Tag Archives: Capitalism

Sympathy for the Devil

I’ve never been all that interested in Ayn Rand either as a novelist or a thinker, though she’s existed out there in the periphery of my awareness of intellectual currents for almost as long as I knew what an intellectual was. I can remember way back in high school a girl I had a thing for suggesting that I read Atlas Shrugged. I ended up buying Rand’s book Philosophy: Who Needs It? instead ( probably because it was cheaper, or maybe because I wasn’t in a novel reading period at the time). The only thing I took from it was that I didn’t need any more books written by Ayn Rand. 

In the eons since then I’ve studiously avoided any of Rand’s books even when I thought they might help me understand some person (such as Peter Theil) or trend, (as in right-wing transhumanism), though I did manage to survive the 1949 film version of The Fountainhead starring Gary Cooper. It might seem weird, then, that I’m turning to the subject of Rand so late, at the very moment where the movement the woman stood for has seemingly lost all relevance. Libertarian individualism doesn’t seem to have much of a future (or even a present) among the right or (less surprisingly) the left as we speak. 

The late 20th century revolt against the state has revealed itself to be a failure, and  individualism has fared no better. Laissez-fairehas brought us what anyone even superficially familiar with Victorian era history knew it would: robber barons, surging inequality and class war. As for individualism, rather than replace twentieth century mass society with liberated individuals free to decide on their own definition of the Good (as was promised by the sexual and cultural revolutions of the 1960’s and 70’s) we’ve instead chosen to create a balkanized society held together via ostracism and technologically empowered shame.    

These were the kinds of issues that obsessed Rand, but for a person of a left-of-center bent such as myself, any useful reflections she had on the questions gets lost in her abhorrent moral philosophy and grating self-certainty.  The one place we might be able to avoid getting lost is where Rand’s not telling us what she believes, but how she came to those beliefs in the first place.  For that we have her quasi-autobiographical novel We the Living.    

It’s hard to be sympathetic for a person who denied the existence of any sort of mutual obligations within society such as Rand. Yet while she herself would have expressed nothing but disdain for my sympathy, that’s nevertheless what I felt for her once I understood her biography. Everything she wrote makes sense in light of the fact that she had been scarred by her experience of playing a part in a historical tragedy. Once one remembers that the woman was an exile from the early days of the USSR, and knows what she and her family has suffered through before she made her escape, one can see how ill equipped she was to understand the true nature of American social democracy at the time. What is more surprising, and thus in need of greater explanation, is why her alien literary works and philosophical theories, having originated in such a wildly different political and economic system, proved so attractive to a certain segment of US society at the particular point at which they did.

Alisa Zinovyevna Rosenbaum, the woman we know as Ayn Rand, was born in Russia in 1905 to a world that was rapidly falling apart. She came from a thoroughly bourgeois family- her father was a businessman- a condition that in the upside down world of the Revolution would prove to be a risk rather than a privilege.    

For those of us living in the early 21st century, over 30 years since the collapse of communism, the world shattering nature of the Russian Revolution is difficult to appreciate. This was not just a continuation of the democratic transformation that could be traced back to the American Revolution and French Revolutions and their 19th century offshoots, it was the first revolution that promised not merely a new political order, but to bring into being a new social and economic world as well. One should not discount its liberatory attraction or its having brought into existence, if only for a moment, a new and freer form of society. 

China Mieville has described it well:     

“October, for an instant, brings a new kind of power. Fleetingly, there is a shift towards workers’ protections and the rights of peasants to the land. Equal rights for men and women in work and marriage, the right to divorce, maternity support. The decriminalization of homosexuality, 100 years ago. Moves towards national self-determination. Free and universal education, the flourishing of adult schools. A change in the soul, as Lunacharsky might put it, as much as in the factory. And though these moments are snuffed out, reversed, become bleak jokes and memories all too soon, it might have been otherwise.” (317)

It was not to last. The Revolution was followed by civil war, terror, and most importantly for the future course of Rand’s intellectual development, the Bolshevik’s adoption of war communism.   

What that meant was the abolition of private businesses and the expropriation of the wealth of the owning classes. Almost overnight the young Alisa went from a world of bourgeois comforts to one of deprivation and the constant struggle to meet even basic needs. 

What may have started as a tactic born of necessity in the face of economic collapse quickly morphed into a savage class war.  Martin Latsis, chief of the Ukrainian Cheka (the forerunner to the KGB) stated the objective with brutal clarity:

“We are not fighting against single individuals. We are exterminating the bourgeoisie as a class. Do not look in the file of incriminating evidence to see whether or not the accused rose up against the Soviets with arms or words. Ask him instead to which class he belongs, what is his background, his education, his profession. These are the questions that will determine the fate of the accused. That is the meaning and essence of the Red Terror.” 

The protagonist of We the Living is a young woman named Kira Argounova whose experience clearly mirrors that of Rand herself. The Russian Revolution casts the formerly well-off Kira and her family into miserable poverty. Her businessman father reduced to selling handmade soap or compelling his children to stuff vials of saccharine to sell on the streets of Petrograd. Family meals consist of tasteless gruel, which at points are replaced by far worse starvation. 

One hope Kira has for her future is that she is a university student. But even that does not last as students with bourgeois backgrounds are eventually purged from academia, as Rand was in real life. The other source of Kira’s hope is that she is in love. Actually, resonating with the liberatory aspects of the time, she is engaged in a love triangle made up of herself, a dashing figure straight out of Hollywood’s golden age named Leo Kovalensky, and an austere, tragically romantic character Andrei Taganov who is torn between his devotion to the ideals of communism and his love for Kira. 

It is with the latter that Kira has a clandestine affair in order to pay for Leo’s convalescence after he contracts tuberculosis. The revolution ends up killing all three of them with Leo transformed into a self-destructive smuggler, Angrei dead from suicide after he chooses his love of Kira over his loyalty to the party in order to save Leo (and therefore Kira) after his arrest. Kira herself dies tragically alone crossing the snow covered borderland between Russia and the freedom of the West bleeding to death on the ice after having been shot by a border guard.

The great short story writer, John O’hara, once opined that the whole point of the novel was to serve as a kind of social history, documenting not just what the past looked like, but what it felt like to live there, and while I think his sentiment goes too far in dismissing the power of fantasy, I also think he managed to capture a basic truth.

What literary fiction from the past possesses that other arts largely lack is the ability to give us insight into what people thought while they were caught up in whatever historical drama they were fated to live through. As all of us in the midst of history today have been made painfully aware of, the difference between us and the future is that whoever exists decades or even centuries from now will know how our current tribulations and concerns ultimately played out. People in the past were thinking events through in real time in the same way we are, and as is the case with us, even extremely smart and good people could make what in hindsight were clearly colossal errors of judgement. 

We the Living is a window into history in precisely this sense. What it documents is how the petit-bourgeois of the Russaian Empire experienced a communist revolution. A class whom novelists are perhaps inclined to paint as shallow, or even villainous, is instead shown to be human through the common currency of suffering. 

