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Inflated: How Money and Debt Built the American Dream
Americans as a whole view themselves as reasonably prudent and sober people when it comes to matters of money, reflecting the puritan roots of the earliest European settlers. Yet as a community, we also seem to believe that we are entitled to a lifestyle that is well-beyond our current income, a tendency that goes back to the earliest days of the United States and particularly to get rich quick experiences ranging from the Gold Rush of the 1840s to the real estate bubble of the early 21st Century. Inflated examines this apparent conflict and makes the argument that such a world view is so ingrained in us that to expect the United States to live in a "deflated" world is simply unrealistic. It skillfully seeks to tell the story of, money inflation and public debt as enduring (and perhaps endearing) features of American life, rather than something we can one day overcome as our policy makers constantly promise. The gradual result of the situation we find ourselves in will inevitably lead to inflation, loss of economic opportunity, and a decline in the value of the dollar. This book will show you why, and reveal how we might be able to deal with it.
416 pages, Hardcover
First published November 4, 2010
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May 20, 2011
There is a wonderful quote that goes something like this: "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship." (I had always thought this quote could be attributed to the French author, Alexis de Tocqueville. Sadly, the attribution is nowhere near that clear-cut and we actually do not know for certain who said it first.)
If the premise of this book is true, the quote should perhaps be altered to "…until the voters discover that they can vote themselves the ‘free' benefits of borrowed money," and, "the majority always votes for the candidates promising to spend and devalue the currency the most."
This is an interesting and very important subject. Unfortunately, this book is a mess of historic proportions. I like to use the word "historic" here because it's largely a book of history. It starts from the very beginning of the American Colonies and ends right around last year. That's a big span of time and a lot of ground to cover. Unfortunately, the timeline within chapters is incomprehensible!
On the macro scale, it all seems to be straightforward enough: we go from the Colonies to the American Revolution, the independent banks of the 1800s, WWI, the Industrial Revolution, the Great Depression, the New Deal, WWII, the Cold War, the energy crisis of the 1970s, and then what some are calling the "Great Recession" now in the late 2000s. But once you start reading the text you realize that the narrative ricochets forward and backward from page to page like a time-travelling pinball. And don't think you're safe because you've passed a major landmark like a World War! No, it's not uncommon to find yourself reading about events before the war and events after the war in the same paragraph.
At first, I figured author Whalen was trying to group subjects together to make them easier to understand. For example, he might mention the activities of the Fed in one time period and then compare that to what the Fed was doing ten years prior and twenty years later. But after a while I started to believe that he was just writing about things as they occurred to him. While subjects are often mentioned in groups, the specifics often turn out to be only tangentially related. Honestly, it was so blatantly chaotic that I found myself often confused about the order of events and sometimes I was unable to even discern a logical thread of narrative at all!
Perhaps you think I'm merely a buffoon or too lazy to keep the subjects straight. And in other situations I might be inclined to agree with you. But this time I was taking notes. The Amazon Kindle has a great note-making feature and I made liberal use of it. By the end of the book, I'd amassed 87 notes, some of them a paragraph long. One asks, "Did Whalen suffer a stroke here?"
The crazy thing is that I would likely have had *more* notes if the book were better. For example, I'd get to the start of a new paragraph and think, "Aha, I think he's about to explain this chapter at last!" And my fingers would hover over my note-taking keys with anticipation. And then I would read on. And my fingers would slowly return to the page-turning buttons. And I'd keep reading. And eventually I'd realize that I was never going to be able to take the note which would "explain it all" because the explanation was never coming. Whalen was already off on another subject and in some decade in the past and/or future.
I'd be completely remiss if I didn't admit to having learned a lot from this book. It is clear that a lot of research went into the historical information. And despite being an absolute pain to read at times, I'm actually glad I read it. But your mileage will vary depending on how much of this financial history you already know.
So what have I learned? Basically it can all be distilled down to this: occasional necessity and populist greed has fueled a push to inflation. That inflation has taken the form of both deficit spending and the intentional devaluation of the dollar.
