Costs of the bank bailout

Japan was the first of the industrial economies to emerge from the Great Depression. This was due to many factors: getting off the Gold standard, Keynesian-like government policies to drive up private demand, and of course the expansion of the Japanese Imperial Military, which combined with the industrial cartels – the zaibatsu – to revamp Japan’s industrial base.

Of course, these Japanese policies had a cost: war in China, millions dead, the war in the Pacific, the bombing of Japan, Hiroshima, Nagasaki, etc.

But the technocrat and his followers simply bracket the paltry negative externalities.

I thought about those externalities reading John Cassidy’s assessment of Lawrence Summers stint as Obama’s economic guru in the New Yorker. Now, I like John Cassidy, but here he gives vent to the sort of praise for ‘saving the system’ that, of course, takes it as unquestioned that the system should be saved. More, that is blind to the consequences of saving the system.

You can tell the apologetics are going to start when we are told – as the liberal venders of Obama’s dog food love to tell us – that TARP will make a profit. This, of course, is like saying I can make a profit by lending you, with one hand, a thousand dollars at five percent interest, and with the other hand, lending you one hundred thousand dollars at zero percent interest. We know why TARP was repaid – basically, the Fed took 3 to 6 trillion dollars and injected it at superlow interest rates into the financial system.

John Cassidy himself knows this. But he doesn’t know how much it cost the system – the system of democratic governance – to operate in the highhanded, semi-legal, and plutocratic way that “saved’ us from Depression. In fact, he doesn’t consider it. This is the way he defends Summers – long quote:

“Let’s be honest, though. Back in late 2008, President Obama didn’t bring in Summers for his television face or his ability to make nice with David Brooks and George Will. With the credit markets frozen and the economy in free-fall, the President-elect ignored the counsel of some of his campaign advisers and hired the controversial professor to guide him in the right policy direction. Did Larry do that? Ultimately, this is the criterion on which he deserved to be judged.
With the unemployment rate still close to ten per cent, the consensus view, as reflected in the results of the midterms, is that President Obama’s economic policies have failed. But think back to the collapse of Lehman Brothers, and what could have happened. Between September, 2008, and April, 2009, the stock market fell more sharply than in the six months after Black Tuesday in 1929. Global trade declined more rapidly than in the first year of the Great Depression. Companies were shedding jobs at a rate of seven hundred thousand a month.

Summers, to his eternal credit, was one of the first mainstream economists to understand what was happening. The carnage on Wall Street had unleashed a series of vicious cycles, which were wreaking havoc throughout the economy. In the financial markets, falling asset prices were leading to margin calls and more forced selling. In the housing market, the rush of foreclosures meant there were more unsold homes on the market, which was putting more downward pressure on prices. And on Main Street, ordinary Americans, shocked at the sight of Wall Street imploding, were spending less and saving more, which, in turn, was prompting firms to lay off more workers.

To anybody running a business or managing a Wall Street trading desk (or anybody who knew their Keynes), the downward spiral was glaringly obvious. But many academic economists couldn’t or wouldn’t see it. They remained committed to the view of the economy as a self-equilibrating mechanism that would rebound of its own accord. Some economists criticized the Fed and the Treasury Department for doing too much to help Wall Street. Others argued against an aggressive stimulus program, saying it was unnecessary. In his column in the Financial Times, and later, in internal Administration debates, Summers vigorously supported both of these policies, which did, eventually, halt the downward spiral.

“Had it not been for President Obama’s willingness to support a sufficiently aggressive response—from the late stage of the presidential campaign to his first days and months in office—I have little doubt that we would be looking at a vastly different world today,” Summers said in his remarks to the Economic Policy Institute. “His stalwart advocacy of efforts to support the economy through the Recovery Act, to rescue the financial system, to ensure the health of key industries, and to maintain stability in the global system halted the vicious cycles in less time and at less cost than virtually anyone thought possible.”

Yes, these remarks were self-serving. As far as I can see, though, they are an accurate statement of the historical record. The blanket government guarantee to the financial sector stemmed the panic selling on Wall Street. Rock-bottom mortgage rates and various anti-foreclosure programs put something of a bottom on house prices. And the $787 billion federal stimulus program helped offset falls in spending on the part of consumers, corporations, and state and local governments. Yes, we can argue about the precise impact of the stimulus on spending and jobs, but it defies the laws of arithmetic to argue, as some prominent conservative economists do, that it had no effect at all. (As for the critique from the left—that the stimulus program was too small—in retrospect, it may well be correct. But I doubt a few hundred billion dollars of extra spending over three years would have made much difference to the economy’s overall path.)