The kinds of fears and very real suffering that We the Living depicts are precisely those that obsessed Rand after her escape from the Soviet Union. And her escape was made just in time, for Stalin would soon after impose an even more brutal form of totalitarianism.

What Rand’s family had suffered was crippling expropriation followed by poverty, and the brutality of a world where merit was replaced with a form of political conformity that was all too easily weaponized by individuals set against one another by conditions of scarcity. 

Whatever one’s view of the Soviet experiment during the first days of the revolution, it’s not easy to find many defenders of hard core Leninism, let alone the nightmare that was Stalinism, within the left these days. The more common view being that which was anticipated by Andrei Platanov, namely, that what happened in the USSR amounted to a tragic betrayal of the humanistic promise of communism. At least as far as the truth of Soviet history, Rand’s view is much more honest than an apologist such as Sartre, and indeed much closer to the view of state communism of the contemporary left than many might like to admit.

Where she failed was in applying these historical experiences whole cloth to her new homeland of the United States. As if there was no difference between New Deal liberals and Bolsheviks, or Keynesian management for the purpose of creating a politically stable capitalism and the mass expropriation of capital in the name of imposing a command economy. Indeed, exiles from totalitarian regimes making obscene comparisons between communist dictatorships and social democracy since Rand has been an all too common and very lucrative form of grift.  

Rand was a pioneer in peddling this myth. It was precisely this form of political confusion that she would not only help to popularize, but one which would guide economic policy in the US and elsewhere in the final decades of the 20th century. This was a category error that led to a return of exactly the same sorts of economic inequality and financial instability that the welfare state had been created to prevent in the first place. Capitalism had undermined the very political compromise that we had discovered through the tragedy of history was necessary for its stability and continued existence.

Just how deeply we have fallen into the shadow of this error can be seen in an amazing television interview of Rand with Mike Wallace in 1959.

In the interview Wallace, who is obviously reflecting what were then commonly held opinions on the matter, is consistently shocked that Rand rejects a large role for the state in managing capitalism’s excesses and preventing poverty by the use of social welfare programs. For my purposes here are what I think are the most important quotes: 

Mike Wallace: Let’s move ahead. How does your philosophy translate itself into the world of politics? Now one of the principle achievements of this country in the past 20 years, particularly, I think most people agree, is the gradual growth of social and protective legislation based on the principle that we are our brother’s keepers. How do you feel about the political trends of the United States, the Western world?

Ayn Rand: The way everybody feels, except more consciously. I feel that it is terrible, that you see destruction all around you, and that you are moving toward disaster until, and unless, all those welfare state conceptions have been reversed and rejected. It is precisely these trends which are bringing the world to disaster, because we are now moving towards complete collectivism, or socialism. A system under which everybody is enslaved to everybody, and we are moving that way only because of our altruist morality.

And from later in the interview: 

Mike Wallace: When you say, “take the property of others,” I imagine that you are talking now about taxes.

Ayn Rand: Yes I am.

Mike Wallace: And you believe there should be no right by the government to tax. You believe that there should be no such thing as welfare legislation, unemployment compensation, regulation during times of stress, certain kinds of rent controls, and things like that.

Ayn Rand: That’s right. I’m opposed to all forms of control. I am for an absolute laissez-faire, free, unregulated economy. Let me put it briefly. I’m for the separation of state and economics. Just as we had separation of state and church, which led to peaceful co-existence among different religions, after a period of religious wars, so the same applies to economics. If you separate the government from economics, if you do not regulate production and trade, you will have peaceful cooperation, and harmony, and justice among men.

Mike Wallace: You are certainly enough of a political scientist to know that certain movements spring up in reaction to other movements. The labor movement for instance, certain social welfare legislation. This did not spring full blown from somebody’s head. I mean, out of a vacuum. This was a reaction to certain abuses that were going on, isn’t that true, Ayn?

And lastly:

Mike Wallace: When you advocate completely unregulated economic life in which every man works for his own profit, you are asking in a sense for a devil-take-the-hindmost, dog-eat-dog society, and one of the main reasons for the growth of government controls was to fight the robber barons, to fight laissez-faire, in which the very people whom you admire the most, Ayn, the hard-headed industrialists, the successful men, perverted the use of their power. Is that not true?

Ayn Rand: No, it isn’t. This country was made not by robber barons, but by independent men, by industrialists, who succeeded on sheer ability. By ability, I mean without political force, help, or compulsion. But at the same time there were men, industrialists, who did use government power as a club to help them against competitors. They were the original collectivists. Today, the liberals believe that the same compulsion should be used against the industrialists for the sake of workers, but the basic principle there is, “Should there be any compulsion?” And the regulations are creating robber barons, they are creating capitalists with government help, which is the worst of all economic phenomenon.

Within a generation the truths Wallace believed to be undeniable had collapsed to have been superseded by a form of political economy that in rhetoric if not in actual policy was something Randian in its essence. 

Of course, I could be accused of overstating the degree to which Wallace is reflecting a bedrock consensus for social democracy in the US at that time. Individualism was and remains a deep part of American culture. The real historical dialectic of US culture has always been between the English with their need for management and control that dominated the coasts and the clan based individualism of the cracker culture of Scotts-Irish refugees who conquered and settled the American interior. Rand’s ideas did not fall on completely barren soil. 

Still, there are profound differences between what heroic individualism meant in cracker culture and how it was portrayed in the Randian mythos. The cracker ideal was the frontiersman, the Yeoman farmer, the small businessman. Freedom meant freedom from control by others, which with the end of slavery also meant the absence of control over anyone else. But Rand’s heroes were free to work their will on the world only because they had clawed their way to the top of systems in which others as a consequence of their failure or lack of ambition were forced to serve.

We the Living wasn’t really part of this Randian mythos whose core texts were didactic fantasies of heroic individualism, Howard Roark in The Fountainhead or John Galt in Atlas Shrugged.  What Rand was creating with those works was a vision of heroes who could overcome the barriers that Joseph Schumpeter had identified as the inevitable fate of a mature capitalism. As early as the 1940’s Schumpeter knew that the age of the entrepreneur was largely over. The creative business man or inventor had been superseded by the organization and the employment of vast teams of researchers, and PR men.  His pessimism regarding the future of capitalism would prove to be both partially right, and partially wrong.

“The perfectly bureaucratized giant industrial unit not only ousts the small or medium sized firm, but in the end it also ousts the entrepreneur and expropriates the bourgeoisie as a class but also what is infinitely more importantly its function. The true peacemakers of socialism were not the intellectuals or agitators who preached it but the Vanderbilts, Carnegies and Rockefellers.” (142) 

Schumpeter’s premature eulogy for capitalism, his book Capitalism, Socialism, and Democracy was published in 1942. What followed was the golden age of social democracy in the US and larger West. But this era of egalitarian prosperity was far from perfect. Vast segments of  society that had been excluded from having a say in political, social and economic life, namely women and African Americans, would soon demand the recognition they were still denied. And in yet another example of the tragic irony of history, the fight for civil rights would eventually unravel the regional political alliance between Northern and Southern Democrats that had been the primary vehicle for social democratic forces. 

