18 March 2012

Damning the Demimonde: Thomas Frank Versus the Oligarchs' Enablers

The defense being offered for Goldman Sachs, and Wall Street, is that since they are serial cheaters and everyone knows it, the victims should only blame themselves for thinking otherwise, and doing business with them, and being cheated.

I have heard this one quite a bit lately. When someone from the Street offers this defense it is a bit ironic and almost funny.

If you are a member of a fraternity of self-confessed cheaters and liars, your public statements may not be as credible and compelling as you think. Unless you are talking to hardcore muppets of course. 'Trust me, this time I am NOT lying. But if it goes wrong, I was and you should have known better.'

It is as hypocritical as the CEO defense, wherein these titans command outrageous salaries for their superior performance, but when crimes are discovered, it turns out they have progressive dementia, and are barely aware of what goes on in the businesses that they supposedly lead.

Are these people children? Or is anyone who takes them seriously merely a gullible idiot?

What about the politicians, economists, and the media that rise to their defense, and serve their interests, time after time? Are they merely dupes, useful idiots?

Thomas Frank reflects on the serial failures of the country's thought leaders in the following essay. Frank leans a bit left, and I thought the criticisms which he levels could be spread around much more liberally, if you know what I mean.

I can remember arguing with certain prominent 'progressive economists' about the growing bubble some years ago, and more recently the moral hazards of TARP, and being shut down as effectively as any reformer on financial television.

It is not a right or left thing anymore. It is what Lord Action called, 'the people versus the Banks.'

More broadly, it is about equal protection under the law, the primacy of the democratic republic versus the tyranny of the oligarchs and their enablers, the statists of both left and right.

Too Smart to Fail
Notes On an Age of Folly
By Thomas Frank

In the twelve hapless years of the present millennium, we have looked on as three great bubbles of consensus vanity have inflated and burst, each with consequences more dire than the last.

First there was the “New Economy,” a millennial fever dream predicated on the twin ideas of a people’s stock market and an eternal silicon prosperity; it collapsed eventually under the weight of its own fatuousness.

Second was the war in Iraq, an endeavor whose launch depended for its success on the turpitude of virtually every class of elite in Washington, particularly the tough-minded men of the media; an enterprise that destroyed the country it aimed to save and that helped to bankrupt our nation as well.

And then, Wall Street blew up the global economy. Empowered by bank deregulation and regulatory capture, Wall Street enlisted those tough-minded men of the media again to sell the world on the idea that financial innovations were making the global economy more stable by the minute.

Central banks puffed an asset bubble like the world had never seen before, even if every journalist worth his byline was obliged to deny its existence until it was too late.

These episodes were costly and even disastrous, and after each one had run its course and duly exploded, I expected some sort of day of reckoning for their promoters...

But what rankles now is our failure, after each of these disasters, to come to terms with how we were played. Each separate catastrophe should have been followed by a wave of apologies and resignations; taken together— and given that a good percentage of the pundit corps signed on to two or even three of these idiotic storylines mandated mass firings in the newsrooms and op-ed pages of the nation...

The day Larry Kudlow apologizes for slagging bubble-doubters as part of a sinister left-wing trick is the day the world will start spinning in reverse. Standard & Poor’s first leads the parade of folly (triple-A’s for everyone!), then decides to downgrade U.S. government debt, and is taken seriously in both endeavors. And the prospect of Fox News or CNBC apologizing for their role in puffing war bubbles and financial bubbles is no better than a punch line: what they do is the opposite, launching new movements that stamp their crumbled fables “true” by popular demand.

The real mistake was my own. I believed that our public intelligentsia had succumbed to an amazing series of cognitive failures; that time after time they had gotten the facts wrong, ignored the clanging bullshit detector, made the sort of mistakes that would disqualify them from publishing in The Baffler, let alone the Washington Post.

What I didn’t understand was that these were moral failures, mistakes that were hardwired into the belief systems of the organizations and professions and social classes in question...
[big snip]

“The main lesson we should take away from the Efficient Market Hypothesis for policymaking purposes is the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles,” announced Chicago school economist Robert Lucas from amid the ruins in 2009. “If these people exist, we will not be able to afford them.”

And the main lesson we should take away from the Efficient Market Hypothesis for our purposes is the utter futility of economics departments like the one that employs Robert Lucas.

A second lesson: if economists— and journalists, and bankers, and bond analysts, and accountants— don’t pay some price for egregious and repeated misrepresentations of reality, then markets aren’t efficient after all. Either the gentlemen of the consensus must go, or their cherished hypothesis must be abandoned. The world isn’t gullible enough to believe both of them any longer.

Read the rest here.

Things will change, but it is going to take some time. As Charles Mackay observed, a people do not go mad overnight, and they only come back to their senses slowly, one by one.

And history has shown that a minority of 10 to 20 percent may remain true believers to an ideology after it is thoroughly discredited and even vilified.  I was astonished to find Russians who in 1997 still longed for the days of Stalin, and of older Germans and Italians who even today have a sentimental wistfulness for a strong leader with a firm hand, and would welcome the return of der Führer.

I think this is because their ideas are founded not in reason, but in the realms of schadenfreude, a burning hole in their being that craves filling with the misery of others, or a natural obesiance to autocracy born out of a slavish dependence on the will of dark leaders who relieve them of the burden of thinking.