And what was the cost of these policies? The hated TARP bailout will almost certainly turn a small profit for the taxpayer. The stimulus program raised the deficit, but not by as much as many people think. The recession caused most of the increase: spending on unemployment benefits and other social programs increased, and tax revenues plummeted. (Perhaps the biggest cost of the monetary and fiscal rescue packages is a largely invisible one related to the Fed’s emergency lending programs. In extending cash to to virtually anybody and everybody at near-zero interest rates during the height of the financial crisis, the Fed has created the expectation that it will do the same thing next time around—an expectation that is sure to influence behavior in the years ahead.)”

We can start with a sentence in the last paragraph to find the error in this analysis – “in extending cash to virtually anybody and everybody…” No, that should read – “in extending cash exclusively to the biggest banks and the heart of the financial casino industry…’ For the government somehow missed extending loans at 0.07 percent to, say, 80 percent of the American public. In reality, doing so would have allowed them to exchange their old debts – at whacked out interest – for new ones at such low interest that they could breath, maybe save the house, maybe stay in college, etc.

This did not happen. And the system that was ‘saved’ is the system as Bushonomics created it, circa 2007 – poorly regulated, one of the most ghastly inefficient ways to transfer capital to socially valuable investment ever created, a monster that only a rentseeker could love. Politically, these moves set back ‘progressive’ politics – the kind of hopy-changyness that seem to hover like tinkerbell over Obama’s rhetoric – for a generation. Instead of a gamechanging moment in which we could reverse the vicious corruption of politics and the dynamic of income and wealth inequality that is squeezing the American public to death, we … had the Summers sit on our face.

The inability to see the larger damage of the government’s urge, in 2008-2009, to save the very richest people in the world is the inability to see beyond the economic order, such as it was, in 2007. Japan’s policies that got them out of the depression gave them a good ten years – which were harsh on millions of Chinese, of course. But eventually these policies had other negative effects – the death of millions of Japanese and the destruction of all Japanese cities. Sometimes, cleverly saving the system so that the numbers are shiny – look at that commercial paper unfreezing! – is not really clever at all.

I’m not sure where the bottom on housing prices is leading us, incidentally. Surely Cassidy is being a tad optimistic. Summers presided over an economic policy that has resulted in a once in a generation loss of wealth to most American families, which Edward Wolff estimates at 36 percent – meanwhile, the upper one percent income bracket dropped 11 percent. In other words, Summersian policy was more than 3 times beneficial to the wealthiest than to the rest of the country.
But the numbers only indicate a great cultural disaster. The dropping of all pretences about who is worthy and who is unworthy in the U.S. can’t simply be wished away by those looking at how the place is governed, how everyday life goes on, the amount of real liberty people have. At these qualitative costs will eventually tell.

suffering's gonna come

The sufferin’s gonna come – to everyone—some day


I have no time to write today or probably tomorrow, as I’ve been sick and now must edit for my meat.

But I did want to refer readers to Frédéric Lordon’s article, don’t destroy the banks, seize them in Le Monde.

I’m going to translate this paragraph:

To the question of how all of this is going to finish, the response is thus: badly. And this all the more so since the social bodies are beginning to rail seriously. Without doubt, the enchainment of facts is complicated to follow in its technical detail, but the picture of the whole is more clear to them, and all the world now sees perfectly well its disgusting colors.: 1) private finance is the author of the most gigantic crisis in the history of capitalism; 2) the banks only are able to force the public powers to support them by the fact that they occupy that neurological place in the structure of the whole of capitalism which permits them to enchain the social body as a whole entirely to their particular interests; 3) this situation which has all the elements of a perfect hostage taking should have guided the salvage operation of 2008, not only to closing more largely the game of market finance, but to recommunalizing the banking system in as much as precisely it is the fact of the deposit of vital common goods, to wit, the security of the public’s monetary accounts and the general conditions of the real economy: 4) infested by the representatives of the power of money, the states did nothing like that and gave their support for nothing, or rather for a double arm of honor, which firstly took the form of the maintaining of exorbitant remunerations and chiefly and more gravely, the application of the ruler of the markets to public finance, bled be it because they had directly saved the banks, be it to make up for the costs of the recession; 5) the splendid mechanisms of the capital market concur with a rare elegance in the organization of the wordst in rendering insoluble a crises of debts that they had themselves given birth to; 6) and this up to the point that this crisis becomes irremediably theirs once again, threatening a second collapse on the scale of 2008 ; 7) while ’Europe invents hastily new institutions proposed to come to the aid ‘of states’, there everyone sees well that it is a question of saving the banks for the second time. Thus, so to speak, for the second time too many – for we still want to know how the first time was swallowed so easily by the social bodies, decidedly, with an Olympian calm.”
All of which is indisputeable, and of absolute indifference to our rulers. It will take a long time to understand the latter – a long period of disinvestments, of alienation, of the refusal, finally, to identify with any of them.

