David Stockman: The Keynesian Endgame

Tyler Durden's picture

Even the tepid post-2008 recovery has not been what it was cracked up to be, especially with respect to the Wall Street presumption that the American consumer would once again function as the engine of GDP growth. It goes without saying, in fact, that the precarious plight of the Main Street consumer has been obfuscated by the manner in which the state’s unprecedented fiscal and monetary medications have distorted the incoming data and economic narrative.

These distortions implicate all rungs of the economic ladder, but are especially egregious with respect to the prosperous classes. In fact, a wealth-effects driven mini-boom in upper-end consumption has contributed immensely to the impression that average consumers are clawing their way back to pre-crisis spending habits. This is not remotely true.

Five years after the top of the second Greenspan bubble (2007), inflation-adjusted retail sales were still down by about 2 percent. This fact alone is unprecedented. By comparison, five years after the 1981 cycle top real retail sales (excluding restaurants) had risen by 20 percent. Likewise, by early 1996 real retail sales were 17 percent higher than they had been five years earlier. And with a fair amount of help from the great MEW (measurable economic welfare) raid, constant dollar retail sales in mid-2005 where 13 percent higher than they had been five years earlier at the top of the first Greenspan bubble.

So this cycle is very different, and even then the reported five years’ stagnation in real retail sales does not capture the full story of consumer impairment. The divergent performance of Wal-Mart’s domestic stores over the last five years compared to Whole Foods points to another crucial dimension; namely, that the averages are being materially inflated by the upbeat trends among the prosperous classes.

For all practical purposes Wal-Mart is a proxy for Main Street America, so it is not surprising that its sales have stagnated since the end of the Greenspan bubble. Thus, its domestic sales of $226 billion in fiscal 2007 had risen to an inflation-adjusted level of only $235 billion by fiscal 2012, implying real growth of less than 1 percent annually.

By contrast, Whole Foods most surely reflects the prosperous classes given that its customers have an average household income of $80,000, or more than twice the Wal-Mart average. During the same five years, its inflation-adjusted sales rose from $6.5 billion to $10.5 billion, or at a 10 percent annual real rate. Not surprisingly, Whole Foods’ stock price has doubled since the second Greenspan bubble, contributing to the Wall Street mantra about consumer resilience.

To be sure, the 10-to-1 growth difference between the two companies involves factors such as the healthy food fad, that go beyond where their respective customers reside on the income ladder. Yet this same sharply contrasting pattern is also evident in the official data on retail sales.

* * *

That the consumption party is highly skewed to the top is born out even more dramatically in the sales trends of publicly traded retailers. Their results make it crystal clear that Wall Street’s myopic view of the so-called consumer recovery is based on the Fed’s gifts to the prosperous classes, not any spending resurgence by the Main Street masses.

The latter do their shopping overwhelmingly at the six remaining discounters and mid-market department store chains—Wal-Mart, Target, Sears, J. C. Penney, Kohl’s, and Macy’s. This group posted $405 billion in sales in 2007, but by 2012 inflation-adjusted sales had declined by nearly 3 percent to $392 billion. The abrupt change of direction here is remarkable: during the twenty-five years ending in 2007 most of these chains had grown at double-digit rates year in and year out.

After a brief stumble in late 2008 and early 2009, sales at the luxury and high-end retailers continued to power upward, tracking almost perfectly the Bernanke Fed’s reflation of the stock market and risk assets. Accordingly, sales at Tiffany, Saks, Ralph Lauren, Coach, lululemon, Michael Kors, and Nordstrom grew by 30 percent after inflation during the five-year period.

The evident contrast between the two retailer groups, however, was not just in their merchandise price points. The more important comparison was in their girth: combined real sales of the luxury and high-end retailers in 2012 were just $33 billion, or 8 percent of the $393 billion turnover reported by the discounters and mid-market chains.

