–Remember David Stockman? Better you should forget David Stockman

The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.

David A. Stockman, a former Republican representative from Michigan, was President Reagan’s director of the Office of Management and Budget from 1981 to 1985. He wrote an OpEd column for the New York Times that is so wrong as to be a parody.

Here are a few excerpts:

It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent.

I guess he thinks our “desperate fiscal condition” is the federal deficit, or is it federal debt. He doesn’t say which. (They are completely different, not even functionally related.) Somehow, I thought our real problems are unemployment and slow per capita GDP growth, both of which would be exacerbated by Stockman’s call for higher taxes on the middle and upper classes.

Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

“Means testing” is a euphemism for another unnecessary federal tax. The federal government could and should support Social Security and Medicare. And did you notice the “. . . not merely squeezing . . . Medicaid and food stamps.”? Not merely? So it’s O.K. to squeeze the poor, so long as the middle class is squeezed, too?

A quasi-bankrupt nation saddled with rampant casino capitalism on Wall Street and a disemboweled, offshored economy on Main Street requires practical and equitable ways to pay its bills.

“Quasi-bankrupt”? “Rampant casino capitalism”? “Disemboweled, offshored economy”? You always can tell a guy is full of crap when he uses that kind of wild language. What is “quasi-bankrupt”? No one knows. The federal government isn’t, and never can be, bankrupt. So does that make it “quasi”? Or is he talking about the public, many of whom are really, not quasi, bankrupt, in part because the David Stockman’s of the world do not understand Monetary Sovereignty, thus making the federal government deficit reluctant.

And “casino capitalism”? It’s a cute phrase, but specifically, what does that mean? Too much lending? And here I thought one of our problems was too little lending.

Ingratiating himself with the neo-cons, Mr. Ryan has put the $700 billion defense and security budget off limits; and caving to pusillanimous Republican politicians, he also exempts $17 trillion of Social Security and Medicare spending over the next decade. What is left, then, is $7 trillion in baseline spending for Medicaid and the social safety net — to which Mr. Ryan applies a meat cleaver, reducing outlays by $1.5 trillion, or 20 percent.

Trapped between the religion of low taxes and the reality of huge deficits, the Ryan plan appears to be an attack on the poor in order to coddle the rich. To the Democrats’ invitation to class war, the Republicans have seemingly sent an R.S.V.P.

Absolutely true. That’s what deficit reduction nonsense does. See, it’s like this. Deficits are absolutely necessary for economic growth. So when you try to reduce deficits you always wind up doing something really stupid.

. . . Such fiscal jabberwocky ignores the fact that we have experienced a recession every five years or so for the last six decades . .

Right. And all but one of them has been introduced by reductions in federal deficit growth – the reductions Mr. Stockman recommends.

. . . for decades now, the central banks of the world have been giving policymakers a false signal that sovereign debt is cheap and limitless. Functioning like monetary roach motels, central banks have become a place where Treasury bonds go in but never come out — thereby causing bond prices to be far higher and interest yields much lower than would obtain in a market that wasn’t rigged.

Monetarily Sovereign debt is very cheap (it costs nothing) and it is limitless. Nobody knows what “Treasury bonds go in but never come out” means, but he loves his “roach motel” analogy. Interest yields are exactly what the Fed makes them to be.

Indeed, the Fed and currency-pegging central banks in East Asia and the Persian Gulf have absorbed nearly all of Uncle Sam’s multitrillion-dollar spree of debt issuance. Moreover, about $4.6 trillion, or more than half of all debt held by the public, is now sequestered in central banks — paid for with printing-press money.

The government could stop issuing debt tomorrow, and this would have zero affect on the government’s ability to spend. He, of all people, should know that. Further, “printing press money” is money. What other kind of money is there, David?

Even central banks cannot defy the canons of sound finance indefinitely, however. Japan will buy less Treasury paper as it turns inward to recover from the wrath of nature. Likewise, China will drastically curtail its currency pegging and related Treasury bond purchases in order to suppress the rip-roaring imported inflation and speculative bubbles now engulfing its domestic economy. And unless the Fed wants to ruin the value of the dollar, it will need to keep its promise to get out of the bond-buying business, too, when its second round of quantitative easing ends in June.

We don’t need to sell Treasuries to Japan, China or anyone else. The Fed can protect the value of the dollar simply by raising interest rates.

Ominously, the biggest and baddest of these real investors, the quarter-trillion-dollar Pimco Total Return Fund, has already thrown down the gauntlet by selling Uncle Sam’s paper short.

All that means is Pimco expects interest rates to rise, which will reduce the price of existing Treasuries. Ho hum, This is ominous?? Since rates essentially are zero now, there is nowhere to go but up.

In the real world, however, the global bond market is already rumbling — and around the corner, a fiscal conflagration surely lies.

