My Amazon Review of J. Bradford DeLong's "Slouching Toward Utopia: An Economic History of the Twentieth Century"

The Long Twentieth Century 

U.C. Berkeley economics professor and former Clinton treasury official Brad DeLong has written a narrative economic history of the long twentieth century which he argues began in 1870 and ended in 2010 with the great financial crisis. It was during this time that economic growth exploded and humanity, for the most part, escaped the Malthusian trap. Along with rising living standards the long twentieth century brought with it industrial strength destruction and environmental degradation. He attributes this to the rise of the giant corporation, the industrial research laboratory and globalization. However this book differs from Robert Gordon’s “The Rise and Fall of American Growth” (Shulmaven: My Amazon Review of Robert J. Gordon's "The Rise and Fall of American Growth") in that DeLong covers far more than technological developments.

 

DeLong frames his argument over the differences between the views of Friedrich von Hayek and Karl Polanyi. DeLong characterizes Hayek as believing “the market giveth and the market taketh away, blessed be the name of the market” and Polanyi’s view that the market is made for man, not the other way around. A long time ago I had an economics professor who would open each class by invoking the blessing of the market and he was a liberal Democrat.  DeLong’s utopia represents a merger between Hayek and Polanyi that ends up with a social democratic version of Keynesian economics.  What he is vague about is that when he discusses the notion of Polanyian rights, which amount to the belief that citizens are entitled to a host of economic benefits, earned and unearned with no real limiting factors. DeLong is a fan the European entitlement state, but he fails to mention that most of the entitlements are funded by regressive payroll and value added taxes that would be a very rough sale in America.

 

Where the book is good, he has excellent vignettes on the lives of real people who were making history such as Nikola Tesla and Leon Trotsky. He also goes into the horrors of “really existing socialism” in both its Russian and Chinese forms. In that sense DeLong is a true social democrat. He is also very good in discussing how the 1970’s inflation undid the Keynesian consensus and led to the neo-liberal order which then collapses as deregulated financial markets were consumed by a fire of their own making.

 

What DeLong leaves out is that much scientific progress came outside of the organized industrial laboratories. He gives no credit to governmental and university labs, and he leaves out the garage work of Bill Hewlett and David Packard, Bill Gates, and Steve Jobs. These folks were tinkerers in the tradition of the early Thomas Edison. Further for some reason he leaves out of his discussion the role of the oil industry whose products fueled the mobility of his long twentieth century. Without the oil industry little of what he discussed would have occurred.

 

DeLong has written an excellent narrative history of our era; just take his politics with a few grains of salt.

For the full Amazon URL see: The Long Twentieth Century (amazon.com)

My Amazon Review of Greg Steinmetz's "American Rascal: How Jay Gould............"

Robber Baron

 

Greg Steinmetz has written a biography of one of Matthew Josephson’s robber barons. I must confess I read Josephson’s “The Robber Barons” in junior high and to me they were heroes in the sense that these mostly self-made men built America in the latter half of the 1800’s. We cannot look at the life of Jay Gould through 21^st Century eyes, but rather we have to look at his life in the context of America being an emerging market with all of the corruption that entails.

 

To be sure much of what Gould did in markets would be illegal today, but was not in the 1860’s. Nevertheless, his collusion with New York City Boss Tweed was illegal then and Gould got away with it.

 

We see Gould rising from humble beginning to running a tannery operation to becoming a major factor on the New York Stock and Gold exchanges. We see him puling off a corner in the gold market in 1869 that unfairly implicated President Grant. To me the most interesting factoid in that development was that the young Thomas Edison was the telegraph operator who telegraphed the changing price of gold throughout the Nation.

 

We next see Gould becoming a railroad baron where he ended up controlling 16% of the nation’s track mileage through strategic stock purchases. Far from being only a stock jobber, Gould was responsible for laying 4,000 miles of new track throughout the country. Too many of his contemporaries, Gould was the smartest person in the room.

