May 25, 2013
Steve Fraser on the Crisis of Capitalism
Posted on Nov 6, 2009
By Steve Fraser
Arguably, we confront another general, societywide and global crisis now. But after sweeping away the bathetic verbiage of the Obama campaign—a rhetoric that after all always remained elusively vague about just exactly what we were supposed to make of “change we can believe in”—the cupboard is bare. What we are witnessing is the exhaustion of political imagination and an associated failure of will. The far horizon of the new regime amounts to a tepid version of the New Deal. And that view is really only articulated by the doggedly loyal left-liberal and labor supporters of the administration. The Obama inner councils rarely venture even that far, so anxious are they not to scare away “blue dog” Democrats, Republican “moderates” (scarce as hen’s teeth) and, most of all, the financial oligarchy. “Change we can believe in” turns out to mean—at least so far—some version of back to the future; either some bowdlerized, stripped-down imitation of the New Deal or a regurgitation of the finance capitalism that just collapsed, or some grotesque combination of both.
“Market Keynesianism,” a term invented by the historian Robert Brenner, defines the claustrophobic confines within which administration policy wonks and allied intellectuals function. Books like “Animal Spirits” by George Akerlof and Robert Shiller and “Nudge: Improving Decisions About Health, Wealth, and Happiness” by Richard Thaler and Cass Sunstein are recent articulations of a subset of market Keynesianism known as “behavior economics.” These books can sometimes be scathing in their dissection of the recklessness, irrationality, hubris and malfeasance of Wall Street’s elite institutions. And they are often unsparing in their indictment of somnolent regulators, to the degree there was any regulation at all. But they veer away from unearthing any systemic pathology.
On the one hand, they dismiss free market utopian fables about the self-regulating marketplace. And they acknowledge the tendency to irrational behavior, something which orthodox economists, who maintain a credulous faith in rational expectations and efficient markets as the way the real economy works, can’t seem to abandon, even in the teeth of the most overwhelming evidence to the contrary. But these “market Keynesians” still treat the understructure of market society—its axiomatic belief in the self-interested individual—as genomic.
“Behavioral economics” is aptly named because it is singularly focused on the social psychology of economic behavior. Economics in this case devolves into group psychoanalysis. In this view, it’s not that the recent smashup is some figment of the imagination, but that some figment of the imagination (“irrational expectations,” for example) made things go smash.
“Behavioral economics” takes on a “Keynesian” coloration because it invites the government to intervene with a series of incentives and disincentives that it hopes will “nudge” people—bankers as well as bakers—to behave more like rational members of the species Homo economicus. Theorists and practitioners of “behavioral economics” seek to avoid a more root-and-branch assault on the structures of power and wealth and the money culture that got everybody into this mess, while they simultaneously rehabilitate the levers of public authority to fine-tune and restore the operations of the market. The elaborate network of government loans, subsidies, exemptions and equity contributions offered up to the country’s banks and “shadow banking” institutions, heroic efforts to keep “zombie” banks upright, first initiated by Henry Paulson and ever more ingeniously extended by Timothy Geithner and Ben Bernanke, might be considered a practicum in “behavioral economics.” It is designed to nudge financiers to act more responsibly without disturbing the basic proprietary and power relations of the old financial order.
One inventor of this new persuasion describes it as a form of “libertarian paternalism.” How wonderfully apt! “Libertarianism” offers reassurance that nothing is meant to threaten the axiomatic individualism of capitalist society; “paternalism” that a beneficent, knowing elite is at the controls, such as they are. It suits perfectly the political isolation chamber in which the new regime, for the moment at least, seems to reside. That regime wants to stand above the fray, disdainful or afraid of the passions ignited by the meltdown, sure of itself and of its technical intelligence to put things back together again; in a word, rule by “brainiacs,” a politics of the apolitical. For all of its electoral robustness, there is something ephemeral about the Obama coalition in its failure to engage or its deliberate damping down, so far anyway, of the social energies released by the collapse of the neoliberalism of the Reagan epoch.
Is this picture so different than what things looked like during the decade of the first Great Depression? Yes and no, but in the most important ways, decidedly yes. Like today, back then a ton of literature exposed the intricacies of the Great Crash, the inside-trading shenanigans associated with investment trusts and pools, the confidence-man trickery gulling people to invest in “Peruvian bonds” (the subprime mortgages of that time), the heavily leveraged stock speculation and Florida real estate bubbles which associated the stock market in the popular mind with the sensual abandon of bootleg gin, the flapper and jazz. But there was in addition a greater thirst for more probing hypotheses of why everything fell apart.
Seventy-five years ago the universe of political possibility was still expanding. When the Great Depression spread from America to Europe and then back to the United States with the bankruptcy of the Austrian Credit Anstalt and Britain’s abandoning the gold standard in 1931, many were ready to conclude that capitalism had failed. Such thoughts could show up in the oddest quarters. Irving Fisher was the most renowned economist of the 1920s but survives in popular memory as an object of ridicule because he made the terminally bad choice to pronounce that stocks had reached “a permanently high plateau” just days before the Crash of ’29. By 1933, however, Fisher had published “The Debt-Deflation Theory of Great Depressions,” a seminal article that showed how deflationary spirals, driven by over-leveraged speculative investment, could turn into intractable depressions. If dire circumstances could move even someone as improbable as Fisher to acknowledge the possibility of capitalism’s failure, others arrived at that position effortlessly.
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