three weeks that were heard around the world

It isn’t exactly the week that changed the world – but the astute observer must find the last three weeks fascinating. It has long been the case that the states within the developed world have encouraged, at one and the same time, the conditions for plutocracy and the advance of the protector state. It is a double movement that is only reflected in a distorted way in the issues about ‘deficits’ or ‘deregulation’ – since the plutocracy could only arise, as it were, in conditions that hid it from the social order, which had temporarily pivoted, after WWII, on ‘democracy’. Of course, this talk about democracy is loose – you will hear Americans go on and on about their ‘democracy’ without the least awareness that, up until 1965, America was anything but a democracy – it was, in truth, one of the world’s worst apartheid states.

However, the very fact that myth disguised this fact is a significant indicator of the hegemony of the democratic reference.

It has been clear for some time that the double movement of encouraging both plutocracy and the protector state – middle class ‘entitlements’ – was eventually going to come up against the limit of its internal contradiction. The only question was whether the plutocratic element was strong enough to overcome the inertia of the democratic culture and the desire of the majority of the population to retain its ‘entitlements’.

2008-2009 should be known, in the future, as a sort of unveiling moment. It is here that the rhetoric about capitalism and free markets were calmly thrown into the garbage can, as the real goal of the state – maintaining the plutocracy – proceeded in defiance of all rules, and against all the surface ‘ideologies’ of the supposed opposite political sides. The most conservative of American Presidents, Bush, and the supposedly progressive Democratic presidential candidate, Obama, made common cause in saving the wealthiest. Of course, due obeisance was paid to democratic rhetoric, and we were told that saving the wealthiest was ‘saving the economy’. The economy was near a ‘meltdown’. In reality, it was only the plutocracy, which had long dispensed with the role of investing in real social goods and innovations in the developed countries and had engaged in an orgy of much more profitable rent-seeking that was truly in danger.

The Anglophone countries were at the heart of the rise of the plutocracies. Not all of them have nurtured the combination of plutocracy/entitlement to the same extent, but in the UK, Ireland and the U.S., this combination has become the template around which all political actors gather.

It is against this background that the three events of the past month – Ireland’s takeover by the IMF and the unprotesting submission of the population to the world’s first case of a nation run solely to pay off bank bondholders – the UK’s decision to slash funding for education to a level not seen since the 19th century, while simultaneously continuing to backstop the bankers –and Obama’s decision to continue the Bush tax cuts while beginning the policy of decimating the Social security fund, in preparation for its future ‘reform’ – take on their significance. A population that has grown comfortable under the entitlements regime is non-plussed by the fact that the plutocrats are openly shrugging off the accountrements of democratic culture. But the struggle that put in place the entitlements is so long ago, and the institutions that guided that struggle are in such disrepair, that the population is, as it were, disarmed. The index of that vulnerability is the fact that the population turns, as though naturally, to the parties.

The political class in all Anglophone countries have long been recruited from professions that are ancillary to the plutocrats – mainly lawyers – and, in their day to day lives, the political class of all parties sees and establishes personal relationships with other plutocrat ancillaries. The political class – whether Labour or Tory, whether Democrat or Republican – is united in the policy that binds together the alliance of the government and the plutocrats. Blair and Obama, insignificant suits in themselves, become potent historical symbols by having been both the recipients of ambient anxiety about the structure of the economy and the great pursuers of policies that were the opposite of what their followers presumed. Obama is, at the moment, subject to a very personal rage on the part of American ‘liberals’ who have reached a point at which they are beginning not to accept the dogfood poured out by the usual media propagandists – the host of media personalities, bloggers, talking heads, and think tankers. The dogfood – usually wrapped around meaningless phrases about the most ‘progressive’ president of the last seventy years, or other kinds of hype – is beginning to stick in the throat. This is the moment that Marx speaks of in the German Ideology – the moment of the ‘unbearable’.

