Former Reagan budget director David Stockman is outraged–outraged I tell you!–by the Federal Reserve increasing the money supply. In a lengthy op-ed on the front page of the New York Times Sunday Review (3/31/13), he condemns “the mad money printers at the Federal Reserve” with their “egregious flood of phony money” and “a radical, uncharted spree of money printing.” The Fed’s “panic-stricken melee of…money-printing,” he writes, is part of “the single most shameful chapter in American financial history.”
For all this moral indignation, however, he never gets around to explaining what exactly is wrong about “printing money.” It’s certainly possible for an economy to have too much money–that’s how you get inflation, generally. But doesn’t it stand to reason that if you can have too much money, you can have too little? And maybe you might have too little if your economy has just lost $10 trillion in wealth due to the collapse of a housing bubble? (Stockman complains about how the Fed “digitally printed new money at the astounding rate of $600 million per hour”–which would replace the wealth lost in the bubble’s collapse in a less-than-astonishing two years.)
Stockman rejects the idea, though, that increasing the money supply might be a solution to chronic high unemployment, writing that the “modern Keynesian state” is “mired in empty ritual incantations about stimulating ‘demand'”–putting “demand” in scare quotes as though it were some kind of preposterous confabulation rather than one of the central principles of economics.
What little documentation Stockman provides tends to be self-contradictory. Stockman is what economist Dean Baker refers to as a “numerologist”–someone very concerned with the number known as debt-to-GDP ratio. Stockman’s Exhibit A–his only exhibit, actually–is a chart showing all debt, public and private, as a percentage of GDP.
But when you try to match the graph to Stockman’s American economic horror story–you have problems. After the “bloated” state of the World War II era, there was a “brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House.” But “then came Lyndon B. Johnson’s ‘guns and butter’ excesses,” made worse by Nixon going off the gold standard–“arguably a sin graver than Watergate.” Then there was “a roaring inflation in goods and commodities during the 1970s that was brought under control only by the iron resolve of Paul A. Volcker, its chairman from 1979 to 1987.”
But look at that chart. Indebtedness was basically flat during the ’50s, ’60s and ’70s; indeed, it seems to have mostly grown during the “golden era” of Ike. When did you see a big jump in debt? Right, during the “iron resolve” period.
Something sure seems to have happened to the U.S. economy starting around 1981–when Stockman was budget director–but it doesn’t seem to have anything to do with the story he wants to tell.