Oh Come ON, All Ye Faithful!

[robinturner]

The economic crisis seems to have become for many, a crisis of faith. After the end of the Cold War, the Good News was that universal democracy would mean the end of war and universal capitalism the end of poverty. If there were still wars and famines, they were trifling exceptions, in countries which were too new to democracy and/or capitalism to have got the hang of them, like Africa and the Balkans. Then the president of the world's most powerful democracy decided, for no obvious reason, to flatten a country on the other side of the world, and now the capitalist countries (almost everyone, these days) are spiralling into recession. So much for the New World Order.

It is not surprising that some people who were joyfully proclaiming the end of history are now trying to wake up from it, while unrepentant leftists like myself are singing "I told you so," and thumbing our noses at all and sundry. What is more interesting is the way some people's faith is unshaken—and we really do seem to be seeing a faith-based approach to economics here. Take, for example, Mathew Parriss' article in The Spectator entitled "Oh Ye of Little Faith!" This claims that the current crisis is a sign that markets are really working. What those of little faith do not realise is that markets are supposed to go into recession. Recessions are not just something that markets are naturally prone to in the way that teenagers are prone to acne; they are actually signs of the wonderful self-correcting nature of the Free Market:

The present collapse is evidence that the market is working. Confidence bubbles are an inherent feature of a free market system. Panics—confidence vacuums—are an inherent feature too. The test of the theory of market capitalism is whether the system provides from within itself the means to prick both.

It does. The first—a confidence bubble—has been pricked. We are now sucking ourselves the other way: into a confidence vacuum. In time this too will be pricked. The market will steady.

Or as Robert Anton Wilson put it, if you can't see the Invisible Hand at work in the most unlikely places, it is simply because you aren't looking hard enough—and the same goes for the Tooth Fairy. What amuses me here is that the author consciously uses religious analogies:

I feel as a priest must feel when a member of his flock abandons the faith because her child has died. Children (the priest might respond) do die; accidents do happen. You knew that. You knew when you embraced the faith. Theology has explanations for human suffering. You knew that too.

One problem with the analogy is that while theology does have explanations for human suffering, they generally aren't very good ones. Another is that becoming a Christian doesn't actually make your child die (unless you join a sect that seriously misinterprets the story of Abraham and Isaac), but unbridled capitalism does, by the author's own admission, cause wild fluctuations. But Parriss has an answer for this too: "Free markets require—often demand—limits to the exercise of their freedom." Now you understand: if you can't see the Invisible Hand at work, you aren't looking hard enough. Even when governments act so as to make markets less free, that is actually a sign that the market is really free. It's like when countries go to war, this is really a sign that peace is working, because peace demands war.

Those who find all this economics hard to understand (and let's face it, who doesn't?) may prefer to explain the workings of capitalism in terms of the Law of Attraction. Bob Proctor, quoted in The Secret, asks: "Why do you think 1 percent of the population earns around 96 percent of all the money that is being earned? Do you think that's an accident?" No, I don't think it's an accident. I thought that rapid industrialisation, first in Europe and then in its colonies, destroyed both feudalism and the system of cottage industries that supported it, and enabled the rise of a new entepreneurial class (actually often members of the old land-owning class under a different name) who were able to make huge fortunes at the expense of unemployed craft workers and landless peasants, setting in place a self-perpetuating system of wealth inequality which was ameliorated, but not radically changed, by the rise of workers' organisations and social-democratic policies. But apparently I was wrong. It's because "These people understand something. They understand the Secret." Ah. So these people got rich because they believed they were going to get rich. They asked the Universe for loads of money, had faith they were going to get it, and the Universe obligingly exploited the labour of the rest of us to give it to them.

