How Greed Killed the US Economy
Mike Konczal reviewed Jeff Madrick's latest book, Age of Greed, for The Nation. As Mike says, the book provides needed historical perspective to how within 50 years, the US economy went from prosperity for all to severe recession - hint, it didn't just happen during the last decade. In fact, the bankers started to shake off the financial regulations by the early 1960s. But it took the 70s to really put the kibosh on the goal of an economy that worked for workers as well as Wall Street.
Like a lot of recent historical work, the book puts the 1970s front and center as the decade when everything changed. The runaway inflation of the 1970s, a course set in by the expansive monetary policies of Federal Reserve Chairman Arthur Burns and the price controls imposed by the Nixon administration to keep the economy running in high gear through Richard Nixon’s second term, forced further deregulation of the financial sector. When the financial sector approached a collapse, a collapse stopped by emergency Federal Reserve intervention, further deregulation was used to return the sector to profitability.
Madrick shows how each of the individual strands start reinforcing the others. With easy money to be made on Wall Street and pressure to keep stock prices high, management in the real economy wanted to mimic what Wall Street did. For instance, Jack Welch, CEO of GE, turned his subsidiary GE Capital into one of the main focuses of his business, moving away from the midcentury business model that had room for employees and innovations. And the antitax measures that formed the basis of the tax revolt, measures that failed in California when Reagan first introduced them in the early 1970s, passed in the late 1970s after a decade of stagflation.
Then came the Reagan years and the triumph of the free market, which today continues to drive the politics of the moment. Konczal says that the book does a great job of laying out how we got here, but doesn't do much to help provide answers to how to fix things. But perhaps we can learn something from the approach that the right took to build their success?
Though the main story in Age of Greed is how an elite group was able to privatize the gains and socialize the losses of an out-of-control financial system, there’s another story in the background that could lead us somewhere. Most of the people we meet were thinking of the long-term when it came to changing the world to be closer to their free market image they had in mind. Many of the original architects of the demise of Roosevelt-era financial reforms were anti-New Dealers who thought of their project as a generational shift. Will the battle against the increased financialization of the economy look the same way? Will the battle require thinking in terms of decades, and have to be fought in all parts of the economy? If history is any guide, that might be the only way to get to an economy that works for all of us.
Read more here.