The Great Deformation: The Corruption of Capitalism in America
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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.
thereafter fueled by the overwhelming political muscle of the financial institutions which benefited from it. These developments gave rise to a great irony. Milton Friedman had been the foremost modern apostle of free market capitalism, but now a misguided disciple of his great monetary error had unleashed statist forces which would devour it. Indeed, by the end of 2008 it could no longer be gainsaid. During a few short weeks in September and October, American political democracy had been fatally
representing an 8 percent annual growth rate. Even a stable economy cannot sustain debt growth rates of that magnitude. In the 1990s, however, the US economy could not stand even a fraction of that debt growth rate because it was being battered by the greatest deflationary event in history; that is, the pegged currencies that enabled a tsunami of cheap labor and cheap manufactures out of the rice paddies of Asia. The Fed’s failure to respond appropriately to the great Asian deflation is evident
to $750 billion annually in today’s economy. So what the Reagan administration had inherited was a huge prospective enlargement of the tax burden. What it also inherited was the legacy of Keynesian fiscal policy activism and the resulting chronic deficits which became institutionalized in the late 1960s and had led to inflationary money printing by the Fed. Paul Volcker was aggressively attacking the latter, but it would take time to subdue. In these circumstances, it did not require any belief
suppress the exchange rates of their own currencies. This massive, prolonged hoarding of dollar liabilities by foreign central banks had never been foreseen by the conservative economists who championed floating rates. Indeed, the willingness of statist leaders in East Asia and the Persian Gulf to endlessly swap the resource endowments of their lands and the labor of their people for dollar IOUs, in their pursuit of a flawed mercantilist model of growth and prosperity, knew no historical
fiscally stable. Such purely cash based transfers do not enlist and mobilize the lobbying power of providers and vendors of in-kind assistance, such as housing and medical services. Social insurance, on the other hand, suffers the twin disability of being regressive as a distributional matter and explosively expansionary as a fiscal matter. The source of both ills is the principle of “income replacement” provided through mandatory socialization of huge population pools. On the financing side, the