 

Steinmetz highlights the role of reformer and Adams family scion Charles Francis Adams in pushing for railroad regulation, yet we see him later running the Union Pacific Railroad for a decade. He too wanted to make a buck. We also learn contrary to the populist myth American railroads suffered from too much competition, rather than too little.

 

Through it all Gould was a family man who loved his wife and six children who died to young in his mid-fifties. In this brief biography Steinmetz tells a riveting story about Jay Gould and his times.

For the full amazon URL see: Robber Baron (amazon.com)

My Amazon Review of Ted Mann's and Thomas Gryta's "Lights Out: Pride, Delusion and the Fall of General Electric"

 

The Tragedy of General Electric

 

For a century General Electric was one of America’s most iconic corporations with roots going back to Thomas Edison and J.P. Morgan. Yet over the past two decades it has shriveled up into a shadow of its former self. Wall Street Journal reporters Ted Mann and Thomas Gryta  vividly tell a deeply researched story of GE’s slow motion collapse that began at the at the start of this century. Let me say at the outset that several years ago I was a preliminary Loeb Awards judge for the best business book of the year. Although they no longer offer an award for books, if they did, this book would most assuredly be a finalist.

 

The seeds of GE’s demise starts with their rock star CEO of the 1980’s and 1990’s, Jack Welch. Wall Street uniformly admired the house that Jack built, but in many respects its foundation was shaky. Specifically Welch created a “make the numbers” culture and he used the ever growing GE Capital subsidiary to meet his quarterly earnings target by coming up last minute financial transactions. Thus by 2000, 40% of GE’s earning were coming finance; not generators, jet engines and appliances.

 

During that era GE kept a close watch on the analysts who covered GE stock. Mann and Gryta’s comments on this process ring true to me. It 1997 as Chief Equity Strategist for Salomon Brothers I remover GE from the firm’s recommended list of stocks. Within minutes Russ Leavitt, Salomon’s analyst covering GE, received a complaining call from investor relations. He had to grovel before them by saying it wasn’t him, but rather it was me.

 

Welch wanted to end his career with the mega-acquisition of Honeywell. That would have created an even bigger electric behemoth, reduced the role of GE Capital as a relative source of earnings and in, my opinion, it would have created accounting opportunities to sweep under the rug past mistakes via a special charge that analyst usually ignore. This last proposition is mine, not the authors.

 

After a drawn out selection process, Welch selects Jeff Immelt to be the new CEO. Those passed over include David Cote who would soon run Honeywell, Bob Nardelli who would go on to Home Depot and Jim McNerney who would run both 3M and Boeing. Yes, GE’s vaunted management had a very deep bench. In picking Immelt Welch got probably the best salesperson in the company. I met Immelt once at a charity function, and in a very short conversation his sales personality came through and that experience was very consistent with what you get from the book.

 

Unfortunately Immelt was not really strong on finance; he didn’t really understand GE Capital and he was a deal junkie with a penchant to overpay for acquisitions. He did that when he ran the health care equipment division in the 1990s and would do that in spades later with acquisitions in media, oilfield equipment and power generation when he ran the whole company.

 

Immelt had the misfortune of starting to run GE just a few days before 9/11 which signaled the end of the 1990’s boom that so propelled the Welch era. The environment made it more difficult for GE to reach its earnings targets and the passage of the Sarbanes-Oxley accounting reforms in 2003 made it much harder to generate earnings with the stroke of a pen. Thus Immelt had to rely more and more on GE Capital expanding its balance sheet, so much so that by 2007 it accounted for half the company’s earnings. Then in 2008 as the financial crisis hit with full force, GE could not roll over its commercial paper and had to be bailed out by the Fed. With that GE became known as a finance company that made industrial equipment and its multiple suffered.

 

To get out of this fix, Immelt began to slim down GE Capital and went on an ill-timed acquisition binge buying into oilfield equipment at the top of the market and grossly overpaying for the French generator company Alstom. The deal was predicated on cost synergies that the French government wouldn’t allow, but Immelt when ahead anyway. Much of the details on this transaction comes from the author’s version of “deep throat,” a deal team member they identify as “Adam Smith.” To make things worse the conventional power market was entering a secular decline as wind and solar were gaining market share.