That last bit sounds pretty hard to believe (intentional devaluation!?). But a notable example of such a push comes fair early on in the form of the the Silverite movement in the late 1800s. The end result of the movement would have been the devaluation of the currency as the "cheaper" silver traded at an artificially high ratio.
As for deficit spending, there are lots of examples of that, especially during wartime. And deficit spending leads to inflation. At least I think it does. Unfortunately, the timeline around the WWI period is particularly confusing. Here's a quote: "…tens of billions of dollars in debt incurred during the war and an *inflation rate* that had seen prices double in less than a decade." This was followed a little while later with, "So powerful was the marketing push behind the [WWI] war effort, compounded by the *deflationary* effect of the purchase of billions of dollars in war bonds…"
And the problems are not limited to just apparent contradictions. Sometimes I wasn't even sure what sort of point he was trying to make. While I assume that Whalen is in support of "sound money" principles, he sure has a weird way of making his case sometimes. For example, the tale of two car manufacturers: Ford and Durant. Henry Ford was a sound money man. William Durant was not and he created GM and Chevrolet through the use of debt. When GM overtook Ford, it was because sound money simply could not keep up with the power and flexibility of borrowed money. Is this an argument for or against borrowing? Or neither?
The author is much more explicit about his feelings for the American presidents. He's a big fan of Herbert Hoover, particularly Hoover's memoirs, which he quotes on several occasions.
He despises Franklin Delano Roosevelt. In what felt like a disproportionately large amount of the book, Whalen asserts that FDR exerted almost fascist control over the country with the popular support of its citizens. And I'm not sure I disagree. It is wise to contemplate the outcome of FDR's use and expansion of executive power.
It seems to be difficult to tell what effect the FDR programs ultimately had on the Great Depression era, but if Whalen's facts are correct, it's likely that they either did not help much or actually made it a little worse. Inflation was just one of many possible side effects.
I must admit I was surprised by the author's wishy-washy views on the Federal Reserve. Half of the time he is harshly critical of the Fed, and the other half, he's singing its praises or building a case for its existence.
Every description of the Fed's origin story I've ever read has sounded like the pages of a conspiracy novel or comic book villain come alive. And in this, Whalen is with the consensus. His belief seems to be that that the Fed was more-or-less designed by the giant private bankers (J.P. Morgan, chiefly) and would do their bidding while having "the additional benefit of removing the machinations of the private bankers from public view."
He also gives the Fed a low score during the Great Depression. But then it gets a positive mention during the Truman years and again in the Nixon years as the Fed is painted as a champion of a strong dollar against a pro-devaluation Whitehouse. Speaking of Nixon, Whalen is definitely not a fan. And I can't help but bring up that he mentions this era's Fed chairman, Paul Volcker, so many times, it almost borders on obsessive.
I think the author does make a strong argument that the military spending in the United States, while very expensive, is not to blame for our rising debt. In fact, the charts and numbers clearly show that military spending has remained nearly constant since 1945 (this was a surprise to me). Instead, it is the massive increase in spending of social programs (65% compared to 20% for defense) which have driven the debt sky high.
And though I don't think he does a good job of explaining it (again, his opinions seem to be wildly contradictory), he does bring up something I never really understood before: the role of the U.S. dollar as the world's reserve currency as originally mandated by the Bretton Woods agreement. I'm sure some of this went over my head, but I was able to piece together a basic understanding of the U.S.'s ability to inflate it's currency in ways that other countries cannot.
One of the most instructive eras of the book for me was the oil/energy crisis of the 1970s. I was able to finally work out the connection between the increase in the cost of energy and the double-digit inflation experienced during that period. There was also a cheery account of Jimmy Carter's surprisingly conservative monetary policy. Though for some reason even this era had to end in confusion as he concludes with a statement which seemed to me *completely* contradictory to everything he'd said up to that point: "With little or no consideration, Carter essentially did what conservatives had failed to do for decades, namely discredited the entire economic world of Keynesian mechanics." Perhaps Whalen intended this sentence to mean exactly the opposite of what I interpreted it to mean. Who knows?
