Saturday, June 27, 2020

KAUFMAN: US Capitalism Has Been Shattered

Henry Kaufman
Henry Kaufman (92) was a former senior partner of Salomon Brothers and, during the early part of the 1980s, the bond market reacted to every word he said.

He was such an influential Wall Street analyst that when David Stockman was head of the Office of Management during the early part of the Reagan administration, he visited Kaufman in New York City to try and convince him there was a Reagan plan to bring the U.S. budget under control.

Kaufman didn't buy it.

Now some 40 years later, Kaufman is still delivering sharp messages that should be paid attention to,

He is out with an op-ed in the Financial Times on the current state of capitalism.

I don't agree with everything he has written in the essay but he does make some very important observations and provides much-needed warnings that few are making right now.

Here are the key snippets:
American capitalism is rapidly disappearing. Its demise has been under way for some time and the economic devastation wrought by the Covid-19 pandemic is the latest blow to our political economy.
 [C]apitalism is being rapidly replaced by statism — a form of political economy in which the state exercises substantial centralised control over social and economic affairs.

In the US, the federal government and the Federal Reserve sit atop statism...

Historically, the Fed has been viewed as somewhat independent from immediate political interests. But the central bank’s response to the onset of the pandemic-related recession shows that its quasi-independence is quickly evaporating, contributing to the emerging statism....

It is buying not only government bonds but also corporate bonds — including low-quality issues, mortgage obligations, municipal bonds and exchange traded funds. The central bank also is working with the Treasury to get loans to small and medium-sized businesses. Its balance sheet has already swollen by an astonishing $3tn to more than $7tn since the start of this year. And financial markets have come to expect the Fed to intervene in response to any sharp decline in equity prices.

With the federal government and the Fed firmly joined at the hip, the transformation of capitalism into statism is gaining momentum, perhaps irreversibly. This is a great departure not only from the vision of the US founders but also, I suspect, it is not the kind of economic system most Americans living today want to leave for future generations.
We need many more men like Kaufman right now but I am glad we have at least him.



  1. My only quibble with the excerpt is the word "irreversibly". If there's anything history has shown about human affairs, it is that all trends eventually give way to others. In particular, when governments exercise greater and greater control over their populace, something is going to snap. When that happens, life isn't very pretty for a while, but at least the detritus of micromanagement is swept away, if only to be built up again once things stabilize. One thing that never changes is that humans like to exercise control over other humans, and will find ways to accomplish that on scales small and large.

    1. Must disagree with your last sentence. I for one have never been interested in trying to control other humans. I have spent much of my life encouraging people to take control of and responsibility for their own lives and I know there are others like me.