The Mangle of Inequality

Marx, that old mole under the boards, must be laughing. Under the detritus of the non-speak in the papers, this is clearly a business “correction” that points to the inherent crisis-prone strain in capitalism. Marx, of course, wasn’t the first to see that the tendency of the margin of profit of a commercial enterprise is to decline, but he had the larger vision of how that decline was embedded in society.

Apparently, however, nobody quotes Marx or alludes to Marx on TV. On TV, the recession just fell out of the sky. Such was LI’s conclusion, lying in a gigantic hotel room in Sarasota Springs, NY, the past couple of days, channel jumping the wasteland, looking for reports on the Zona. We’d traveled North to attend the wedding of our friend, S. The leaves were red, and the Yankees we met were kind, boisterous, full of family histories and drink. And those accents...I actually experienced that traditional ecodisaster, the pre-wedding limo party. I was a hit for suggesting we find some poor people and run over them (my best material always comes from Baudelaire, God Bless Him). S., of course, shimmered in her wedding gown on the day (and the crosshatched lace action of the back of the gown was, uh, quite phenomenal). Her husband, M., a professional massage therapist and part time punk rocker, assembled part of his band for the reception, and I hopped up and down to the music like a shaved ape escaped from some Pharma concentration camp where they were researching dopamine.

But in the late night off hours, I pondered the pisspoor state of political reporting (that political reporters are surprised that the campaign in October is about the state of the economy means that they really are braindead – did they read nothing about what was happening starting in January?) and watched the group fumble on the news stations to explain what was unfolding.

The place to start, of course, is the seventies. Suddenly, after thirty years, we are starting to recognize the shift that began to occur then. Let me remind you – the shift consisted of 1., the crushing of the bargaining power of labor; 2., the de-manufacturing of America – which was partly connected to the fact that manufacturing workers were the most militant, and partly the inevitable effect of the ability of capital to find other, cheaper regions in which to place factories; and 3, the dissolving of traditional constraints on credit.

These events occurred in response to the most serious crisis in capitalism since 1945. Galbraith’s New Industrial state, the liberal Keynesian economy, had created structures that were supposed to resolve such crises. These included the management of aggregate demand by the state, the moderation of labors’ older, utopian demands for a slice of the power in return for a steadily rising paycheck, and management’s movement away from optimizing profits in exchange for lessened volatility. The Keynesian moment unwound for a number of reasons – labour, with increasingly less interest in the political dimension that originally animated unions, became much more vulnerable; the government management of aggregate demand, combined with the government dependence on War, had finally unleashed inflation; and the ROI of the Fortune 500 corporations was finally causing an investor revolt. However, of the three factors I am listing in the shift to the new, Reagonomic paradigm, one and three seem oddly disjoint. How is it possible to diminish the bargaining power of labor – which results in the stagnation of wages – and at the same time dissolve traditional constraints on consumer and other credit?

Of course, from the neo-classical point of view, that makes a lot of sense. Instead of the government actively managing aggregate demand, the private sector, with a freer credit market, can take over. And in fact, even if wages stagnate, household incomes rise. The house itself as an asset appreciates, for one thing; more investment vehicles are made available to the public, for another thing; and finally, there is the great entry of women into the labor market.

Credit, then, is the keystone. It is from this moment on that the financial services sector, which had been relatively unimportant in the Keynesian regime, returns in force. It is what I would call the mangle of inequality – playing on Andrew Pickering’s term, mangle of practice. Contemporary capitalism in America has to effect a straddle – the economy depends on consumption, and yet, the majority of the consumers engross less and less of the productivity gains accrued by the system. Freeing the financial markets had two effects – one was to re-vamp the consumer’s financial horizon. Instead of worrying about making a wage sufficient to live the good life, the consumer worries about making a wage sufficient to have a good credit history – which is the magical key to the world of cars, plasma screen tvs, houses, and all the rest. The other was to make the consumer a shareholder in the system. For simplicity’s sake, call this the 401k world – that stands at the symbolic center of a system by which the ordinary person was hooked into the market. And the market could, consequently, use vast flows of capital to keep easing credit. A virtuous feedback, so to speak.

It had another, symbolically resonant significance. The triumph of the state in the 20th century was in providing for retirement. The state successfully created, within a capitalist economy, a mass ability to finish one’s life without poverty or utter family dependence. It was the template for the structural goods that the state, in a mixed economy, could provide – when the demands of distributive justice could not be aligned with the price creating market in a good or service. Consequently, social security has earned a special hatred from the right. The American system of encouraging private investment was meant, on the surface, to complement social security, but the ultimate aim was always to replace it.

The mangle of inequality, then, was not – as in Marx’s time – a head to head confrontation between classes. It is a more complex machine, in which class interests are blent so that head to head confrontation is systematically differed. The political triumph of the system is that the blending disenfranchised populism, since it became unclear who would really benefit from populist practice.

These are the roots that clutch. Fast forward to yesterday’s NYT article about Alan Greenspan, and notice the graph about the derivatives market. Notice that, supposedly, the world added 400 trillion dollars worth of value in the last six years. At least in the derivatives market.

This is, of course, entirely spurious. But the logic of the mangle of inequality has driven that financial bubble, and its effects are going to be real. We should not be comparing our situation to the Great Depression. This Zona goes back to John Law’s system. And just as Law’s system produced numbers incompatible with the real world, so, too, has Greenspan’s system. It is about to fall. We are about to see the melting away of 400 trillion dollars, give or take a penny.

The mangle tells us something about what comes next. In the past, recession has been economic sector oriented, which often means region oriented. We’ve seen in with industry and agriculture. The most malign effect of this recession, however, will be concentrated on an age demographic: the over 60s. Their entire world was built on the credit system I have outlined. Ironically, the elites, chattering away about “reforming” social security, never noticed that the real weakness in the retirement system is in the private “complements” to social security. Pensions are already underwater, and have been for some time. Having hooked the generation that was thirty to forty during the Reagan years into the financial system, the policymakers, economists, rightwing think tankers, and the vast sales forces of the financial system brought in the kind of capital that allowed for the speculative bubble. The bubble bursting, that money won’t be there any more. And the over 60s aren’t going to like it.

As for Marx, well, who is that knocking at the door?

Don Giovanni, a cenar teco
M'invitasti e son venuto!