Still Sleazy After All These Years

Robert Waldmann

David Stockman (yes Reagan’s OMB director David Stockman) denounces the Republican Party for its irresponsible love of tax cuts for the rich. This is wonderful. With such a large target, he manages many hits. He also manages to demonstrate that he is still intellectually dishonest, as is shown after the jump.

Stockman argues that, under Bush Jr the Republicans spent like drunken sailors. This is true. However, it does not justify presenting nominal figures without correcting for inflation and population growth (if not GNP growth). Stockman writes “my statistics are still damn lies” oops I mean “George W. Bush surrendered on domestic spending cuts, too — signing into law $420 billion in non-defense appropriations, a 65 percent gain from the $260 billion he had inherited eight years earlier.” The New York Times disgraces itself. It should have a policy that all comparisons are, at least, in constant dollars. Also the numbers are weirdly low. Stockman clearly refers to non-defence discretionary spending not to all non-defence appropriations. I suppose the “signing into law” might make the difference.

Worse Stockman asserts that the non depository banking system couldn’t have grown (and growh relative to depositary institutions) if it’s deposits weren’t insured (huh ?!?!) and it couldn’t borrow from the Fed’s discount window (as it couldn’t until 2008)

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.

This is dishonesty and also idiocy. Stockman must understand that shadow banks don’t take deposits and don’t benefit from deposit insurance. He should also know that they are not allowed to borrow from the discount window, although the Fed can (at least could before the FinReg bill) loan as much as it wanted to anyone.

Stockman notes the growth of the shadow banking system. He must know that it grew relative to depository institutions, then he asserts that the shadow banking system couldn’t grow, because finance can’t grow without deposit insurance and access to the discount window.

Notably, Mr Stockman worked in finance after leaving public service. He does help us understand the problem. The Financial system destoyed itself because it was managed by idiots not because of deposit insurance and the discount window.

Or maybe he knows his claim is false (he presents the proof) and is just lying. I don’t know or care.

Finally he manages, rather impressively, to present propose policy even worse than that advocated by Republicans in Congress

“the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.”

He presents no rationale whatsoever for his policy recommendations. Then again, he never has.

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