Jeff MadrickRecensioni

This was a frustrating book, and not because I disagree with his general take.

The first problem is that it's short. Very short. The text is only 172 pages, and the book is smaller than average, and it tries to cover too much territory in that space. For example, health gets relatively little space and is primarily limited to access to health coverage. Second, while the subtitle is about child poverty, a lot of the book is devoted to the general topic and not specifically about child poverty. It told me very little that I didn't already know.

His general view is not wrong: We underestimate poverty by using flawed measures; we don't provide sufficient assistance to the poor; and we're consumed by an individualist philosophy that seeks to place all blame on the poor for their situation. Our national discourse also skews who is poor--the public overestimates the number of poor non-white, especially black, people. He also takes aim at "culture of poverty" thinkers, which is often a way of blaming people of color in particular: "poverty of culture" can be a thinly veiled euphemism for "black culture." This is untrue, though for those in long term, cyclical poverty (a much smaller percentage than people imagine), some patterns may repeat themselves.

He does himself a disservice here by dismissing family structure. Now, it's true that the Moynihan report became a tool for racism, and that the number of unmarried mothers has risen across all races since then. However, recent research is indicating that familial instability is linked to poverty. American family patterns are diverging, with wealthier families more likely to be stable. This needs to be accounted for--and without simply blaming single mothers. There are multiple social and economic reasons why this trend is occurring.

Madrick's solution is simple: cash transfers. To a point, I don't disagree. Poor people need money. The near-abolition of AFDC has left people to starve if they cannot work, and childless, non-disabled, non-elderly adults qualify for nothing. But money can only help when the good or service is available to be bought. He dismisses universal childcare "because it will take too long to implement." But his proposed $4,000 a year child allowance would pay for only a fraction of childcare. There isn't enough high quality childcare available for purchase. Similarly, in many cities, there aren't enough decent apartments--and if we simply gave people money to rent them, it would only result in price inflation. Further, at current tax rates, such a benefit would not be "largely taxed away" for higher income families.

I agree with a lot of what he said--but his solution isn't completely thought out, and there's much better work on the topic, even as an introduction.

Arrived Lausanne

Arrived Lausanne

Critique of mainstream economics: the Invisible Hand, Say's Law (as a justification for austerity); MIlton Friedman and the case for limited government involvement in social policy; low inflation; the efficient markets theory; globalization; ecoomics as s science.

The author makes some good points, but this is a fairly slow read.

From a review in the NYRB July 14, 2011:

"Suppose we describe the following situation: major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis.Suppose we describe the following situation: major US financial institutions have badly overreached. They created and sold new financial instruments without understanding the risk. They poured money into dubious loans in pursuit of short-term profits, dismissing clear warnings that the borrowers might not be able to repay those loans. When things went bad, they turned to the government for help, relying on emergency aid and federal guarantees—thereby putting large amounts of taxpayer money at risk—in order to get by. And then, once the crisis was past, they went right back to denouncing big government, and resumed the very practices that created the crisis."

Krugman and Wells point out that this description of the 2008 collapse mirrors at least 4 other similar events of increasing severity since the vast repeal of banking regulations and the anti-government movement begun by Friedman and Reagan but continued by Carter and Clinton.

Sounds like a must read.

Greed explains nothing because greed is constant. We need explanations in terms of long term cycles, increase in leverage throughout the financial system, and regulation. I see no mention of Kondratieff cycles.½

Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present by Jeff Madrick (New York: Knopf, 2011. 480 pp)

Jeff Madrick is a regular contributor to The New York Review of Books, and former economics columnist for The New York Times. He is an adjunct professor of humanities at The Cooper Union, and senior fellow at the Roosevelt Institute and at the Schwartz Center for Economic Policy Analysis, The New School. He lives in New York City.

The Meltdown

In any situation, time, or place, an individual’s story is of utmost importance. On person can change the lives of a family, a community, and a country. We can learn more about ourselves and our present conditions when we hear these stories. Jeff Madrick's work, The Age of Greed, compiles the stories of a few influential individuals to explain our current economic crisis.

In this book, Jeff Madrick provides an educational view of how America has transformed from a prosperous nation to a democracy overwhelmed with the pursuit of monetary gain. Madrick argues that the current diminished state of America’s economy resides in the American individual’s primary goal of monetary prosperity.

