The road to corporate perdition.

• Author: Reed, Adolph, L., Jr.

Even The New York Times has now raised the specter of capitalists destroying capitalism. Granted, that's hyperbole, at least so far, and it's necessary to keep in mind how resilient and adaptive this economic system has proven to be. Nevertheless, since the initial Enron disclosure, we've seen a rising tide of unambiguous evidence that what many of us suspected throughout the Wall Street-driven economic boom is true: The whole thing always seemed uncomfortably like a Ponzi scheme.

Stock valuations surged wildly beyond firms' profitability; even companies that never showed a profit at all became the market's darlings in the orgy of speculation. Attractiveness for investors was driven as much by reports of cost-cutting and "downsizing"--at is, breaking unions, speeding up and laying off workers, and cutting full-time jobs and benefits--as by sales or production figures. Companies increasingly supplanted defined-benefit pension plans with defined-contribution plans, like the now notorious 401(k) plans, and supplanted--often pressured or coerced--workers to buy company stocks.

Pundits and economists reassured us daily, especially as some of them began salivating at the thought of looting the Social Security system through privatization, that there was no longer risk of a serious market downturn. We had finally reached the millennium of crisis-free, perpetual growth--led by the technology and telecommunications "new industries." By the mid-1990s the Nobel Prize committee dropped any pretense at recognizing attempts to explain how real economies work. At the most vulgar point they gave the prize to Myron Scholes and Robert C. Merton, a pair of economics professors who developed a formula to help plot the movements of a particular kind of derivative investment. (The winners were also partners in Long-Term Capital Management, a hedge fund that collapsed within six months after the two economists won the Nobel. It seems their formula made no accommodation for the possible effects of economic downturn. The American Economics Association should have a 1-900 phone number!)

Part of the success of the Reagan Revolution was inducing many of us to identify with the investor and speculator class. I remember in the mid-1980s--in the heady days of the speculative boom driven by tax cuts, defense spending, and financial deregulation--noticing a shift in consciousness about home ownership. The goal of owning a house was no longer simply a matter of having security for old age, or freeing oneself from the grip of private landlords, or even getting the tax breaks the federal government bestows upon the middle-income strata. All of a sudden home ownership became desirable as an entry ticket into the speculative economy, or at least a Rotisserie League version of it. People began tracking their accumulations of equity as if they represented real money.

Never mind that much of this accumulation was fictitious. There were...