DISASTER CAPITALISTS ABIDE
Gregory A. Daneke*
*Professor Emeritus, W. P. Carey School of Business, Arizona State University. He held other teaching posts: including the universities of Michigan and Stanford, as well as assignments in government, including: The General Accounting (now Accountability) Office, Department of Energy and a White House taskforce. His latest book is Serfs Up: Ruminations on the Political Economy of Our Time While There is Still Time.
While the US haphazardly struggles with a global pandemic and its economic consequences, the only thing clear is that we are writing yet another chapter in the annals of DISASTER CAPITALISM (DC). As a one analyst, Doug Henwood, noted in his review of Naomi Klein’s chronicle of rise of DC, The Shock Doctrine, “history, but not exactly a secret”. And, it is only relatively recent (back to the 1970s) history. Future historians might conclude that well-orchestrated disasters have always been a been a vital element of capitalism. In the mere span of the 1st Gilded Age in America (1863 to 1913) there were at least 3 major panics (what we once called severe recessions/depressions). The leading, yet iconoclastic, economist of that era, Thorstein Veblen (1857–1929), attributed much of its retrograde “barbarism” to institutions that enshrined “the predatory impulse”. His best-selling Theory of the Leisure Class holds valuable insights for our Gilded Age, but mainstream economists no longer read him.
The self-induced downturn that occurred just prior to WWI was appropriately labeled the Banker’s Panic of 1907. The big banks dramatically withdrew liquidity sending the global economy into a tail spin. It also ushered in another clandestine and ultimately successful 3rd attempt at central banking, in the form of the Federal Reserve System (or simply “the Fed”). Previous incarnations proved so inherently corrupt that their charters were not renewed. Conspirators were taken back and forth on a private train in the dark of night to J.P. Morgan’s compound on Jekyll Island in Georgia, and enabling legislation narrowly passed by a holiday depleted Congress on Dec. 23, 1913. The Fed came with the promise that it would make panics a thing of the past, but we merely lost the label. Fed machinations have mostly increased financial fragility. Its present participation in precipitating financial crises (e.g. inflating huge asset bubbles) is more subtle perhaps, and more easily hidden in the wake of wars and natural disasters.
The Great Depression (1929–1941) brought a number of earnest attempts subdue the power of the bankers (e.g. Glass-Steagall, Pecora Commission, Deposit Insurance, etc.). As safeguards were set aside, however, over the last several decades, bankers got back to the business of strategically blowing-up the economy from time to time. Meanwhile academic economists completely forgot about the “Cantillon Effect” (where central banking redistributes wealth upward) or maybe they just remembered who they were working for. Klein highlights the latter, explaining how a small cult, led by the likes of Milton Friedman (1912–2006), captured the entire discipline with the help of generously funded anarcho-capitalist institutes and think-tanks. Their wealthy patrons also funded portions of particular econ departments and business schools, not to mention their care and feeding of Baby Borks (like those currently serving on the Supreme Court) via their support law and economics programs, the Federalist Society, etc.
Under the residual influence of this insidious cult, mainstream economists continue to actively obscure how and for whom our economy actually works. They fashioned an elaborate money origination myth as instruments of barter rather than debt accounting and accumulation. They also propagated the fantasy that banking is merely neutral intermediation and thus “exogenous” to (outside) their tidy models.
Worse yet, they convinced most of us that “the market” is some sort of self-regulating natural phenomena. By contrast, Karl Polanyi (1886–1964) demonstrated in his detailed history, The Great Transformation: The Political and Economic Origins of Our Time, that the “market” is wholly a governmental contrivance, and the notion of an unbridled market is a dangerous ideological pipe-dream. What Polanyi discovered from the catastrophe of two world wars was that societal “integration” becomes exceedingly fragile when its three elements (“reciprocity, redistribution and market exchange”) are out of balance. The inevitable fate of market supremacy is “fascism”, according to Polanyi.
What is essential to note is that, in practice, most market ideology is pure subterfuge. While many free market fundamentalists argue that planning is The Road to Serfdom, they readily look the other way when it is undertaken by and for plutocrats. In times of crisis, that their inconsistencies often provoke, they abandon laissez-faire altogether, and pillage the public largesse at will. Words like “liberty” and “freedom” are used to conceal an abundance of fraud and corruption, as well as promote societal repression.
