The Emperor is Naked: David Stockman

[MachineGhost]

David Stockman A "paralyzed" Federal Reserve Bank, in its "final days," held hostage by Wall Street "robots" trading in markets that are "artificially medicated" are just a few of the bleak observations shared by David Stockman, former Republican U.S. Congressman and director of the Office of Management and Budget. He is also a founding partner of Heartland Industrial Partners and the author of The Triumph of Politics: Why Reagan's Revolution Failed and the soon-to-be released The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy. The Gold Report caught up with Stockman for this exclusive interview at the recent Recovery Reality Check conference.

Full Story: http://www.theaureport.com/pub/na/13278

[MediumTex]

I'm puzzled at the story Stockman has been telling in the media in the last couple of years.

He knows there is more to the story than he is saying in his interviews.

The narrative he is offering doesn't do his mind justice because he is a very sharp guy.

Maybe he's just selling his new book.

[AdamA]

I'm puzzled at the story Stockman has been telling in the media in the last couple of years.

He knows there is more to the story than he is saying in his interviews.

The narrative he is offering doesn't do his mind justice because he is a very sharp guy.

Maybe he's just selling his new book.

MT--Do you mind explaining a bit more for those of us who aren't familiar?  What's the narrative he's been giving the media?  Why do you say he's sharp? 

[MediumTex]

I'm puzzled at the story Stockman has been telling in the media in the last couple of years.

He knows there is more to the story than he is saying in his interviews.

The narrative he is offering doesn't do his mind justice because he is a very sharp guy.

Maybe he's just selling his new book.

MT--Do you mind explaining a bit more for those of us who aren't familiar?  What's the narrative he's been giving the media?  Why do you say he's sharp? 

The narrative I hear from him is the standard "the government is spending too much money" story.  Most of us would probably agree that simply prescribing austerity in the midst of a deflationary period following a financial crisis is really not a very smart thing to do.

I say he is sharp because I read his 1980s book about being a key player in Reagan's early tax cut-driven economic policy through his role as OMB director and I was impressed with his intelligence.  Since then, he has made a fortune managing money, which is also not easy to do if you're not bright (heck, it's hard to do if you are bright).

Then, a couple of years ago he started making the rounds telling a pretty standard Chicken Little story without much nuance and I just wondered why he was doing it.  Based on his time inside of a Presidential administration and managing big money, he presumably understands that cutting government spending in the middle of a recession just doesn't make a lot of sense, and that the government's long term unfunded liabilities are not something that should take up a lot of our time in the middle of a recession. 

It almost seemed like he was deliberately telling a story that he knew wasn't quite right, for reasons unknown.  Maybe it is just to sell books.

[Lone Wolf]

...he presumably understands that cutting government spending in the middle of a recession just doesn't make a lot of sense, and that the government's long term unfunded liabilities are not something that should take up a lot of our time in the middle of a recession.

If you dislike that the size and scope of government is under continual expansion (and I assume that you do), do you feel uneasy telling statist politicians "thank you" when they crank the ratchet up during a recession?

The tricky thing here is that the recession is officially over.  When, if ever, does reducing the scope, intrusiveness, and sheer bulk of government become a priority again?

It reminds me a bit of the "necessity" of giving up lots of rights, freedoms and conveniences once the War on Terror was underway.  You might have some TSA agent examining your duodenum with a flashlight but that's how it has to be -- "there's a war on".  But does the war ever end?  What are the goals?  What's the exit strategy?  When will we know that we are "done" in Afghanistan?

Likewise, there's potential for economy to be ill for a very long time.  Are we risking the never-ending government-driven spending, awful growth and zombie economy of Japan?  How's this particular war end?

Something else I was wondering -- do you use a broader definition of "government spending"?  (Edit: Changed weird word choice.)  Do you more specifically feel that concern about the deficit is misplaced or do you really feel that government-directed spending itself is crucial during a recession?  If, during a recession, you saw something like a huge slash in government coupled with huge slashes in tax rates, would you generally approve?

[moda0306]

LW,

Spending during a recession doesn't have to result in the government doing anything at doesn't already do... basically, infrastructure.  Further, it actaully doesn't have to result in the gov't doing ANYTHING.  Simply sending checks out to people (or cutting taxes) will suffice.

