Bushonomics: The Sad Legacy of David Stockman, by Al Martin

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by Al Martin

Bushonomics: The Sad Legacy of David Stockman

(4-8-13) Reagan’s budget director David Stockman has written a disingenuous New York Times op-ed piece called “State-Wrecked: The Corruption of Capitalism in America.” It should be remembered that Stockman never spoke out at the time as he was the original proponent of taking the United States off of GAAP (Generally Accepted Accounting Principles) and putting it on BFLAP (Bushonian Fantasy Land Accounting Principles) in order to effectively cover up fiscal corrosiveness of the budget deficits the Reagan and Bush Regimes were running.

(As a side-note -- lot of people have asked me to explain BFLAP (Bushonian Fantasy Land Accounting Principles) I'd like to draw an analogy in laymen's terms. BFLAP Accounting is rather like the guy standing on the street corner selling ten-dollar bills for nine dollars. He's doing a booming business, and a little kid comes up to him and says, "Hey Mister, don't you realize you're losing a dollar on every sale you make?" The man smiles at the kid and says, "Yeah that's right. But I'll make it up on volume." That's the best explanation of BFLAP that I can think of -- logical but totally pointless.)

Now Stockman claims otherwise because he’s trying to distance himself from it. Why? Because the infrastructure of the Old Republican Bushonian Cabal is falling apart and there isn’t any more money to be made in it anymore.

In the NY Times piece, Stockman writes, “The culprits are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry.”

All Stockman is doing is pandering to the hard money crowd because he knows he can sell his books. But people tend to forget what this guy was all about in the 1980s when he was Ronald Reagan’s golden-haired boy as it were. He testified more on Capitol Hill through the mid 80s than any other representative of the Reagan Regime. He was the arch supply-sider and the arch supporter of printing fiat money and he used to pooh-pooh species because he thought that those who backed it were simpletons. Why he did all this was to justify what the Reagan-Bush Regimes were doing in generating enormous budget deficits and what would prove to be a twelve-fold increase in the national debt from 1981 to 1992 He had to support it at the time because that’s where the money was.

“The destruction of fiscal rectitude under Ronald Reagan — one reason I resigned as his budget chief in 1985 — was the greatest of his many dramatic acts,” Stockman continues. “It created a template for the Republicans’ utter abandonment of the balanced-budget policies of Calvin Coolidge and allowed George W. Bush to dive into the deep end, bankrupting the nation through two misbegotten and unfinanced wars, a giant expansion of Medicare and a tax-cutting spree for the wealthy that turned K Street lobbyists into the de facto office of national tax policy. In effect, the G.O.P. embraced Keynesianism — for the wealthy.”

The problem is that Stockman was a proponent of these policies at the time. But he’s not the only one. Now you’ve got a whole crop of former Reagan-Bush people that are attempting to distance themselves from their past because they can’t make any money any more.

Former Assistant Treasury Secretary Paul Craig Roberts under Reagan is another one who was credited with inventing Reaganomics, which as it got sold to the American people at the time is nothing, but old-fashioned supply side economics.

Supply side economics means that economic incentives that are offered by government, like the tax incentives that were offered in the 1980s, these so-called specifically targeted tax programs, that existed under the Reagan-Bush Regime was done in order to drive down the costs of manufacturing the “supply” and that tax incentives then be dispensed for people to buy these goods. All throughout the 1980s, there were energy tax credits as well as conservation tax credits for buying the latest ultra-efficient air conditioners, etc.

At any rate, the only thing that’s important is that people remember who these guys were in the past, which they are so anxiously trying to distance themselves from and why that bespeaks volumes about what has happened in this country since Bush II.

The unwinding of the speculative bubble that the Bush II Regime created in order to further concentrate wealth did so to such an extent within the upper echelon of Republican hands that they didn’t need the infrastructure anymore that they once had, namely the American Enterprise Institute, the Heritage Foundation, the Brookings Institution, etc. and so on. This included the whole Republican infrastructure that had existed as a Take-Care-of-Your-Own Republican Welfare System. Meanwhile guys like Stockman hadn’t already made theirs and had to find something else to do for a living and now they’ve found out that their Reagan-Bushonian past has become a liability.

It should be remembered that Stockman was a congressional representative from Michigan and then director of the Office of Management and Budge under Reagan. In an article by William Greider in the Atlantic called “The Education of David Stockman,” Stockman referred to Reagan's tax act as "I mean Kemp-Roth was always a Trojan horse to bring down the top rate.... It's kind of hard to sell 'trickle down.' So the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."

The problem is that it was actually “trickle-up.” Because it was only “trickle-down” in theory, but in fact, it was “trickle-up.” Also there was never any Reaganomics; it is a misconception that should be shot down right away. It has always been Bushonomics. There was never a Reaganomics; it was just called that.

Reagan didn’t understand anything about economics. In 1983 he barely knew where he was. Readers should also remember Reagan’s 1983 televised comments wherein he said he has just purchased a brand new 1953 Studebaker. In fact he had purchased a 1953 Studebaker in 1953 with the money he was paid for appearing in the movie “Bedtime for Bonzo,” when Reagan co-starred with Bonzo the chimp.

This is American mythology and it dies hard. Even those that supported it have been the WKRs -- Working Klass Republicans -- who were the most hurt by it at the time – and have been subsequently most hurt by the bubbles and the subsequent breakage of those bubbles which the Republicans they voted for created.