But if that is true (You at the back! Stop sniggering, boy!) then how do we explain the current crisis? Did the Bavarian Illuminati "small, select group of people" suddenly stop believing in their wealth? Did some malicious anarchists get hold of the Secret too and use it to screw them? Did the Universe just get fed up with the greedy little buggers? Not according to that same Bob Proctor, who is now saying "The Movie Based on the Law of Attraction is Pop Culture Fluff!" Talk about biting the invisible hand that feeds you. What is wrong with The Secret, and the reason why so many secretoids are now broke, says Proctor, is that it only has three laws. There are actually eleven more laws to learn, hence the name of his website, www.the11forgottenlaws.com.

Things like the Law of Forgiveness … Which contains a mental trick that transforms debt into abundance—nearly overnight. It's almost like turning water into wine.

Or the incredible Law of Increase, where you'll discover the shortest route to tap into higher consciousness and pinpoint accurate answers for all your most pressing questions.

Note that the names of the laws don't have anything to do with what they are supposed to achieve. Note also that now "laws" are apparently not mathematical descriptions of physical processes (it's the maths that promotes a theory to a law, by the way); they are techniques for achieving results. This is a definition of "law" that only a lawyer would go along with.

But enough of this nonsense. The important point is that Parriss and Proctor represent different points on the spectrum of denial. Imagine that they are on board the Titanic, faced by angry passengers and crew who want to know why Parriss told them the ship was unsinkable and Proctor told them their thoughts of floating would prevent it from sinking. Parriss would simply say that sinking is what ships are supposed to do, and the fact that this particular ship is sinking is just proof that it was designed correctly. Proctor, on the other hand, would give them a dozen other things to think about to keep it afloat—or at least to provide something to distract them as it sinks.

Comments

[alsoname.livejournal.com]

Talk about biting the invisible hand that feeds you.

Laugh out loud.

Economics is something I'm trying to gain a better grasp on. I loved reading this post and wish I could respond to it intelligently!

[cassielsander.livejournal.com]

I sort of have a Churchillian "the worst, except for every other form that has ever been tried" view of capitalism. It will be perpetually in need of improvement, but until we reach the point where the crisis takes us back to a pre-capitalist level (erasing all the gains we've made under capitalism) I'd much rather live under it than communism, feudalism, primitive collectivism, or whatever-the-Nazis-had-this-week. Attempts to turn back the clock on capitalism (except as regards public goods like education & medicine) never seem to help.

As for socialism, to me it's like agnosticism in two ways:

1. I generally unenthusiastically subscribe to its basic tenets.

2. I think most people who subscribe to it are fooling themselves and would move to a more extreme form if push came to shove. Which, hopefully, it won't.

[nancylebov.livejournal.com]

I used to trust business much more than I do now. I never thought people would be as flamingly stupid as finance turned out to be.

How sure are you that your guys won't overreach?

[cassielsander.livejournal.com]

Well, my trust in the judgment of individual business people was never super-high and yet is still way down right now. Not to mention their morality (I'm spending a few minutes of every day hopping mad about the "bonus scandal"). But I think (and moreso hope) that capitalism will win out even thought I've never seen things as crazy as they are now.

I was just reading a book on Vichy France and was pretty surprised by the tone of a lot of period writings to the effect that democratic capitalism had failed and something new (and French) had to take its place before a solution could be imposed by the Germans or Russians. They sort of groped in the direction of a social feudalism, which eventually resolved into crony capitalism when things got tight. The lesson of which I guess is that capitalism will survive in some form, and attempts to overthrow it will only make that form uglier.

I put all the conclusions above so you could stop at this point; but if you want to continue to read my ravings...

I'd say part of the problem now is too little capitalism, for instance:

-too much power for the executives and directors of companies at the expense of the shareholders (the true owners of the means of production). This leads directly to inflated executive pay, options shenanigans, ego-driven mergers, and punching up numbers with short-sighted strategems like subprime mortgages.

-too much reliance on cronyish links to government, which reached an all-time American high under the Bush administration. This leads to distortions as people tailor their behavior to attract or adjust for government help.

The biggest problem capitalism in general has, I think, is that the winners of one round are unwilling to play by the same rules in the next round, and their winnings are enough to fuel an attempt to get away with this. But by doing so they break down the capitalist system that made them winners in the first place and everyone eventually loses.