Yet, it is hard to see what will reverse the trend towards plutocracy. I suffered the illusion, in the 00s, that the plutocracy was somehow Bush’s ‘fault’ – that the Bush regime, with its faint odor of an illegitimate coup, its corruption, its gathering together of the very worst of the media messengers and gray eminences, was somehow causing the plutocratic tilt. The salutary experience of watching a very different president, Obama, advocate for the same policies makes one think. Perhaps it doesn’t matter what pony you bet on if they all race around the same circular track.

Notes written in the Haifa coffee shop, Tangiers.

While the division between the city and the country has been noted as far back as Homer’s description of the race of Cyclopes in the Odyssey (“The Cyclopes have no assemblies for making laws, nor any settled customs, but live in hollow caverns in the mountain heights, where each man is lawgiver to his children and his wives, and nobody cares a jot for his neighbours”), it was Marx in the German Ideology first saw how the division functioned as a social structure: “The greatest division of material and intellectual labor is in the division of the city and the country. The opposition between the city and the country begins with the transition out of the barbaric state into that of civilization, out of the tribe into the state, out of the locality into the nation, and traverses all of history up to the present day (the anti-Corn Law League). – With the city we get at the same time the necessity of administration, the police, taxes, etc., in brief the community and thus politics in general. Here the division of the population into two great classes shows itself, which are directly based on the division of labor and the instruments of production. The city is already the fact of the concentration of the population, of instruments of production, of capital, of pleasures, of needs, while the country brings into view the completely opposite fact of isolation and separation. The opposition between the city and the country can only exist within private property.” In his work on peasant rebellions in the 1970s, James C. Scott took up this thread to explore what he called the slippage between the great tradition of the cities and the little tradition of the peasant countryside. It is in the city that theology, science, and modern economics is conceptually developed, and in the country that the little tradition, with local beliefs and cults (or from the city viewpoint, ‘superstition’), archaic modes of exchange, and a conservatism that adheres to older, outmoded strata of the great tradition reigns. The city sends the country its emissaries – its priests or doctors, businessmen or commisars – while the country sends the city its unskilled labor. The city establishes the order of progress in the Country, under the sign of ‘allochrony’ – even if the city and country are, in reality, synchronous, in the time of ideology, the city is ‘modern’ and the country is ‘primitive.’

According to this rough mapping, then, we should locate myth in the little tradition. It should be tied to the local cult, the village cosmology.

This essay, however, proposes to deviate from the outlines of this powerful conceptual grid, for I want to locate and trace a myth that emerges in the great tradition at the very heart of rationality itself: the myth of economic man. Homo Oeconomicus, which appears, as a phrase, for the first time in the writings of Pareto and Walras in the 1890s, has a long prehistory going back to changes in the system of production occurring in the late seventeenth century. In following this myth, I aim to blur the great lines laid down between the great and little traditions, and the tendency to interpret modernization – the creation of a vast monetized economy lubricating every transaction that holds together the treadmill of production – as, ideally, supplanting all other forms of exchange.

Busting the joint out

LI hopes, someday, to hammer with his little hammer and nails one little dictum into the American mind (that mountain of quivering balony, that Etna of bullshit): you can not indefinitely support an income spread a la 1900 and a social welfare network a la 1965. Yes, the neo-liberals will claim that the lion and the lamb can lie down together, and that a paradise of growth will infuse us all with the milk of human kindness and good medical coverage.

But besides the fact that growth, when one begins to examine the constituents out of which it is measured, seems to be a funny way of looking at human well being – and besides the fact that growth, inconveniently enough, was much better under the non neo-liberal bad times from 1945 to 1980 – there is, of course, a sort of blindness in this belief. It is as if the neo-libs want to defend the wealthy without ever asking themselves – why be wealthy?

After all, how many lunches can one highly overpaid CEO gobble in a day?

Wealth is power, and power is embedded in the social reproduction of classes. The wealthy need only use a small portion of their wealth to block upward social mobility – and they will gladly do so, if they can. Why shouldn’t they? Wealth, after all, responds to a positional as well as an accumulative logic. You don’t just ‘make a buncha money’ – you use that money to exert power. Which is to homo sapiens what the dew is to the daffodil.