This tale of two retailer groups is laden with implications. It not only shows that the so-called recovery is tenuous and highly skewed to a small slice of the population at the top of the economic ladder, but also that statist economic intervention has now become wildly dysfunctional. Largely based on opulence at the top, Wall Street brays that economic recovery is under way even as the Main Street economy flounders. But when this wobbly foundation periodically reveals itself, Wall Street petulantly insists that the state unleash unlimited resources in the form of tax cuts, spending stimulus, and money printing to keep the simulacrum of recovery alive.

Accordingly, the central banking branch of the state remains hostage to Wall Street speculators who threaten a hissy fit sell-off unless they are juiced again and again. Monetary policy has thus become an engine of reverse Robin Hood redistribution; it flails about implementing quasi-Keynesian demand–pumping theories that punish Main Street savers, workers, and businessmen while creating endless opportunities, as shown below, for speculative gain in the Wall Street casino.

At the same time, Keynesian economists of both parties urged prompt fiscal action, and the elected politicians obligingly piled on with budget-busting tax cuts and spending initiatives. The United States thus became fiscally ungovernable. Washington has been afraid to disturb a purported economic recovery that is not real or sustainable, and therefore has continued to borrow and spend to keep the macroeconomic “prints” inching upward. In the long run this will bury the nation in debt, but in the near term it has been sufficient to keep the stock averages rising and the harvest of speculative winnings flowing to the top 1 percent.

The breakdown of sound money has now finally generated a cruel endgame. The fiscal and central banking branches of the state have endlessly bludgeoned the free market, eviscerating its capacity to generate wealth and growth. This growing economic failure, in turn, generates political demands for state action to stimulate recovery and jobs.

But the machinery of the state has been hijacked by the various Keynesian doctrines of demand stimulus, tax cutting, and money printing. These are all variations of buy now and pay later—a dangerous maneuver when the state has run out of balance sheet runway in both its fiscal and monetary branches. Nevertheless, these futile stimulus actions are demanded and promoted by the crony capitalist lobbies which slipstream on whatever dispensations as can be mustered. At the end of the day, the state labors mightily, yet only produces recovery for the 1 percent.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Croesus's picture


ACP's picture

I think it's more like BUY NOW PAY NEVER.

At least since 2009.

Beam Me Up Scotty's picture

Maybe they figure we don't need to worry about borrowing from future generations, because there won't be any.

Croesus's picture

Looks more like they are using Bitcoin to buy gold, unless I missed something.....


This just in's picture

Is that real physical gold, or the papery, worthlessy gold?

W74's picture

They're shipping it....so physical.  Funny how SOME of the Gen Y'ers y'all complain about are more aware than your average boomer.

Scarlett's picture

yes, physical.  funny how the people who junked me don't seem to understand how this is good for gold

auric1234's picture

Is there a difference?


Anusocracy's picture

Everything government touches turns to crap.  Ringo Starr

Except for the 1 percent, for them everything government touches turns to fiat.

All Risk No Reward's picture

>>I think it's more like BUY NOW PAY NEVER.

At least since 2009.<<

The narrative is false.  The debt being issued now will ENSLAVE humanity if we don't wisen up.

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. The one aim of these financiers is world control by the creation of inextinguishable debt.”
~Henry Ford

Debt Money Tyranny


How to be a Crook


The Money That Is Sold Abroad Is You!


Tragedy & Hope @ archive.org


P. 276

"In addition to these pragmatic goals, the powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. The system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the system was to be the Bank of International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks, which were themselves private corporations. Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank…sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

The genius of this system is the quality of the sheep's clothing covering the Fabian Socialist wolf.

It is a mistake to underestimate this magnitude of this evil.

Darwin's "favoured races" {his own at the very tippy, tippy top, by chance, of course!  Look out Irish!] aren't interested in those who will cause the "Descent of Man."

yogibear's picture

Al  the laid off tech people can devise some efficient ones for the banksters.

Croesus's picture

Let me say this:

If you're interested in history at all, you may see a recurring theme:

"The People" work harder and harder, so the Banksters and politicians have more free time to come up with new and creative ways of fucking "the people" over.

