The U.S. economy is confounding right now. One the one hand, unemployment is low, the stock market is high and consumers are spending. On the other, GDP growth isn’t strong, the gap between the rich and poor continues to widen and businesses are nervous, or as FedEx CEO Fred Smith recently put it, “whistling past the graveyard.”
It’s kind of a paradox that we never really understand where things stand, though, until years later.
For now we must be content to parse long- and short-term trends and cyclical and secular forces through the inevitable fog of contemporaneous analysis. Still it raises the questions: How exactly are we doing right now? How did we get here? And where is way forward?
Big issues to tackle for sure, and yet Nicholas Lemann in his new book “Transaction Man: The Rise of the Deal and the Decline of the American Dream” is unafraid to try, and mostly succeeds, I should add — that is to the extent that any single person’s analysis can. And I should also add that the book makes for a surprisingly great read given how weighty the material is.
Who knew economic history could be this absorbing!
‘People are naturally greedy some of the time’
Lemann, a professor and former Dean of the Columbia University Graduate School of Journalism, New Yorker writer and author of several books including, “The Big Test: The Secret History of the American Meritocracy and The Promised Land,” and “The Great Black Migration and How It Changed America,” shows us that nuance is important here. For instance, understanding financial excesses is not simply a matter of blaming Wall Street.
“[Wall Street] became more powerful than the other elements,” Lemann tells Yahoo Finance. “But I think all these arguments about sort of greed and so on are not very useful. You know, people are naturally greedy some of the time and not greedy other of the time.”
Lemann (his name is pronounced “lemon”) sees recent American history as a tug and pull between corporations and government as well as labor, Wall Street, and now online networks, where one group is ascendent at the expense of the others. Figuring out how these institutions should work with and against each other is really the focus of Lemann’s work. A sort of equal interplay, (we’ll get back to that) would be optimal for our society Lemann believes, though we are far from that today.
In fact, our history has been framed more by excesses; government during the New Deal and World War Two, then corporations during their golden age, after that by Wall Street and now by online networks. It’s a complicated story, as the trends overlap and inform each other. It’s also the case that predictably, these mini-epochs tend to end badly.
If all this sounds a bit dry and maybe elliptical, that’s on me, not Lemann. His linear narrative is told mostly through some fascinating personal histories, which are emblematic of these trends and his general theme. There’s Adolf Berle, the under-appreciated architect of FDR’s New Deal. Michael Jensen, the iconoclastic economist who enabled the rise of Wall Street through proselytizing the power of shareholders at the expense of entrenched management. And Reid Hoffman, the autodidact founder of LinkedIn and now Silicon Valley sage, who as somewhat of an ideologue, wants to reinvent the business social compact, virtually.
There are other stories told, as well; the tortured saga of Chicago Lawn, a neighborhood that rose and fell in parallel with post World War Two institutions, and even a history of Morgan Stanley, which I thought I knew chapter and verse, but didn’t.
Is there an economic policy silver bullet to get us out of our current mess? Lemann says no. “What I see as consistently problematic in life and in political economy in particular is the idea that there's one really big simple idea that will solve all problems for all people,” Lemann says. “Any idea that big is going to miss something and have flaws and then fall apart.”
Lemann doesn’t believe that the answer can come from just government as was tried in the New Deal, or just from unfettered capitalism. “I find more attractive a system where there are a number of actors. They're going to fight all the time for power and primacy. And as long as it's a fair fight and we try to balance their power, that's a better way to go,” he says. “I love the U.S. constitution. I love that balance of powers in politics, and I think a balance of powers in economics is good, too.”
In this pluralistic system, all manner of entities — from multinational corporations, local and national government, community groups, labor unions, to Wall Street would lobby for their interests, resulting in a dynamic and mutually beneficial equilibrium. This is the interplay that Lemann believes would suit us best.
And amen to that. The trick would be to get vested interests holding sway right now to cede a little bit to make this happen. (Facebook, are you listening?) It’s a process I’d love to read about in Lemann’s next book.
Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.