From the Summer 2013 issue of the Quarterly Journal of Austrian Economics.
[The Great Deformation: The Corruption of Capitalism in America by David A. Stockman, New York: Public Affairs Books, 2013, 742 pp.]
Reviewed by Thomas DiLorenzo
The Great Transformation is a Human Action-sized treatise about how the Fed over the past several decades has generated economic instability in far more ways than even the Austrian Business Cycle theory contends, primarily for the benefit of Wall Street One-Percenters at the expense of the rest of society. It has cemented into place neo-mercantilism as the American economic system. In many ways the book can be thought of as “Human Action for Financial Markets” (which is not to suggest that Mises would agree with everything in the book). It is a treasure trove of ideas for future research on financial markets and regulation from an Austrian perspective. David Stockman not only cites Mises and Hazlitt, among other Austrians, but is also a severe critic of the supposedly free-market ChicagoSchool of monetarism and its patron saint, Milton Friedman. In fact, he pins a large share of the blame for the corruption of American capitalism on Friedman as a preeminent defender of the Fed with his utopian and cultish “monetary rule.” (If anything defined twentieth-century monetarism, it was Friedman’s “monetary rule” of 3 percent monetary growth per year, administered presumably by what Stockman calls monetary “eunuchs”).
The main theme of The Great Deformation is stated clearly on the first page of the introduction, where Stockman explains how “fiscal cliffs as far as the eye can see” are “the result of the capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.” This statement suggests a great irony in that it was the “Chicago School” economists who championed the “capture theory of regulation” with regard to such industries as interstate trucking and airlines, but ignored the biggest and most important regulatory capture of all—the creation of the Fed.
Stockman’s unique background and experience have allowed him to write authoritatively and with great knowledge the mountain of lies—about “too big to fail,” Reaganomics, the New Deal, and the antics of the Fed—that have been employed by Washington’s central planners who have succeeded in essentially destroying much of American capitalism and replacing it with putrid political cronyism. This is a man who was once a member of Congress and the director of the U.S. Office of Management and Budget during the first four years of the Reagan administration. Since then, he has been a consummate Wall Street insider, first with Salomon Brothers and then as a private equity investor with The Blackstone Group. He is also very well read in economics and economic history. It is doubtful that any other human being has a comparable combination of talents. Only David Stockman could have written this book, in other words.
CORPORATE WELFARE RUN AMOK
Part I debunks the lies perpetrated by Washington to justify the bailouts of Wall Street (and other industries) in the wake of the “Great Recession” that was created by the Greenspan Fed with the “help” of myriad other federal government policies. For example, there was never any reason for the government to bail out Goldman Sachs. After being handed $10 billion the company “swiveled on a dime and generated a $29 billion financial surplus” which included $16 billion in salary and bonuses just three months after the bailout to supposedly “save it from extinction.”