The only way things ever change? Guns, bullets, and rope.

BUT, once things are changed, "The People" get complacent again, and start believing the bullshit propagated by the Banksters and Politicians, again.

And "The People" go back to servitude.....again.

The more things change, the more they stay the same.

Ludwig Van's picture

"And "The People" go back to servitude...."

You may be right. But it takes generations. That does not discharge my responsibility to my family -- whether that be blood or my nation -- to do all I can to stop the evil cunts and try to reset to something better.

Yes, I'm interested in history. What was established here in America worked until it got corrupted. I can't go back to then, nor go a hundred years ahead. The job that needs to be done is here in front of me, of us. Either grab a shovel or an AR or a light and chip in. Otherwise get the fuck out of the way. There's work to be done today.


Kreditanstalt's picture

"Tax cutting" is a "Keynesian doctrine"?

Not at all...it's the SHRINKING OF THE STATE...bring it on!

Melin's picture

I thought it was a late April Fool's posting then realized it was Stockman again.  And again, he's not a free market guy. 

Kreditanstalt's picture

If you want free markets, they have to be free for everyone, "rich" or otherwise...and you have to make the state weak and impotent, so it is forced to end the price-fixing, corruption of price-discovery, wage-rigging, subsidizing, monopoly creation and protection, bailouts of everyone from the unemployed to auto companies to banks to mortgage-holders, etc.

No, sometimes Stockman seems to resemble a Michael Hudson/Robert Reich/Paul Craig Roberts interventionist...

Melin's picture

Separate Economy and State

nmewn's picture

“The characteristic feature of present-day policies is the trend toward a substitution of government control for free enterprise. Powerful political parties and pressure groups are fervently asking for public control of all economic activities, for thorough government planning, and for the nationalization of business. They aim at full government control of education and at the socialization of the medical profession. There is no sphere of human activity that they would not be prepared to subordinate to regimentation by the authorities. In their eyes, state control is the panacea for all ills.” ~ Ludwig von Mises in 1944

surf0766's picture

Take the money from the baby boomers.  hahaha

StarTedStackin&#039;'s picture

Last year of the boomers here     1964.........



Come try and take it......or remain an anonymous internet douchebag    :)

surf0766's picture

Tough Guy.. Nice


Wear your diapers and be quiet.

1C3-N1N3's picture

Five better ideas, little sister:

Make stuff, move stuff, fix stuff, teach stuff, or guard stuff. You don't need mom and dad's cash.

-- Another Millennial

(If you were sarc-ing, at least explain to me why I should trust people who say things they don't mean.)

surf0766's picture

I am one generation behind the boomers. Watching the crap they have littered society with.

Peace and free love baby.. Complete horseshit.

1C3-N1N3's picture

Compulsive dopamine-seeking behavior is commonplace these days. But if direct confiscation is your game, ask the Cypriots how well that ends.

bank guy in Brussels's picture

These older guys like David Stockman, trying to make a buck selling these antique items called 'books', strike me as a little out-of-place and sad these days

Stockman is certainly getting the big media pump for himself ... makes one wonder why the MSM is backing him right now

And Stockman is saying nothing new to ZeroHedge readers, while he labours to make his book-bucks

Karl Denninger's 'book' Leverage was a big fat sales fizzle, despite the big-publisher push for him and his website numbers

And then we have various people on ZeroHedge hawking their antique-style books, like Mr Testicle Pit ... mostly again older guys I think

Books ... ha! ... Remnants of a time gone by ...


SilverIsKing's picture

I agree. I always wait for the film adaptation.

Kreditanstalt's picture

Yeah...the dumbing of America...people who can only comprehend stuff if it's video...

surf0766's picture

I think for some even that a video is too much. What a complete hunk of crap the education system is. 40 years of idiots running things...

SubjectivObject's picture

ZeroHedge is not the center of the conventionaly ignorant world, view.