All of which floods the mind in this, the second year of the Zona. As a Christmas gift, we were given the Federal reserve dump, Wednesday, showing how much they loaned and who to and with what interest in the 2007-2010 period. Of course, as Yves Smith has pointed out, they blatantly and illegally kept dark what they took for their loans – in other words, there is a pile of 885 billion dollars in collateral that the Fed, majestically, decided not to disclose to the unwashed. The Fed don’t work for the unwashed.

The numbers have a sort of operetta feeling – the comedy of Randian Wallstreeters running like, to use Dutch Reagan’s phrase, a Chicago Welfare Mother to the Fed should definitely be scored to Offenbach. Today’s Business Week contains this excellent quote:

“Magnetar Capital LLC, the hedge fund which profited from bets against mortgage securities during the financial collapse, participated in the program through Magnetar Funding II, which borrowed about $1.05 billion through seven TALF transactions.
“Magnetar participated in the program on the same terms as the hundreds of other participants in the TALF program, by Magnetar providing ‘first loss’ risk capital in these markets,” Steven Lipin, a spokesman for the Evanston, Illinois-based firm, said in an e-mail.
FrontPoint Partners, a hedge fund unit of New York-based Morgan Stanley, used the facility 48 times through its FrontPoint Strategic Credit Investments for a total of $1.09 billion.
,,,
“On behalf of clients, FrontPoint was an early participant in the government TALF program,” Steve Bruce, a spokesman for the firm said in an e-mailed statement. “With our clients, we were able to support the government in this important initiative.”

I’d like to support the government by taking out a 1 billion dollar loan for 0.0077 percent interest to. Please? I promise to be most patriotic.
This is even more rich for those of us Zona fans with that Long Term Memory – a most unpatriotic property. If there were an operation to get rid of it, I’m sure that , the Dems and Republicans would probably join together in bipartisan harmony to make it tax deductible.

But we remember Front Point from the excellent article by Michael Lewis about the firm that shorted the subprimemarket.
Here’s a quote to go out on. And, if I could only reproduce in prose what is so well done in cartoon, I’d like this quote to be read in a Woody Woodpecker laughing voice, please. The suckers are the American people, and if they don’t rise up and cast aside mock chains and the serious message mongers who insist on herding them into the killing stalls, they deserve what they get:

By the spring of 2005, FrontPoint was fairly convinced that something was very screwed up not merely in a handful of companies but in the financial underpinnings of the entire U.S. mortgage market. In 2000, there had been $130 billion in subprime mortgage lending, with $55 billion of that repackaged as mortgage bonds. But in 2005, there was $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Eisman couldn’t understand who was making all these loans or why. He had a from-the-ground-up understanding of both the U.S. housing market and Wall Street. But he’d spent his life in the stock market, and it was clear that the stock market was, in this story, largely irrelevant. “What most people don’t realize is that the fixed-income world dwarfs the equity world,” he says. “The equity world is like a fucking zit compared with the bond market.” He shorted companies that originated subprime loans, like New Century and Indy Mac, and companies that built the houses bought with the loans, such as Toll Brothers. Smart as these trades proved to be, they weren’t entirely satisfying. These companies paid high dividends, and their shares were often expensive to borrow; selling them short was a costly proposition.
Enter Greg Lippman, a mortgage-bond trader at Deutsche Bank. He arrived at FrontPoint bearing a 66-page presentation that described a better way for the fund to put its view of both Wall Street and the U.S. housing market into action. The smart trade, Lippman argued, was to sell short not New Century’s stock but its bonds that were backed by the subprime loans it had made. Eisman hadn’t known this was even possible—because until recently, it hadn’t been. But Lippman, along with traders at other Wall Street investment banks, had created a way to short the subprime bond market with precision.
Here’s where financial technology became suddenly, urgently relevant. The typical mortgage bond was still structured in much the same way it had been when I worked at Salomon Brothers. The loans went into a trust that was designed to pay off its investors not all at once but according to their rankings. The investors in the top tranche, rated AAA, received the first payment from the trust and, because their investment was the least risky, received the lowest interest rate on their money. The investors who held the trusts’ BBB tranche got the last payments—and bore the brunt of the first defaults. Because they were taking the most risk, they received the highest return. Eisman wanted to bet that some subprime borrowers would default, causing the trust to suffer losses. The way to express this view was to short the BBB tranche. The trouble was that the BBB tranche was only a tiny slice of the deal.
But the scarcity of truly crappy subprime-mortgage bonds no longer mattered. The big Wall Street firms had just made it possible to short even the tiniest and most obscure subprime-mortgage-backed bond by creating, in effect, a market of side bets. Instead of shorting the actual BBB bond, you could now enter into an agreement for a credit-default swap with Deutsche Bank or Goldman Sachs. It cost money to make this side bet, but nothing like what it cost to short the stocks, and the upside was far greater.
The arrangement bore the same relation to actual finance as fantasy football bears to the N.F.L. Eisman was perplexed in particular about why Wall Street firms would be coming to him and asking him to sell short. “What Lippman did, to his credit, was he came around several times to me and said, ‘Short this market,’ ” Eisman says. “In my entire life, I never saw a sell-side guy come in and say, ‘Short my market.’”
And short Eisman did—then he tried to get his mind around what he’d just done so he could do it better. He’d call over to a big firm and ask for a list of mortgage bonds from all over the country. The juiciest shorts—the bonds ultimately backed by the mortgages most likely to default—had several characteristics. They’d be in what Wall Street people were now calling the sand states: Arizona, California, Florida, Nevada. The loans would have been made by one of the more dubious mortgage lenders; Long Beach Financial, wholly owned by Washington Mutual, was a great example. Long Beach Financial was moving money out the door as fast as it could, few questions asked, in loans built to self-destruct. It specialized in asking homeowners with bad credit and no proof of income to put no money down and defer interest payments for as long as possible. In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000.”