Madrick argues that increasing self-interest gave rise to the highly unregulated financial system that produced the meltdown of 2008. Unlike current financial analysts who try to point fingers at Bush or Clinton (or a number of other scapegoats as the South Park clip below illustrates), Madrick traces the financial meltdown all the way back to the 1960s, and even to businesses today– a position I rather enjoyed. Instead of pointing fingers without thinking about it, Madrick traces the problem back to where it began.

Since The Age of Greed is quite expansive, it is difficult to give a full synopsis. However, in an attempt to share what I loved about this book, I will summarize a few of these personal stories.

First, I particularly appreciated tracing the root of our financial system to the ideologies of Milton Friedman. When Milton Friedman began teaching his economic theory in the Chicago School of Economics at the University of Chicago, a shift soon occurred in business to a new profit maximization viewpoint that Madrick argues was the beginning of the rise of the age of greed.

“To Friedman, any views that promoted government spending as a way to stabilize economies and promote prosperity were not merely wrongheaded but seen as pandering to the majority by promising more social programs. Moreover, government itself had its own greedy expansionist motives he believed. ‘Ever since the New Deal,’ as Friedman put it, ‘a primary excuse for the expansion of government activity at the federal level has been supposed necessity for government spending to eliminate unemployment’” (39).

As this quote suggests, Friedman pushed a hardline capitalist agenda. He believed that allowing people to purse their creative interests without interference was key to economic stability. I’m not entirely convinced that this philosophy was his prime motive, and Madrick would agree. He states,

“I can only attribute so biased and simplistic a notion in an intelligent man to a strong emotional desire to service his main point: to minimize government” (51).

With a sense of adventure, America desired to perform this task. But, they missed the point; instead of minimizing government to stabilize the economy via capitalism as Friedman suggested, American citizens acted selfishly to obtain more money for themselves. Oops.

Jack Welch and GE

Second, society in the 1980s complained that American business was sagging while Japanese business continued to rise due to low wages. So, GE’s CEO Jack Welch decided America’s problem was that,

“Japanese companies focused on quality and long-term grown while American business had focused for too long on maximizing the quantity of goods sold to reduce costs per unit” (180).

In the 1980s, the American population revolted against the quality of American craftsmanship, which was poor due to reduced production costs that raised a company’s net income. Big business was no longer entrepreneurial, and it possessed a newfound desire to

“break down old formulas and past traditions, subverting the discipline of pyramidal bureaucracies, and resurrecting an egalitarian respect between workers and their bosses. Fully valuing workers would lead to higher quality, lower production costs, and more innovative products” (181).

But, this shift never occurred; the steady increase of managerial pay as well as the lack of respect for the worker led to an increased gap between management and laborer. The age of greed, which began with Milton Friedman, actualized.

The Path that Led to Reagan

The US emerged from the Great Depression with a very tightly regulated financial system, and for a while people liked it that way. However, by the 1970s people grew tired of this boring and safe financial system. By highlighting personal profiles like Jack Welch and Milton Friedman, Madrick recounts the economic turmoil out of which financial overreaching became the norm.

Madrick then argues that at the time Reagan became president, the government had become the principal obstacle to an individual’s personal fulfillment. Reagan states,

“‘I want to help get us back to those fiercely independent Americans...those people who can do great deeds, and I’ve seen them robbed of their independence...because of these great social reforms’” (124).

Following Reagan (and I am skipping a large portion of the book here) a series of crises occurred including an enormous bank-led crisis and the savings and loan crisis after which the boring Depression-era regulation was gone, and the financial gloves were off, so to speak. The anything-goes financial world created two “bubbles” of which we all know and discuss: the technology bubble, and the recent housing bubble.

Vignettes

By looking at these personal vignettes, we see some familiar ground: the career of Alan Greenspan, Lehman Brothers, Merrill Lynch, Citibank, and many more. Through these vignettes, Madrick traces what led to the Great Recession. While I find his thesis somewhat unproven, I can see his point of view. He offers some intriguing secondary sources, and convincing rhetoric to prove his point. If Age of Greed wasn’t so dry, I think it would have been an absolutely enthralling read.