“Fiscal conflagration.” Believe it or not, this blog post cut out most of his extravagant language. It went on and on, with each colorful phase adding to the assurance he is clueless. Anyway, he ends with the typical debt-hawk non-prediction, prediction: “Around the corner.” You may add this to “soon,” “one day,” “someday,” “eventually” “ticking time bomb,” “unsustainable,” “over time,” “children and grandchildren” and all the other indefinite prophesies.

Perhaps most amazing, is that so many famous pundits all write the same, apocalyptic drivel, over and over again, and the media keep printing it. How many times can the preachers predict the same end of the world, before the congregations figure out these guys are charlatans?

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetarily Sovereign, and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a dopey teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it screwed up the economy.”


8 thoughts on “–Remember David Stockman? Better you should forget David Stockman

  1. I remember Stockman:

    1. In Reagan’s day, as budget director, he said that the goal was to create huge federal budget deficits so the federal government would not be able to afford any more spending on social benefits. On this issue he has actually moderated his thinking. But he is still coming from a warped point of view (more for the rich, less for the middle class and poor) and his opinions are of dubious value. … P.S. Despite these pro-deficit statements, Reagan actually felt compelled to raise taxes twice to help bring some balance to the federal government. That was before “no taxes” on the rich became a sacred doctrine in the Republican religious cult.

    2. He recently wrote a column in the NYT blaming the Republican Party for the deficit, specifically the Bush Tax cuts and the two unfunded Middle East wars. He was also quoted recently in some business publication saying that the Republicans have to get real and raise taxes on the rich.


  2. Typical Krugman. I wrote to him and posted on his blog:

    “In your column, you said, ‘So taxes are, first and foremost, about paying for what the government buys (duh). It’s true that they can also affect aggregate demand, and that may be something you want to do. But that really is a secondary issue . . . Well, the feds have the Fed, which can print money. But there are constraints on that, too — they’re not as sharp as the constraints on governments that can’t print money, but too much reliance on the printing press leads to unacceptable inflation. (Cue the MMT people — but after repeated discussions, I still don’t get how they sidestep the issue of limits on seignorage.)'”

    There are several problems with your comments:

    1. Federal taxes do not pay for anything. Federal taxes could be reduced to $0 or raised to $100 trillion, and this would not affect by even one dollar, the federal government’s ability to spend.
    2. It is the Treasury that does the money printing, though all banks, including the Federal Reserve bank, contribute to the money supply.
    3. MMT does not sidestep the inflation issue. In fact, it is quite direct in addressing inflation. If you write to Warren Mosler, Randy Wray or Bill Mitchell (no relation), they will explain it to you.

    In the past 10 years, the debt has risen 200%, while prices have risen about 25%. (See the graph at Debt vs Inflation)

    Unquestionably, at a high enough level, money creation can cause inflation. However, we are nowhere near that level, and in fact, inflation has been related to oil prices, not to deficits (See Cause of Inflation)

    I would be glad to discuss with you, the commonly held, but factually wrong belief that at current or even somewhat expanded levels, federal deficit spending will cause inflation. We are not yet near that point.”

    These facts will have no effect on Krugman. Now that he has won a Nobel, there is no way he ever will change his opinion. His learning days are over.

    Rodger Malcolm Mitchell


  3. You mean Steve Landsburg. Don’t know much about him. Looked at just one of his articles in which he said, “For the government to consume more goods and services, somebody else must consume fewer.”

    I doubt it’s MMT, and it sure isn’t Monetary Sovereignty. It isn’t even correct. He assumes the total value of goods and services is fixed. I don’t get it.

    Rodger Malcolm Mitchell


  4. I don’t get it either, then I saw this on his blog:

    Someone called “Max” says:

    “The serious point in this is that most people doesn’t grasp that in our fiat money system, the government doesn’t need anyone’s money – it can just spend.

    Why isn’t the entire economics profession shouting from the rooftops with one voice that the government is not “out of money” as everyone from President Obama to Standard and Poors falsely claims?

    Is it stupidity, cowardice, or what?”

    His response: “I’m doing my best.”

    Does that imply he agrees the government has the unlimited ability to create dollars therefore needs no taxes to support its spending?


    1. One would think so; one would hope so. But I received personal Emails from him that seem to indicate otherwise. He absolutely is convinced that for the government to consume more, someone else must consume less.

      I still don’t get it.

      Rodger Malcolm Mitchell


  5. Landsburg is about the least MMT, most religiously, imperviously, “classical”, person out there. And he thinks this kind of religious economics is a model for other healthier fields of thought! As far as I can tell, he has no contact with reality at all. It’s a challenging exercise to take statements he pronounces are always true as a matter of course and concoct even one hypothetical, superidealized, superclassical situation where they might possibly be true.


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