David Stockman, Reagan's first director of the Office of Management and Budget, has a strange op/ed in today's New York Times and "Angus" (aka Kevin B. Grier) does a nice take-apart. I don't agree with all of his criticisms, but I do agree with most.
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.
But, as "Angus" points out:
As you can see, there's nothing special about 2000. There's a tiny blip, but the balance sheet stays on its path from 1900 to 2008, when it explodes.
And of course, that is/was the Fed's RESPONSE to the great recession. The terrible numbers Stockman gives for GDP growth and job growth are a direct result of the great recession. Real GDP grew strongly from 2000 to 2007, then collapsed.
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. The Fed, which celebrates its centenary this year, fueled 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. Under his successor, the lapsed hero Alan Greenspan, the Fed dropped Friedman's penurious rules for monetary expansion, keeping interest rates too low for too long and flooding Wall Street with freshly minted cash.
On this, I disagree even more than Angus does. For why, see here and here and follow the links.
Where I don't agree with Angus? On this statement of his: "Bernanke has actually done a very good job during this crisis and slow recovery." But my disagreement here is not for Stockman's reasons. Like Jeff Hummel, I think the Fed did not print enough money at the start of the crisis and, instead, is turning the Fed into a central planner.
By the way, Stockman's piece reminded me of how shrill he often was. My Hoover colleague, Martin Anderson, in his book, Revolution, said it best:
David Stockman was profoundly pessimistic by nature. If he were ever to write a history of American baseball, he would probably describe Ted Williams of the Boston Red Sox, one of the greatest players of all time, this way: Even at the height of his career, Williams managed to get base hits only 40 percent of the time and struck out repeatedly.
Elsewhere, Martin Anderson calls Stockman's book, The Triumph of Politics, "a self-righteous work with the tone of a screeching bluejay."