David Stockman Switches Sides, Sort of….
Posted by JimIn last Sunday’s New York Timesthere appeared an interesting Op-Ed piece from on of the Reagan economic insiders. Mostly identified with supply-side economics(or voodoo economics if you are an ardent Democrat), Mr. Stockman was one of the primary architects of the Reagan Revolution.
Now it appears he has some second thoughts. In his Op-Ed article Mr. Stockton does an historical review of how four key Federal decisions on economic policy have landed us in the current pickle. Here is one the few choice tidbits: “This debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts. ”
His conclusion is frought with ill portends, “The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever. ”
I have long believed that the psychology of the endless free lunch (maybe a good idea for a Vegas buffet) would lead to a bad spot. The debate is over and we are in this mess. Americans have responded by spending less and saving more. The national savings rate is now around 8%, a far cry from the real negative rate in the heyday of the equity line of credit.
I have had more conversations with friends and clients who all talk about the New Frugality. Everyone seems to be spending less and are, at least for the time being, proclaiming a certain sense of well-being and satisfaction. But does this new attitude spell disaster for huge segements of our economy? Can anyone re-purpose a mall?