Verdict: 3 out of 5

Originally posted at: wherepenmeetspaper.blogspot.com

A vividly told history of how greed bred America’s economic ills over the last forty years, and of the men most responsible for them.

Within the first ten pages of The Case for Big Government, Jeff Madrick’s argument is mortally wounded by a single sentence: “If government is managed poorly, it can have damaging effects.” Every word that follows is based on the premise that a large government can efficiently and effectively manage a large economy when there is scant evidence (at least in the United States) that this is possible. Madrick goes to great lengths to point out the successes of government interventions into economies both domestic and foreign but fails to connect those past successes to his projected future.

Madrick displays a great deal of cognitive dissonance throughout the book. Early on, he explains America’s high GDP per capita as a function of the fact that more Americans work than in most other countries. This, he argues, is due to the lower wages offered to low-skilled workers by American firms. Essentially, he is giving tacit agreement to the common conservative argument that high minimum wages increase unemployment. Yet one of his solutions, given at the end of the book, is to establish a “serious”—one assumes he means “high”—minimum wage. But surely this would result in fewer jobs and higher unemployment. Madrick does not say how this would be beneficial to the American economy. He also suggests that the federal government should pay half of all qualifying college students’ tuition without addressing the inevitable cost increases that introducing $30 to $35 billion (his numbers) into the higher education market would cause.

Madrick’s work also suffers because of his intense focus on manufacturing. Any time he writes about wages and productivity (especially in comparison to other countries) he only focuses on the manufacturing sector, despite the fact that the United States has largely ceased being a manufacturing economy and has transitioned largely into a service economy. Madrick laments the loss of a time when low-skilled, low-educated workers could earn a middle-class income through manufacturing. The problem with this bygone era, which Madrick admits, is that manufacturing was never capable of providing a middle-class lifestyle for workers except through “much political turmoil, lost personal independence, and the active participation of government.” With the decreasing importance of the manufacturing sector, that government intervention is gone and low-skilled, low-educated workers are no longer able to live a middle-class lifestyle. What Madrick does not address is why the government should take money from the skilled, educated workers of the middle and upper classes and use it to prop up people whose skills and education were never capable of providing that lifestyle without government interference.

Ultimately, Madrick makes a few decent arguments, but even they are dwarfed by the fact that he cannot sidestep the elephant in the room; that elephant being the public’s trust in the federal government. The government long ago proved that it is more interested in using its power to enrich certain individuals rather than the country as a whole. Handing them even more power to determine who wins or loses in our economy is simply a bad idea.½

Jeff Madrick sets out in this book to make -- you guessed it -- the case for big government. Madrick seems to have an acute sense of where Americans as a nation are headed, and the changes we need to make socially and culturally to set ourselves up for future success. One of his most intriguing discussions concerns the shift from luxury to necessity of technological devices such as phones, medicine, and even cars. He never quite seems to arrive at the point of really making a case for big government, though. While he makes some very interesting observations, he does a poor job explaining them, and his convoluted writing makes it difficult to get at the underlying socioeconomic issues he's evaluating. Ultimately, he never fully constructs the connection between social reform and requisite government involvement.

On the whole, his perspective seems just as myopic as those he's railing against. For example, he uses as evidence for his case the declining average and median wage of males with a college degree over the past three decades. But he fails to address the perceived value of a college education as rates of degree-holders have risen from 14 to 40% in that same time. His charts offer interesting comparisons, but they don't seem to consider the whole picture. John Allen Paulos, author of Innumeracy, would have an absolute field day with Madrick's statistics, inventive as they are.

His Agenda, laid out in Part III, is both sweeping and amazingly simplified. To read this agenda, one might almost suspect these social reforms to be practicable. In fact, why not give them a try? Of course, there's no evident discussion of prioritization -- we can't do everything all at once, so where to we start? How do we move from theory to implementation? At the end of the day, this book is just another example of political hogwash: the ideas are great, but they're thoroughly impractical without some distinct plan of action.

Madrick raises some interesting points, and the book overall offers an interesting historical perspective. But the inefficacy of his Agenda, coupled with his questionable statistics, really weakens this book overall.