by William D. Cohan
June 27, 2013
Roosevelt House, on East 65th Street on Manhattan’s Upper East Side, is hallowed ground for progressives. FDR and Eleanor Roosevelt lived in the six-story townhouse between 1908 and 1933, before moving to the White House. Roosevelt assembled his Cabinet at the residence, and many of the economic policies that became the New Deal were devised there. Considering that history, it was odd to find a crowd of 100 gathered at Roosevelt House in mid-May to hear a talk by David Stockman—a man who, as Ronald Reagan’s first budget director, embodied the supply-side economic philosophy that’s anathema to New Dealers. Stockman’s book, The Great Deformation: The Corruption of Capitalism in America, had been out for a month. He thanked his hostess for her introduction. “It’s the first time anybody has said anything nice,” he said. He proceeded to list those who’ve denounced his book: “The Republicans, the Democrats, and the Keynesians, and the monetarists, and the supply-siders, and Wall Street, and Bay Street, and the military-industrial complex, and also the neocons and the social-cons and the just-cons. And for those of you who haven’t heard of the just-cons, that’s everybody else in Washington that doesn’t fit the other categories.”
Despite all that scorn—or perhaps because of it—Stockman’s book is a hit. In April it made its debut at No. 4 on the New York Times Best Seller list, and it stayed on the list for a month. Not bad for a 768-page tome that spans eight decades of U.S. economic history. The 66-year-old Stockman appeared on Charlie Rose and The Daily Show With Jon Stewart, declaiming the need to save America’s economy from its addiction to what he calls “monetary heroin,” the U.S. Federal Reserve’s penchant for printing money, keeping interest rates artificially low, and encouraging asset bubbles.
In Stockman’s view, the Federal Reserve has entered unsafe and unknown territory. In nearly doubling its balance sheet to $3.2 trillion in assets since October 2008, the Fed has artificially propped up the prices of fixed-income assets and driven interest rates to absurdly low levels. The Fed’s actions have left investors with little choice but to seek higher yields by mispricing risk. Worse, he argues, all the new money that the Fed has pumped into Wall Street is not getting to Main Street, where theoretically it could be used to help the economy grow; instead, it’s just being pushed around by traders. While Wall Street cashes in, yet another new, dangerous financial bubble is being inflated—all of which has left the U.S. economy at risk of another 2008-style meltdown. Only this time, Stockman wrote in the New York Times on March 30, “there will be no new round of bailouts like the ones the banks got in 2008. Instead, America will descend into an era of zero-sum austerity and virulent political conflict, extinguishing even today’s feeble remnants of economic growth.”