The Great Deformation by David A. Stockman: what exactly has gone wrong

The Great Deformation: The Corruption of Capitalism in AmericaThe Great Deformation: The Corruption of Capitalism in America by David A. Stockman
My rating: 4 of 5 stars

A massive, undocumented polemic that nonetheless tells it like it is.

I hadn’t heard of David Stockman until I came across an article by him on discussing American Middle East policy and actions. I was struck by his blunt, caustic, and seemingly well-informed criticism of the imperialist bungling of successive administrations. When I noted that Stockman had written a book on the history of the current economic crisis, and when I noted further that his credentials included service as a U.S. congressman and budget director in the Reagan White House, followed by a career on Wall Street, I immediately bought the book.

Now I’ve read it. Well, most of it: by the time I got to page 459 I was more than ready to accept that a great number of economic absurdities and injustices had resulted from misguided government policies, and skipped to the final chapter to see how it might all play out. But Stockman does not make many specific predictions about exactly what “Sundown in America” (the final chapter) will look like; rather, he alludes to “collapse,” and proposes a number of steps to get America back on a financially and economically healthy course.

In essence, his book answers the question, “How did we get into this mess?” As he sees it, the roots of the problem extend back at least to 1913 with the creation of the Federal Reserve system, America’s central bank. Stockman seems to have nothing against the existence of a central bank in the context of a sound-money economy, but he finds that it did not take long for the soundness of the dollar to degrade in the wake of World War I, prompting a credit boom that led to the stock-market crash of 1929. In a truly free-market economy, that crash would have been a mere blip; but in the event, the federal government under Franklin Roosevelt effectively created the Great Depression by devaluing the dollar, canceling its redeemability for gold by American citizens, and launching the behemoth of statist enterprises known as the New Deal.

Thereafter, except for a few periods of attempts at fiscal responsibility by principled leaders such as Dwight Eisenhower, the levers of power over economic policy came ever more into the hands of misguided ideologues who regarded Keynes’s ideas as valid, and self-serving cynics such as Richard Nixon, willing to sacrifice everything on the altar of reelection. It was on his watch in 1971 that the system became unhinged, when the final link between the dollar and gold was severed. Since then, the American state, and along with it American society, has entered on a parabolic path of reckless borrowing and spending, a path whose final stages are playing out even now, as I type.

The dark heart of this evil system, according to the author, is the Federal Reserve, especially as it has been run by Alan Greenspan and Ben Bernanke. According to Stockman, the reckless, persistent, and unjustifiable policy of holding interest rates at close to zero has wreaked enormous damage on the American economy and on American society. And he spends hundreds of pages showing the reader exactly what this damage has been, from the bubble and collapse of the 1990s to the ensuing bubbles in capital markets and housing.

It’s not a pretty picture, but it is, I’m convinced, an accurate one. The beneficiaries of these policies are not Main Street America; they are, rather, the rapacious “one percent” of Wall Street and the other crony capitalists who have a privileged relationship with lawmakers and above all with the Fed. The Fed, by reassuring “markets” that they will keep interest rates low, provide a low-risk means for Wall Street to skim enormous profits on an endless “carry trade” of borrowing cheap and lending dear. When their speculative orgy led to the crash of 2008, the Fed stepped in and bailed them out. According to Stockman, many billions of that bailout money went into the pockets of the principals of Wall Street firms.

Stockman writes with passion and authority, but his writing is too undisciplined to make the impact it should. Even though he himself describes the book as a polemic, his argument would be much stronger if it were not so larded with sarcasm, sneer-words, and hyperbole. Flipping open a page at random:

Nixon was listening almost exclusively to Connally, whose ignorance of economic history exceeded even Nixon’s meager grasp.

Or how about:

In a state of feverish panic which made the Greenspan Fed after Black Monday seem like a model of deliberation, the Bernanke Fed expanded its balance sheet at a pace which sober historians someday will describe as simply berserk.

Or how about this heading in chapter 13:

Implicit Rule by Monetary Eunuchs

You get the flavor. It is candid and, to begin with, refreshing, but after a while I found it wearing on me.

Stockman’s prose is also filled with economic and business jargon and slang, which means it’s really only aimed at those who have a deep understanding of high finance. Few fit into that category. Worst of all for me was the author’s continual use of weasel words: words and expressions intended to create the impression that proof or demonstration of the point at hand is unnecessary. If I had a dollar for every “needless to say,” “it goes without saying,” “most certainly,” “clearly,” “undoubtedly,” and “self-evidently” I found in the text, I would have a tidy sum. In short, if writing style is important to you, you’ll find this book to be tough sledding.

Also, there are no footnotes, although Stockman names many of his sources in a final Note on Sources at the back of the book. Admittedly, footnotes or end notes would have made this big book a lot bigger.

Those reservations aside, I’m persuaded that David Stockman has got his story right. For excellent reasons, he believes in the importance of sound (that is, gold-backed) money and is ferociously critical of Keynesian economics. But, although he was a high-ranking member of Ronald Reagan’s team, he favors neither Republicans and Democrats; he feels that both parties have lost their soul in the orgy of deficit budgets and money-printing, and thinks that salvation can be found only in a constitutionally changed nonpartisan future.

For some years now I’ve been trying to piece together what’s happened to American and world finance, why we’re in this ongoing fiscal and monetary “crisis.” I’ve read quite a few books and articles. With Stockman’s book I feel I have answered that question. I know what has happened, and what is unfolding around me. It’s vicious and it’s sickening, but I know. For that knowledge, I’m willing to excuse Mr. Stockman’s liberties of style and tone.

The author offers 13 specific policy reforms to get America out of its mess. They are sensible, and some of them will require constitutional amendments. Probably any one of them would be regarded as a political impossibility in today’s climate. For that reason, I sadly conclude that the American ship of state will not make it to any riverbank before it goes over the falls.

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