Anything Stockman can get across is valuable in any case.  I point to the megaphone weapon of mass diversion on the other side of this ... info war.

Why your critique of content should consider format as an indicator of anything, considering too that books , corporeal or virtual, are still read by credible people, escapes me.

kito's picture

These older guys like David Stockman, trying to make a buck selling these antique items called 'books', strike me as a little out-of-place....

yeah, youre absolutely right.....a little out of place...thats because the entire msm platform continues pumping complete bullshit to the masses about a recovery that isnt......so he is speaking the truth, a rare feat these days among high profile individuals who have credibility........making a buck doing it, wtf is your point????? besides stockman has been warning of this for quite some time.....and better his book gets read than another krugman tome.........................

essence's picture

Imagine that, attempting to make money the old fashioned way, thru honest work.

Yeah, no doubt David Stockman coulda sold his soul and now be enjoying a big fat retirement paycheck coming in from some amorphous Cayman Islands entity. Instead, apparently, he's out there hustling for a living, or perhaps just plain inspired and driven.

Stockman passes the smell test, your post Brussels Dude doesn't.


GeezerGeek's picture

When SHTF and the internet is down, books will still function as intended. 

khakuda's picture

What is most disingenuous is that the NY Times and Krugman, the supposed advocates of the 99%, have encouraged the free money zirp/money printing that has inflated asset prices, increased the wealth divide AND driven food and energy prices through the roof killing their purported 99% constituents.

...and NO ONE calls them on this bullshit.

Let's face it, prices for houses, college, etc. NEEDED (and still need) to fall to get back in line with wages that didn't grow.  The ONLY reason they were not allowed to deflate was because the home and student debt was held by the banks and it would have gone bad and killed the bankers.  SO here we are with prices still too high for wages and debt serfdom still the only option.

Five8Charlie's picture

The New York Times is _not_ the advocate for the 99%. The NYT is an organ of the State - why do you think Dr. Krugman and the dumber-than-a-rock Friedman work there?

Everybodys All American's picture

Absolutely ... add in the entire DNC idiots as well.

ramacers's picture

serve 'em up - baskets full of heads!

The Alarmist's picture

This 800-year experiment we have had with increasing freedom and prosperity for the masses has been a failure for the ruling classes.  Isn't it time we once again yoked the serfdom to their plows so that our rulers can go about living the lifestyle to which they have become accustomed without having to look over their shoulders?

eatthebanksters's picture

Books will most likely provide great entertainment in the future...think about that statement BGIB...

W74's picture

I sat outside for about 90 minutes today with a book.  I spent maybe 50 minutes reading and the rest just dozing off.  The transition to Spring here is coming along nicely.

nmewn's picture

(Crackle-Pop)...this is your Captain speaking.

You may have noticed three engines are out and the other is on fire. The crew has done all we can do up here so you need to brace for impact, we'll see everyone on the ground once we get down there.

No need to worry about us, we've got the parachutes and thanks again for flying Fiat Air ;-)

Another-Ex-RPI-Man's picture

The main problem is the Debt is retained by the private sector, ie, banks. If you default on debt and reset all the debt, theren't be the need either for rescuing countries neither recapitalizing banks. However a few, yet major groups, wouldn't be willing to let go on their assets even if that means let going also the liabilities.

The problem is that by resetting the debt you actually reset the interest paid, and interests are not simetrical, because countries pay a lot of interests and yet banks get rescued by the Fed and BCE at effective nearly zero interest.

Waterfallsparkles's picture

Problem is that the people in the Middle pay for it all.

They pay thru taxation for the people on Welfare and they pay for all of the hand outs for Wall Street.

Question remains is if they can thru their Income Taxes support the people at the lower end and the people at the higher end.

With all of this printing the day will come to repay all of this Debt.  It is unfortunate that the people in the Middle will shoulder all of the burden.

nmewn's picture

85 billion a month...I didn't authorize it...I ain't paying.