Approaching his subject from many different angles, he demonstrates in thorough and specific detail, including much direct personal experience, that the roots of the crisis stretch back many decades. Few if any stones are left unturned; few if any major US political actors escape criticism; and all are subject to healthy scrutiny regardless of their orientation on the left-right spectrum. Indeed, Stockman makes clear that the facile left-right distinction of US politics obscures a deeper crisis of capitalism that spans the breadth of the American economic and political landscape. While he admits he has little hope that America can now change course, in closing he does offer a few specific policy recommendations that might, just might, lay the foundation for a Great American Reformation, were they to be implemented in future. Elected to Congress in the s while still in his 20s, he was selected by President Reagan to be his first budget director at age 31 and was thus the youngest Cabinet-level US official to serve in the entire 20 th century. He left politics in for the private sector and entered the world of private equity as a partner at the Blackstone Group.
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The two most dynamic candidates in the presidential election, Donald Trump and Bernie Sanders, had one thing in common: they knew Main Street Americans were sick of the economy being rigged against them. But understanding how the economy was rigged was never a topic that could be fully explained in the middle of a campaign.
The tilting happened when Washington decided to print excess money whenever it liked. That original sin then triggered growth among big banks at the expense of middle class jobs. The story goes something like this: more than forty years ago, the Federal Reserve decided the way to avoid future recessions was to inject more money into the economy at any sign of trouble.
The newly printed money benefitted big banks and corporations, not working Americans. The excess money in our economy meant interest rates were nearly zero, giving bankers the incentive to make risky bets instead of investing in the slow, stable growth of employers in Middle America. Think of this as big banks being given the chance to play with house money. The casino the Fed provided the chips, and banks were not going to put them in a safe piggy bank.
They were going to start rolling the dice. They bet on the housing market, speculated about how fast the Fed would print money, and gave big corporations giant, unsafe loans to buy out their competitors. All these financial games pulled money out of the productive economy and put it into an endless cycle of stock trading. Again, money flowed to shareholders, not workers.
Even when the money did flow to typical employers, those employers had an incentive to take out loans at low interest rates again, thanks to the Fed to buy equipment to replace workers, not pay them. Financiers then used those riches to hire the best lobbyists in the world. The lobbyists led Congress to write regulations that further entrenched their power see, for example, Dodd-Frank. And any time markets looked shaky, they convinced Washington to bail the banks out.
Stockman wrote The Great Deformation in , and those who read it at the time probably saw the rise of populism coming. The massive tome is not accessible to beginners. Stockman also understates some of the difficulties with implementing his policy recommendations. For instance, convincing risk-averse Treasury Secretaries and Fed governors to avoid bailouts and trim the money supply will be difficult.
Just like in Washington, Mississippi lawmakers have afforded plenty of money and regulatory protections to their favorite businesses. Share this article. Posted in Crony Capitalism. Which election cycle? It would have to be state legislation or state lawmakers.
Book Review: Stockman’s “The Great Deformation” and Our Rigged Economy
If you are not convinced by his sometimes overly repetitious and a few times mistaken rehashing of not only the specific events of late and early — but also the flawed arrangements and bad ideas from the Bretton Woods framework 70 years ago and everything in between — you are not going to be convinced until it happens. Stockman documents that none of the flawed institutional arrangements and erroneous economic theories have been corrected or purged from our economic policy environment, and the mistakes of the past are now being repeated — big time. At times, Stockman treats the villains of his polemic as rather well-intentioned — but wrong-headed — idiots who are dangerous only because their ideas are so bad and they have political influence. Other times his indictments probably would not be sufficient in a fair court of law to lock these people away for a very long time, but Stockman makes it clear that is what he believes should happen.
Quarterly Journal of Austrian Economics
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Bow to Our Malefactors