David Stockman May No Longer Be Alone

“There can be no proper motive for hurting our neighbour, there can be no incitement to do evil to another which mankind will go along with except just indignation for evil which that other has done to us”.
Adam Smith: The Moral Sentiments (1854, p. 119).


The Washington Post (March 26, 2007) had two eye catching headlines: “Reagan Budget Head Stockman is charged with Fraud”, and “Soldier of a Revolution: Stockman was the Face of the Reaganomics”. How the mighty has fallen.

These two articles brought back to me my assessments of Stockman’s budget policy during the early days of the Reagan administration where he was serving as the head of the Management and Budget. Back in the 1980’s and early 1990’s I wrote OP pieces published in the Worcester Telegram and Gazette. My articles focused exclusively on economic policies and most often on the federal budget policy.

When the Reagan Administration came into office, the landscape for making economic policy changed shape — from Keynesian economics to Reaganomics. The architect of this new religion was said to be David Stockman, although a great deal of the underlying philosophy belonged to others.

Having spent quite a bit of time in Washington D.C. writing about federal budget policies, I needed to learn about the new religion. This knowledge was quickly acquired during the deliberation on the first Reagan budget submitted to Congress. On February 2nd, 1982, I wrote a piece for the WT&G titled: “A little Knowledge is a Dangerous Thing”. I wrote then that David Stockman would do well to remember that. It might keep him out of trouble. Little that I knew then how apt this statement would turns out to be. My comment related to his economic policy, a field in which he had no formal training. Had he had that perhaps… I also wrote in the article that Stockman problem stems from his presumption that he knew how the world works. Stockman assumed that the world is like an “unassembled” toy and one only needs to know how to read the blueprints to assemble the parts. Unfortunately for Stockman he either failed to correctly read the blueprint or that the world is a bit more complex than a disassembled toy.
He ran into trouble applying his religion to the budget program – that cutting tax (supply side economics) would increase revenues, and eliminate the deficit over the short hall. Cutting taxes raise revenues by changing incentives. A rise in investment and a higher growth rate ultimately would raise revenues and change the deficit path. Unfortunately, the time framework is usually much longer than the political life of an administration.

Stockman as reported by the Post is accused of defrauding investors and banks during his stewardship of Collins & Aikman, a large Southfield, Michigan auto parts maker that gone into bankruptcy in 2005. According to the Post, Manhattan attorney Michael Garcia that “Stockman and a team of hand picked executives entered into secret agreements with suppliers, created false documents to fool auditors… “Stockman pleaded “not guilty” to the charges”. I hope he is not guilty. The country has had more than it’s share of high profile officials and corporate executives pursuing not only policies of self enrichments at the expense of the public but also of grandiose schemes of corruption that had soiled the nation’s image.

In the “Solider of a Revolution” piece, the writer bemoans the charge: “It’s a shame that a guy who made such a great contribution as a member of Congress and the Reagan Administration has this thing happening to him”. Pardonez moi! The plight of David Stockman falls squarely in his lap. One’s action or lack of action has consequences that cannot simply be laid at the feet of others.

The Stockman story is one of many that smell of corruption. By itself it does not warrant too much of a notice except of course from lawyers and prosecutors. What ought to be of note is the implications of this and similar acts on the nation’s standing. We in the US are quick to point out corruption in many developing countries particularly in Africa. Indeed the International Monetary Fund and The World Bank have devoted a great deal of efforts and resources to make countries recipient of their loans and aid comply with requirements of “Good Governance” in general and the reduction in corruption in particular. Beginning in the 1980’s this mandate took center stage in official documents not only of said agencies but also in US aid policies. This concern gave rise to compilation of corruption indicators. Indicators of worldwide corruption have been reported by Business International (currently named Economic Intelligence Unit), Transparency International and International Country Risk guide (ICRG). These groups publish corruption indices computed from measures such as bribes, red tape, accountability, rules of law and the like. Every country is given a score based on the value of the indices. From ICRG data over the period 1984-2003, one is able to trace the development of corrupt practices in over 100 countries. Based on the calculated scores, countries are grouped into three categories: High corruption (0.0-4.5), Middle corruption (5.0-6.9), and Low corruption (7.00-10.0). Of interest here is a comparison over time between countries. Between the years 1984-2003, there have been “minuses” and “pluses”. A minus suggest a worsening of corruption, a plus an improvement.

Let us look at the US viz a viz regimes that one associates with corrupt practices. It is disheartening to discover that over a 20 years period corruption has gotten worse. More countries have had a negative change (became more corrupt), than countries with a positive change. Out of a total of 101 countries, 67 countries had negative change (mean change of -0.0257), 12 countries with no change and 22 countries with positive change (Mean change of 0.596).

As I have mentioned earlier the presumption is that developing countries, especially those in Africa are riddled with corruption. To some extent this is true, but that is only half of the story. Almost all of the improvements in the corruption scores were recorded for the African countries. Examples are Mali, Congo DR, Uganda, Kenya, Liberia, Ghana, Zambia and the Ivory Coast. The US, which was ranked in the middle group, fell in the negative change group with a change of (-0.221), a change greater than those experienced by some African countries like Tanzania (-0.163), Senegal (-0.125), and Egypt (-0.063). Zimbabwe ranked at the top in terms of increased level of corruption with a score change of -0.745 followed by South Africa with a change of -0.524. For more on corruption scores and analyses of change in the corruption levels see (H.Seldady (2007), “Does Corruption Persist?”, paper presented at the Public Choice Societies meeting in Amsterdam, March 29-April 3).

The numbers reported in the Seldady’s paper paint a picture not very complimentary about the developed world. It is not only that the US score has worsened but so did scores of others like the UK and Canada. The findings bring to mind an old adage: “charity begins at home”. In this context the saying should be changed to “cleaning house should begin with one’s home”.