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Book Review "The Great Deformation: The Corruption of Capitalism in America" by David A. Stockman

Book Review "The Great Deformation: The Corruption of Capitalism in America" by David A. Stockman

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367
B
OOK
 R
EVIEW
HE
 G
REAT 
 D
EFORMATION 
:
HE
 C
ORRUPTION 
 
OF
 C
APITALISM
 
IN 
 A
 MERICA
D
AVID
 A. S
TOCKMAN
 N
EW
 Y
ORK
: P
UBLIC
 A
FFAIRS
 B
OOKS
 , 2013, 742
PP
.
T
HOMAS
 D
I
L
ORENZO
he 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, primriy for the benet of W 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  tresure trove of ides for future reserch on nnci
markets and regulation from an Austrian perspective.
Dvid Stockmn not ony cites Mises nd Hzitt, mong other
Austrians, but is also a severe critic of the supposedly free-market
Thomas J. DiLorenzo (tdilo@aol.com) is professor of economics at Loyola University, Maryland, and a senior faculty member at the Ludwig von Mises Institute.
VOl. 16 | N
O.
 3 | 367–376
 
Fall 2013
 The
Q
UARTERLY
  J
OURNAL
 
of 
 
A
USTRIAN
 
E
CONOMICS
 
368
The Qurtery Journ of austrin Economics 16, No. 3 (2013)
Chicgo Schoo of monetrism nd its ptron sint, Miton Friedmn.
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 utopin nd cutish “monetry rue.” (If nything dened
twentieth-century monetarism, it was Friedman’s “monetary rule” of 3 percent monetary growth per year, administered presumably by
wht Stockmn cs monetry “eunuchs”).
The main theme of
The Great Deformation
 is stated clearly on the
rst pge of the introduction, where Stockmn expins how “sc cis s fr s the eye cn see” re “the resut of the cpture 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
Schoo” economists who chmpioned the “cpture theory of regu
-lation” 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.
Stockmn’s unique bckground nd experience hve owed
him to write authoritatively and with great knowledge the
mountin of ies—bout “too big to fi,” Regnomics, the New
Deal, and the antics of the Fed—that have been employed by
Wshington’s centr pnners who hve succeeded in essentiy
destroying much of American capitalism and replacing it with putrid political cronyism. This is a man who was once a member
of Congress nd the director of the U.S. Oce of Mngement nd Budget during the rst four yers of the Regn dministrtion. Since then, he hs been  consummte W Street insider, rst with Somon Brothers nd then s  privte equity investor with The Bckstone Group. He is so very we red in economics nd
economic history. It is doubtful that any other human being has a
comprbe combintion of tents. Ony Dvid Stockmn coud
have written this book, in other words.
CORPORATE WELFARE RUN AMOK
Prt I debunks the ies perpetrted by Wshington to justify the biouts of W Street (nd other industries) in the wke 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
 
369
Book Review:
The Great Deformation: The Corruption of Capitalism in America
out Godmn Schs. after being hnded $10 biion the compny “swiveed on  dime nd generted  $29 biion nnci surpus” which incuded $16 biion in sry nd bonuses just three months
after the bailout to supposedly “save it from extinction.”
Nor ws  biout of the insurnce compny, aIG necessry. at the time, Stockmn writes, 90 percent of aIG ws sovent, yet it ws hnded $180 biion in txpyer funds. The soe purpose of the  biouts, Stockmn documents, ws “ bout protecting short-
term earnings and current-year executive and trader bonuses.” In other words, the sole purpose of the government’s monetary and
sc poicies during tht time ws to gurntee the eye-popping  bonuses tht W Street One-Percenters pid to themseves to
guarantee that these extraordinarily wealthy multimillionaires
woud continue to ood the Democrtic nd Repubicn Prties
with campaign “contributions” to help guarantee the reelection of every last congressional incumbent.
Nor ws there ny “systemic risk” cused by the cpitist
system, as Ben Bernanke immediately suggested after the crash of 2008. There is “no proof of this novel doctrine whatsoever,” writes
Stockmn, who dismisses Bernnke’s notion tht “cpitism
was actually a self-destroying doomsday machine.” It was the Greenspan Fed that “conducted a subtle assault on free-market capitalism” with its impulsive central planning. The “Greenspan
Put” is the poicy of the Fed pumping more nd more iquidity into the system whenever stock prices on W Street fied to
increase as much as the politically-connected traders wanted
them to. One consequence ws the dot-com bubbe in which the NaSDaQ reched n verge of 100 times ernings. Greenspn’s
successor, Ben Bernanke, continued the Fed’s slavish devotion
to the Number One Go of preserving the muti-miion dor  bonuses of W Street One Percenters with “the Bernnke Put.” Stockmn disproves the sef-serving rgument mde by the Fed nd its W Street comrdes tht osses in the stock mrket wi
always necessarily spill over into the real economy.
REPUBLICANS VS. THE FREE MARKET
Prt II of
The Great Deformation
 tkes the Repubicn Prty to the
woodshed, so to speak, by demonstrating its complicity in “the

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