Economist's View 'This is Bad Economics ... But it is Excellent Preaching'
James Surowiecki:It's been a great couple of weeks for David Stockman. Granted, he's been called "unhinged," "nonsensical," and "a cranky old man," after arguing in the Times that the current bull market is a huge bubble, and that America's economic woes stem from the Federal Reserve's profligacy and from F.D.R.'s taking us off the gold standard. But the controversy has made his new book, "The Great Deformation," a best-seller...
He's an ideologue, but he's an honest one. Still, honesty gets you only so far, and Stockman's ... thesis is unconvincing. He thinks that, when bad times hit, the government should just let events play out, rather than use discretionary fiscal or monetary policy to combat them. In part, this is because he thinks that the government can't do much to help a weak economy. Indeed, he believes that intervening after a crash makes the next one worse. ...
The simplicity of this idea gives it a certain visceral appeal. ... For him, pain is the way we learn discipline, and, the more closely you read "The Great Deformation," the more you sense that the impulse behind it isn't so much economic as moral. Stockman, who studied at Harvard Divinity School, favors language that is explicitly theological: Keynesian "sin," the "demon" of debt, the "devil's workshop" of the New Deal. "The Great Deformation" looks like monetary history, but it's really a classic example of the American jeremiad—a twenty-first-century counterpart to Jonathan Edwards's famous sermon "Sinners in the Hands of an Angry God." Stockman laments our fall from the path of righteousness and foretells destruction if we do not repent. This is bad economics—the economy is not a morality play—but it is excellent preaching, which explains why this is Stockman's moment. In times of crisis, as the Puritans knew, Americans never tire of hearing how we've lost our way.
"For him, pain is the way we learn discipline." Let me just add a point I tried to make recently. Even if you buy into the "we need pain to learn discipline" idea, punishing people who had nothing to do with our problems, e.g. throwing workers into unemployment even though they did nothing to cause the crisis, does not provide the discipline he wants. If we punished those at the top of the financial industry -- the individuals whose decisions drove the bubble -- maybe some learning would occur, but that's not what happened. In fact, punishing the innocent rather than the guilty leads to bad incentives, not the good ones he is after. For that reason the innocent -- the workers who did their jobs day after day to support their families who suddenly found themselves unemployed through not fault of their own -- should be protected through fiscal and monetary policy, and as much as possible, this should come at the expense of those responsible for their problems.
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