Productivity gains should allow for us to live without working constantly; political freedom should keep us from needing to fight the forces of arbitrary power; advanced civilization should make the value of brute strength and physical tenacity less significant than enlightened thinking and careful use of science, knowledge, and industry. Yet the cash economy and its metaphysical battleground in the stock market simply opens a space for the previous discourse to take root, often making the strategies and intellectual rigor now seen as pivotal to the medieval battlefield the justification of this continued struggle. Here, it is the strength to hold on as one watches one’s future livelihood drain with the drop in the Dow.
The latter becomes the symbolic representation of vitality in western culture—like a “life force” bar on a video game. Suddenly the discourse shifts to those with the stomach, with the tenacity to psychologically and physiologically weather the crisis. Keeping one’s money in the market, when all the signs point to this being as foolhardy as a quest for the holy grail, is seen as a symbol of the endurance and strength we used to revere in knights of legend. Like the latter, of course, in the future we will only hear about the few who basically got lucky in the grand casino of Wall Street. Every person who decides to double down as this crisis expands will think they have their tenacious bid to stay in the game is based solely on their superior knowledge of the financial world; yet many of them will lose. Those who happenstance will smile upon will concoct elaborate stories to explain their achievement and this will enable future generations to believe that knowledge, power, and wealth are synonymous, legitimating all who have more with the belief that they acquired it in similar fashion.
The whole accumulation and distribution of the capital of the world is seen as rightly acquired through a fantastic game of chicken. Graft, corruption, exploitation and outright robbery will be dismissed as myths perpetrated by the unbelievers or seen as more evidence of the spectacular intelligence and extraordinary character of these Übermensch demigods: they were able to see a space where the rules could be exploited—or ignored outright—to their advantage and they ruthlessly marched towards victory. Or as the Economist stated in 2006,
[T]he trading models that have propelled Goldman [Sachs] will be tested one day. At worst, the bank itself—or, more likely, a second-tier rival or a hedge fund—might fall into the kind of dramatic spiral that killed off Long-Term Capital Management (LTCM), a hedge fund, in the late 1990s. Financial markets have always been subject to crises. Any crisis would affect Goldman, because it is so intertwined with the system. The bank says it keeps plenty of liquid reserves against the dread day. It might well profit from any crisis (it did from LTCM). But the chances are that some banks, somewhere, will get into serious trouble. If that happens, the losses of any bank will be for its shareholders; they should not expect any bail-out. The wider question has to do with systemic risk. If the much vaunted systems do not work, then the central banks will have to step in (as the Federal Reserve did with LTCM). In the past, though, such collapses did less damage to the financial system than the regulatory over-reaction that followed them. If policymakers were to respond to the next crisis by ushering in a more conservative regime that severely limited financial risk-modelling and risk-management, the global economy would be the poorer for it. That is what should stick in people's minds when the day comes. Until then, why not do something too often forgotten? Love Goldman or hate it, you ought to admire it and the system it epitomises. And hang on tight.
Two main flaws exist in superimposing this narrative: they did so not in order to battle against evil and the risk they took, in most cases, was not their own. The above narrative is usually enjoyed by the domestic audience when seen as evidence of their strength against a common enemy. The valiant knight is admired not just for his bravery or strength: it is because that bravery and strength are employed to the advantage of all within the group. They are constructed in an era of crusades and ideological superiority is supposedly evidenced by victory on the battlefield. Granted this narrative is meant to justify the feudal political framework on some level, but, as Schmidt would be quick to point out, it is ultimately the framework adopted by every political entity. In the case of the financial actor in question, however, the loser is not an evil knight that is dispatched because of his weakness—although the Austrian theory of “Creative Destruction” is not far from making the economic sphere as topical to Schmidt as the political. Instead, the loser is either another knight, possibly on the same team. And, though it could be said that the financial wizard is acting in the interest of us all, in so far as that is the case, the bulk of the risk s/he takes is not his/hers.
Most of risk taken by the players in the current crisis was with other people’s money. Hedge funds, mutual funds, pension funds: the managers certainly take a large cut of the proceeds, but when they lose other people’s money they only lose other people’s money. This is why the bailouts and injections of state capital became so necessary. It was as if, instead of a valiant squad of Financiers Templar, risking life and limb for all of us, instead we had a ragtag band of hackers who had just inadvertently injected a virus into our body economic. They had fought a good battle with our collective resources, been fine puppet masters for the production of wealth using other people’s funds. Yet now it was obvious that they were simply gambling with heavily leveraged funds, unaware that the awesome rewards they were gaining were only acquired by an enormous expansion of risk: they will surely miss their annual bonuses and fat commissions, but, ultimately, few of them will lose their shirts.
