Still can't make up my mind just what to think of Jeffrey Madrick's Age of Greed. There were times when I found myself thinking that it was one of those books that should be on the pre-inauguration reading list of any new president. At other times, I thought it old stuff, recycled--and patchy and incomplete at that, with not much (not even greed, really) by way of common theme.
I suppose the main difficulty is that it is patchy, in the sense that it is a collection of pretty much self-contained vignettes--each chapter bears the name of one or more persons, as if you were thumbing throw a collection of Time Magazine "Man of the Year" profiles. Some are better than others. Still, if you're looking for takeaways, I can offer at least two. One--maybe this is the reason I want it on the pre-inauguration list--is the appalling incompetence of the 70s regimes in Washington--Nixon, Ford, Carter--all of whom seemed to flounder or lurch through turbulent economic waters that they never came close to understanding. No one of the three seems to have had even the beginnings of a feel for economic policy on their own. The advice they got was of varying quality, some pretty good. But they all seemed to grasp impulsively at whatever seemed closest at hand no matter how it might relate to the advice of yesterday (or tomorrow).
Perhaps one exception: Carter the peanut farmer sincerely disliked "regulation" and through the instrumentality of Alfred Kahn, he conducted the first great wave of deregulation since the beginning of the New Deal--trucking, airlines, natural gas. Since I'm generally a fan of that sort of thing, I'll give him points for that (but cf. banking, infra). But on the macro issues--inflation--he seems to have had no more notion of what was going on than the guy with the newspaper kiosk out by the White House gate. The much-lauded Paul Volcker plays a role at this point in the story, of course. Madrick treats Volcker with due respect for competence, and for being almost unique among major economic policy heavyweights in truly not giving a rat's patootie about accumulating personal wealth. But he makes it clear that Carter's choice of Volcker to head the Fed was something close to accidental, and that Volcker's implementation of anti-inflation policy was probably far more brutal than it needed to be.
The other takeaway involves the steady and inexorable dismantling of anything like government regulation of banking. One of Madrick's best chapters is his account of Walter Wriston at Nat City, the arch-deregulator who solved most of his government constraint problems with the beautifully simple strategy of shootinig-from-the-hip first, asking questions later, as in "an ounce of apology is worth a pound of explanation" (except that Wriston's "apologies" rarely amounted to more than "oh--sorry.") The large question is, how did they get away with it, the systematic abandonment of anything like government oversight of a quintessentially public business? Sure, you can talk about pressure from the bankers (Wriston in particular); you can talk about the corruption of politicians (okay, let's talk about the corruption of politicians). But the deeper trouble is that nobody had a good counter-story. The collapse of the Soviet Union removed all but the most vestigial support for "socialism" in any guise. And ironically, bank regulation had worked so well since the 30s that it had become more or less invisible to friend and foe alike. Then came the Latin American collapse, and the savings and loan debacle, and the Asian meltdown and he dotcom bust and the housing bubble and o lord, what have I missed?
Oddly enough, after stuff like this, Madrick ends by kicking a hole in what he bills as his own central premise. Sure, there was greed aplenty but isn't there always? Sure, rich bankers played heads-I-win, tails-you-lose. So the fault was all in lousy incentives, government guarantees. "But this argument," Madrick argues, "is exaggerated, implying that speculative bubbles are more rational than they are. ... The nature of herd behavior is to cast common sense aside (emphasis added-ed;)... Moral hazard is among the causes of overspeculation but not likely the determining part. Herd behavior is hardly rational."
So to the question, "what, were we all nuts?" the answer may be, "in a sense, yes." This may not be a very helpful answer, and no matter how persuasive, it isn't complete. Still, Madrick's presentation, however partial, is a vivid and one hopes therapeutic reminder of just how nuts we really were.