Economic Policy Failures: We should listen to David Stockman more carefully
by Adam Lent
It’s not easy to agree with everything David Stockman says in his lengthy New York Times essay that has kicked off a big row in the US. The sweeping criticisms levelled by this former Republican Congressman and Reagan era official at Western and particularly US economic policy-making since the 1930s overlooks the fact that there have been extraordinary leaps in living standards and innovation in that time.
However, it is a mistake, as Paul Krugman does in not one but two denunciations, to reject him as just another crotchety fiscal hawk.
An Eye on the Big Picture
The reason is that Stockman has his eye on the very big picture in a way that mainstream politicians do not. Stockman asks hard questions not about the last five or ten years but about the last eighty years. This is important because in all the verbiage over the Crash and its repercussions, it rarely gets noted that we have lived in a very volatile economic world not since 2008 but since the mid-1970s.
Few commentators seem aware that, in the UK, recessions were negligible events for the thirty years after the second world war. If you judge recessions as two or more quarters of negative growth then there was one in in 1956 and one in 1961 but both were remarkably shallow and short-lived neither coming close to shaving even 1% off of GDP. Since the mid-seventies, the story has been very different. There have been long periods of growth and stability, of course, but there has also been no less than six recessions, three of which took over 3% off of GDP and two of which (1980 and 2008/09) were particularly deep and extended.
This matters enormously because in all the discussion about inequality, poverty, productivity and competitiveness, it rarely gets noted that the cumulative effect of a series of recessions can be hugely damaging in the long term in all of these areas. Understanding and debating the cause of our more recession prone economy would seem a fundamental condition of understanding how we address these profound problems. And yet the issue is very rarely discussed in those terms.
You may or may not agree with it but at least David Stockman tries to comes up with an answer:
With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.
He is particularly critical of the malign impact of activist monetary policy, pointing out that since Alan Greenspan opted for a loose money approach around the turn of this century …
… the payroll job count has crept up at a negligible 0.1 per cent 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.
It is significant that his harshest words are reserved for Richard Nixon who decided to end the dollar peg to gold. Stockman feels this was the beginning of a particularly damaging period in US and global economic management. Notably it is also the period when the volatility mentioned above started.
Seeking Historical Answers
The causality involved in these decisions and the phenomena to which Stockman links them can be disputed. There is also a fair amount of simplification. Many, for example, would argue for example that Nixon merely confirmed a de facto collapse of the Dollar peg.
Nevertheless, Stockman has had the courage to think big and to think genuinely historically. That is undoubtedly a good thing at a time when populations in the US and across Europe are increasingly asking hard questions about whether the current political and economic settlements, which have broadly been in place for decades, offer anything meaningful to working people. It is also particularly a good thing when mainstream political parties, such as those in the UK, are always looking to pin blame on incumbents or recent incumbents. A practice which ensures that debate never finds sources for our problems much further back than a few years and, as such, will probably never generate effective solutions.
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