Academic journal article The Journal of Social, Political, and Economic Studies

David Stockman on the "Crisis of American Capitalism": A Critique

Academic journal article The Journal of Social, Political, and Economic Studies

David Stockman on the "Crisis of American Capitalism": A Critique

Article excerpt

The Great Deformation:

The Corruption of Capitalism in America

David A. Stockman

Public Affairs, 2013

David A. Stockman brings to this book a culmination of a hydra-headed career. Three decades ago, he was the director of the Office of Management and Budget under President Ronald Reagan, and one of the founders of the "supply-side" school of economics. After leaving that job, he was active for several years in "leveraged buy-outs," a financial decimation of companies that he now finds rather contemptible. Now, with this book, he critiques contemporary capitalism from the point of view of someone who champions the gold standard and finds that a great many "deformations" have come into being because that standard has long-since been abandoned. This is a provocative book that reviews, and finds fault with, several decades of the United States' monetary and fiscal policy. In turn, the author of this "book review article" provides a running commentary on Stockman's insights.

Key Words: David A. Stockman; Leveraged buy-outs (LBOs); Crisis of capitalism; U.S. monetary and fiscal policy; Crony capitalism; Gold standard; Austrian School of Economics; Monetary management; U.S. "housing debacle," hedge funds; Obama stimulus package; Means- testing; Responses to U.S. financial crisis.

Western civilization may well be said to be "in crisis" in more than one dimension, as we see from such books as Patrick Buchanan's The Death of the West and Walter Laqueur's The Last Days of Europe. One of the dimensions is economic. There is a feeling among a number of astute commentators that "capitalism" - i.e., the market economy - is in serious trouble from defects that go deeper than simply the Great Recession and its aftermath. We know, of course, that socialist authors have had their own reasons for saying this for quite a long time. What we see now, however, is that it is precisely the more thoughtful of the supporters of market economics who perceive fundamental insufficiencies and failures. This disillusionment and call for a variety of reforms (about which there is as yet no consensus) has been evident in the titles of several books we have reviewed in these pages. They have included John Bogle's The Battle for the Soul of Capitalism, Richard Posner's The Crisis of Capitalist Democracy, Pat Choate's Saving Capitalism, and Joseph Stiglitz's Freefall: America, Free Markets, and the Sinking of the World Economy.1

With The Great Deformation: The Corruption of Capitalism in America, David Stockman adds yet another book to this genre. Stockman, of course, is well known as having been the director of the U.S. Office of Management and Budget during President Ronald Reagan's first term. He left the White House to go into business when he became disillusioned by his differences with the proponents of "supply-side economics" (the tax-cutting school of thought he had once led) and with Reagan's "runaway defense buildup" and "giant deficits." A significant fact about his life is that he went on to spend seventeen years as a leading practitioner of one of the most egregious abuses he now criticizes fervently (and rightly) in this book. This was the "leveraged buy-out" (LBO) business done by private-equity companies. In a candid mea culpa, he writes that "the whole business was about maximizing debt, extracting cash, cutting head-counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest profit exit possible." The result was "mountains of debt piled upon target companies," leading to their failure whenever they can no long extend that debt at low interest rates.

This mea culpa is significant for two reasons: first, it shows that by intimate association with the abuses he describes, he is in a position to write authoritatively about them; but, second, it shows how wrong he is when he says "there is no evidence for the greed disease theory" [for capitalism's present plight]. …

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