In the March 31, 2013 edition of the New York Times David Stockman has an opinion piece entitled “Sundown in America” in which he says that “eight decades of borrowing, spending and money-printing by the government have bankrupted America” and that “these policies have brought America to an end-stage metastasis. The way out would be so radical that it can’t happen.”
Although he exaggerates and overhypes with vivid language, I believe that he is basically correct about the gravity of our current predicament. We should take him seriously because many of his proposed solutions are on the right track even if they are unnecessarily extreme.
For example, he berates the House Republicans for giving Social Security and Medicare a ten year pass instead of wanting to reform them right away. Of course it would be better to reduce benefits to affluent seniors immediately but it will take bipartisan cooperation to accomplish this, and the Democrats are dragging their feet on entitlement reform.
Mr. Stockman’s strongest language is directed at the finance industry. He wants to rein in the big Wall Street banks by cutting off their access to cheap Federal Reserve loans and deposit insurance. The Glass-Steagall Act would be reinstated. The central mission of the Federal Reserve should be restored: “to provide liquidity in times of crisis but never to buy government debt or try to micromanage the economy.”
Is our situation as hopeless as Mr. Stockman says? Interestingly, he provides evidence that we may have turned the corner in the right direction. His chart “Indebtedness Dwarfs the Economy” shows that total debt owed by government, companies or individuals, as a percentage of GDP, started dropping about three years ago. What we need to do is make sure that we keep this total debt measure moving steadily downward for the indefinite future.