WE SEE HENRY AND TWO HOODS from cabstand checking the cases
of liquor being delivered into the lounge. The entire room
is filled floor to ceiling with cases of whiskey, wine,
crates of lobster, and shrimp, and stacks of table linen
and sides of beef. The place looks like a warehouse.

HENRY (V.O.)
But now the guy has got to come up
with Paulie 's money every week,
no matter what. Business bad? Fuck
you, pay me. You had a fire? Fuck
you, pay ma. The place got hit by
lighting? Fuck you, pay me. Also,
Paulie could do anything. Especially
run up bills on the joint's credit.
Why not? Nobody's gonna pay for it
anyway.

EXT. BAMBOO LOUNGE - REAR ALLEYWAY - DAY

WE SEE cases of liquor, wine, etc., being carried out of
the rear door of the lounge by HOODS from the cabstand and
loaded onto U-Haul trucks.

HENRY (V.O.)
As soon as the deliveries are made
in the front door, you move the
stuff out the back and sell it at
a discount. You take a two hundred
dollar case of booze and sell it
for a hundred. It doesn't matter.
It's all profit.

INT. BAMBOO LOUNGE OFFICE

HENRY, JIMMY and TOMMY are standing around the small
workman's table. There is no desk. The office looks denuded
of furniture. A LAWYER is going over papers.

A terrified, unshaven SONNY BAMBOO is seated behind the
desk. The LAWYER is showing him where to sign.

HENRY (V.O.)
And, finally, when there's nothing
1 left, when you can't borrow
another buck from the bank or buy
another case of booze, you bust
the joint out.

The book is rejected, and LI is bummed

Well, the agent to whom I sent my proposal letter had one his factotums respond that it wasn’t the type of project for the agent’s “list”. No explanation, but I imagine that the factotum was the one assigned to the task of delicately warding off the cranks. And, admittedly, I am a crank.

Well, fuck it. I was bummed for a bit. But I still think that this small book works – it would be an excellent intro to my larger, more flou happiness book. If – I told myself, awake in the hollows of 3 a.m. as the snow began to really accumulate on the streets of Paris – if I just made a first chapter, some 10,000 word consideration of how, a, we moderns have come to at least accept the myth of homo economicus, and b., how economics, in its policy designs, has tried to impress the character of homo economicus upon capitalist societies.

Unfortunately, the story I want to tell has more than just one linear narrative – because in telling this story of the moderns, I am concerned to show that the moderns do not, contra the intellectual historians and the economists, make up one homogenous mass – that in fact in the everyday life of contemporary societies a number of exchange matrixes are in play – and in fact must be in play for capitalism to be liveable.

From the question and the thesis springs my drama – how HE has been fostered in society, and variously resisted by imagination armed.

So these are the elements I need to put into my first chapter.