The victims on the battlefield, were the government not to intervene, would not be these valiant soldiers, but the millions of pawns they used to play their game. Whether this was done dishonestly or just in the blinding ignorance of naïve hubris, it is clear that they can’t be trusted with the keys to the castle—nor should those that weather the collapse (whether because they stick it out or are able to convince enough of their investors to) be honored with tales of their spunk and grit. If we are all to collectively tighten our belts, to renew the protestant ethic and so on, the first place to start is by limiting the aspects of our life world that are left up to the gambling ring of the market. Going to Vegas is a fun activity and buying a lottery ticket might be a thrill now and then: but we are beyond the adolescent stage where everything existing should be left up to the market.
This is ultimately the real problem with the current round of financialization. It is one thing to bet on events in the world; it is quite another to make the events of the world contingent on a series of bets. The former is the route that Cass Sunstein, in his Infotopia, uses to prove Hayek’s description of the information aggregating power of markets. I’ll leave to one side the degraded understanding both seem to have of what entails “communication;” the point for both is that markets help to aggregate the information possessed by distant and diverse individuals. This is, of course, not all that markets do, but the predictive power of markets that Sunstein happens upon is largely due to their disconnection from actual events. But Hayek doesn’t just want them to be predictive: he wants them to discipline people, to effect their decisions in one way or another no matter if they would like to play the game. It is a Hobbesian world of “live and let die” which he sees as functioning best when no one can opt out of it and no force can come to anyone’s rescue. In other words, as the pinnacle of civilization, Hayek pitches us the world of Leviathan without a Leviathan. Though the latter—as observers from Marx to von Mises, MacPerson to Marcus Rediker and Peter Linebaugh have noted—was a society and culture that, in so far as it ever flourished, expressly depended on what Bourdieu calls “the enforced conversions” to the market modality, the libertarian virtue depends on bracketing this process, seeing, instead, the “extended moral order” to be at once completely natural and the pinnacle of civilization.
Here, Sunstein gives credence to the liberal Hayek’s most conservative claims: that not only does the market aggregate value across space, but across time. Thus the tradition of the present moment (i.e. the distribution of wealth, the ordering of preferences structured by previous cultural imposition, and all the other refuse of power politics that was ultimately the foundation of the present order) can be forgotten: the “amnesia of genesis” as Bourdieu calls it allows for Hayek to claim project far into the past what he claims to be the greatest achievement of our culture. Its hegemony, evident in his celebration of “operations which we can perform without thinking about them” (along with all its anti-intellectual implications), should be seen as simply the product of the market mechanism working long ago—evidently even into the feudal past which it supposedly supercedes: “We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up.” Ultimately, this concludes that the best practice is not question the system as it is. Invoking Burke, Sunstein paraphrases Hayek as saying that, “if a practice lasts, then it is likely to have value and make sense” (123). Hayek’s Burkean tendency appears as the logical extension of his rationality about markets to culture and morality. In this, the actual institutional framework of the “extended moral order” he celebrates, we likewise find none of the dynamism that supposedly characterizes markets. On the other hand, we see the full flowering of his ahistorical reasoning.
Unfortunately, as the quote from The Economist above illustrates, both of these tendencies form crucial pillars of the dominant culture of the moment. Goldman Sachs has created an elaborate web of risk and the whole thing could come crumbling down, taking much of the financial system with it. But there is nothing that can be done to stop it. Government intervention will only come too late and make the problem worse: the system is as it is for a reason—Goldman Sachs has made it so. If it comes crashing down, that is part of the ride: “Until then, why not do something too often forgotten? Love Goldman or hate it, you ought to admire it and the system it epitomises. And hang on tight.”