That's why I can't go for the Libertarian "watchkeeper state" or the old-fashioned "property owners' republic"; there needs to be a strong democratic referee capable of making everyone play by the rules or else the whole thing will fall apart. Part of that is antitrust and fair employment laws etc.; another part is producing enough free social goods (education, medicine) that everyone gets some kind of chance, even if not an equal one.

And since the more lazy, greedy, or short-sighted insiders will always try to prevent this, democratic capitalism requires neverending struggle, some of it destructive. But it's only through that struggle that an efficient society can be approximated, because economic power is too complex and corrupting to be wielded in an orderly fashion.

Okay, someone else's turn.

you say po-tay-toe

[trochee.livejournal.com]

not to be too picky, but what you call "democratic capitalism":

The biggest problem capitalism in general has, I think, is that the winners of one round are unwilling to play by the same rules in the next round, and their winnings are enough to fuel an attempt to get away with this. But by doing so they break down the capitalist system that made them winners in the first place and everyone eventually loses.

That's why I can't go for the Libertarian "watchkeeper state" or the old-fashioned "property owners' republic"; there needs to be a strong democratic referee capable of making everyone play by the rules or else the whole thing will fall apart. Part of that is antitrust and fair employment laws etc.; another part is producing enough free social goods (education, medicine) that everyone gets some kind of chance, even if not an equal one.

I call that socialism, especially the "antitrust" and the "fair employment law" and "free social goods".

Mind you, I think that sounds great, whatever you call it.

Re: you say po-tay-toe

[cassielsander.livejournal.com]

Good point. Though I fine socialism to be a REALLY hard concept to pin down because it means different things to different people. (even if you leave out the "national" variety). But I'd say "social democracy" and "democratic capitalism", as practiced in the real world, certainly have a big area of overlap.

Socialism & Capitalism are sort of considered the opposite poles of American political debate, but they are both basically "liberal" in some sense and therefore more like each other than either one is like the vast array of other movements.

[nancylebov.livejournal.com]

too much power for the executives and directors of companies at the expense of the shareholders (the true owners of the means of production).

Alternatively, too much emphasis on the stock market. The stock price only has a loose relationship with what's going on in a company and "increasing shareholder value" isn't a natural human motivation.

[cassielsander.livejournal.com]

Definitely. Which comes I think both from the whole paying-people-with-stock-options thing (a terrible idea) and from general short-term thinking from the shareholders themselves. Blame to go around.

[solri.livejournal.com]

Why are stock-options bad?

bad options

[cassielsander.livejournal.com]

As a method of payment they're bad because they only reward you for what the stock is at a given moment of time, and thus encourage you to do whatever to pump up today's stock price regardless of the future consequences. That, and there's apparently an irresistible temptation to cheat even this bad system by back-dating the options to whatever will give people money (as opposed to setting them to some level ahead of time).

The older idea was to give people actual shares of stock which they couldn't sell for some period (years), so they would participate in the company's profits for through the dividends. This seems to me to be a much better incentive to do good work that keeps the company profitable medium-term.

This fell out of favor because, since stock shares are "given away", they seem to cost the company money, whereas options seem to cost nothing (but in fact cost a lot, because they result in the company selling stock for way under market value). Again, the people making these decisions (CEOs & boards) are insulated from shareholder opinion by incumbency advantages and thus can get away with it in a mutual back-scratching way.

Re: bad options

[solri.livejournal.com]

That makes sense. Personally, I think all stock should be owned by employees and other stakeholders, but that's another kettle of fish altogether.

Re: bad options

[cassielsander.livejournal.com]

I'd turn it around and say that all the stakeholders should periodically be given stock, (which they can't immediately sell), but having them own all of it would be inefficient. But that I suppose is where you really reach the border between capitalism & socialism.

[trochee.livejournal.com]

bravo. i wish this would get published.

Dollars and Sense would probably publish it.

[solri.livejournal.com]

Glad you liked it! I mailed them on the off-chance.