At Against Crony Capitalism we spend a lot of digital ink looking at how the state and special interests have come together in America. It is an increasingly strong unholy alliance which threatens the bedrock of our economy. Indeed we have already felt a number of earthquakes with 2008 being the latest and the worst. But 2008 is unlikely to be the last shudder.
David Stockman, Ronald Reagan’s first director of Office and Budget, in his new book examines how our current economic reality came to be. How is it that business and other special interests fused so tightly with government? How is it that crony capitalism became the scourge that we see now?
For many who still buy establishment history and economics, who think the Federal Reserve is a stabilizing force in the economy, that FDR and his New Deal helped America out of the depression, and that Richard Nixon was a conservative, The Great Deformation will prove illuminating.
The Federal Reserve is not a stabilizing force Stockman argues. In fact it is deeply destabilizing.
FDR and his “alphabet soup” of agencies constituted an economic and political “gong show” which did nothing to help the economy, but did in fact do quite a bit to hurt the economy in the short term. It also laid the foundation for the crony capitalism we have today.
But it was Richard Millhouse Nixon who was the catalyst. It was he who severed the final ties to reality for the economy when he killed what was left of the gold standard in 1971. It was he who finally unleashed completely the easy money beast which benefits those with first access to its conjuring, but impoverishes those who’s crime it is to exist in the real economy.
Stockman examines the leveraged buyout culture, and housing, and autos, and nearly every other nook of the American economy in his 700 page book with a keen eye. And he explains what he sees with an acid wit which can on occasion illicit laughter.
Our economy has deformed. It has twisted. When we swallowed the elixir of easy money it was only a matter of time before the hideous transformation happened.
Stockman explains that the economic earthquake of 2008 had its epicenter in the “canyons of Wall Street” where to be sure without state intervention big banks would have toppled, careers ended, egos humbled. But according to Stockman that is where the bulk of the damage would have ended. Wall Street was leveraged to the hilt. Main Street was not. In fact, Main Street had sold much of its toxic waste (bad mortgages which were then sliced and diced into mortgage backed securities) to Wall Street which couldn’t get enough of the stuff for years.
Had Hank Paulson not intervened, had the Federal Reserve not also ridden to the rescue that Fall, many of the big banks would have crumbled. However, after a significant dislocation, other banks would have filled their space and the principal of “too big to fail” would have been shown to be the scam that it is.
Basically the titans of finance were going down in 2008 due to their own hubris and they didn’t like it. So they turned to their buddies in Washington DC and demanded that they be saved. Damn the economy. Damn moral hazard. Damn capitalism. And most of all damn the American citizenry. The titans weren’t going down, no matter what.
The political concoction of Keynesian economic theory and complete lack of integrity and decadence which permeates New York and Washington, has given rise to a system which works against the average person, indeed nearly everyone, except for a core group of well connected people within a new American aristocracy.
Stockman examines how shale gas, to the auto companies, to the LBO firms, to “green energy,” to the military industrial complex, have benefited from the deformation of the American economy. While preaching “stimulus” and “safety net” the politicians in conjunction with their friends have stolen and continue to steal from the American people, and will, as long as we let them do it.
How do we stop this rape, this plunder? Stockman offers some solutions at the end of the book and we don’t agree with every suggestion.
However, we heartily recommend this sprawling work to anyone who wants to look into the crony capitalist heart of darkness, to anyone who really wants to understand what is actually going on in the economy. Stockman doesn’t hold back in any way and he couples his intellectual kinetic energy with the expert analysis of an insider who is inclined to tell the truth. You’ll grow some brain cells.
David Stockman has written a classic. The Great Deformation is a triumph.