25 August 2010

David Stockman via Matt Taibbi

From Matt Taibbi's blog:

Stockman was once the arch-priest of supply-side economics, but he's had a conversion over the years. In a piece blasting the legacy of Republican economic policy entitled "The Four Deformations of the Apocalypse" Stockman essentially argues that Reaganomics evolved into a policy that fused the worst aspects of the traditional economic strategies of both the right and the left:
Republicans used to believe that prosperity depended upon the regular balancing of accounts — in government, in international trade, on the ledgers of central banks and in the financial affairs of private households and businesses, too. But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance — vulgar Keynesianism robed in the ideological vestments of the prosperous classes... This approach has not simply made a mockery of traditional party ideals. It has also led to the serial financial bubbles and Wall Street depredations that have crippled our economy.
The line about "Keynesianism robed in the ideological vestments of the prosperous classes" is a truth that is both brutally accurate and unfortunately a little too subtle for the Tea Partiers and disaffected Republicans who ought naturally to be struck by it with the most violence. Stockman here is on to a basic truth about the direction in which the economy has evolved in the last decades: a seemingly endless campaign of reckless borrowing and money-printing, undertaken with the aim of propping up an Atlas class whose prosperity under Randian/Greenspanian dogma must be guaranteed at all costs. This goes far beyond the original supply-side thinking of cutting taxes to give the employer class an incentive to create jobs. Instead, this is a welfare state on crack, indulging in massive public borrowing to fuel what Stockman calls the "vast, unproductive expansion of our financial sector." He goes on:
Here, Republicans have been oblivious to the grave danger of flooding financial markets with freely printed money and, at the same time, removing traditional restrictions on leverage and speculation. As a result, the combined assets of conventional banks and the so-called shadow banking system (including investment banks and finance companies) grew from a mere $500 billion in 1970 to $30 trillion by September 2008.
But the trillion-dollar conglomerates that inhabit this new financial world are not free enterprises. They are rather wards of the state, extracting billions from the economy with a lot of pointless speculation in stocks, bonds, commodities and derivatives. They could never have survived, much less thrived, if their deposits had not been government-guaranteed and if they hadn’t been able to obtain virtually free money from the Fed’s discount window to cover their bad bets.

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