"The Big Short" / I Preach a Dark Future
As many of you know, I preach a dark future, and Michael Lewis' The Big Short supplies the ammunition for many a sermon. While there's not a lot of new information in the book for anyone who's followed the news — it's pretty light/fun reading overall — Lewis does a good job of exploring some of the essential narratives which I believe are key to understanding the world's problems.
While deep students of the financial crisis will likely debate its various causes and factors for years, the following themes seem to be clear:
- Finance has ceased to be effective in its role of allocating idle cash for our society, and has become a "meta business" which seeks to maximize its own short-term profits regardless of method or external effect.
- The "oversight" entities — in this case the ratings agencies — are staffed by under-compensated C-grade talent, and their economic survival hinges on how quickly they can rubber-stamp something with a good enough rating for it to sell.
- The captains of industry who populate most finance firms are not independent or deep thinkers. For all their competitive braggadocio, they basically follow the herd and often rely on the structural advantage of their position (e.g. not their own talent per se) in order to prosper.
- In short, the people in charge are collectively in way over their heads, and have lost any firm grounding in objective value.
One of our biggest problems here in Estados Unidos is inequality. Because we are so wealthy as a whole, things don't seem like a Bananna Republic, but you can't sustain the kinds of imbalances we see over the long haul without creating a ton of ill social effects. As a nation founded explicitly on the rejection of Aristocracy, the whole concept of "wealth management" should be anathema to our system, but instead its become a huge portion of the economy.
It gets worse. As per the above, the supposed benefit of having "finance" at all — the ability to allocate resources effectively in search of profit — is now in deep doubt. See, one of the primary features of Capitalism is the rejection of centralized planning or control over the economy. And indeed, It's generally true to that a critical mass of independent private decision-makers will often arrive at better conclusions and deliver better overall results compared to a select group of "expert" master planners.
However, the bottom-up nature of market economies isn't great at long-term planning or large-scale projects, arguably things we might need sometime this century. Moreover, we're witnessing right now what can happen with the important decision-makers become less mass and independent, while remaining wholly private in their character. The financial crisis is more than just a big loss for a lot of sucker investors and taxpayers: it also represents one of the largest mis-allocations of physical resources in our national history. There's literally hundreds of billions of dollars "worth" of totally worthless housing stock — including roads, sewers and other infrastructure — that will likely never see utilization.
This is an economic failure of Soviet proportions. Our base prosperity is enough to keep us out of widespread famine — though some 50 million (50 million!) Americans grapple with hunger — but I have a hard time not seeing real parallels between the kinds of behavior we see from our "elite" institutions now, and what history was able to discern from looking back at the USSR: hugely wasteful projects, insular and aristocratic decision-making, no real accountability. In the poetic words of a fictional spy:
Soviet power is a myth, a great joke. There are no spare parts; nothing is working — nothing. It's nothing but painted rust.
Here in the early 21st Century, we in the US find ourselves in a strangely similar position, captive to a narrow set of unaccountable interests which have no vision for the nation (or the world) beyond their own continued enrichment. We are rapidly losing ground to developing nations which have a combination of rising living standards (new opportunities) and sufficient national organization to undertake effective large-scale projects. Our aristocratic corporate cabal is deficient on both of these counts: depressing living standards for most people, and manifestly failing to provide even a rhetorical larger-scale vision.
Finally, while I'm enough of a postmodernist to believe that the decoupling of value from material benefit is possible, the degree to which huge fortunes are made and lost on deals with lack even the most tenuous connection to anyone's well-being or prosperity is just staggering. We've moved beyond profit off mindless consumption (unsustainable and morally questionable itself) and into the realm of completely metaphysical speculation. My personal business experience is in making websites, and I have a better sense of value than people who are in charge of allocating trillions in capital. This doesn't end well.
It's unclear where that end comes though. My honest guess is that we won't see any kind of spectacular collapse soon. Much as I might personally hanker for a little of the old Red Dawn, the more likely outcome is that things continue to just plain suck for quite some time. If inertia has its way the mantle of global leadership will continue its westward march and maybe our kids will make a point of learning Chinese rather than the other way 'round. I don't think that's inevitable, but it's where things are headed at the moment. There's still plenty of money to be made by the people on top in that kind of scenario, and our political class is effectively impotent, so its hard to see how or where this all might change.
Not an upbeat moment to end on, but as I said, "I preach a dark future."
Future topics to consider branching out:
- Eventually we'll have to confront the wider problem success in developing "the developing world" means there isn't real work for four billion people.
- The "national political conversation" is incoherent in a way I can't recall since the run up to the Iraq war.
- The problem with alternative views from the left (e.g. Zeitgeist, Zizek, Global Guerillas).
- My fear that technology and the internet are going to turn out to be a dark force in all this: "It's just like real life, but with points!".