David Stockman was appointed as Director of the Office of management and Budget (OMB) by President Ronald Reagan. He was committed to the supply-side economics doctrine along with the curtailment of a strong social safety net.
Stockman wrote a prescient op-ed in the New York Times today titled “State-Wrecked: The Corruption of Capitalism in America”. This is not the first rant about the state of America’s supply-side economy (trickle down economy) by Stockman, one of its authors. Back in 2010 I wrote the article “Right Wing Republicans Caused Economic Apocalypse – So Says Reagan’s OMB Dir David Stockman” dissecting Stockman’s “mea culpa” in his article Four Deformations Of The Apocalypse where he said:
This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
In 1981, traditional Republicans supported tax cuts, matched by spending cuts, to offset the way inflation was pushing many taxpayers into higher brackets and to spur investment. The Reagan administration’s hastily prepared fiscal blueprint, however, was no match for the primordial forces — the welfare state and the warfare state — that drive the federal spending machine.
Soon, the neocons were pushing the military budget skyward. And the Republicans on Capitol Hill who were supposed to cut spending exempted from the knife most of the domestic budget — entitlements, farm subsidies, education, water projects. But in the end it was a new cadre of ideological tax-cutters who killed the Republicans’ fiscal religion. Source
His tone in this latest rant is justifiably grim. He acknowledges the problem correctly when he states:
Since the S&P 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.
So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills. By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble. Source
Inasmuch as Stockton complains above, albeit in economic terms about wealth and income disparity, it is his sect’s trickle-down theory that created it and continues to maintain it. The expansion of the money supply by the Feds he laments benefits those titans of finance: the wealthy. If it were true, the supply side theory would have resulted in this new wealth and liquidity being invested and brought to the economy to float all boats. Instead, the metastasizing greed of the few continues to hoard capital.
All that additional income and wealth being siphoned by the few does not trickle down because there is only just so much “stuff” these folks can buy. They won’t invest in America because middle class America is tapped out and as such there is no demand. Economist Richard Wolf explains this best in his video “Capitalism Hits The Fan.”
While Stockman found it justifiably necessary to excoriate both sides of the aisle, he left his most stinging criticism for the implementers of supply side economics and supply side economics on steroids, Reagan and Bush respectively. He states
This dynamic reinforced the Reaganite shibboleth that “deficits don’t matter” and the fact that nearly $5 trillion of the nation’s $12 trillion in “publicly held” debt is actually sequestered in the vaults of central banks. The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts. It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.
He actually stated what I wrote in my book; Reagan and Bush used a sort of backdoor Keynesian policy, one that benefitted mostly the wealthy few. The war was a wealth transfer engine via the military industrial complex. The immorality of not passing work producing stimulus and implicitly forcing the Feds to inflate the money supply to prevent deflation is a wealth transfer engine via the financial sector manifested by an inflated stock market.
Back in December 1981, The Atlantic published the very long and verbose article “The Education of David Stockman”. In rereading the article it was evident that David Stockton was coerced into supply-side economics. He realized that the numbers just did not add up. He became so disillusioned that he stated “There was a certain dimension of our theory that was unrealistic…” and “I have a new theory—there are no real conservatives in Congress…”
Stockman is decidedly negative on the prospects of America’s economy going forward. He ends his latest article with the following:
The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.
America should be tired of David Stockman’s constant criticism of what he was instrumental in creating, the implementation of a failed economic theory. If he wants to be useful, he would first simply acknowledge not only the failure of supply-side economics, Reaganomocs, trickle-down economics, voodoo economics, but the failure of tax policies that allow the hoarding of capital by the few. While he still believes unadulterated free market capitalism with minimal involvement can accomplish that, the past is prologue.