The Great Deformation: The Corruption of Capitalism in America

The Great Deformation: The Corruption of Capitalism in America

Language: English

Pages: 768

ISBN: 1586489127

Format: PDF / Kindle (mobi) / ePub


A New York Times bestseller

The Great Deformation is a searing look at Washington’s craven response to the recent myriad of financial crises and fiscal cliffs. It counters conventional wisdom with an eighty-year revisionist history of how the American state—especially the Federal Reserve—has fallen prey to the politics of crony capitalism and the ideologies of fiscal stimulus, monetary central planning, and financial bailouts. These forces have left the public sector teetering on the edge of political dysfunction and fiscal collapse and have caused America’s private enterprise foundation to morph into a speculative casino that swindles the masses and enriches the few.

Defying right- and left-wing boxes, David Stockman provides a catalogue of corrupters and defenders of sound money, fiscal rectitude, and free markets. The former includes Franklin Roosevelt, who fathered crony capitalism; Richard Nixon, who destroyed national financial discipline and the Bretton Woods gold-backed dollar; Fed chairmen Greenspan and Bernanke, who fostered our present scourge of bubble finance and addiction to debt and speculation; George W. Bush, who repudiated fiscal rectitude and ballooned the warfare state via senseless wars; and Barack Obama, who revived failed Keynesian “borrow and spend” policies that have driven the national debt to perilous heights. By contrast, the book also traces a parade of statesmen who championed balanced budgets and financial market discipline including Carter Glass, Harry Truman, Dwight Eisenhower, Bill Simon, Paul Volcker, Bill Clinton, and Sheila Bair.

Stockman’s analysis skewers Keynesian spenders and GOP tax-cutters alike, showing how they converged to bloat the welfare state, perpetuate the military-industrial complex, and deplete the revenue base—even as the Fed’s massive money printing allowed politicians to enjoy “deficits without tears.” But these policies have also fueled new financial bubbles and favored Wall Street with cheap money and rigged stock and bond markets, while crushing Main Street savers and punishing family budgets with soaring food and energy costs. The Great Deformation explains how we got here and why these warped, crony capitalist policies are an epochal threat to free market prosperity and American political democracy.

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pay Uncle Sam’s bills on 16 percent of GDP because the Cold War defense buildup had not yet happened, most retirees were not yet eligible to collect Social Security, and LBJ’s massive Great Society was not even imagined. After the dust settled in the summer of 1981, what had been the Republican holy grail of a balanced budget had now been banished to the fiscal hereafter. In its place there was a structural deficit of 5–6 percent of GDP as far as the eye could see. Only in light of subsequent

full-employment revenues was based on an even more ethereal construct called “potential GNP.” There was a nontrivial possibility, however, that the econometricians tasked with divining this ghostly shadow, wafting above the actual economy, would arrive at a figure exactly suited to balancing the theoretical fullemployment “revenue” with the actual spending needs of the White House. In the event, the full-employment budget cover story served its purpose. Even as Nixon importuned the public to suck

US Treasury during the war and from Wall Street during the last five years of the great stock market boom. When the stock market crashed in 1929, however, the giant Wall Street market in foreign bonds cratered even more severely. Yet without fresh funding foreign borrowers soon defaulted in droves. Their purchases of US farm and industrial goods dried up almost instantly, causing output and capacity utilization to plummet during 1930 and the two years thereafter. | 137

macroeconomics, he had also written a treatise called “Prices” which essentially argued that the United States should stage a bear raid on its own currency. By driving the gold value of the dollar down it would levitate commodity prices and with them the whole industrial economy. Roosevelt became aware of Warren’s theories about how the magic elixir of higher gold prices could levitate recovery in agriculture and industry from his Duchess County neighbor and gentleman farmer, Henry Morgenthau Jr.

its New Deal shackles (see chapter 9) and wreaked havoc on the American economy. In response, desperate politicians began conjuring the ghost of the New Deal, believing that it had been an efficacious shock therapy for a deep economic slump. That was a double irony because the 9781586489120-text_Stockman 2/14/13 8:54 AM Page 168 168 | T H E G RE AT D E F O RMAT I O N New Deal had not resuscitated anything. Among its many legacies had been a serviceable banking law (Glass-Steagall) and a

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