Wednesday, September 24, 2008

Oratory on the Death of Neoliberalism

If forced to place it in a genre, I’d say the current economic crisis is either a heist movie or sci-fi.

Where are we, precisely? Well, we’re in that part of the heist movie where, after x double-crosses y, who in turn double-crosses z, and so on, it becomes clear that the whole plot was orchestrated by the owner of the casino, in debt so deep the only solution was to rob his own place and collect the insurance. . .

Rarely is class power in the US as nakedly visible as during this last week, and rarely is the two parties’ de jure acceptance of the dictatorial rule of capital so explicit, unless of course one finds the canned populism convincing or thinks that the wrangling in the legislature over the details of Paulson’s bill is anything less than theatre, designed to convince us of the iron necessity of the main piece, a massive socialization of risk that leaves profits privatized. Because, you know, it would be one thing if the Treasury’s plan to pump $700 billion of economic Viagra into Wall St., the better to keep on fucking you, was actually going to work. But why should anyone believe that? Credit will start to flow again if the plan goes through, but as many historians and economists have pointed out, this isn’t just Wall Street’s crisis, it’s the result of thirty years of rising inequality in the US, of an economy built on nothing but household debt and longer and longer working hours. The plan will shore up stock prices, sure, but chances are the ensuing inflation and, therefore, the declining value of wages will still mean a nasty economic contraction. The stockholders get to keep their money but the rest of the country gets starved by inflation and unemployment. Sound like a deal? And, of course, if you ever believed any of Obama’s promises in the first place, this likely means that if he gets elected there’s not even a weak national health care plan and no investment in “green” energy.

As Laura Flanders aptly points out, this is nothing less than an economic coup, and it makes the putative differences between McCain and Obama moot. The various attachments that the Democrats want—an equity stake in the companies, pay limits for execs, judicial oversight, and some very modest programs for homeowners—are a start, but they don’t go even remotely far enough, and as they stand, are pretty much ideological legitimation for what will still be a gargantuan transfer of value from the working- and middle-classes to the rich. It’s as if the majority of the country were just told they’ll have to work weekends for free for the rest of the year. Instead, it seems better that we either nationalize the banks completely and let the profits redound to the treasury or, for added viewing pleasure, let the banks burn and put the money into subsidizing consumer demand through social programs, job creation and debt relief. The bankers are the ones who believe in the free market, the necessity of shock therapy, the salutary effect of price as a disciplinary mechanism, so let them have it. Once they get a taste of that American freedom, they’ll surely thank us.


It’s hard to know what rough beast will emerge from the dust. I could be wrong, but I think we can safely close the brackets on the particularly brutal period of capitalist rapine and immiseration known as neoliberalism (1973-2008). And good riddance. But there’s no reason to believe that what will succeed it will be any better, and there’s plenty of indication that it could be much, much worse. Despite the amusement I derive from the apoplexy of right-wing pundits who think the current quasi-nationalizations constitute socialism, what we see emerging less resembles Scandinavian social democracy, or Roosevelt’s New Deal, than it does Mussolini’s merger of state and corporate power. The difference is obvious: so far, there’s no indication of anything but a minimum plan to redistribute the surpluses to the lower classes. I’ll leave it to you to fill in the other affinities between the US and mid-century European fascism.

None of these periodizations are ever as cut-and-dry as they seem, anyway. The neoliberal era retains many elements of Keynesianism—in government funding of the military-industrial complex, and by extension high tech, in recurrent bailouts, in the shell of the welfare state kept around for purposes of legitimation, farm subsidies, etc.—just as the Keynesian period retained many elements of earlier monopoly capitalism. And, in any case, it’s a mistake to think of deregulation as the absence of an action, as the absence of intervention, when it is, in fact, the result of deliberate, forceful and always violent intervention, and requires the continuous resort to same (c.f. the Volcker shock). All that’s old is new again, and I’m sure the capitalist playbook of the period 1973-2008 will continue to get used. . . For now, though, I’m betting on an increasing reliance on direct and overt as opposed to indirect and covert domination.


As for sci-fi, it has gone curiously unremarked that Wall Street’s implosion coincides with the first tests of the Large Hadron Collider, a 17-mile-long particle accelerator under the Franco-Swiss Alps. Sadly, the LHC probably stands little chance of creating, as some fear, a microscopic black hole capable of swallowing the earth. And, in any case, we clearly have far more serious things to worry about, an economic black hole of sorts, produced via the manipulation of all sort of exotic financial chimera that seem kin to the bizarre forms of matter and energy forged in the artificial conditions of particle accelerators. The LHC was created, in part, to verify the existence of the Higgs boson, the last unobserved particle predicted by the Standard Model of particle physics. To conjure the Higgs boson, however, physicists need to create levels of heat and energy on a scale of those of the Big Bang. These artificial conditions, capable of probing the deepest recesses of matter, are more than a little like the massive ratios of leverage which hedge funds and investment banks are working with today, where, all told, a million dollars of investment might have only $20,000 of equity capital behind it. This allows the managers of these funds to probe all of the possible areas where profits might be had, to test the spread of virtual futures that branch out from the present, to move the borrowed money around from site to site until it lands somewhere where the going is good. . . Or not.