But even before this unraveling many felt crushed under the weight of mass conformity and the dictation of every element of their lives by faceless corporate and government bureaucrats, their whole life tabulated on computer punch cards.

The second half of the 20th century would witness the rebellion against a society and individuals whose dimensions had been so reduced. The revolt of individuals against the constraints of what was once called the “establishment”.  It’s hard to remember but this revolt was just as much a left- wing as a right-wing phenomenon. The Beats, the “Small is Beautiful” flower children, the push for sexual revolution, all were born in this same revolt against mass society. 

If socially the New Left has essentially won the culture war its fellow travelers on the libertarian right inherited the actual keys to the kingdom, for they became the ruling ideology of a generation. In some ways, then, it shouldn’t be surprising that some of the heroes of the New Right during the last century, people like Rand or her fellow travelers Heinlein, were in their day such non-conformists in their personal lives. Both the cultural and the economic revolts against the post-war order had sprung from the same source. 

Of course, Rand was just a minor figure among a small cohort of thinkers, one whose intellectual heavy hitters were people like Milton Friedman and Fredrick Hayek, that appeared to provide an alternative to Keynesianism and the corporatist trifecta of corporations-state-labor after that system seemed to unravel in the economic crisis of the 1970s. But she was perhaps the movement’s best popularizer, managing to turn the once so easily villainized character of the businessman into a strange new type of hero. 

And in a way the road to a post-schumpeterian capitalism had indeed been discovered, or at least one last era of creative destruction before the dead equilibrium of managerial capitalism was reached. The catalyst for this new cycle of creation and destruction would be Moore’s Law, the exploitation of what was in effect a never before tapped territory.

Capitalism constantly requires the opening of new frontiers, and while many had thought the frontier of the late 20th century would be outer space, in fact it the new frontier ended up being the realm of the small. 

The conquest of this territory created heretofore unforeseen opportunities which economic incumbents proved either unable or unwilling to exploit. Smart and ambitious individuals were able to seize on these opportunities and amass fortunes by creating products in their garages that accessed dimensions formerly inaccessible and created brand new ones in the forms we would come to call cyberspace or the Infosphere.  

That the new class of billionaire titans who had been able to exploit the new frontier opened up by Moore’s Law could easily cast themselves as Randian heroes in the style of Howard Roark or John Galt is mythical only because it ignores how much of this revolution was driven and supported by the national security interests of the American state.   

Yet the neoliberal revolution that began in earnest with the elections of Ronald Regan and Margaret Thatcher in the 1980 promised more than an era of creative destruction in a handful of economic domains. The dismantling of the old corporatist order, the end of the alliance between corporations-state-labor was supposed to open up countless opportunities for clever individuals to enter, compete and improve. 

Little of this happened in the way it had been promised. Instead of a golden age for entrepreneurial individuals we got the rule of finance capital. Old industries were dismantled only to give rise to larger even more monopolistic ones, the regulatory state was pushed aside, but was quickly relocated in state and local planning boards or reconfigured by deep- pocketed corporate lobbyists who reshaped regulations to favor themselves. 

Unionized labor was crushed to the point that many of us indeed did become owner-operators of our own firms. Although what this meant was that we contracted our vehicles and hours to Uber. Becoming one’s own boss now meant doing some else’s chores as a task rabbit. And even professionals who avoided such a fate now found themselves compelled by competition to turn themselves into a brand. 

Outside of the innovation unleashed by the IT revolution, what the neoliberal era represented was not the liberation of aspiring individuals from their corporatist fetters, but a new golden age for finance capital. The Gordon Gekkos of the world were now free to dismantle sclerotic and vulnerable corporations at will. 

The deindustrialization brought about by this restructuring was to have tragic consequences, robbing African American men in the cities of what had once been a path to middle class life and eroding the wealth that working class whites in what was now called the Rust Belt had thought was secure.The idea that neoliberalism would mean an end to corporatism and usher in a golden age of small proprietorship and individual entrepreneurs proved to be a myth. 

Here is arch villain and uber-capitalist Peter Theil himself in one of the most honest and insightful business books ever written Zero to One admitting just as much.

“Americans mythologize competition and credit it with saving us from socialist bread lines. Actually, capitalism and competition are opposites. Capitalism is premised on the accumulation of capital, but under perfect competition all profits get competed away. The lesson for entrepreneurs is clear: if you want to create and capture lasting value, don’t build an undifferentiated commodity business.” (25)

In case Thiel’s implications for small businesses aren’t clear he later continues. 

“The problem with a competitive business goes beyond lack of profits. Imagine your running one of those restaurants on Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees minimum wage. And you’ll need to squeeze out every efficiency: that’s why small restaurants put Grandma to work at the register and make the kids wash dishes in the back.” (31)

Theil points out that large corporations often treat their workers much better than small proprietors. They pay them better, offer benefits such as healthcare. The favorable policies of large companies towards minorities have led them to be charged with “wokness” by the cultural and libertarian right, but it’s as much a reflection of their necessarily well educated workforce. 

Such largess may be a matter of competition against other big firms for talent, but it’s also a question of capacity. Large companies can afford to treat their workers well. The scale of their profits means they can afford to do things for their employees, which small firms find themselves priced out of- like providing healthcare benefits. 

What Theil fails to mention is the way large firms externalize their costs onto smaller ones. Whole sectors exist now whose foundations rest on the arbitrage of differences in labor and environmental standards across countries. 

This is the brutal materiality of globalization and it is a story that is well known. What is less well known is how much of the seeming logistical brilliance of behemoths such as WalMart and Amazon is in reality an externalization of cognitive costs– a lot like a virus does. As Miriam Posner has so brilliantly pointed out, what makes an entity the master of a supply chain isn’t so much what it can see as what it doesn’t have to.

Here’s an admittedly extremely oversimplified summary of events. The 1940s to the 1970s was a period of large corporations in an alliance with the state and labor. The late 1970’s witnessed the beginning of a breakdown of this alliance, the scrambling of whole industrial sectors, birth of new ones, destruction of the power of organized labor, and the hollowing out of the state. 

Within a generation the behemoth corporations were back, but this time its former allies – the state and labor- were mere shadows of their former selves. These trends towards bigness and inequality weren’t in the least derailed by the twin economic crises and pandemic of the early 21st century, but instead vastly accelerated by both their immediate effects and our policy responses to them. What we do next is the question.    

The economic crisis of the late 20th century didn’t have to give rise to a series of policies that would create levels of corporate concentration unseen since the days of the great industrial Trusts of the 19th century. Pro-business Republicans certainly played the largest role in getting the US to this point, but their Democratic opponents who were supposed to be the party of labor are only a little less guilty beginning with Jimmy Carter, Ted Kennedy and Stephen Bryer, becoming worse with Clinton, and ending with Obama. Yet some had seen it coming and even sketched out alternatives.   

