David Stockman was kind of the Paul Ryan of his day (the Duran Duran of Ryan's Kid Rock?, or something) -- the wonky "boy wonder," a numbers cruncher guy who could get to the bottom of fiscal issues. Stockman is much smarter and more honest than Ryan, but though he is now a critic of "crony capitalism," he can't cure himself from the simplistic "debt is bad" analysis.
A current rec listed diary features Stockman's piece in yesterday's Times, and justifiably criticizes Stockman for creating the conditions he deplores in the article.
However, the real flaw in the Stockman's piece is that it's just another deficit hysteria screed, asking for more credibility because it goes after Republican spending as well as Democratic spending. As usual, Krugman here and here shows how wrong this is:
As Mark Thoma points out, the verdict among everyone who knows anything is that Stockman’s piece, mysteriously given star treatment, was pathetic and embarrassing. It’s full of big numbers that are scary because they’re big numbers — we’ve run a current account deficit of $8 trillion. So? We have a $16 trillion a year economy; America’s net international investment position is a debt of about 30 percent of GDP, which isn’t that big; our balance of investment income is still positive.Contrary to Stockman, Krugman shows that:
This is not a bipartisan problem of runaway deficits! Pre-1980, no problem at all; after 1980, deficits were very much a monopartisan issue until the financial crisis, which was a time when running deficits was appropriate. Anyone who says differently hasn’t done his homework.Jared Bernstein piles on, showing the Stockman uses the wrong figures on business investment, then summarizes it and disposes of each quasi argument:
It’s a long piece, bursting with passionate fire and brimstone, but again, at least to me, there’s no cogent argument in here, just assertions: sovereign debt is bad; you’ve got to let the market work out its failures without trying to fix them (there must be “a sweeping divorce of the state and the market economy”); no government investments in industry; central banks shouldn’t mess with the money supply.Stockman still thinks that the only problem with Reagan was that he never made the cuts required for supply side economics to work. His article appeared on Easter Sunday, but he's only half redeemed.
One could take each one of those apart. Sovereign debt is neither bad nor good–its assessment must be situational. Despite the fact that policy makers are working hard to forget this lesson, is well established that allowing market failures to heal themselves causes protracted and unnecessary economic pain that can be avoided with temporary stimulus. Private investors will under-invest in innovative sectors due to uncertain returns, central banks have played a critical stabilizing role, etc…