David A. Stockman was Ronald Reagan’s budget director and his previous book, “The Triumph of Politics” exposed what happened when the Reagan administration was forced to turn their budget-slashing slogans into real policies. Pragmatic political policies won out against the pure slogans. With the 700+ page “The Great Transformation”, Stockman provides a contrarian’s history of US economics during the past 60+ years. His contrarian views, which challenge much of the conventional wisdom from both Republicans and Democrats, is a valuable contribution towards defining our recent economic history.
American political discourse has become increasingly polarized. As a result, the conventional wisdom explaining our recent history has also become totally polarized. Future historians will need to weigh the arguments from all sides when they begin to write their histories. Stockman’s greatest contribution is that he is an equal-opportunity critic that mercilessly attacks both Republicans and Democrats. Thus, his sharp criticism of Paul Krugman is often followed by an equally strong criticism of Milton Friedman. I suspect that one reason the book has received less attention than it deserves is that it does not paint the world in a simple “Us versus Them” story and instead finds things to criticize almost everywhere. What I liked most about the book was that it was a book to argue with and not a book that one can read while happily nodding in agreement. I found myself constantly wanting to challenge the assertions and interpretations of the author.
The book takes a detailed look at all of the financial crises since the Great Depression and, in true Old Testament style, Stockman wishes that these crises had been allowed to get so much worse that they would have burnt the rot out of the system. While reading the book, I kept picturing Stockman as an advisor to God at the time of the Great Flood finding the flood a wonderful idea but worrying about the moral hazard in letting Noah and his family survive.
The highlights of the book include an analysis of:
1) The 2008 crises which Stockman claims should have caused the collapse of all of the big Wall Street financial institutions since this would have only had minor impacts on Main Street
2) Nixon’s decision to leave Bretton-Woods which, in Stockman’s view, was the root of all evil.
3) The LBOs of Mitt Romney and others are analyzed at a level of detail not seen elsewhere. His analysis is just the right length to let you understand what happened and to make you upset at what was done
4) The policies of Alan Greenspan which promoted a culture of crony capitalism
5) The economics of Herbert Hoover which Stockman claims were on the right track to fixing the Great Depression until FDR got in the way.
Oddly enough, some of the things I dislike about the book became things that I ended up liking about it:
1) The tone of the book is like the wit you hear on a Fox News show. Although annoying in the beginning, Stockman’s style made a long book easier to read.
2) Although the book is very redundant, the redundancy helped refresh unfamiliar topics
3) The book is not an historical narrative that starts with the early history and works toward the present day. Instead, the book starts with the 2008 crises then goes back to Nixon’s decision to leave Bretton Woods and then goes back further to FDR’s new Deal. He then jumps forward and back in history a number of times.
4) Stockman’s jumping between topics within the same sentence (e.g. talking one minute about the public debt and the next minute about private debt) forces the reader to pay careful attention to what is being discussed.
The book has made a lasting impact on me – it is no longer possible to read today’s business reporting without seeing it as incredibly shallow.