David Stockman makes a good Cassandra. His The Great Deformation: The Corruption of Capitalism in America is a popular account of why all economic policy since Calvin Coolidge and Herbert Hoover has been wrongheaded. It is a contrarian’s delight. The New Deal “did not end the Great Depression or save capitalism from the alleged shortcomings which led to the  crash.” Richard Nixon’s decision to unharness the dollar from the gold standard was “a sin graver than Watergate.” Milton Friedman, once a conservative saint but recast by Stockman as “a supposed hero,” is dismissed as “foolish.” He assaults Paul Ryan’s budget as “another front in the GOP’s war against the 99 percent.” He even accuses his old boss Ronald Reagan, a conservative paragon, of being fatally mistaken about slashing personal taxes and about encouraging “the highest peacetime spending share of GDP.”
In brief, Stockman believes Keynesian economics is pernicious and has seduced America away from the true path of capitalism. His tract is long on abuse (he scathingly assaults Republicans as well as Democrats, and gives a pass only to Dwight Eisenhower and John F. Kennedy) and short on economic analysis. The theoretical roots of his thinking are missing. The laissez-faire absolutist Ayn Rand is mentioned only in passing to goad those, like Paul Volcker and Alan Greenspan, who brushed up against her. Ludwig von Mises gets a single name-check for his work on the credit boom cycle in 1911. Friedrich Hayek, the inspiration for most of today’s anti-Keynesians, does not even warrant a footnote. Stockman’s failure to anchor his instinctive aversion to deficits, public spending and government borrowing in a cogent intellectual framework undermines his case. His faith-based economics reflects, perhaps, the fact that he became Reagan’s director of the Office of Management and Budget armed only with what he had learned at Harvard Divinity School.
Stockman has, however, found a ready audience for his take on the past 80 years of economic policy because he is a rare bird: a conservative purist prepared to argue that when the financial markets froze in 2008 we should have let the market rip and lived with the consequences. When the stock market began to wobble five years ago, then crashed, tripping a wholesale financial disaster that slowed economic activity, caused businesses to fail and threw millions out of work, it was hard to find an economist of standing to defend the alternative to federal intervention: letting the banks and AIG go bust and allowing the market to find its own level.
While the George W. Bush administration concocted the Troubled Asset Relief Program (TARP) to shore up the banks and an old school Keynesian stimulus to keep the country’s businesses afloat ‑plans followed to the letter by the new president, Barack Obama ‑ the big guns of conservative economics remained conspicuously silent. “I thought we all agreed that Keynesianism doesn’t work,” complained Chris Edwards of the Cato Institute. “With the new stimulus package before Congress, all these Keynesians have come out of the woodwork and I’m wondering where all the theorists are that oppose the Keynesian system.” Robert Lucas, the 1995 Nobelist from the conservative economics redoubt at Chicago University, was less coy. “I guess everyone is a Keynesian in a foxhole,” he explained.
Stockman, for his part, is prepared to speculate on what an alternative economic future might mean, and it is not pretty. Nor, he says, is it practical. In an op-ed last weekend he argued his remedy “would be so radical it can’t happen.” His prescription would entail “sweeping constitutional surgery” giving the president and Congress single six-year terms; the end of Citizens United payola and its replacement with 100 percent public financing of candidates; restricting banks to taking deposits and granting commercial and private loans only; putting the Federal Reserve in a straitjacket; and much more. Since, as he says, no one would dare to implement the political and economic revolution he proposes, Stockman avoids having to estimate what his remedy would cost in lost jobs, collapsing house prices, business bankruptcies and all the rest.