In the late 1970’s the great French historian Fernand Braudel was finishing up his monumental three volume history of capitalism: Civilization and Capitalism, 15th-18th Century. Coming towards the conclusion of his tome, Braudel used his history to try to better orient us in the present. What we should be at pains to distinguish, he insisted, was capitalism from the market economy. Capitalism was old, but market economies were far older. Capitalism had to do with massive concentrations of productive capacity, vast networks of trade that were global in scope and led back to a dominant metropole. Capital was old but the modern era had given it unprecedented political and social power through which it has reshaped every aspect of life. 

Market economies were far older. They catered not just to human economic needs, but to our social needs as well. They were the realm of the shopkeeper, the small craftsman, the tailor and barber. Braudel lamented as he witnessed cities that he loved like New York and Paris lose their smallholders even as capitalism continued its relentless march towards concentration. He doubted if democratic socialism was the answer. Could we not, he suggested, help tip the scale back in the direction of the small?       

“But what kind of socialism will be able to maintain the freedom and mobility of the individual enterprise? As long as the solutions put forward amount to replacing the monopoly of capital with the monopoly of the state, compounding the faults of the former with those of the latter, it is hardly surprising that classic left-wing solutions do not arouse great electoral enthusiasm.” (632)

Thankfully, we are reasking Braudel’s question. An increasing number of critics on the right, left, and center have provided us with a sort of forensic investigation of bigness that allows us to locate its source, in distorted law, captured politicians, regulatory overreach, and policy errors that have been rectified in surprising places, and thus know what we need to change to fix it. 

I am under no delusion that we could return to a world whose foundation isn’t large complex structures that require a high degree of centralization and bureaucracy. My hope is that even in this state of dependence we can retain spheres of humanity and freedom. Ironically, while this might seem like a natural project for the right, the only way small businesses will be able to thrive under modern conditions is if a whole slew of expensive and necessary services are provided to workers by robust welfare states. 

While the state moves to restore some aspects of dirigisme, which our environmental crisis makes necessary, it can simultaneously promote a vibrant economy at the human scale. Surprisingly, some of our political figures appear to be groping their way in that direction.  Let’s hope they find it. 

Capitalism, Communism and the end of Nature

When it comes to its understanding of nature, capitalism is nothing short of schizophrenic. Right from its beginnings political economists have argued that of all the possible economic systems, none is more in tune with the way the world actually is than the capitalist system where human beings are free to truck and barter till their heart’s content.

One could begin here in 1705 with Madevelle’s infamous The Fable of the Bees: or, Private Vices, Publick Benefits where the subtitle gives the whole plot away. The idea that the world has been set up so that individual greed in the aggregate brings untold benefits to the whole was maybe the earliest versions of “the balance of nature”, a fairy tale constructed from the observations of an industrious insect. And we’ve gotten to the point where people are not just arguing that markets are natural, but that nature itself is a market. 

Weirdly enough, these ideas of capitalism’s naturalness run parallel to another idea at the root of its economics- that nature is something external to the capitalist system, a mere source of inputs at best and at worst an easily ignorable dumping ground for its unavoidable material waste.

It is this second (and in his view unique) attitude towards nature that is the main subject of Jason Moore’s book Capitalism in the web of life : ecology and the accumulation of capital. In his view capitalism inherited a dualistic idea of nature from the Cartesians where society and nature are something separate and that all of us, including environmentalists, have been in this intellectual trap ever since.       

Moore argues that all economic systems are natural in the sense that they are the way in which human beings socially plug into the flows of the larger biosphere in which they are embedded. All such social systems aim to reshape nature in its own image, and while at first glance this might seem a highly unnatural thing to do, on reflection one realizes that not just humans but probably most animals do something similar in kind if not to the same degree.

What he is describing is something ecologists call niche construction, and can be found throughout the living world. Beavers are famous for so molding the natural environment, and before the arrival of humans in the Americas (and perhaps even after), had a profound impact on the natural ecology. Yet Beavers are nothing when compared to microbes which have radically reshaped the earth’s oceans and atmosphere, sometimes to disastrous effect.

For Moore what makes capitalism distinct is that it is a system that can only function when it has access to “cheap” nature, that is, cheap labor, cheap food, cheap energy, and cheap resources. Capitalism’s expertise lies in scanning the globe and constantly finding new sources of cheap inputs to exploit. At the heart of every wave of wealth accumulation, somewhere lies a hidden act of expropriation.

What I find compelling here is that Moore has managed to clearly link the concerns of environmental and social justice while also connecting different realms of social justice into one overarching framework that includes the nonhuman world. Capitalism hasn’t merely lived off the underpaid labor of child and industrial workers, or on imperialism against the global south, or slavery and sharecropping, but the unpaid work of women and even the family itself.

Like all social systems, Moore thinks capitalism has an end date, and though I agree with him on that point, I think the death of capitalism is nowhere in sight, and this is the case even if I accept his proposed cause of mortality.

What Capitalism in the web of life argues is that we’re coming to the end of the age of the “Four Cheaps” and without them capitalism will be unable to function. As the population ages cheap labor disappears, the combined effects of a plateau in crop yields and climate change means the end of cheap food, we’ve reached the end of the line when it comes to cheap energy in the form of fossil fuels, and resources are becoming ever scarcer and therefore more expensive to extract. However, capitalism is a wily beast and if it resembles anything in nature it is evolution and its seemingly infinite adaptability. On the verge of running out of their current cheaps, capitalists are exploiting yet more new ones.

In terms of labor we have not so much automation as partial automation as a route to turn the customers themselves into part of the workforce. A large Walmart night have just two or three cashiers leaving those unwilling to waste an afternoon in line to check themselves out. Turning customers into workers is the essence of surveillance capitalism. The aging of the workforce in developed countries may or may not lead to increasing levels of automation, but for now our robots can be driven by remote workers in the developing world, our AI a magic trick performed by ghost workers hidden from sight. Many of these workers will eventually be plugged in global youth hungry for wages and prevented from being able to move. Africa is set to have 100s of millions of those. Frighteningly enough, capitalism’s new frontier seems to be inside the human body, our genes, our thoughts and emotions and the body itself.

The end of cheap energy doesn’t seem to be in the current cards either. The arrival of green energy is supplementing rather than replacing fossil fuels, fracking has turned the US into the world’s largest producer of oil, dirty coal remains cheap and plentiful, and is in decline largely because fracked natural gas has gotten so cheap so fast. When it comes to cheap resources, we now have serious talk about mining the ocean floor, or pummeling the earth with the mineral wealth derived from asteroids and the moon.

The one place where continued cheapness seems legitimately threatened is in terms of food as yields plateau in the face of climate change a still rising global population and a hoped for second Green Revolution via biotech continues to fail to arrive. I would include with that cheap water. But then again capitalism might just end up proposing we turn bugs into food.