Although I understand neither world very well, I understand not understanding well enough to say that the subatomic world is sort of like that of the unregulated, poorly-understood, mathematically-exotic ‘shadow economy’ of financial derivatives so much in the news of late. To speak of heat and energy, Donald Mackenzie, in an article about a form of financial insurance—end-of-the-world-insurance, as he calls it, our economic Higgs boson perhaps—which would only pay out in the event of a complete and absolute destruction of the world economy (in which case good luck collecting), offers the following savory description:

The credit market is also one of the most computationally intensive activities in the modern world. An investment bank with a big presence in the market will have thousands of positions in credit default swaps, CDOs, indices and similar products. The calculations needed to understand and hedge the exposure of this portfolio to market movements are run, often overnight, on grids of several hundred interconnected computers. The banks’ modellers would love to add as many extra computers as possible to the grids, but often they can’t do so because of the limits imposed by the capacity of air-conditioning systems to remove heat from computer rooms. In the City, the strain put on electricity-supply networks can also be a problem. Those who sell computer hardware to investment banks are now sharply aware that ‘performance per watt’ is part of what they have to deliver. (via Jane)
Nothing behaves as it ought here—particles vanish in one place and reappear in another, or move backwards in time, debt is aggregated and sold, and then other products are sold to insure against the default of that debt. What’s happening down there, or up there, or over there, in the shadows, while it will yield to all kinds of predictions and models, is fundamentally overdetermined, unpredictable and dangerous.

If I understand it correctly, many of the mortgage-backed securities
(MBS) that the investment banks and hedge funds are holding now are priced according to what people will pay for them—priced entirely according to market demand and not content, as is the case with, say, corporate shares. There is thus no way to know what these things are really worth. According to Michael Greenberger, one of the reasons the banks are so itchy to get the government to take this stuff off their hands is that if one of them goes bankrupt and the accountants come in to figure out what everything is worth, they’ll likely assign a figure of pennies on the dollar to the MBS’s, and prices will plummet accordingly. . .

Credit default swaps
, for instance, are insurance on debt, designed to pay out in the event of defaults. There are currently $62 trillion of credit default swaps outstanding. That’s larger than the GDP of the entire planet, folks. It’s 3 ½ times as large as the GDP of the US. That’s your black hole.

So, then, to come full circle, this is a little like the moment in any number of “alien invasion” films in which it dawns on you that, below the threshold of visibility, in the pores of this world, behind the apparently friendly faces of the well-mannered professionals, another race has quietly prepared its takeover. It’s called capital:
The product of labour appears as alien property, as a mode of existence confronting living labour as independent, as value in its being for itself; the product of labour, objectified labour, has been endowed by living labour with a soul of its own, and establishes itself opposite living labour as an alien power.
That $62 trillion? Well, it’s nothing less than the weight of the products of 500 years of exploited, maimed, mutilated and exhausted bodies, bodies bought and sold, bodies murdered in wars, bodies disciplined and legislated and incarcerated. “The true picture of the past flits by. The past can be seized only as an image which flashes up at the instant when it can be recognized and is never seen again.”

And, oh yeah, the LHC collider malfunctioned on Sept. 19th. It won’t be up and running for months.


Patrick said...

Beautifully put.

StandardSchaefer said...

"But there’s no reason to believe that what will succeed it will be any better, and there’s plenty of indication that it could be much, much worse."

My fears exactly. Well done. Turning debts into assets seems exactly like the stuff of Hollywood.

Will be interesting to see if Warren Buffet stands by his remark: that there is indeed class war, and that his class is winning. He got a great deal on Goldman Sachs shares, evidently. About the same time those workers in India stampeded the CEO.

Brojo said...

The argument for the bailout is the economic failure will be borne by the average American with misery. Instead of giving the money to the Wall St. gamblers who have caused this market failure, the money should be spent alleviating the economic pain of the average American. Instead, our politicians, beholden to their financial benefactors, prefer to give this borrowed money to the proven fraudulent markets and risk putting every American into debt peonage.

Steven Fama said...

Bingo Bernes!

Anonymous said...

Or the moment in the movie where unspeakable Lovecraftian horrors lumber into our world through an interdimensional rift opened by overzealous military scientists. Truck-sized spiders, flying lizard things...tentacles in your back account.

Another good article here: