We've been hearing a lot about David Stockman's recent essay on the American economy and the imminent demise he predicts for it.
The value of Stockman's essay, which appeared in The New York Times a week ago, lies in its blunt summary of the weaknesses and danger signs in our economic condition. Along the way he lambastes almost every public figure imaginable, living or dead, including the strange geniuses among his fellow Republicans, such as Paul Ryan, who he says "are terrified of telling the truth" about how deep the deficit is and what it will take to work it down. The only hero in the article is another Paul, Paul Volcker, who as chair of the Federal Reserve during Reagan's presidency imposed anti-inflation austerity measures that successfully put the economy back on an even keel -- for a while.
The challenge of Stockman's essay is that he mixes useful insights and warnings with doses of excessive or misplaced vituperation. Even Paul Krugman, a liberal Keynesian, has said that Stockman had some good points. It's important for us to consider seriously Stockman's central tenets, and ignore the vivid and sarcastic asides, if we are to escape his prediction that the United States will suffer another economic crash and tumble into irreversible decline because the political system is too weak and divided to prevent it.
The weaknesses to which Stockman points: Over the past 12 years, economic output has grown about 1.7 percent per year and business investment less than 1 percent per year; payroll job count has been essentially flat at +0.1 percent per year; during this same period, real median family income dropped 8 percent, and the less wealthy 90 percent of Americans were clobbered with a jaw-dropping loss of a quarter of their net worth. Here's how Stockman sums it up: "So the Main Street economy is failing while Washington is piling a soaring debt burden on our descendants, unable to rein in either the warfare state or the welfare state or raise the taxes needed to pay the nation's bills."
What does this mean we have to do? Sit back, this is not going to be pleasant.
The American economy is not growing or creating jobs. The flood of debt the government has unleashed has helped make some bumps in the road a little easier -- particularly for banks and financial acrobats -- but it has done little to spur real economic activity (jobs and investment) and has sapped the strength the government would need to help bail us out of another crash. The federal government is divided politically; no large-scale growth engine has been proposed, let alone agreed upon; other world economies are slowing down and some may implode, so there is no locomotive in sight for the global economic train.
Like Stockman, I don't see a road forward for us that does not involve considerable pain and a long period -- perhaps a decade -- of real belt-tightening while we work down the deficit and our national debt, reform the health care system so cost increases are tempered, crank up powerful growth programs like investment in capital infrastructure to generate jobs and make us more competitive, and raise taxes modestly across the board to help bring down the deficit.
Unlike Stockman, I believe we might be able do this. But it's discouraging that no national leader is presently proposing such an approach or laying out, frankly and compellingly, the adverse circumstances that require it. That's what's needed so we the people can understand it, debate it and then reach a decision together as to whether we'll back leadership that wants to get it done.