A question I kept asking myself over and over as I read Capitalism in the web of life was if capitalism was really to blame for our environmental crisis or was it something else? For while I hate that system as much as anyone I can’t help wondering if we lost something important when we abandoned the concept of modernization. It was a detente era concept meant to explain the transition from agricultural to industrial societies from economies based on limited to commerce to consumer societies driven by the needs and wants of mass society.

Modernization theory, as I understand it, was ideologically ecumenical. Whether these transitions we driven from the top down as in Soviet communism or from the bottom up as in US style capitalism wasn’t as much a concern as the universal nature of these developments. We jettisoned modernization theory after the Cold War. The capitalist had won- it looked like there was only one way to truly modernize after all.

What was lost in abandoning modernization was the ability to see not just the difference between capitalism and communism, but their similarities. Creating societies based on ever rising production and mass consumption was bound to have a huge impact on the larger biosphere. Communist societies pursuing these goals were no better, and sometimes much worse, than capitalist ones.

In line with what I’ve said previously, what makes capitalism worse for nature than its alternatives is not so much the problems it causes but that it makes addressing these problems so wickedly difficult. If we really are facing the end of the Four Cheaps it will be because capitalism in its current neoliberal form proves itself incapable of making the kinds of systemic changes that system’s very survival requires. Balkanized global capital is probably not up to the task of generating what would amount to a second industrial revolution in terms of energy use, food production, resource extraction and a dozen other things. In that case our only hope will lie in planning from above, otherwise we’ll face not just the end of this despicable form of economy we call capitalism, but the end of a nature compatible with human flourishing as well.

Capitalism, Evolution and the Attack of the Giant Fungus

Armillaria ostoyae

One of the stranger features of our era is its imaginative exhaustion in terms of the future, which I realize is a strange thing to say here. This exhaustion is not so much of an issue when it comes to imagining tomorrow’s gadgets, or scientific breakthroughs, but becomes apparent once the question of the future political and economic order is at stake. In fact, the very idea that something different will almost inevitably follow the institutions and systems we live in seems to have retreated from our consciousness at the very time when the endemic failures of our political and economic order has shown that the current world can not last.

Whatever the failures of government in Washington no serious person is discussing an alternative to the continued existence of the United States or its constitutional form of government now over two centuries old. The situation is even more pronounced when it comes to our capitalist economic system which has taken root almost everywhere and managed to outlive all of its challengers. Discussions about the future economy are rarely ones about what might succeed capitalism but merely the ironing out of its contradictions so that the system itself can continue to function.

It’s not just me saying this, here is the anthropologists and anarchist philosopher David Graeber in his wonderful Debt the first 5,000 Years on our contemporary collective brain freeze when it comes to thinking about what a future economy might be like:

It’s only now, at the very moment when it’s becoming increasingly clear that current arrangements are not viable, that we suddenly have hit the wall in terms of our collective imagination.

There is very good reason to believe that, in a generation or so, capitalism itself will no longer exist-most obviously, as ecologists keep reminding us, because it’s impossible to maintain an engine of perpetual growth forever on a finite planet, and the current form of capitalism doesn’t seem to be capable of generating the kind of vast technological breakthroughs and mobilizations that would be required for us to start finding and colonizing any other planets. Yet faced with the prospect of capitalism actually ending, the most common reaction-even from those who call themselves “progressives”-is simply fear. We cling to what exists because we can no longer imagine an alternative that wouldn’t be even worse. (381-382)

There are all sorts of reasons why our imagination has become stuck. To begin with the only seemingly viable alternative to capitalism- state communism- proved itself a failure in the 1980’s when the Soviet Union began to kick the bucket. Even the socialist alternatives to capitalism were showing their age by then and began pulling themselves back from any sort of direct management of the economy. Then there is one word- China- which embraced a form of state capitalism in the late 1970’s and never looked back. To many of the new middle class in the developing world the globalization of capitalism appears a great success and can be credited with moving millions out of poverty.

Yet capitalism has its problems. There is not only the question of its incompatibility with survival on a finite earth, as Graber mentions, there are its recurrent financial crises, its run away inequality, its endemic unemployment in the developed and its inhuman exploitation in the developing world. One would have thought that the financial crisis would have brought some soul searching to the elites and a creative upsurge in thinking about alternative systems, but, alas, it has not happened except among anarchists like Graeber and the short-lived Occupy movement he helped inspire and old school unrepentant communists such as Slavoj Zizek.

At least part of our imaginative atrophy can be explained by the fact that capitalism, like all political-economic systems before has managed to enmesh itself so deeply into our view of the natural world that it’s difficult to think of it as something we ourselves made and hence can abandon or reconfigure if we wanted to. Egyptian pharaohs, Aztec chieftains, or Chinese emperors, all made claims to rule that justified themselves as reflections of the way the cosmos worked. The European feudal order that preceded the birth of capitalism was based on an imagined chain of being that stretched from the peasant in his field to the king on his throne through the “angelic” planets to God himself- out there somewhere in the Oort Cloud.

The natural order that capitalism is thought to reflect is an evolutionary one which amounts to a bias against design and control. Like evolution, the “market” is thought to be wiser than any intentional attempts to design steer or control in could ever be. This is the argument one can find in 19th century social Darwinist like Thomas Huxley, a 20th century iconoclast like Friedrich Hayek, or a 21st century neo-liberal like Robert Wright, all of whom see in capitalism a reflection of biological evolution in that sense. In the simplest form of this argument evolution pits individuals against one another in a competition to reproduce with the fittest individuals able to get their genes into the next generation. Capitalism pits producers and sellers against others dealing in similar products with only the most efficient able to survive.  History seemed to provide the ultimate proof of this argument as the command economy of the Soviet Union imploded in the 1980’s and country after country adopted some sort of pro-market system. The crash, however,  should have sparked some doubts.

The idea that the market is a social version of biological evolution has some strong historical roots. The late Stephen Jay Gould, in his essay “Of bamboos, cicadas and the economy of Adam Smith” drew our attention to the fact that this similarity between evolution and capitalism might hold not because the capitalist theory of economics emerged under the influence of the theory of evolution but the reverse. That the theory of evolution was discovered when it was because Darwin was busy reading the first theorist of capitalism- Adam Smith. I am unable to find a link to the essay, but here is Gould explaining himself.

The top down mercantilist economy Smith attacked in his Wealth of Nations, according to Gould, must have seemed to Darwin like the engineering God of William Paley in his Natural Philosophy. Paley was the man who gave us the analogy of God as “watchmaker”. If you found a watch on the beach and had never seen such a thing before you could reasonably assume it was designed by a creature with intelligence. We should then reason from the intricate engineering of nature that it was designed by a being of great intelligence.

Adam Smith was dealing with a whole other sort of question- how do you best design and manage an economy? Smith argued that the best way to do this wasn’t to design it from the top down, but  to let the profit motive loose from which an “invisible hand” would bring the best possible economic order into being. In the free market theory of Smith, Darwin could find a compelling argument against Paley. The the way you arrived at the complex order of living things was not to design it from on high but to let the struggle for reproduction loose and from an uncountable number of failures and successes would emerge the rich tapestry of life which surrounds us in words of a much later book on the topic by Richard Dawkins, the “designer” of nature was a Blind Watchmaker.

The problem with thinking our current economic system reflects the deep truth of evolution is not that the comparison lacks a grain of truth, and it certainly isn’t the case that the theory of evolution is untrue or is likely to be shown to be untrue as something like the Great Chain of Being that justified the feudal order was eventually shown to be untrue. Rather, the problem lies with the particularly narrow version of evolution with which capitalism is compared and the papering over of the way evolution often lacks the wisdom of something like Smith’s “invisible hand”.

Perhaps we should borrow another idea from Gould if we are to broaden our evolutionary analogy between evolution and capitalism. Gould pioneered a way to understand evolution known as punctuated equilibrium. In this view evolution does not precede gradually but in fits and starts with periods of equilibrium in which evolutionary change grinds to a halt are ended by periods of rapid evolutionary change driven by some disequilibrating event- say a rapid change in climate or the mass appearance of new species such as in the Columbian Exchange. This is then followed by a new period of equilibrium after species have evolved to best meet the new conditions, or gone extinct because they could not adapt and so on and so on.

The defining feature of late capitalism, or whatever you chose to call it, is that it is unable to function under conditions of equilibrium, or better, that its goal of ever increasing profits is incompatible with the kinds of equilibrium found in mature economies. This is part of the case the financial journalist Chrystia Freeland makes in her engaging book Plutocrats. The fact that so much Western money is now flowing into the developing world stems from the reality that the rapid transformation in such places makes stupendous profits possible. Part of this plethora of potential profits arises from the fact that areas such as the former Soviet Union China and countries that have undergone neo-liberal reforms- like India- are virgin territories for capitalist entrepreneurs. As Rosa Luxemburg pointed out during the last great age of globalization at the end of the 19th and beginning of the 20th century capitalism was the first system “that was calculated for the whole earth”.

To return to the analogy with evolution, it is like the meeting of two formerly separated ecosystems only one of which has undergone intense selective pressures. Capitalist corporations whether Western or imitated are the ultimate invasive species in areas that formerly lived in the zoo- like conditions of state socialism.   In the mature economies such as those of the United States, Europe, and Japan the kinds of disequilibrium which leads to the ever increasing profits at the root of capitalism have come in two very different forms- technological change and deregulation. The revolution in computers and telecommunications has been a source of disequilibrium upending everything from entertainment to publishing to education. In the process it has given rise to the sorts of economic titans, and sadly inequality,seen in a similar periods of upheaval. We no longer have Andrew Carnegie, but we do have Bill Gates. Standard Oil is a thing of the past, but we have Google and Facebook and Amazon.

The transformation of society that has come with such technological disequilibrium is probably, on net, a positive thing for all of us. But, we have also engendered self-inflicted disequilibrium without clear benefit to the larger society. The enormous growth in the profits and profile of the financial industry came on the back of the dismantling of Depression era controls making financiers and financial institutions into the wealthiest segment of our society. We know where that got us. It is as if a stable, if staid, island ecosystem suddenly invited upon itself all sorts of natural disasters in the hope of jump starting evolution and got instead little but mutants that threaten to eat everything in sight until the island became a wasteland. Late capitalism is like evolution only if we redact the punctuated equilibrium. It is we ourselves who have taken to imposing the kinds of stresses that upend the economy into a state of permanent disequilibrium.

The capitalism/evolution analogy also only works under conditions of a near perfect market where the state or some other entity not only preserves free competition at its heart but intervenes to dismantle corporations once they get too large. Such interference is akin to the balancing effect of predation against plants or animals that exhibit such rapid reproduction that if the majority of them were not quickly eaten they would consume entire ecosystems.  Such is the case with the common aphid which if left to its devices would have one individual producing 1,560,000,000,000,000,000,000,000 (1 heptillion, 560 hexillion) offspring!

The balance of nature is a constraint that every species is desperate to break out of just as at the root of every corporation lies the less than secret wish to have eliminated all of its competition. Most of the time predation manages to prevent the reproductive drive of any one species from threatening the entire ecosystem, but sometimes it fails. This is the case with the giant fungus Armillaria ostoyae whose relentless growth kills the trees above it and smothers the diverse forest ecosystem from which it had emerged.

We can complain that the failure of the government to break up giant corporations has let loose the like of Armillaria ostoyae. Calls to dismantle the big banks after the financial crisis fell on deaf ears. Big banks and mega-corporations can now point to their global presence and competition against other behemoths to justify their survival. We couldn’t dismantle Google if we wanted too because everything left would be swallowed by Baidu.

And it’s not only that the government is failing to preserve market competition by letting companies get too big, it’s also distorting the economic ecosystem to favor the companies that are already there. The corruption of democracy through corporate lobbying has meant that the government, to the extent that it acts at all, is not preserving free competition but distorting it. To quote from Plutocrats:

“Most lobbying seeks to tilt the playing field, in one direction or another, not level it.” (262)

Another, and for my part much more galling oversight of the capitalism/evolution analogy is that it tends to treat any attempt at design, guidance or intention on the part of the society at large as somehow “unnatural” interference in what would otherwise be a perfectly balanced system. What this position seems to conveniently forget is that the discovery of Natural Selection didn’t somehow lead to the end of Artificial Selection– instead quite the opposite. We don’t just throw a bunch of animals in a room and cross our fingers that some miracle of milk or egg production will result. What we do is meticulously shape the course of evolution using some constraint based on our hoped for result.

It we who have established the selective criteria of maximizing and increasing profits and growth to be the be all and end all of a corporation’s existence when we could have chosen a much different set of selection criteria that would give rise to completely different sorts of economic entities. Governments already do this when they force industries to comply with constraints such as health and safety or environmental requirements. Without these constraints we get the evolution of economic entities that are focused on maximizing profits and growth alone, man made creatures which giant fungus like care little for the people and societies underneath them.

Related to this is another evolutionary assumption shared by proponents of the unfettered free market, this one with somewhat dubious scientific validity. Those who believe capitalism can run itself seem to subscribe to an economic version of James Lovelock’s “Gaia Hypothesis”.  Recall, that Lovelock proposed that the earth itself was a kind of living organism that had evolved in such a way as to be self-regulating towards an environment that was optimal for life. Human beings, if they were crazy enough to challenge this Gaian equilibrium were asking for extinction, but life itself would go on until it faced a challenger it would be unable to best- the earth’s beloved sun.

Belief that the technological world is a kind of superorganism can be found thought like these of the journalist Robert Wright that I have quoted elsewhere:

Could it be that, in some sense, the point of evolution — both the biological evolution that created an intelligent species and the technological evolution that a sufficiently intelligent species is bound to unleash — has been to create these social brains, and maybe even to weave them into a giant, loosely organized planetary brain? Kind of in the way that the point of the maturation of an organism is to create an adult organism?”

In this quote can be found both of the great forces of disequilibrium unleashed by late capitalism, both the computer and communications revolution and globalization. But it seem that this planetary brain lacks the part of our neural architecture that makes us the most human- the neocortex, by which we are able to act intentionally and plan.

