Review: 'Transaction Man' and 'The Economists' Hour' - The Atlantic - 0 views
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little more than a generation ago, a stealthy revolution swept America. It was a dual changing of the guard: Two tribes, two attitudes, two approaches to a good society were simultaneously displaced by upstart rivals
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In the world of business, the manufacturing bosses gave way to Wall Street dealmakers, bent on breaking up their empires. “Organization Man,” as the journalist William H. Whyte had christened the corporate archetype in his 1956 book, was ousted by “Transaction Man,” to cite Nicholas Lemann’s latest work of social history.
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In the world of public policy, lawyers who counted on large institutions to deliver prosperity and social harmony lost influence. In their place rose quantitative thinkers who put their faith in markets.
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It was The Economists’ Hour, as the title of the New York Times editorial writer Binyamin Appelbaum’s debut book has it.
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Lemann and Appelbaum contribute to the second wave of post-2008 commentary. The first postmortems focused narrowly on the global financial crisis, dissecting the distorted incentives, regulatory frailty, and groupthink that caused bankers to blow up the world economy
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The new round of analysis broadens the lens, searching out larger political and intellectual wrong turns, an expansion that reflects the morphing of the 2008 crash into a general populist surge.
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Berle went further. He laid out in detail how shareholders, being so dispersed and numerous, could not hope to restrain bosses—indeed, how nobody could do so. Enormous powers to shape society belonged to company chieftains who answered to no one. Hence Berle’s prescription: The government should regulate them.
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“the Treaty of Detroit,” GM’s bosses granted workers regular cost-of-living pay increases, a measure of job security, health insurance, and a pension—benefits that were almost unheard-of. General Motors had “set itself up as a comprehensive welfare state for its workers,” in Lemann’s succinct formulation.
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Berle celebrated the Treaty of Detroit by propounding a pro-corporate liberalism. The corporation had become the “conscience-carrier of twentieth-century American society,” he marveled
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Anticipating the “end of history” triumphalism of a later era, the sociologist Daniel Bell feted the corporatist order in a book titled The End of Ideology.
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the chief threat to Berle’s vision came not from America’s suspicion of concentrated power. It came from economics
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Starting in the 1970s, however, economists began to wield extraordinary influence. They persuaded Richard Nixon to abolish the military draft. They brought economics into the courtroom. They took over many of the top posts at regulatory agencies
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The rise of economics, Appelbaum writes, “transformed the business of government, the conduct of business, and, as a result, the patterns of everyday life.
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Jensen agreed with Berle’s starting point: Corporate managers were unaccountable because shareholders could not restrain them. But rather than seeing a remedy in checks exerted by regulators and organized labor, Jensen proposed to overhaul the firm so that ownership and control were reunited
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In sum, Jensen’s prescriptions inverted Berle’s. The market could be made to solve the problem of the firm. Government could pull back from regulation
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After decades in which economists’ influence expanded rapidly, the striking thing about the Trump administration and its foreign analogues is that they have largely dispensed with economic advisers
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Shortly after the publication of his research, the invention of junk bonds made hostile takeovers the rage. During the ’80s, more than a quarter of the companies on the Fortune 500 list were targeted. Jensen became the scholar who explained why this unprecedented boardroom bloodbath was good news for America.
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to a considerable extent, the news was good. Shielded from market discipline, the old corporate heads had deployed capital carelessly
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From 1977 to 1988, Jensen calculated, American corporations had increased in value by $500 billion as a result of the new market for corporate control. Reengineered and reinvigorated, American business staved off what might have been an existential threat from Japanese competition.
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Yet a large cost eluded Jensen’s calculations. The social contract of the Berle era was gone: the unstated assumption of lifetime employment, the promise of retirement benefits, the sense of community and stability and shared purpose that gave millions of lives their meaning. Berle had viewed the corporation as a social and political institution as much as an economic one, and the dismembering of corporations on purely economic grounds was bound to generate fallout that had not been accounted for
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Even before the 2008 crash, Jensen disavowed the transactional culture he had helped to legitimize. Holy shit, Jensen remembers saying to himself. Anything can be corrupted.
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Contrary to common presumption, the economics establishment in the 1990s and 2000s did not believe that markets were perfectly efficient. Rather, influential economists took the pragmatic view that markets would discipline financiers more effectively than regulators could
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He is happy to state at the outset that market-oriented reforms have lifted billions out of poverty, and to recognize that the deregulation that helped undo Berle-ism was not some kind of right-wing plot. In the late ’70s, it was initiated by Democrats such as President Jimmy Carter and Senator Ted Kennedy.
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Inequality has grown to unacceptable extremes in highly developed economies. From 1980 to 2010, life expectancy for poor Americans scandalously declined, even as the rich lived longer.
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Meanwhile, the primacy of economics has not generated faster economic growth. From 1990 until the eve of the financial crisis, U.S. real GDP per person grew by a little under 2 percent a year, less than the 2.5 percent a year in the oil-shocked 1970s.
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In the ’60s, Kennedy’s and Johnson’s advisers thought they had the business cycle tamed. They believed they could prevent recessions by “fine-tuning” tax and spending policies
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When this expectation was exposed as hubris, Milton Friedman urged central banks to focus exclusively on the supply of money circulating in the economy. This too was soon discredited. From the ’90s onward, economists oversold the benefits of targeting inflation, forgetting that other perils—the human cost of unemployment, the destabilization wrought by financial bubbles—might well be worse than rising prices
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Greenspan and Summers ducked the political challenge of buffering new kinds of financial trading with regulatory safeguards
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Michael C. Jensen, an entertainingly impassioned financial economist who reframed attitudes toward the corporation in the mid-’70s.
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today’s fierce international competition and disruptive innovation oblige businesses to cut costs or go under. The dilemma is that, even as they compel efficiency, globalization and technological change exacerbate inequality and uncertainty and therefore the need for a compassionate social contract
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LinkedIn is not a solution to worker insecurity writ large, still less to inequality. On the contrary, a world in which people compete to gather connections may be even less equal than our current one. A few high-octane networkers will attract large followings, while a long tail of pedestrians will have only a handful of buddies
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Rather than buy in to a single grand vision, societies should prefer a robust contest among interest groups—what Lemann calls pluralism. Borrowing from the forgotten early-20th-century political scientist Arthur Bentley, Lemann defines groups broadly. States and cities are “locality groups,” income categories are “wealth groups,” supporters of a particular politician constitute “personality groups.” People inevitably affiliate themselves with such groups; groups naturally compete to influence the government; and the resulting push and pull, not squabbles among intellectuals about organizing concepts, constitutes the proper stuff of politics
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Lemann is aware of the risks in this conclusion. He cites the obvious objection: “The flaw in the pluralist heaven is that the heavenly chorus sings with a strong upper-class accent.” In a contest of competing interest groups, the ones with the most money are likely to win
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For those who regard inequality as a challenge, an interest-group free-for-all is a perilous prescription.
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Appelbaum presents a series of persuasive recommendations, confirming that Lemann is wrong to despair of reasoned, technocratic argument. If policy makers want ordinary Americans to appreciate the benefits of open trade, they must ensure that displaced workers have access to training and health care. Because some interest groups are weaker than others, government should correct the double standard by which the power of labor unions is regarded with antipathy but the power of business monopolies is tolerated
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throughout Appelbaum’s narrative, many of the knights who slay the dragons of bad economic ideology are economists themselves. The story of the past generation is more about debates among economists than about economists pitted against laypeople. Perhaps, with a bit of humility and retooling, the economists will have their day again. If they do not come up with the next set of good ideas, it is not obvious who will