With the history done, I was hoping for quite a bit of summary followed by a fair dose of prognostication. I've often wondered what the real end-game of our nation's indebtedness might be and was anxious to find out. Is there even such a thing as too much debt for the U.S.? Can we devalue a little bit at a time forever? I found the only attempts to answer those questions in quoted material such as this from economist Bruce Bartlett: "While the U.S. Treasury has never issued bonds denominated in foreign currencies, it is conceivable that it could be forced to do so if the dollar falls sharply and foreign demand for U.S. bonds wanes. That will be the point at which our debt problem becomes more than theoretical and we are really on the road to national bankruptcy."
Sadly, that quote and a few others like it are pretty much the only real answers I got from this book. Whalen seems unwilling to lend his own interpretation.
In fact, this sentence near the end is as close as he gets to offering any advice at all: "One of the major themes to take away from this book [is that Americans need to learn to distinguish between] real economic growth and the illusion of growth created by inflation and credit-driven speculation." But that's it. This is not expanded upon or explained in any way. In fact, he actually ends the book pondering that very question. After all of that history, it's a hell of a letdown.
Perhaps I was expecting something the book was never designed to do in the first place. And perhaps I have only myself to blame for my near-constant confusion. But I don't think so. I believe this book really is the disorganized mess it appeared to me to be. And that's a shame and a waste.
If the premise of this book is true, the quote should perhaps be altered to "…until the voters discover that they can vote themselves the ‘free' benefits of borrowed money," and, "the majority always votes for the candidates promising to spend and devalue the currency the most."
This is an interesting and very important subject. Unfortunately, this book is a mess of historic proportions. I like to use the word "historic" here because it's largely a book of history. It starts from the very beginning of the American Colonies and ends right around last year. That's a big span of time and a lot of ground to cover. Unfortunately, the timeline within chapters is incomprehensible!
On the macro scale, it all seems to be straightforward enough: we go from the Colonies to the American Revolution, the independent banks of the 1800s, WWI, the Industrial Revolution, the Great Depression, the New Deal, WWII, the Cold War, the energy crisis of the 1970s, and then what some are calling the "Great Recession" now in the late 2000s. But once you start reading the text you realize that the narrative ricochets forward and backward from page to page like a time-travelling pinball. And don't think you're safe because you've passed a major landmark like a World War! No, it's not uncommon to find yourself reading about events before the war and events after the war in the same paragraph.
At first, I figured author Whalen was trying to group subjects together to make them easier to understand. For example, he might mention the activities of the Fed in one time period and then compare that to what the Fed was doing ten years prior and twenty years later. But after a while I started to believe that he was just writing about things as they occurred to him. While subjects are often mentioned in groups, the specifics often turn out to be only tangentially related. Honestly, it was so blatantly chaotic that I found myself often confused about the order of events and sometimes I was unable to even discern a logical thread of narrative at all!
Perhaps you think I'm merely a buffoon or too lazy to keep the subjects straight. And in other situations I might be inclined to agree with you. But this time I was taking notes. The Amazon Kindle has a great note-making feature and I made liberal use of it. By the end of the book, I'd amassed 87 notes, some of them a paragraph long. One asks, "Did Whalen suffer a stroke here?"
The crazy thing is that I would likely have had *more* notes if the book were better. For example, I'd get to the start of a new paragraph and think, "Aha, I think he's about to explain this chapter at last!" And my fingers would hover over my note-taking keys with anticipation. And then I would read on. And my fingers would slowly return to the page-turning buttons. And I'd keep reading. And eventually I'd realize that I was never going to be able to take the note which would "explain it all" because the explanation was never coming. Whalen was already off on another subject and in some decade in the past and/or future.
I'd be completely remiss if I didn't admit to having learned a lot from this book. It is clear that a lot of research went into the historical information. And despite being an absolute pain to read at times, I'm actually glad I read it. But your mileage will vary depending on how much of this financial history you already know.