The kinds of hair-trigger threads we are weaving around society are good in many respects, but are not an answer to the problem of our long term direction and can even, if they are not tempered by foresight, themselves lead to the diminution of long term horizons in the name of whatever is right in front of our nose, and spark crises of uninformed panic lacking any sense of perspective. Twitter was a helpful tool in helping to overthrow Middle Eastern dictators, but proved useless in actually establishing anything like democracy.

Supercomputers using sophisticated algorithms now perform a great deal of the world’s financial transactions in milliseconds,  and sometimes lead to frightening glitches like the May 2010 “flash crash” that may portend deeper risks lying underneath a world where wealth is largely detached from reality and become a sea of electrons. Even if there are no further such crashes our ever shortening time scale needs to be somehow tempered and offset with an idea of the future where the long term horizon extends beyond the next financial quarter.

 Late 21st century capitalism with its focus on profit maximization and growth, where corporations have managed to free themselves from social constraints, and where old equilibriums are overturned in the name of creating new opportunities is just one version of a “natural” economic system.  We are free to imagine others. As Graeber hoped we would start to wonder what different kinds of economic systems might be possible besides the one we live in. The people we would do best turn to when it comes to imagining such alternatives are unlikely to come from the ranks of economists who are as orthodox as any medieval priesthood, or our modern fortune-tellers- the futurists- who are little better than “consultants” for the very system we might hope to think our way beyond.

No, the people who might best imagine a future alternative to capitalism are those who are the most free of the need to intellectually conform so as to secure respectability, tenure, promotion, or a possible consulting gig, and who have devoted their lives to thinking about the future. The people who best meet this description today are the authors of science and speculative fiction. It will be to their success and failure in this task that I will turn next time…

Pandemonium, Kingdom of the Quants 2

THE QUANTS

Quants is a term for a breed of mathematical wizards who, from the early 1970s forward, essentially built the computerized system of finance we have today. Before the quants, Wall Street types were largely made up of testosterone filled, play- by- the- gut traders- (think Gordon Gekko of the 80s classic- Wall Street- though no doubt with harrier  knuckles than Michael Douglas.) After the quants, Wall Street would be filled with refugees from the world of quantum physics or other math heavy branches of the sciences. Its myriad of financial transactions would be no longer be based on the gut instinct of human traders, but run by advanced algorithms that churned away the world’s daily business within a bewilderingly complex network tied together through satellites and fiber optic cables that literally circled the globe. The world for the first time had truly become “one world” with everything of value in it symbolized in electric strings of ones and zeros.

How did this come to be so?

A book probably destined to become the definitive story of the rise of the quants is the Wall Street Journal’s Scott Patterson’s The Quants: How a new breed of math whizzes conquered Wall Street and nearly destroyed it. Patterson begins his story with Ed Thorp, who started his career not as a Wall Street trader, but as an academic with a penchant for gambling.

The journey to quantdom began with the quest to beat the roulette wheel. Thorp was sure he could figure out a “scientific system” to predict where the ball would fall, and thus conquer chance and make himself a fortune. He found an unlikely ally in the economist, and gagater, Claude Shannon.

In a scene that reminded me of the 60s classic Get Smart, Patterson recounts how Thorp and Shannon invented a roulette computing computer that was placed in Shannon’s shoe. Shannon would relay the predictions to the roulette playing Thorp through a radio device in his ear. The scheme, of course, went nowhere, and could have ended up getting the both of them killed. Thorp, however was not to be deterred, chance could be beaten, even if it wasn’t the chance of the roulette wheel. He turned his attention to BlackJack, where he did, indeed, come up with a winning strategy that he would turn into a best selling book- Beat the Dealer.  With one kind of chance beaten, Thorp set out to conquer another, and he set his eyes on the biggest casino in the world, the one found on Wall Street. Thorp’s core method, as it would be for all quants, would be to use advanced computers, and highly sophisticated mathematics borrowed from the physical sciences, to divine the future of the market, the outcome of the great financial game, and in the process make a killing for himself.

Thorp, who with philosophy major, Jay Regan, started the computer based trading firm Thorp and Regan, was but the first of a flood of people with an advanced mathematical background who would stream into Wall Street, especially after the 1980s, enabled by financial deregulation, the explosion of super-fast and relatively inexpensive computing, and the development of sophisticated mathematical finance.

Thorp’s quant brethren, a good deal of whom also had a taste for gambling included: Ken Griffin (Citadel Investment Group), Cliff Asness (AQR Capital Management), Boaz Weinstein (Deutsche Bank), and Jim Simons, who emerged from the super-secret field of military cryptography to create what is perhaps the most successful quant fund in the world (Renaissance Capital Management).

I should step aside from Patterson’s narrative for a moment and provide a general picture of the historical circumstances that coincided with the rise of the quants. The quants were just one of many groups linked together by newfound faith in “the market” that had emerged from the failure of Keynesian economics. To overly simplify the matter, Keynesianism, which had grown out of the collapse of the global economy in the 1930s, held the position that government managers should interfere with the economy to prevent a rerun of the Great Depression, and perhaps more importantly, believed that such interference with the economy would work. This interference was largely what is called “counter-cyclical”. When recession struck the government would run up huge budget deficits to keep unemployment from going so high that it would derail consumer spending, thus, in theory, avoiding the vicious circle of unemployment-less spending-more unemployment that had characterized the Great Depression.

By the 1970s, Keynesianism was a spent force. Yes, another Great Depression hadn’t occurred, but Western economies became mired in unemployment and seemingly intractable inflation as this great sketch by comedian Father Guido Sarducci illustrates better than any economist could.

The revolution that Ronald Reagan (though Reagan with his oversized budget deficits was perhaps more of a Keynesian than some would admit) and Margaret Thatcher launched in the early 1980s would assert not only that markets were smarter than any government manager, but that giving the freest reign possible to the markets would eventually lead to prosperity for all.

The argument between those who favored some sort of government management of the economy, and the proponents of the wisdom of the markets, was at root an epistemological argument- an argument over how knowledge worked. The Keynesians might have argued that if an economy was to avoid the kinds of crises experienced in the 1930’s you needed able management at the top, an expert who kept the ship on course. The position of the market proponents was that knowledge was best processed from the bottom up, as individuals made decisions based on their interactions with one another. Based on these interactions, the sum of all individual interactions- the market- was an order of magnitude smarter than any individual bureaucrat who by necessity had to understand the economy on an abstract level, and thereby risked losing so much of the economy’s actual detail that they lost touch with reality itself.

To return to Patterson’s narrative, the strange thing about the quants is that they were both true believers in the free market, who simultaneously held that they were so smart that they could “beat the market”-the title of one of Thorp’s books.  This idea that the market could be outsmarted flew in the face of the prevailing theory of how markets worked, the so-called,  Efficient Market Hypothesis. The idea behind the EMH was that markets were always smarter than any individual or subgroup because markets reflected the total of information exchanged between individuals.  If you own what is called an “Index Fund”, through your 401K  at work, or for some other reason, your retirement future is built on the assumption of the EMH. That is, an Index Fund buys an entire market assuming that there is no way for human beings to be able to pick winners and losers- the hope being that winners out number losers over the long haul.

