Capitalism in America: A History, by Alan Greenspan and Adrian Wooldridge (Penguin, 496 pp., $35)

Former Federal Reserve Board chairman Alan Greenspan, coauthor with The Economist’s Adrian Wooldridge of this new history of American capitalism, doesn’t offer any apologies for the 2008 financial crisis. Greenspan, widely celebrated when the global economy was booming, has been accused of engineering the crisis through lax monetary policy and lack of supervision of financial institutions. But he and Wooldridge characterize the crisis as a blip in the long history of American capitalism. “Bubbles,” they write, “are endemic to capitalism,” and “all bubbles burst.” The Federal Reserve Board, from their perspective, had nothing to do with causing the crash. The “combination of the housing boom and securitization,” plus “risky behavior on Wall Street,” made the bubble worse. Luckily, the authors write, the right policies—“quantitative easing,” fueled by a zero-percent interest rate—saved us from the worst, so that 2008 did not become 1929, redux. This explanation makes up less than one page in a 500-page book.

The authors’ real purpose is a strong defense of American capitalism, and a discussion of its current predicament. Their arguments will come as a happy surprise for aficionados of unfettered, red-meat capitalism, and a disappointment for more skeptical free marketers. The good news comes first: the American economy, we are reminded, is still tops in the world. With just 5 percent of the global population, Americans produce 25 percent of world GDP. China lags behind. The American economy, moreover, is the world’s most innovative, accounting for 20 percent of new registered patents every year (versus 10 percent in the early 1980s). The significance of these figures is open to debate, but patents are undoubtedly an indicator of innovation leadership. Here, too, China cannot challenge U.S. creativity—at least not yet.

The key to the success of American capitalism, the authors write, has always been Joseph Schumpeter’s concept of “creative destruction,” and the unique capacity of the United States, for historical and social reasons, to withstand this destruction. Greenspan and Wooldridge admit that monopolies, lobbies, and unions have long tried to resist innovation and its subsequent devastation of legacy business models, but they never succeed for long: innovation makes the U.S. more resilient and progressive than Europe. The authors also argue, rightly, that capitalist prosperity made America more democratic by creating jobs, wealth, and social mobility for everyone—or nearly everyone. And American democracy also oriented entrepreneurs toward serving the masses, not just the aristocracy, as in Europe.

But, alas, the golden days of American capitalism are over—or so the authors opine. That conclusion may seem surprising, as the U.S. economy appears to be flourishing. But the current GDP growth rate of roughly 3 percent, after deducting a 1 percent demographic increase, is rather modest, the authors maintain, compared with the historic performance of the postwar years, when the economy grew at an annual average of 5 percent. Moreover, unemployment appears low only because a significant portion of the population is no longer looking for work.

Greenspan and Wooldridge reject the conventional wisdom on mature economies growing more slowly. They blame relatively slow growth in the U.S. on the increase in entitlement spending and the expansion of the welfare state—a classic free-market argument. They offer straightforward solutions—such as raising the retirement age, or indexing benefits to price inflation (instead of wage inflation). Greenspan and Wooldridge make these proposals sound simple and convincing, but they don’t consider the political costs. They suggest copying Sweden, where in the 1980s a committee of “wise men” reduced the welfare state, in part through privatization. Something similar took place in Germany in the 1990s, when the governing parties agreed to follow the recommendations of a technocratic reform committee. Americans will not likely follow the Swedish example. The hard-won independence and political insulation of the Federal Reserve Bank is a happy exception that has fostered American growth, but it’s unlikely that this nonpartisan model could be replicated to include other economic and social responsibilities.

Another threat to American capitalism, the authors write, is the “fragility of the financial system.” Again, they offer a simple solution: less regulation, along with an increase in the amount of capital reserves that banks and financial institutions should be required to keep in order to operate. Wall Street won’t like this, but the authors could not care less.

What the reader won’t find here, in addition to an adequate explanation of the 2008 financial crisis, is an answer to the major political controversies of the Trump era. The book says nothing about widening wealth disparities, immigration, or identity politics. Greenspan and Wooldridge stick to their premise that capitalism is the answer, and that free markets and growth will solve all social conflicts. They don’t discuss rising inequality—and declining life expectancy—in the United States.

Less controversial—and more of a pleasure to read—are chapters devoted to the history of capitalism, in which the authors offer a rich trove of anecdotes on the creativity of past and present entrepreneurs. They remind us that the United States has always been the place for animal spirits to thrive. No arguments there.

Photo by Alex Wong/Getty Images


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