So what have I learned? Basically it can all be distilled down to this: occasional necessity and populist greed has fueled a push to inflation. That inflation has taken the form of both deficit spending and the intentional devaluation of the dollar.
That last bit sounds pretty hard to believe (intentional devaluation!?). But a notable example of such a push comes fair early on in the form of the the Silverite movement in the late 1800s. The end result of the movement would have been the devaluation of the currency as the "cheaper" silver traded at an artificially high ratio.
As for deficit spending, there are lots of examples of that, especially during wartime. And deficit spending leads to inflation. At least I think it does. Unfortunately, the timeline around the WWI period is particularly confusing. Here's a quote: "…tens of billions of dollars in debt incurred during the war and an *inflation rate* that had seen prices double in less than a decade." This was followed a little while later with, "So powerful was the marketing push behind the [WWI] war effort, compounded by the *deflationary* effect of the purchase of billions of dollars in war bonds…"
And the problems are not limited to just apparent contradictions. Sometimes I wasn't even sure what sort of point he was trying to make. While I assume that Whalen is in support of "sound money" principles, he sure has a weird way of making his case sometimes. For example, the tale of two car manufacturers: Ford and Durant. Henry Ford was a sound money man. William Durant was not and he created GM and Chevrolet through the use of debt. When GM overtook Ford, it was because sound money simply could not keep up with the power and flexibility of borrowed money. Is this an argument for or against borrowing? Or neither?
The author is much more explicit about his feelings for the American presidents. He's a big fan of Herbert Hoover, particularly Hoover's memoirs, which he quotes on several occasions.
He despises Franklin Delano Roosevelt. In what felt like a disproportionately large amount of the book, Whalen asserts that FDR exerted almost fascist control over the country with the popular support of its citizens. And I'm not sure I disagree. It is wise to contemplate the outcome of FDR's use and expansion of executive power.
It seems to be difficult to tell what effect the FDR programs ultimately had on the Great Depression era, but if Whalen's facts are correct, it's likely that they either did not help much or actually made it a little worse. Inflation was just one of many possible side effects.
I must admit I was surprised by the author's wishy-washy views on the Federal Reserve. Half of the time he is harshly critical of the Fed, and the other half, he's singing its praises or building a case for its existence.
Every description of the Fed's origin story I've ever read has sounded like the pages of a conspiracy novel or comic book villain come alive. And in this, Whalen is with the consensus. His belief seems to be that that the Fed was more-or-less designed by the giant private bankers (J.P. Morgan, chiefly) and would do their bidding while having "the additional benefit of removing the machinations of the private bankers from public view."
He also gives the Fed a low score during the Great Depression. But then it gets a positive mention during the Truman years and again in the Nixon years as the Fed is painted as a champion of a strong dollar against a pro-devaluation Whitehouse. Speaking of Nixon, Whalen is definitely not a fan. And I can't help but bring up that he mentions this era's Fed chairman, Paul Volcker, so many times, it almost borders on obsessive.
I think the author does make a strong argument that the military spending in the United States, while very expensive, is not to blame for our rising debt. In fact, the charts and numbers clearly show that military spending has remained nearly constant since 1945 (this was a surprise to me). Instead, it is the massive increase in spending of social programs (65% compared to 20% for defense) which have driven the debt sky high.
And though I don't think he does a good job of explaining it (again, his opinions seem to be wildly contradictory), he does bring up something I never really understood before: the role of the U.S. dollar as the world's reserve currency as originally mandated by the Bretton Woods agreement. I'm sure some of this went over my head, but I was able to piece together a basic understanding of the U.S.'s ability to inflate it's currency in ways that other countries cannot.
One of the most instructive eras of the book for me was the oil/energy crisis of the 1970s. I was able to finally work out the connection between the increase in the cost of energy and the double-digit inflation experienced during that period. There was also a cheery account of Jimmy Carter's surprisingly conservative monetary policy. Though for some reason even this era had to end in confusion as he concludes with a statement which seemed to me *completely* contradictory to everything he'd said up to that point: "With little or no consideration, Carter essentially did what conservatives had failed to do for decades, namely discredited the entire economic world of Keynesian mechanics." Perhaps Whalen intended this sentence to mean exactly the opposite of what I interpreted it to mean. Who knows?
