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Work and prosperity
12 April 2013

Heresy of the week: Fiscal conservatism has been betrayed by people who call themselves conservatives

Good news! Share values are reaching new records – not only in Britain, but in America too!

But, here, courtesy of David Stockman in the New York Times, is some not so good news:

  • “Since the S.&P. 500 first reached its current level, in March 2000, the mad money printers at the Federal Reserve have expanded their balance sheet sixfold (to $3.2 trillion from $500 billion). Yet during that stretch, economic output has grown by an average of 1.7 percent a year (the slowest since the Civil War); real business investment has crawled forward at only 0.8 percent per year; and the payroll job count has crept up at a negligible 0.1 percent 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.
  • “So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation’s bills.”

All that being the case, what could possibly explain the buoyancy of the US stock market?

  • “By default, the Fed has resorted to a radical, uncharted spree of money printing. But the flood of liquidity, instead of spurring banks to lend and corporations to spend, has stayed trapped in the canyons of Wall Street, where it is inflating yet another unsustainable bubble.”

David Stockman was Ronald Reagan’s budget director from 1981 to 1985, but he does not share the late President’s famous optimism. Indeed, despite having also been a Republican Congressman, he accuses one great Republican hero after another of betraying the principles of fiscal conservatism:

  • “...Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar. That one act — arguably a sin graver than Watergate — meant the end of national financial discipline…”
  • “...this explosion of borrowing was the stepchild of the floating-money contraption deposited in the Nixon White House by Milton Friedman, the supposed hero of free-market economics who in fact sowed the seed for a never-ending expansion of the money supply…”
  • “...Mr. [Alan] Greenspan’s loose monetary policies didn’t set off inflation was only because domestic prices for goods and labor were crushed by the huge flow of imports from the factories of Asia… Soon Americans stopped saving and consumed everything they earned and all they could borrow…”
  • “...this dynamic reinforced the Reaganite shibboleth that ‘deficits don’t matter’…”
  • “...the destruction of fiscal rectitude under Ronald Reagan… allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy…”

None of this means that Stockman is any more enamored of the Democrats – “the culprits are bipartisan”, he says, “though you’d never guess that from the blather that passes for political discourse these days.”

Nevertheless, it is surely time for real conservatives to wake up to the betrayal of fiscal conservatism – because, make no mistake, the economic system that was founded on that betrayal can’t carry on for much longer:

  • “The modern Keynesian state is broke, paralyzed and mired in empty ritual incantations about stimulating ‘demand,’ even as it fosters a mutant crony capitalism that periodically lavishes the top 1 percent with speculative windfalls.
  • “These policies have brought America to an end-stage metastasis.”

In short, the party’s over. Someone needs to work out what comes next.


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