 

It is downhill from there. In order to make their numbers the power division rejiggers its service contracts to generate accounting earnings as opposed to cash earnings. It seems that GE was utilizing something akin to gain on sale accounting for their service contracts where they booked earnings upfront rather than over the life of the contract. It this accounting that triggered a very negative analyst report from J.P. Morgan’s Steven Tusa that opened up the gates of hell for GE.

 

Then, of a sudden, GE discovers it had a long term care insurance problem that the executive team, the board and market thought was behind them with the spin-off of Gentworth in 2004. Yet it was there to the tune of $15 billion. That was the end of Immelt. In his place John Flannery was appointed in 2018. He tried his best, but he was gone in 18 months. Then the board appointed Larry Culp, GE’s lead director and formerly a very successful CEO at Danaher. He had his work cut out for him.

 

Perhaps what is most staggering is that from 2004-2018 GE bought back $108 billion worth of stock as the market value collapsed to $56 billion at this writing. All the while GE’s board was mindlessly approving the share buybacks and Immelt’s acquisitions. You could say that that it was complete abdication of authority while they were collecting their $300k a year annual retainers. They weren’t the only ones who missed the mark. I too owned shares of GE during most of Immelt’s reign as I was blinded by the firm’s iconic image and reputation for good management.

 

As I said at the outset, Mann and Gyrta have written an important book and should be read as a case study for investment professionals and corporate managements alike. My one quibble would be that an annotated stock chart would have been very helpful in visualizing the history presented here.  

For the full Amazon URL see: https://www.amazon.com/review/REM986Q7TZ4RO/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of John Oller's "White Shoe: How a New Breed of Wall Street Lawyers Changed Big Business and the American Century"

Super Lawyers of the Gilded Age

Retired Wall Street lawyer John Oller takes us back to the turn of the 20^th Century when the modern law firm was created to service the giant industrial corporations that were taking form. Among the IVY League WASP lawyers we see Paul Cravath fresh after his winning the “current wars” for his client George Westinghouse against Thomas Edison create the model of today’s law firm. He hires associates straight out of the best law schools, trains them and puts them on a partnership track. He also creates a profit sharing system among the partners. More than 100 years later this is how corporate law firms work.

We meet Frank Stetson, JP Morgan’s lawyer, future Chief Justice of the Supreme Court Charles Evans Hughes, George Wickersham who would become William Howard Taft’s attorney general who brings a multitude of anti-trust lawsuits, and William Nelson Cromwell who pretty much is responsible for a coup in Panama that leads to the building of the Panama Canal.  We also meet a young John Foster Dulles, who would later run Sullivan & Cromwell and be Eisenhower’s secretary of state.

There is also one Jewish lawyer in this telling. He is Samuel Untermyer  who after making a fortune on Wall Street, he becomes a leading muckraker taking on the titans of Wall Street, including JP Morgan in very famous congressional hearing.

Out of their labors we see formulated the notions of the “rule of reason” in antitrust cases first enunciated by William Howard Taft when he was an appellate judge, the consent decree and the business judgement rule for corporate officers and directors. As the story evolves most of Oller’s protagonists make peace with the progressives they rub up against and as such they become part and parcel with the newly emerging administrative state. Of course the emergence of the administrative state would become a great boon to the super lawyers.

We also see the growing internationalist outlook among Oller’s Wall Street lawyers. They push for intervention on the Allies side in World War I and actively support the creation of the League of Nations. A generation later they would form the backbone of Wendell Willkie’s campaign for the presidency. Oller bemoans the fact that Wall Street lawyers are far less involved in Washington D.C. then they were 100 years ago. Instead we see Wall Street investment bankers taking their place.

Oller has written an interesting book highlighting the merger between law and capital. At time he gets bogged down in too many details, but on the whole his book makes for an interesting history. 

