David Stockman is the former Reagan budget director and private-equity executive who paid $7.2 million in 2007 to make some nasty SEC fraud charges go away.
He has now written a cockamamie gold-bug book about how we have ruined everything by having a central bank and employing Keynesian economics and that we should have let the financial system collapse in 2008, which “would have been truly constructive from a societal vantage point. It would have implanted an abiding 1930s style generational lesson about the deadly dangers of leveraged speculation.”
No surprise then that Stockman is also a brutal austerian who calls Social Security, falsely, a Ponzi scheme:
The puzzling thing is that 75 years later – with all the terrible facts fully known – the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.
Stockman would just simply do away with Medicare and Medicaid and ban private health insurance and the “abomination” of deposit insurance. Oh, and then there’s his proposed one-time 30 percent wealth tax to pay off the debt.
In other words, Stockman is a crank; a guy who says, apparently with a straight face, “I invest in anything that Bernanke can’t destroy, including gold, canned beans, bottled water and flashlight batteries.”
But for some odd reason, William D. Cohan decided to write a contrarian profile of him for Bloomberg BusinessWeek that paints him as some sort of David taking on the Goliaths of economics, government, and finance.
Very little of the “oh, this guy’s a kook” signaling that you need with a subject like this makes the story. If you’re going to write about someone’s jeremiad against the Federal Reserve’s easy-money policies, for instance, you should probably mention that he’s a gold bug, which Cohan doesn’t.
Cohan could have used this quote about Stockman, which comes from fellow Reagan administration official Martin Anderson:
David Stockman was profoundly pessimistic by nature. If he were ever to write a history of American baseball, he would probably describe Ted Williams… this way: Even at the height of his career, Williams managed to get base hits only 40 percent of the time and struck out repeatedly.
Worst of all, Cohan compares Paul Krugman—you know, the guy who’s been right about almost everything since the start of the crisis—unfavorably to Stockman, a guy who ran up the first giant budget deficits in the 1980s, got rich loading companies up with debt, “personally directed fraudulent schemes to inflate C&A’s reported income by accounting improperly for supplier payments,” according to the SEC, and sent his company into bankruptcy—a guy who would send us into a massive depression and eviscerate modern society and whose overarching thesis is objectively false (emphasis mine):
Krugman, for one, says Stockman’s analysis and history couldn’t be further off base. A few weeks after their initial squabble, Krugman struck again in the New York Review of Books, where he reviewed three books about the economy, including Stockman’s. Krugman dismissed The Great Deformation in a single paragraph. “It’s an immensely long rant against excesses of various kinds, all of which, in Stockman’s vision, have culminated in our present crisis,” he wrote. “History, to Stockman’s eyes, is a series of ‘sprees’: a ‘spree of unsustainable borrowing,’ a ‘spree of interest rate repression,’ a ‘spree of destructive financial engineering,’ and, again and again, a ‘money-printing spree.’ ” In Stockman’s dyspeptic worldview, “any policies aimed at alleviating the current slump will just make things worse.”
Yet it’s Stockman, not Krugman, who seems to have made the right call that the Fed’s creative monetary policies have led to an unsustainable bubble. In the weeks after our conversation, bond and stock markets the world over started to crack, with bond prices falling precipitously and the Dow Jones industrial average falling below 15,000 for the first time in two months. On June 19, after Bernanke suggested publicly the possibility that Quantitative Easing might end next year, the stock market fell nearly 550 points during the next nine hours of trading.
Cohan and BusinessWeek should know better than this. It’s far too early to say that QEII created an “unsustainable bubble”, though I’ll bet you it didn’t.
But it’s nuts to say that Stockman is right about his doomsday thesis based on the fact that Treasury bond yields are up nearly a point from their historic lows and that the stock market is down 3 percent since investors misinterpreted Bernanke’s “tapering” comments.
I mean, seriously.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.