David Stockman is a former Reagan administration official who had a road-to-Damascus experience in which he realized supply-side and “trickle down” economics are in fact a massive cart of porcine effluvium (not to mention impossible to implement politically). Hard to blame him, seeing as they’re based on the notion that giving the wealthy more money is an efficient mechanism for giving the poor more money. (A Stockman-penned summary of his conclusions, from his book The Triumph of Politics: Why the Reagan Revolution Failed, can be found in several places, including here.)
At any rate, he’s back to worn us that the continuing experiment in borrowing is unlikely to end well, and is probably reaching its critical point:
“If we see what’s going on carefully, we’ve reached the final unmasking of the Keynesian illusion, that Keynesianism is really nothing but borrowing, stealing from the future to induce consumption today,” he said. “There are no multipliers. Every one of these programs we’ve had from ‘cash for clunkers’ to housing purchase credits have disappeared as soon as they expired and simply shifted activities in time by a few months.”
Stockman explained that before 1980, it took about $1.50 of new borrowing — public or private — to generate $1 of GDP growth. By the mid-1990s, it was $2.50 or $3 of borrowing for a $1 of GDP growth. By 2007, before the big collapse and meltdown finally came, $7 of public and private debt was added to the national balance sheet in order to get $1 of GDP growth.
“When you get to the point of $7 of borrowing to get $1 of income, you’re obviously on an unsustainable path and pretty close to hitting the wall, which more or less we have,” he said.
“So the addicts in Washington are now unfortunately terrified to stop all this borrowing whether it’s for guns or butter for fear of the economy will collapse…. That’s why we’re just at the beginning of solving this massive financial collapse we had in 2008 and not in the process of healthy recovery as some of the pals in the White House or on Capitol Hill or on Wall Street would have you believe.”
ADDITIONAL, FOR THE PRESCRIPTIVIST CAMP: Feel free to substitute this, if it soothes, even if it ain’t as pretty: “…they’re based on the notion that lowering taxes on the earned and investment income of the wealthy is an efficient mechanism for increasing the income of the poor.”
Still an unworkable idea that has one necessary effect: increasing the gap between rich and poor. It’s still increasing–the economy’s version of the Hubble constant?
Perhaps we should try a non-trickle method at this point. Perhaps a gusher or steady flow?