[MediumTex]

Something else I was wondering -- do you use a broader definition of "government spending"?  (Edit: Changed weird word choice.)  Do you more specifically feel that concern about the deficit is misplaced or do you really feel that government-directed spending itself is crucial during a recession?  If, during a recession, you saw something like a huge slash in government coupled with huge slashes in tax rates, would you generally approve?

I actually had tax cuts in mind when I was writing about not cutting government spending during a recession.  I don't want more government programs--tax cuts would be fine.

[MediumTex]

wouldn't going after corruption and waste in a serous manner have the same beneficial effect on the economy?

But if you cut out all of the waste and corruption there wouldn't be anything left of the government.  The whole enterprise of using the threat of force to confiscate private property and reallocate it based upon some personal idiosyncratic view of the way the world is supposed to look is a fundamentally corrupt activity.  You don't fix that sort of thing--you just stop doing it.

Stop government expansion cut waste and redirect the savings into the economy in ways that are beneficial and don't expand the nanny state. instead of trying to use austerity as a a political foot ball to slow the economy and foment rebellion from those that lose benefits (and then demand more government), use the effort to end the recession to limit unnecessary government interference in our lives and instead of spending more, the government spends the same but wisely (and with better effect)....

The government is not capable of spending wisely.  That's how you know it's the government.  The government's two primary tools are fraud and coercion.  The fraud is in telling the taxpayers that they can get more back from the government than they pay in through their taxes, and the coercion is what the state uses to deal with those who might think about resisting the confiscation of their property and limits on their freedom that are necessary to perpetrate the initial fraud.  I don't see how wisdom can ever emerge from such an arrangement, other than the wisdom of someone like Ron Paul who seems to be saying that we should just stop a lot of this thuggery.

I'm sure that Ron Paul's message sounds to a lot of career politicians about like Thomas Paine's message sounded to the British monarchy--it's so mentally dissonant for them that they really do have trouble grasping what it is he is actually talking about.  They just can't conceive of a world in which their fraud and coercion are cleansed from society.

[moda0306]

MT,

Agreed.  I am not saying that it needs to be spending... but deficits as a result of checks, infrastructure people tend to agree with, and tax cuts is a-ok in my book... by a-ok I mean strenuously encouraged.

[Alanw]

I'm sure that Ron Paul's message sounds to a lot of career politicians about like Thomas Paine's message sounded to the British monarchy--it's so mentally dissonant for them that they really do have trouble grasping what it is he is actually talking about. They just can't conceive of a world in which their fraud and coercion are cleansed from society.

LOL i tend to agree with what you are saying..... and in many or most cases (and possibly all cases )" just stopping" is the answer to corruption, waste and the suppression of liberty..

MT,

You mentioned the term "career politician" above.  This term and the actions resulting from our "career politicians" are the biggest problem we have with government today, IMO.  Why do we limit the executive branch to two terms, while senators and representatives can be re-elected over and over again.  In addition, the health care and retirement benefits of politicians need to be reviewed.  Why should they receive superior benefits than they allow the ordinary citizen to receive.  It is no wonder that politicians will go to great lengths to get elected to the senate and the house.  What a gig!  Then to get re-elected over and over again.  Until the problem of term limits is addressed, we should not expect any different actions or results from our elected officials.  Our elected officials seem to have no connection to the general populace with all the power and benefits bestowed on them.   Until this is changed, probably through a constitutional amendment, we will continue to receive the same results from government as we have in the past.  IMO, the terms "career politician" and "re-election" should be eliminated.

Just my opinion and random rambling.

[MediumTex]

MT,

You mentioned the term "career politician" above.  This term and the actions resulting from our "career politicians" are the biggest problem we have with government today, IMO.  Why do we limit the executive branch to two terms, while senators and representatives can be re-elected over and over again.  In addition, the health care and retirement benefits of politicians need to be reviewed.  Why should they receive superior benefits than they allow the ordinary citizen to receive.  It is no wonder that politicians will go to great lengths to get elected to the senate and the house.  What a gig!  Then to get re-elected over and over again.  Until the problem of term limits is addressed, we should not expect any different actions or results from our elected officials.  Our elected officials seem to have no connection to the general populace with all the power and benefits bestowed on them.   Until this is changed, probably through a constitutional amendment, we will continue to receive the same results from government as we have in the past.  IMO, the terms "career politician" and "re-election" should be eliminated.