The processes of plutocratic panic production proceeded apace in the recent era of ideologically inspired deregulation (1977–2010). The S&L Crisis, the Asian Contagion, the Peso bail-out, and Dot-com debacle, etc. were merely dress rehearsals for what was yet to come next. We even got a peek at inner sanctum of the “Shadow Banking” machinations, when the crash of LTCM pulled back the wizard’s curtain and showed us that a single, albeit super-leveraged, hedge fund could have collapsed entire global economy. Nonetheless, each financial failure was met with a further crippling of regulation. It is comical that whenever the economy implodes, bankers acknowledge a “Minsky Moment”, but fail to mention that this notion maintains that these instances of extreme “instability” are built into our debt driven systems of money and banking. By pretending that bubbles and crashes are some type of Black Swan (an unpredictable event), they and their apologists further obscure their active own role as the masters of mayhem.
The financial crisis of 2008 revealed the massive up-grade in arsenal of economic high explosives (e.g. Warren Buffett correctly called the new financial derivatives WMDs), yet few have been effectively defused. More importantly, it exhibited the virtually unlimited political power of the banking sector, and this too remain unresolved. As the saying goes, “when the tide goes out you can see whose been swimming without a suit (or sufficient collateral), but the blushing has been minimal, at best. The perpetual motion debt machine was shown to be a monstrous Ponzi scheme (where additional loans were needed just to pay the interest and lucrative fees on past loans). Derivatives added nearly a quadrillion to the galactic pile of fake wealth, as bets on bets and bets on bad debts became an art in and of itself. All the while, regulators shrugged “it is what it is”.
Consider the infamous, “credit default swaps”, and imagine a system where numerous total strangers could purchase a fire insurance policy on your house, and then stand in your front yard with torches. Your modest abode could be worth billions burnt to the ground. Further imagine how easily governments can be blackmailed into paying off much of the web of counterparties, especially if they include a “too big to fail” bank. One fan of derivatives once said that we need not worry about their nominal value, as they are merely “lottery tickets”, and only worth their number times the prize for an instant just before the drawing. This is a brilliant analogy, but unfortunately, unlike normal folks who toss the loosing tickets once the drawing has passed, bankers often hold on to them for dear life, fully expecting to paid something.
Several excellent books and at least one fabulous documentary (The Inside Job) were produced, following the crash of 2008, that illustrated that it was hardly an accident. Yet not until last year with the publication of Aaron Glantz’ Homewreckers (an analysis of the aftermath of the housing bubble explosion) did we get a dead-on view of “heart of darkness”. In short, the nexus of DC is good old-fashioned “accumulation by dispossession” on an industrial scale. He shows us a system specifically designed to pander to predators. Like the comic of the two vultures sitting on a fence, one tells the other “if something doesn’t die soon, I’ll have to kill it”. Plus, Glantz points out that some of the fattest vultures are members of Trump’s inner circle (e.g. Mnuchin, Ross, Barrack, Schwarzman, etc.) despite his populist propaganda.
The preoccupation with bailing out only the banks functions like a neutron bomb, destroying the people while leaving the real estate intact. Private equity firms (like Blackrock) swept into bombed-out places like Phoenix and bought billions of dollars’ worth of homes and converted them to rentals virtually overnight, then they bundled and sold shares to eager investors. Hence, on top of the largest land grab this side of the American Indian Wars, they “demolished” the last vestiges of an inclusive economy. As George Carlin observed that “it is called the American Dream, because you have to asleep to believe in it”.
The Coronavirus Crisis, has not crashed the housing market quite yet, but it is only matter of time before out-of-work renters set in motion another foreclosure cascade among their cash stamped landlords and/or impatience investor pools. Moreover, many a middle-class homeowner will be ruined when they are unable to get the various non-bank mortgage service companies to allow them to simply add their missed payments to the end of the loan. They may become reacquainted with the maxim that when homes became the fodder of global speculation, having a mortgage meant you really don’t own anything. Even the big banks with their access to the Fed window, could opt for catch-up balloon payments at the end of slim governmental grace periods. Meanwhile, Blackrock is back in saddle supervising the Fed’s toxic bond purchases, as part of their “anything it takes” policy.