It should also be remembered that after he left government, Stockman tried his hand at finance and became an employee of the Blackstone Group. After a while Blackstone founder Steven Schwartzman got him out, so Stockman started his own private equity company which managed to lose $340 million. His misadventures continued with him installing himself as CEO of an auto parts company called Collins & Aikman which filed for bankruptcy. Stockman then was indicted for fraud, while the Securities and Exchange Commission filed civil charges against him. The SEC however declined to prosecute him for this case in 2009. And now he’s written a book called “The Great Deformation” which he’s been shilling on TV interviews.

Stockman’s problem is that it all fell apart because he didn’t get the phone call. And that’s the problem when you’re on the other side, meaning on the outside looking in, and you don’t get the phone call. Stockman leveraged up this company Collins & Aikman and at the peak of the bubble when it was time to get out – he didn’t.

And why wasn’t he prosecuted? Because there wasn’t any criminal intent on his part. He never stole any investors’ funds or put out any false statements. He was just incompetent.

Stockman didn’t really understand anything about markets or economics. Even in the 1980s nobody really touted him or used the word “economist” to describe him. He was a salesman selling Reaganomics. That was his function – to sell it. He was the front man selling it. He bottled it up into a bottle of snake oil and he knew it was snake oil. That’s why he’s now saying – I knew it was snake oil; that’s why I got out. When he said he distanced himself in 1985 – that’s not true at all. He didn’t distance himself. He stuck his foot in his mouth and got distanced.

It’s great how these guys like to say – I knew that Reaganomics cum Bushonomics was bad and that’s why I distanced myself from it. But nobody distances themselves from the Republican Gravy Train in the 1980s. What happens is they stick their foot in their mouth like in the interview with William Greider and then they get distanced.

People like that wound up working for Goldman Sachs or Morgan Stanley because it was too much of a liability for people who stuck their foot in their mouth to get them a make-work seat at the American Enterprise Institute or the National Association of Independent Business or any of those Republican groups where their name would still be prominent in the public eye and where people might still want to interview them.

So guys that stuck their foot in their mouth but were still “owed” as it were wound up getting junior partnerships at Goldman Sachs or Morgan Stanley or someplace where they could be out of the public limelight but nonetheless still being taken care of.

From a Financial Times report called “Stockman feels force of Washington fury” – “Stockman’s book The Great Deformation highlights the enduring conservative appeal of a kind of economic primitivism that harks back to the days when laisser-faire ruled and macroeconomics had not been invented.” …And robber barons were in their prime -- but it sells books.

Gold bugs will be buying this book, certainly the more educated ones. It will probably sell because of A) Stockman’s name and B) every effort to cover up his past will likely be successful because nobody has a vested interest to be the naysayer here. Also he’s got financial media behind him promoting it and he’ll be on all the talk shows.

In the last paragraph of what could be called Stockman’s book commercial, the NY Times op-ed piece, he writes, “Getting the Fed out of the financial markets is the only way to put free markets and genuine wealth creation back into capitalism. That, of course, will never happen because there are trillions of dollars of assets, from Shanghai skyscrapers to Fortune 1000 stocks to the latest housing market “recovery,” artificially propped up by the Fed’s interest-rate repression. The United States is broke — fiscally, morally, intellectually — and the Fed has incited a global currency war (Japan just signed up, the Brazilians and Chinese are angry, and the German-dominated euro zone is crumbling) that will soon overwhelm it. When the latest bubble pops, there will be nothing to stop the collapse. If this sounds like advice to get out of the markets and hide out in cash, it is.”

It’s a popular line and it’s a line that sells. You can see the results of that in the markets where Joe Six Packs have largely stayed out of the rally since the bottom of 2009, since so-called retail investor participation has actually fallen in the last four years – while the markets have doubled.

When somebody says that getting out of stocks is a self-fulfilling prophecy that would crash the markets, that’s not true – and it’s naïve and provincial to say that. Why? Because stock ownership is now back to where it was in the 1970s – the lowest in 40 years. So if the retail investors sell their stocks, it wouldn’t have the same impact it would have had 10 years ago or 20 years ago.

Stockman’s article then is a papering over of the sins of Bushonomics in a sense – particularly for him which is like the pot calling the kettle black, as they say, since he was such a proponent of Bushonomics. Here’s a guy who was a major proponent of debt-financed consumption that generated economic growth which is something that can’t obviously be achieved with a species currency.

Even Roosevelt realized that. After all why did he take the United States off the gold standard? He understood the situation at the time. If he hadn’t done so, all the other major nation-states, except for France, had either already gone off the gold standard or would subsequently go off the gold standard in the 1930s. Governments understood that the only way they could be a force in countering the Great Depression was to print a lot of money – and you couldn’t do that if you were on the gold standard. They believed that they had to print a lot of money in order to reflate the planet’s economy – which is what central banks are attempting to do today.

This can then be construed as the latest battle between Keynesianism and Hayekism -- but it all becomes nonsense. Nevertheless the Hayekians are still popular in Republican circles because Hayekian economics is at the very heart of Republican economic philosophy. However now it’s irrelevant because it’s not practiced – and hasn’t been since the 1920s -- and will never be practiced again.

So we get down to the same old problem. In the post war regime when it was decided to allow the population to quadruple, including the population in the “consuming world” - the industrialized powers – the idea of maintaining a species currency was thrown out the window.

People should remember who Stockman is and what he was really all about and the reason why he and others like him are distancing themselves from their Bushonian past.

Because the Republican “welfare system” that existed for people like him is falling apart…

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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