Ireland and Pareto

Ireland and Pareto

It is a tale often told by the economist, this one of Pareto optimization. The tale goes that, in the Pareto optimal state, we reach a sort of distributional heaven, in which no person can gain any utility without that gain being made at the expense of somebody else in heaven. But the tale contains a paradox, of the kind associated with Zeno. To advance to this state, we must move through Pareto superior arrangements. These arrangements subtly reverse the terms of the optimum. A Pareto superior arrangement is one in which one party – or shall we say the owners? – may gain utility, but without any other party in our heaven losing it. This, we are assured, improves the entire set – all of heaven rejoices when one sinner is forgiven – or when one of the archangels receives a nice golden parachute and stock options amounting to 400 million dollars.

This, of course, is the neo-liberal heaven on earth, and the dispensation by which our rulers rule us. It is, however, a curious idea. For one thing, the ‘gain’ of utility seems to come ex nihilo – surely we are far removed from the labor theory of value here. Ex nihilo, in bureaucrat-speak, is exterior – it is an exogeneous gain. If it were, after all, endogenous, then we would have to ask about who created it, which would lead us to the question of whether, indeed, the other party wasn’t losing utility here. Which brings us to the other perplexing moment in this paradise. For the assumption, here, seems to be that there is no future - it is all present states. Heaven indeed! We transcend time, in Pareto superior states. For the inequality that must hold between the parties is eternally static.

But if our heaven is not in eternity, but in the sublunar flux of time – if all things in this heaven are mutable – then we see that, indeed, what looks like no skin off the nose of the drudge – what does he care if the boss makes his 400 million, as long as the drudge himself makes enough to buy the entertainment center, the car and the house on easy credit terms of 9 percent per annum (with the creditor holding the right to readjust interest at any time)? – might actually not be such a good deal. Heaven has a flaw. The devil’s disciples, from Machiavelli to Marx, have noticed it. The flaw is called power. In fact, a part of the 400 million dollars might well be used to block the poor drudge’s socially upward mobility, by making the cost of entry into a higher class too expensive – say, by making college tuition too expensive, or dentistry, etc. The boss may use part of the 400 million dollars to make tax loopholes for himself, to be paid for by either closing off social welfare programs that benefited the drudge (who will be scolded for his ‘special interests’ and his unwillingness to “share the sacrifice”). Or – and such are the wrecks of mutability – there may come a time, a horrible time, called a slump. Yes, in heaven on earth, it may be that the business cycle is not abolished, even if the economist angels have announced that God, that is, the free and competitive market, has abolished it.

We are testing the effect of creeping from one Pareto superior position to another in Ireland. Here, indeed, the gains in utility seemed to be exogenous. A low corporate tax brought in companies from outside the country. And then, look at how easy credit terms were offered through banks that were flooded with cash from foreign investors! Why, drudge and millionaire could dance to the pleasing pipes of some Celtic Tiger rock band and lay down, afterwards, in one another’s arms, like the proverbial lion and the lamb.

But it turns out that, while the lamb was asleep, he was being trussed up, and now he wakes up to discover, to his horror, the boiling pot and the butcher’s blade. For it is the drudge, the lamb, the one who was gaining utility in spirit whenever his boss’s board of directors gave the boss another raise, who is going to be sacrificed in the feast. Pareto superior states, it turns out, are heavens for the peculator, and they end in fricassee for the drudge. Who doesn’t understand, and turns to the economist who proclaimed the end of the business cycle. Only to hear that now the business cycle must end by the drudge, a., paying for all his boss’s parties, and b., lowering his wages and paying the debts (the not so easy credit term debts) that the economist, just last week, was telling him was the great reason he was the most fortunate drudge in all of Emerald heaven!

And the poor drudge turns to the right (where the words are the same) and the left (where sympathetic leaders should that the drudge has been mishandled, but (sotto voce) that really, there’s nothing one can do, and we do depend on the boss for all good things in life, don’t we?) and discovers that not only is his credit worthless, but so is his vote!

One of Pareto’s admirers wrote an article – oh, I should find the buckos name – to defend the great man from the accusation he was a fascist. The accusation comes from the fact that, at the end of his life, Pareto embraced Mussolini. The admirer wrote that Pareto was a great lover of liberty – of entrepreneurial freedom! – and thus, the fascist business was all a misunderstanding. But, he also wrote, Pareto also hated democracy.

The love of liberty, the hatred of democracy, stir a little and you get Pinochet. Or Klein’s shock doctrine. Or the current state of Ireland, as the drudges are auctioned off to the bankers.