The full Amazon URL appears at: https://www.amazon.com/review/R1DA0ATSMPIED3/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Alan Greenspan's and Adrian Wooldridge's "Capitalism in America: A History"

The Building of America

Former Fed chairman Alan Greenspan and Economist editor Adrian Wooldridge have written a long needed upbeat history of capitalism in America. It is a history of creative destruction that glorifies the spirit of enterprise that built our country from 13 struggling colonies to a continent spanning behemoth. The authors glorify the exploits of Thomas Edison, John Deere, Bill Gates, Samuel Morse and Henry Ford.

Of course all of this did not happen in a vacuum. America is blessed with a temperate climate, fertile soil, navigable waterways and enormous mineral deposits. Perhaps more important our nation was born when enlightenment values were beginning to flower. As a result we ended up with a constitution that limited government and protected property rights that allowed enterprise to flourish.

The villains of the piece are trade unions and a political/intellectual elite who would rather substitute their judgement for that of the markets. Although the authors do discuss the origins of the 2008 financial crisis, they underestimate the role of financial markets in undermining the very economy Greenspan and Wooldridge are extolling. Hence the need for a modicum of regulation. Moreover the authors ignore the political corruption that ran rampant during the Gilded Age, the 1920s and our era of today.

Although the authors through many barbs at government, in reality they are Hamiltonian conservatives in that they favor broad based policies to support the economy. Those included support for the railroads, the Homestead Act, and land grant colleges all of which played a role in the great explosion of growth in the post-Civil War era.

The authors end their book on sour note fearing that the growing burden of regulation and entitlement costs will sap the dynamism of the economy going forward. I believe that is a necessary condition, but it is not sufficient to restore capitalism’s dynamism. What is needed are huge investments in basic research, education and infrastructure and that means more, not less government.

I would note that this book is nowhere near as detailed as Robert Gordon’s “The Rise and Fall of American Growth,” but it is shorter and an easier read and it is an antidote to the anti-capitalist screed of Richard White’s “The Republic for which it Stands"

The full Amazon review appears at: https://www.amazon.com/review/RPCTI0AOP2XWV/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv

My Amazon Review of Graham Moore's "The Last Days of Night: A Novel"

Westinghouse v. Edison

It is very hard to write an enjoyable book about a 1880s patent dispute, but screen writer (The Imitation Game”) Graham Moore brings to light the titanic struggle over U.S Patent Number 223898, Edison’s electric lamp. “The Last Days of Night” is a historical novel of the first order, mostly true with more than a few embellishments. Moore’s hero is the 26 year old lawyer Paul Cravath who goes on to found the very white shoe law firm, Cravath, Swaine and Moore. He also invents in real life the associate system that drives today’s giant law practices.

Cravath represents George Westinghouse in his fight to overturn Edison’s patent. The patent fight goes on against the backdrop of what was called the “current wars”. It was a war over Edison’s DC current versus Westinghouse’s AC current. Spoiler alert, as we know AC current wins largely because of its enormous distance advantage over DC current.

His portrait of Edison as both an inventor and avaricious businessman is acute and Westinghouse comes off as an aggressive “bet the company” businessman focused on product quality. We also meet the very mercurial scientist/inventor Nikola Tesla the prophet of AC current and of power of electromagnetic waves. It is not for nothing that Elon Musk named his electric car after him.

Because this will soon be a major motion picture Moore introduces Cravath’s love interest, the opera star, Agnes Huntington. Much of her role in the book is fictitious, but she does in real life marry Cravath.

There are cameo appearances for J.P. Morgan and Alexander Graham Bell. With them Moore brings out the merger between science and business that will literally power the American economy after the 1880s. I highly recommend the book and can’t wait for the movie.

The full Amazon URL is at: https://www.amazon.com/gp/customer-reviews/R2WM8GD9U8YQOG/ref=cm_cr_getr_d_rvw_ttl?ie=UTF8&ASIN=B01A4AXM3W