With the history done, I was hoping for quite a bit of summary followed by a fair dose of prognostication. I've often wondered what the real end-game of our nation's indebtedness might be and was anxious to find out. Is there even such a thing as too much debt for the U.S.? Can we devalue a little bit at a time forever? I found the only attempts to answer those questions in quoted material such as this from economist Bruce Bartlett: "While the U.S. Treasury has never issued bonds denominated in foreign currencies, it is conceivable that it could be forced to do so if the dollar falls sharply and foreign demand for U.S. bonds wanes. That will be the point at which our debt problem becomes more than theoretical and we are really on the road to national bankruptcy."
Sadly, that quote and a few others like it are pretty much the only real answers I got from this book. Whalen seems unwilling to lend his own interpretation.
In fact, this sentence near the end is as close as he gets to offering any advice at all: "One of the major themes to take away from this book [is that Americans need to learn to distinguish between] real economic growth and the illusion of growth created by inflation and credit-driven speculation." But that's it. This is not expanded upon or explained in any way. In fact, he actually ends the book pondering that very question. After all of that history, it's a hell of a letdown.
Perhaps I was expecting something the book was never designed to do in the first place. And perhaps I have only myself to blame for my near-constant confusion. But I don't think so. I believe this book really is the disorganized mess it appeared to me to be. And that's a shame and a waste.
May 28, 2018
People think I am crazy, but I just love books about economic history. I found this to be a great listen for all the facts Whalen presented. He didn't necessarily come to a firm prediction about the future, but I think that probably strengthens his chances of being right - that the US will eventually have to address all the debt we've accumulated and that the world will transition away from using the US dollar as the reserve currency.
I especially enjoyed the early chapters - learning how America's anti-tax origin (think tea tax and Boston harbour) influenced our current debt seeking behavior. Throughout the 1800's states would issue debt rather than raise taxes to pay for infrastructure. Of course, since they couldn't raise taxes, and most infrastructure is uneconomic, lots of states eventually went bankrupt in 1841. I think Florida and Mississippi never did pay back their debt.
I liked how Whalen continually compared dubious actions in the 1800's (mainly J Gould) to actions by bankers and financiers prior to the 2008 crisis. The last part of the book was also interesting, but less definitive. We haven't seen how the debt binge fully plays out. At the time of publishing, circa 2010, Whalen thought the Euro and Rem nimbi both had a good shot of replacing the dollar as reserve currencies. I'm not saying he'll be wrong, but its not like Europe or China was been stingy with respect to debt. ;)
I especially enjoyed the early chapters - learning how America's anti-tax origin (think tea tax and Boston harbour) influenced our current debt seeking behavior. Throughout the 1800's states would issue debt rather than raise taxes to pay for infrastructure. Of course, since they couldn't raise taxes, and most infrastructure is uneconomic, lots of states eventually went bankrupt in 1841. I think Florida and Mississippi never did pay back their debt.
I liked how Whalen continually compared dubious actions in the 1800's (mainly J Gould) to actions by bankers and financiers prior to the 2008 crisis. The last part of the book was also interesting, but less definitive. We haven't seen how the debt binge fully plays out. At the time of publishing, circa 2010, Whalen thought the Euro and Rem nimbi both had a good shot of replacing the dollar as reserve currencies. I'm not saying he'll be wrong, but its not like Europe or China was been stingy with respect to debt. ;)
January 13, 2024
Good book about the history of public and private debt in America. Pretty non partisan, with a lot of interesting insights and takes, while also being factually accurate.
May 7, 2013
I nice headline view walk through through recent American history. I found it a bit confused/losing a main thread at times, but generally the narrative is interesting and entertaining, and you can tell the author did his research well and thus always presents interesting details.
Displaying 1 - 4 of 4 reviews