The Federal Reserve has remained in beyond emergency mode since 2008, with near zero interest rates and periodic quantitative easing. And, long before the arrival of the virus it set sail for unchartered waters (e.g. taking over the overnight lending or “repo marker”). Now it has totally gone bonkers with unlimited “helicopter money” printing, and direct purchases of heretofore outlawed non-securities (e.g. junk bonds, self-securitized paper, and debts from foreign/non-member/shadow banks) as well as the prospect of taking equity positions in failed private firms. Plus, it worth remembering that while the Fed is autonomous, the tax payers are ultimately on the hook for their burgeoning balance sheet.
Meanwhile, Congress passed their multi-trillion-dollar Coronavirus Aid, Relief, and Economics Security (CARES) Act of 2020, and as one might expect, only a pittance is going to those who need it most, with the lion share going to the 1%. As Forbes reported virtually everybody, irrespective of need, will receive their Trump-chump-checks of twelve hundred dollars, but given special tax provisions buried in the bill, those who already earn more than a million annually will net an additional one million seven hundred thousand-dollar windfall. Furthermore, despite all the talk about small businesses, the bulk of the support is going to several multi-national corporations and other selected cronies (e.g. oil/gas firms and various red state titans), some of which were near to receivership well before the virus arrived. When added to new Fed programs it is the greater transfer of wealth from the poor/working/middle class to the rich “in the history of the world” (as Trump would say). It makes previous episodes of “never let a crisis go to waste” pale in comparison. While adding trillions to the already astronomical national debt, it does nothing to address the processes of predation, and applies only a flimsy band aid over the gaping wounds of societal disintegration.
Beyond the widespread dispossession, immobility, and exclusion engendered by episodes of DC, they can also set the stage for far-reaching political disintegration. Allowing the rank and file to be robbed of their stake in the system severely damages trust in democratic institutions. While the smoke screen over oligarchy lifts, more vicious demagogues come out of shadows. Their pretend populism and appeals to faded glories seek to re-open societal fissures. Our continuing failure to curb the predatory elements within our economic institutions, allows our fledging führers to stir their tin-pots of hate and fear.
One of the interesting artifacts of our time is that Hannah Arendt’s (1906–1975) dusty tome, The Origins of Totalitarianism, made it back on bestsellers’ lists. She records how from humble beginnings in eras of economic disruption, it quickly metastases into popular atomization and division within the public sphere. Alienated and isolated individuals are galvanized by a simple toxic ideology that gives their malaise meaning. The once passive masses become agitated and mobilized. Previously respected leaders and scientists are widely ridiculed, and members of the free press are vilified. Ancient grievances and cultural differences are amplified, imaginary enemies identified, and scapegoats persecuted. Does this sound familiar? Yet for Arendt, what really distinguishes totalitarianism from merely run-of-the-mill fascism, elements of which the US has experienced for years, is the “systematic use of terror”.
Think it can’t happen here, think again. As Harvard Business Professor, Shoshana Zuboff latest opus, The Age of Surveillance: The Fight for a Human Future at the New Frontiers of Power, points out, the recent advances in artificial intelligence (AI) and big data collection and manipulation give unsavory actors mechanisms of social control that make Orwell’s 1984 seem mild. Elections have already been manipulated and people have had entire lives red-lined, before they’ve had a chance to live them. Predictive algorithms can herd us into cohort corrals before we make any conscious choices, and reorient us when we deviate from the predetermined path. Moreover, the on-going AI revolution will, in the words of Silicon Valley’s favorite dystopian writer, Yuval Noah Harari, relegate many to the completely “useless class”. Just imagine all the possibilities for disaster capitalists and proto fascists. When machines know us better than we know ourselves, elites can amplify our personal terrors with couple of clicks and get us betray our fellow Sapiens (a Winston/Julia moment) or extoll their enhanced Homo Deus.
Before we renounce what is left of our humanity and join an angry “Bury the Boomers” demonstration, we should give some thought to who will stand-up for us when our machine projected cohort is next on their list of “undesirables”. If our inherent sense of obligation to one another can be rekindled, then when we comb through the rubble of this current crisis, we might yet discover the proverbial silver lining. Perhaps we could return to Veblen and Polanyi, with maybe even a pinch of Henry George (1839–1897) and/or John Rawls (1921–2002) thrown in for good measure. Then we could begin to ask what a more resilient and inclusive political economy for the AI era might involve?