Sunstein manages to rescue his unequivocal celebration of Hayek by noting that “In many cases, traditions last not because they are excellent, but because influential people are averse to change and because of the sheer burdens of transition to a better state.” Likewise, both the neoclassical, marginal assumptions and the more ambitious Austrian characterization of markets, are ultimately empirical questions which, in many contexts, do not bear the weight of their assumptions: “The simplest reason is that consumers have limited information and markets are not entirely free” (128). The latter argument, has, of course, been the party line on the Austrian side in response to the present crisis. The above articles, observing the unusually high ration of debt and risk being accumulated by investment banks—on the back of what any rational observer would have termed a housing bubble—are not portentous insights about the inevitability of the collapse, evidence of the ignorance of the market or its egomaniacal players: the problem was never in the market itself, but instead in the previous interventions, “the regulatory over-reaction that followed” previous collapses. In this, the free market has not been allowed to be free: that this is why it apparently functioned as a “free market” is, for these observers of little consequence. Trying to reduce risk in the future would only cripple the system and rob us of the heroes of our “extended moral order.”
That the latter operate under the assumption that they know all—with claims to omniscience that would rival any bureaucrat Buchanan wanted to skewer—that they did so with the resources of countless other people and with the blessings of the actually existing Leviathan: this does not matter. The only moral of the story that the Libertarian philosophy will allow is that we can ultimately trust no one. This is the collective punishment that we all must face for placing our faith in the various institutions of the free (or unfree) market or trusting the mechanisms of government oversight.
I have a lot more I could say about this particular topic, but I will end with an extensive quotation from Gabriel Thompson's Nation article from the summer titled "Meet the Wealth Gap." In it he chronicles both the disparities in wealth in the financial services industry (e.g. especially between the managers themselves and the workers at private security companies that keep them safe) but also at the ideological warfare being fought by think tanks to keep these disparities from being righted. The reason that the managers make all this bank is because, as they say of themselves in a congressional hearing, [and I'll leave off with the final passages from the article] they need these big returns because they take big risks (with other people's money):
At a House hearing on the bill [to close the tax loophole such that "instead of paying an income tax, which for the wealthy is 35 percent, a manager pays only the 15 percent capital gains tax"], Bruce Rosenblum, managing director of the Carlyle Group and chair of the Private Equity Council, the industry's new lobby group, argued that the risks taken by fund managers are "significant." Primarily, they "forgo other opportunities that provide greater security and guaranteed returns in exchange for the greater upside potential." In other words, for the risk of forgoing the chance to earn lots of money in investment banking in order to potentially earn even more money in private equity, firm managers deserve to be taxed at lower rates than your average teacher or janitor. Perhaps sensing that this argument wasn't persuasive enough, Rosenblum went on to highlight the other "assets" that managers stand to lose if their funds perform poorly, namely "good will, business relationships and reputations."
The brave risk-takers of the hedge-fund and private-equity worlds are on my mind as I listen to Timothy Williams, the security guard who protects John Paulson, describe his tour of duty in Iraq. Much of the time was spent in Anbar province, conducting raids and patrols and manning traffic checkpoints. His battalion lost nine soldiers, but it could have been worse.
"During one patrol I saw my lieutenant's Humvee get hit with an IED right next to us," Williams recounts. "The Humvee was completely destroyed, but somehow everyone survived. In Iraq, things are always exploding. The first week I was nervous all the time, but you get used to it. My mom, though, never wanted me to sign up."
Williams, uninsured and working for a nonunion company, sees taking these risks as his only means to a stable career. That's why, despite his opposition to the war, he signed up for a six-year term with the National Guard. "After that," he says, "I only need ten more years to retire." Meanwhile, Kovner, who never served in the military, is chair of a think tank that aggressively pushed the United States to invade Iraq and is now fighting (from desks in air-conditioned offices) to maintain troop levels until "late 2009," in the words of AEI resident scholar Frederick Kagan. Domestically, Kovner funds groups that rail against the living wage and unions alike, curtailing the chances for working people like Williams ever to earn a decent living as civilians. Kovner's daughter hasn't ever faced such a choice; her path eased by her father's connections, she worked as a reporter for the paper he funds, the Sun, and now clerks for conservative Supreme Court Justice Antonin Scalia.
For Williams, higher wages and generous benefits can't be found guarding buildings in Manhattan, and without union organizing, the security guard industry will continue to be made up of the working poor. And when jobs like these--which have replaced the unionized, decently compensated blue-collar jobs of old--remain union-free, with stagnating wages, the military can become the best option for advancement. Someone needs to provide the "vigilant and effective defense" that is AEI's mission, after all, and it certainly isn't going to be the children of people like Kovner.
No comments:
Post a Comment