Just my opinion and random rambling.

I like your line of thinking, but term limits on Presidents have not translated into less statist Presidents, so I don't know if it would lead to less statist members of Congress either.

There is just a certain damaged type of personality that is attracted to telling other people what to do, and these kinds of people love what is known as "public service."

[Alanw]

MT,

You mentioned the term "career politician" above.  This term and the actions resulting from our "career politicians" are the biggest problem we have with government today, IMO.  Why do we limit the executive branch to two terms, while senators and representatives can be re-elected over and over again.  In addition, the health care and retirement benefits of politicians need to be reviewed.  Why should they receive superior benefits than they allow the ordinary citizen to receive.  It is no wonder that politicians will go to great lengths to get elected to the senate and the house.  What a gig!  Then to get re-elected over and over again.  Until the problem of term limits is addressed, we should not expect any different actions or results from our elected officials.  Our elected officials seem to have no connection to the general populace with all the power and benefits bestowed on them.   Until this is changed, probably through a constitutional amendment, we will continue to receive the same results from government as we have in the past.  IMO, the terms "career politician" and "re-election" should be eliminated.

Just my opinion and random rambling.

I like your line of thinking, but term limits on Presidents have not translated into less statist Presidents, so I don't know if it would lead to less statist members of Congress either.

There is just a certain damaged type of personality that is attracted to telling other people what to do, and these kinds of people love what is known as "public service."

You're probably right but I would still like to limit the length of time that politicians could serve.  I think one four or six year term for all would be a good starting point.  Maybe this could be done on a 20 year experiment to see if anything would change in government.

The phrase "career politician" reminds me of another phrase, "career criminal".  I guess neither one can help themselves.  They just do what they do.

[Tortoise]

[...] I would still like to limit the length of time that politicians could serve.  I think one four or six year term for all would be a good starting point.  Maybe this could be done on a 20 year experiment to see if anything would change in government.

The phrase "career politician" reminds me of another phrase, "career criminal".  I guess neither one can help themselves.  They just do what they do.

If the ideal situation is for most people in government to be only temporary public servants originating from the private sector--as opposed to "career politicians"--term limits seem to be only a very weak nudge in that direction.

A career politician needn't hold the same position in government for long periods of time to build a career in politics. There are plenty of prominent positions of power within the various branches of government to keep a career politician busy for a lifetime--regardless of term limits.

It just seems to me that term limits do little to curb the ability of someone to make a career out of politics. The more fundamental problem, as MT pointed out, is simply that some people have an innate desire to tell other people what to do, and--this is the key--big government gives them the ability to do so. Term limits place only a very narrow type of constraint on such people.

[jackely]

Speaking of government spending here is a fascinating chart I saw the other day showing the size of budget deficits under all the presidents since Kennedy. The thing that really jumped out at me was that Democrats have traditionally been better than Republicans when it comes to deficits but Obama has broken the mold. He has now exceeded the previously worse president (surprisingly, Reagan) by nearly an order of magnitude.

[MachineGhost]

Speaking of government spending here is a fascinating chart I saw the other day showing the size of budget deficits under all the presidents since Kennedy. The thing that really jumped out at me was that Democrats have traditionally been better than Republicans when it comes to deficits but Obama has broken the mold. He has now exceeded the previously worse president (surprisingly, Reagan) by nearly an order of magnitude.

How does MMR reconcile the fact that the economy was great under Clinton and is currently great in Australia, despite budget surpluses?

MG

[hoost]

Speaking of government spending here is a fascinating chart I saw the other day showing the size of budget deficits under all the presidents since Kennedy. The thing that really jumped out at me was that Democrats have traditionally been better than Republicans when it comes to deficits but Obama has broken the mold. He has now exceeded the previously worse president (surprisingly, Reagan) by nearly an order of magnitude.

How does MMR reconcile the fact that the economy was great under Clinton and is currently great in Australia, despite budget surpluses?

MG

I haven't looked into it, and I was too young to really remember what the economy was doing at the time, but I would look at the money supply.  It's possible to increase the money supply without a deficit.

[MediumTex]

I think that a lot of the current deficits are attributable to a collapse in tax revenue as a result of the recession, as opposed to a dramatic increase in government spending.

I think that when looking at deficit numbers it's important to understand whether declining tax revenue or an actual increase in government spending is driving it.

[jackely]

I think that a lot of the current deficits are attributable to a collapse in tax revenue as a result of the recession, as opposed to a dramatic increase in government spending.

I think that when looking at deficit numbers it's important to understand whether declining tax revenue or an actual increase in government spending is driving it.

Here is another chart that seems to challenge your theory if I'm reading it correctly, although I admit it is probably true that there are lies, damn lies, and statistical charts.

This chart doesn't break it down by president like the other one did but it appears to me that Ronald Reagan can no more blame his deficits on lack of revenue than Obama, probably even less so - as Obama at least did have to contend with a large drop in revenue unprecedented since 1960. I don't see any excuse for Reagan, the biggest spender prior to Obama.

I'd be interested in a chart showing what the money was spent on. In Reagan's case, I'm thinking military.

[Xan]

That seems like a REALLY optimistic/naive projection for future revenue.

[hoost]

I think that a lot of the current deficits are attributable to a collapse in tax revenue as a result of the recession, as opposed to a dramatic increase in government spending.

I think that when looking at deficit numbers it's important to understand whether declining tax revenue or an actual increase in government spending is driving it.

Looks like it's both.



Extracted from: http://blogs.forbes.com/michaelpollaro/ ... -finances/

[moda0306]

MG,

Regarding MMR and deficits/surpluses... I think I've got the broad strokes pretty much down on this...

The creation of vertical money (cash, coins, reserves, & treasury "savings accounts" ) is only half of the story... a very important half, but still limited in its ability to drive the economy in the short term.  Horizontal money is created by the private sector by creating loans and even equity issuance qualifies... as nonfinancial assets (a business) have now been "monetized" through contractual instruments.

Horizontal money is heavily backed by investment... in fact almost moreso than its backed by the currency its denominated in.  As long as the perceived price of an investment (say, for convenience, tech stocks and houses) is stable, then it's unlikely that the self-fulfilling growth of the horizontal system will break down and the vertical will then be the driver (usually this is a recessionary environment).

Now as far as Clintons surpluses, there's two major things that need to be pointed out... 1) Domestic NFAs can take a long time to truly influence the economy, especially if investment is sound and properly priced (and supply & demand are in equilibrium), and 2) We NEED to take into consideration our trade deficit into the calculation, because if we're losing financial assets to China & the like in exchange for consumer goods, we are losing the very safety cushion that NFA's are supposed to exist on our balance sheets for to begin with.  From 1997-2008 our fiscal deficits were smaller (sometimes by HUGE amounts) than our trade deficits.  This had a moderately exacerbating effect on the tech bubble bursting, and a huge effect on the housing bubble bursting... not that they caused the bubbles to burst so much as the lack of NFA's caused the disease to spread to a lot of other sectors of the economy because people have fragile balance sheets.  Notice, though, that NFA's (or the lack thereof) didn't become the drivers of our economy until some sort of investment collapsed, crippling the horizontal money sector's willingess to work in any kind of equilibrium... kind of like the number of life boats on the titanic was irrelevant to the journey until their preconceived notions of the ships ability to cruise quickly through icy waters were abruptly challenged.

[Greg]

For those that are interested about political thought, economics, and what role government should play in our lives, Learnliberty.org has an excellent video series on all sorts of topics. Some are only a few minutes long and easy to digest. I highly recommend them.

http://www.learnliberty.org/

[Pointedstick]

For those that are interested about political thought, economics, and what role government should play in our lives, Learnliberty.org has an excellent video series on all sorts of topics. Some are only a few minutes long and easy to digest. I highly recommend them.

http://www.learnliberty.org/

BIG thumbs up for this one.

[AdamA]

Thanks for posting that link.  Great site. 

[WildAboutHarry]

I thought this was interesting and somewhat related ...