‘Borrowed prosperity on an epic scale’

Banks on the mend, stocks in London and New York bouncing… looks like the recovery is in full flow, right?

For David Stockman, a director of the Office of Management and Budget under President Ronald Reagan, all this apparent recovery is a myth built on borrowed money, and he’s having none of it:

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 

Stockman under Reagan was an early champion of “supply side theory” and Friedman monetarism. But even four decades ago, when Keynesianism had been pronounced irrelevant, the business cycle declared dead and Republican politics seemingly ascendant, it didn’t take him long to figure out the weaknesses in the basic thesis.

Now, as the champion of defer-to-the-rich tax policies Arthut Laffer returns to peddle his old nostrums once again, Stockman is also back, to excoriate modern Republicanism and expose the self-serving politics masquerading as conservatism:

Republicans used to believe that prosperity depended upon the regular balancing of accounts […] But the new catechism, as practiced by Republican policymakers for decades now, has amounted to little more than money printing and deficit finance – vulgar Keynesianism robed in the ideological vestments of the prosperous classes.

These two articles, and the tax status of America’s mega-wealthy, may seem a little esoteric, but if, as many predict, the Republicans win big in mid-term elections, their relevance will become more apparent.

A new power structure on Capitol Hill will see President Obama’s already  struggling economic plans entirely re-written, and how the ideological elements Stockman tackles in his article are resolved will play a huge part in the world’s economic future.

Not to mention that the fears of economists like Paul Krugman will have even more likelihood of being realised.