stockman

In a previous article I examined sociologist C. Wright Mills' thesis that American foreign policy in the post-World War II era has been dominated by the crackpot realist. Briefly, Mills held that our foreign policy elites evince a groupthink, endlessly reverberated in the echo chamber of modern mass media, which helps them rationalize unethical, reckless, or downright crazy policies as pragmatic, tough-minded, and workable. Debacles like Vietnam, Iraq, and Afghanistan are the result.

While Mills concentrated his thesis on foreign policy and war, it is equally applicable in the domestic realm. During the last four decades, ever since the promulgation in 1971 of the so-called Powell memo, a manifesto by future Supreme Court Justice Lewis Powell, crackpot realism has become the driving force in public discussion of U.S. economic and fiscal policy. In the same manner as in foreign policy, debate over economics -- a field which defines the terms of who in society gets what -- has been dominated by the crackpot realist mentality. And as in foreign policy, narrow, grasping, and self-serving policies which may be good for the few but disastrous for the many are transformed into practical and self-evident wisdom that must be implemented because there is no alternative, or because every other alternative will lead to some vaguely specified disaster.

The cultural hegemony of the moneyed classes enables them to use the mass media and elite institutions as a transmission belt for these economic ideas. Thus does the strategic doctrine of the elite classes become the "common sense values" of the masses (provided, of course, that the ultimate objectives of the doctrine are left unsaid). Thomas Frank, in his book What's the Matter with Kansas? agonized over why so many ordinary Americans supported economic policies contrary to their interests. The answer is a fusion of Mills and Antonio Gramsci: Cultural hegemony permits the elites to imprint their crackpot ideas on the rest of the population, or at least a large enough proportion of it to obtain a working plurality.

Crackpot realism always contains a degree of circularity in its argumentation. Globalization and its attendant phenomena -- offshoring, deindustrialization, financialization of the economy, destructive trade deals, and favorable tax treatment of multinational corporate assets - were hatched and carefully nurtured in corporate suits, K Street law firms, and the tax and banking committees of Congress. Yet the crackpots' publicity agents presented them not only as necessary but as an inevitable and unstoppable force of nature. They depicted the wrenching changes these policies would cause like a hurricane, as if the very persons promoting them would have been powerless to prevent them had they tried. The country simply had to get on board. Read the statements of President Clinton about NAFTA or the repeal of Glass-Steagall and one gets a sense of getting in step with the forces of history. The economic adjustments (a euphemism for unemployment, dislocation, and loss of benefits) that necessarily follow adoption of these measures may be a trifle harsh for some, but would only be temporary and outweighed by the benefits. On balance, it would all be salutary, like a bad-tasting but effective medicine and America would "lead the world." After Congress put the final capstones in place with the Commodity Futures Modernization Act and the Bush tax cuts, the crackpot realists' system was off and running.

Once the bubble that arose on the tide of deregulation burst, the crackpot realists changed their tune. Earlier, the promise was that if only we deregulated, globalized, and outsourced, then prosperity would be limitless, the Dow Jones average would reach 36,000, and housing prices would never fall. But in the wake of the 2008 financial collapse, the same people were preaching root canals, tough love, and austerity: austerity that is, for the 99 percent.

Just as the invasion of Iraq might have sounded plausible if one knew nothing of the Middle East, nothing of Iraq and its sectarian divisions and nothing of the history of Western colonialism, so would economic austerity sound like a realistic policy if one knew nothing of the history of the 1929-33 era, of Franklin Roosevelt's failed experiment with budget-balancing in 1937, or resolutely shut one's eyes to what has happened during the present euro-zone crisis in every single case where austerity has been applied.

Austerity as a solution to financial calamity appeals to the crackpot realist because it is the hard medicine which makes other people suffer for the notional greater good, just as a war on terrorism stretching into perpetuity is our duty as the leader of the free world. Deficit hawks on and off Capitol Hill can preen themselves as the serious adults administering bitter truths to a childlike and hedonistic public. Austerity advocates like Pete Peterson, having usually rewarded themselves with insider deals negotiated among the three corners of the iron triangle of government, corporations, and influence-peddling, have no need of Social Security or unemployment insurance themselves and can barely imagine anyone who does.

A museum-grade example of the crackpot realist has just emerged for our examination after nearly 30 years of obscurity. David Stockman, President Reagan's director of the Office of Management and Budget from 1981 to 1985, has now surfaced after a post-government career destroying American businesses during 17 years as a leveraged buyout artist to issue a bitter and interminable jeremiad against the federal government for ruining the economy.

Superficially, Stockman's bill of indictment could have been written by a Marxist. Morgan Stanley's former head kleptocrat, John Mack, comes in for his acerbic criticism, as do erstwhile Federal Reserve Board chairman Alan Greenspan and deceased conservative economic deity Milton Friedman. As for economic policy, "the entire mega-LBO boom was the equivalent of a state-assisted fraudulent conveyance." Stockman is accurate here, even as he writes with exquisite lack of self-awareness.

Who is responsible, in Stockman's view?

The government, for allowing it to happen. Certainly it contributed heavily to the debacle, insofar as Congress dismantled the New Deal legal and regulatory framework which had been designed to prevent a recurrence of the financial buccaneering of the 1920s. But why did the government do so? Largely because of political contributions from the so-called free-market entrepreneurs whom Stockman thinks have been mysteriously forced by government to do bad things.

As for the New Deal which averted the worst effects of an economic cataclysm and thereby the appalling fate of the European democracies of the 1930s, Stockman calls Roosevelt's program "a political gong show." If you desire to ascertain the relative success of FDR's response to the Great Depression it might be better to ask a surviving Frenchman, or Dutchman, or Pole of that era, rather than a jaded ex-Wall Streeter with an ideological agenda.

What is Stockman's remedy? In true crackpot fashion, he recommends a horse doctor's dose of the same medicine that caused the mess in the first place. In his view, John Mack and his colleagues like Richard Fuld and Angelo Mozilo would have behaved like choirboys had only the government not meddled in the sacrosanct free market. Stockman also suggests a return to the gold standard, an economic nostrum more likely to be advocated by a gullible follower of Glenn Beck than anyone conversant with the history of the last 80 years.

Stockman's resume reveals what makes his tribe of crackpot realists tick. For at bottom he is not a pragmatic, hardheaded empiricist recommending the tried and true. His theories seem to have been foreshadowed, if not foreordained, by his attendance at Harvard Divinity School, apparently because "I guess I always had a strong intellectual bent, so I needed a strong theory of how the world worked." However uninspiring he might have found the curriculum, it did help him avoid the Vietnam-era draft while setting him on his future career as a pitchman for theological concepts unsupported by evidence. The Reaganomics budget wizard and leveraged buyout jockey is fundamentally a divinity student seeking a Theory of Everything.

Stockman, despite his sociopathic finger-pointing of blame for catastrophes he was instrumental in creating, is the consummate idealist. At the higher levels of religious intoxication, the idealist may become indistinguishable from the sadist: The mere clay of humanity is never worthy of the idealist's vision, whether that vision dwells in the firmament or on 1 Wall Street. And so it is with the crackpot realist. For all of Stockman's pretension about how the world supposedly works, he would heedlessly crucify mankind upon the golden cross of his failed theories.