Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann (Farrar, Straus & Giroux, 268 pages)  

By Jim Kaplan

Transaction Man is a serious book written at a serious time.  Lemann, the author, is a serious person as well, being professor and dean emeritus of the Columbia Journalism School and author of two previous books, The Big Test and the deservedly celebrated The Promised Land: The Great Migration and How it Changed America. 

Lemann skillfully outlines the two dominant worldviews that governed the nation’s economic thought and life since the end of the Second World War, the first consensus covering roughly the 1930’s to the 1970’s, and the second dominant ideology informing the period from about 1980 to the aftermath of the Great Recession of 2008-‘09.  Lemann makes clear that in his view the consensus that existed prior to 2008 has now fallen apart, or more accurately, been torn apart by greed, vast inequality, excessive self-interest and the resultant sense for most Americans that something has gone badly wrong.  Near the book’s conclusion, Lemann offers up some very thoughtful ideas about what can, and perhaps should, come next in the project to develop a big enough unifying set of ideas that can restore confidence in the future.  But the heart of the book is not what comes next, but a dramatic and comprehensive presentation of what came before.  And more than any specific predictions or recommendations for the future, what is so admirable and so useful about “Transaction Man” is that by delving so deeply into modern macroeconomic theory and examining what the previously dominant beliefs were about, the resulting understanding can help us think about what might--and what should--inform the next economic period.

The beauty of the Old System, the New Deal/post war consensus, was not that it produced optimum profitability or the highest possible GDP or even maximum revenue growth, but that it was a system that over time worked for most people.  Lemann locates the driving theory mainly in the work of the political economist Adolf Berle, whose ideas informed (and reflected) much of the New Deal economic policy that governed roughly the following 50 years.  Generally speaking, the view was that industrial corporations were the basic building block of the economy, and that they were getting bigger and more dominant.  In the Berlian view, this was a good thing, much as it might conflict with the Jeffersonian ideals and embrace of smallness and decentralization that America was based on.  Indeed, Berle’s view conflicted with an earlier progressive reform view, best exemplified by Louis Brandeis, that was more Jeffersonian, reflected in opposition to “the trusts,” the dominant economic units of the early 20th century, and the consequent development of antitrust law and rules that opposed corporate bigness (at least in theory) to a degree probably unparalleled anywhere else in the world.

Berle, in contrast, thought that bigness and centralized economic power were good, and it was largely good because it made it easier for government to regulate it on the people’s behalf.  Far easier to gain cooperation, get agreement on the rules, and have an ongoing productive relationship on the people’s behalf with a handful of dominant corporate players, than with scores of decentralized and competing small producers who individually possessed little economic power.  It was probably not a coincidence that the golden era of trade unionization coincided with the New Deal embrace of bigness.  A handful of major corporations--the auto industry is a leading example, and one that Lemann focuses much attention on--became much easier for unions to organize (with government enabling legislation, of course).  And big corporations like the automakers created opportunity for smaller businesses, legions of suppliers and dealers that could have a place in the big, centralized system. 

The consensus featured big corporations, big national unions insisting on a fair economic slice for the working class, small and regional suppliers and dealers from coast to coast prospering under the system, and big Government overall providing oversight and setting rules and making sure that competition and corporate dominance of economic life turned out well for most people. 

It did not work especially well for blacks, which Lemann emphasizes.  It also was a time of minimal immigration, at least compared to the periods before 1925 and after 1975 or so.  It was a generally harmonious system otherwise.  And because it worked so well in the post-war period, America was able to defer until very recently the terribly divisive fight over inequality that other countries could not avoid.  Lemann says that post-World War II America:

was not in the kind of economic crisis that allowed for the institution of anything the president wanted, as it had been in 1933, so major elements of [Truman’s] Fair Deal did not materialize: national health insurance, federal funding of public education, news laws that would strengthen the hand of organized labor.  The United States declined to create the kind of comprehensive welfare state most European countries had.  This meant that the corporation, when it could be pushed into behaving like a social institution, was the American welfare state, at least for its many millions of employees and their families, and to some extent the much wider circle of its small-scale suppliers, service providers, and retail outlets for its products.

Lemann goes on to tell how in the late 1970’s and ‘80’s, University of Chicago School economists, an unbound and deregulated Wall Street, and a strong libertarian political tide shattered the post-war consensus and ushered in an age of virtually unfettered capitalism, with the disastrous results a majority of the nation has in some ways gotten used to (the right track/wrong track question that pollsters ask has been continuously negative in America for over 20 years, save for a short era of good feelings after 9/11).  The book’s title refers to this change--from the Berlian consensus emphasizing continuing relationships and stability, to one centered around apparently voluntary transactions between willing market participants, motivated entirely by self-interest and, honestly, greed. 

The paradigm shift importantly included radical deregulation of government, including the return of the concept of caveat emptor to all sales and purchases of assets by consumers (e.g., the toxic mortgage products that played an important role in leading to the financial crisis of 2008-’09) aggressive de-unionization of the private sector and minimization of employee benefits and rights; dismantling of the cultural barriers to the payment of excessive corporate compensation at the top of the pyramid; elevation of the rights of owners (stockholders) above all other rights; the denigration of the desirability and security of long-term employment with a single employer, and the linked idea that employees, suppliers or other non-owners have no economic importance whatsoever.

The new ideology came to dominate business and culture, and then began to change the way the political system worked as well.  “Even liberals had become much more suspicious of bureaucracy and regulation, the essential tools of Berle’s generation, and much more trusting of markets, their ancient enemy,“ Lemann writes.  So liberals more or less agreed to “reorientation”--really deregulation--and a “cascade” of changes to the system.  “Taken together, [the reorientation] profoundly changed not only finance but American society and the world--not just economically but also politically.”

Transaction Man seeks at the end to present some alternatives to this radical libertarian consensus so discredited, in at least the people’s eyes, by the Great Recession.  Lemann puts forward, without approbation, the “networking” ideology championed by LinkedIn founder Reid Hoffman, but Hoffman’s ideas just seem more of the same: the notion that each individual carries around his or her own network of contacts, as a replacement for the continuing relationships that are no longer possible.

 Lemann’s own preference, which he puts forward in the closing pages, is for a renewed appreciation of the neglected political philosophy of Arthur Bentley, which is centered around the concept of political pluralism.  But how effective would that be in bringing about needed change and consensus, given that many of the interest groups that Lemann (and I) would have in mind for a viable pluralist system--like unions or neglected communities that have fallen on hard times--have been  politically destroyed and rendered voiceless, or close to it.  In any case, the current political system (which cannot be changed, as a practical matter, embedded as it is in the Constitution) provides virtual veto power to those who have been most rewarded by the transactional age that Lemann chronicles, and are the most devoted to preserving its basic widening inequality, which is its most debilitating and depressing side effect.

Jim Kaplan is a lawyer and partner in the firm Quarles & Brady LLP, and has been practicing for nearly 40 years, mainly in the corporate and banking areas. On a pro bono basis, he has worked on and led teams of attorneys who through amicus briefs and other appellate advocacy, have contributed to the exoneration of a dozen young people wrongly convicted of murder. He is active on the advisory boards of both the Northwestern Law School Center on Wrongful Convictions and the University of Chicago Law School Public Interest Initiative.