Quants certainly believed in the wisdom of the market. They even had a word for it “Alpha”, the website Seeking Alpha, and the hedge fund magazine Alpha get their name here. What the quants believed was not that the market was wrong, but that it was slow. If, through their sophisticated mathematical models and lightning fast computers, they could get to the “Truth” first- say by buying up a stock that their models told them was about to rise in price- they could make a killing. And many of them did just that.

Here’s Patterson on the quest for Truth of the quants:

The Truth was a universal secret about the way the market worked that could only be discovered through mathematics.  Revealed through studies of obscure patterns in the market, the Truth was the key to unlocking billions in profits. The quants built gigantic machines- turbocharged computers linked to financial markets around the globe- to search for the Truth, and to deploy it in their quest to make untold fortunes. The bigger the machine, the more Truth they knew, the more they could bet. And from that, they reasoned, the richer they would be. (The Quants, p. 8)

The quants, using their sophisticated mathematics were largely responsible for the creation of a whole host of financial exotica, such as Credit Default Swaps, that came to the public’s attention with the financial collapse of 2008. Many of their creations were meant to hedge risks, thereby “guaranteeing” profit, and became a large component of the delusion that human beings had gotten so smart that full-blown financial crises were a thing of the past. Economists called this lack of crises, what proved to be a mere calm before the storm “The Great Moderation”- a delusion that was believed in all the way up to Federal Reserve Chairman, Alan Greenspan himself. Once the valuation models the quants had devised to price their exotic financial instruments was shown to be an illusion, the financial institutions that held them started to unravel.  As the financial system verged on the edge of collapse in 2008, the quants models, which predicted that the market would soon return to equilibrium, stopped working. Panicked investors were not acting as the model of human beings as rational actors would suggest. Quant funds were forced to join in the massive selling, or risk being wiped out entirely, as the value of not just the exotic instruments they invented, but the market itself, evaporated in the biggest decline since the 1930s.

There had been lone prophets who tried to point out the fundamental errors in the models of the quants. One of these prophets was the mathematical genius Benoît Mandelbrot who, way back in the 1960s, observed that many markets rather than reflecting the smooth structure one would expect from a phenomenon of rational actors looking for the best price, was instead filled will all of these crazy spikes as prices alternatively soared then crashed. A more contemporary critic of the quants was the trader and writer, Nassim Taleb, who pointed out that the mathematical models of the quants, which were based on the physical sciences where predictable averages- Gaussian bell curves- were the order of the day (say the average human height- Mediocristan) did not work in the realm of economics because it was prone to extremes (say a sample of average income with Bill Gates in the mix-Extremistan).

The cries of the prophets were for-not until the whole system reached a point of near implosion.  An implosion that was only halted by a massive Keynesian intervention and reinflation in the form of bailouts and stimulus aimed largely at the financial sector, but also elsewhere (GM) by the world’s most powerful governments and their central banks. An action that almost certainly lacked much, if any, democratic legitimacy, and that, while probably having saved us from a full-scale implosion of the global economy, has not allowed us to escape what is proving to be a long“soft-depression”. Indeed, if the current crisis in the EU portends the future, governments may have merely postponed an economic reckoning that will likely now be centered on the bloated finances of the governments of the rich countries rather than the financial markets themselves.

This may seem like a particularly long and drawn out detour from what I had promised in the post preceding this one, that is, to apply what I had learned from David Hawkes’ reading of Paradise Lost to the quants. So, without further ado, let’s see where this takes us:

I should say right off the bat that what I am about to do is apply religious concepts to secular phenomenon. This might strike some as vulgar and a debasement of spiritual concerns. I understand this concern, and think it real myself, but nevertheless find this effort worthwhile. My suspicion is that when we peer underneath things we today believe to be wholly secular, we will find ideas that have their origins in religion. The reason we likely don’t recognize this is that ours is the first truly secular age,  that is, it is the first age whose social conventions are devoid of any explicitly religious context, or, in other words all other ages have approached both the human and the natural world through religious ideas. It is from this realization, not from any sense of my own personal religion or spirituality (I have little of either) that I think approaching the world using religious concepts is sometimes helpful, and this is the case even if the current religions are no more “real” than the religion of the Greek gods.

To continue: It would be a mistake, I think, to believe the quants were brought low by the vice of greed alone, and Milton/Hawkes can perhaps help us see why.  The broken relationship (sin) that underlies the whole of Paradise Lost is the sin of idolatry, and for our purposes, one can see this most especially in the construction of the capital of Hell, Pandemonium. The fallen angel Mammon (again meaning money) whose vision becomes the basis for Pandemonium was, while he was still in Heaven, transfixed by its beauteous gold. Mammon confuses this mere symbol of Heaven’s beauty for the beauty of Heaven itself. If its golden visages could be duplicated, in the logic of Mammon, then the fallen could recreate Heaven in what was actually Hell. It is this confusion, of the power brought to us by money, Milton seems to be telling us, with the powers of Heaven and of God, which is the danger point of our relationship with earthly wealth, rather than the animal-like greed for more and more. Mammon’s Pandemonium, is perhaps, like the beautifully decorated Anglican (and before that Catholic) cathedrals that dotted England in Milton’s day, a confusion of style over substance, an affront to the idea of God as the source of charity and love.

Ultimately, this boils down to an argument over what we should attend to during this short life of ours. The quants were, without doubt, brilliant individuals. Yet, they chose to use this brilliance not to seek out cures for disease, or find ways to aid the poor, or even to unveil the beauty of creation through science, but sought the generation of riches for themselves, and wealth for the already well off members of the hedge funds they managed. (Hedge funds, by law are limited to people with a minimum of a million dollars in assets).

The quants might respond that the wealth they were chasing would eventually make its way down to the lower classes like manna from Heaven. It would be a difficult argument for the quants to make in regards to the poor, given how hard the financial crisis, in part caused by the quants, has been on the least well off. It would be just as difficult a case for the quants to make for the middle class whose imaginary wealth- the value of their houses and stocks- disappeared as quickly as the electrons it was made of, once the power of cheap borrowing, of leverage, short- circuited.

It is not merely, however, the fact that the quants could be accused of idolatry in the sense of their worship of wealth, of which many could be accused, but that they were guilty of idolatry in that they both exalted their own idea of “truth” in a way that was almost quasi-religious, and that they practiced what was in a sense a form of divination.

On the first point: the mathematically inclined seem almost cognetally prone to a form of Platonism. That is, they tend to look at numbers not as mundane symbols to be manipulated for our purposes, but as part of some sort of higher reality whose truth stands above all human convention. You get this weird faith in the ability of numbers to capture reality in the most practical of people, “show me the numbers”, means the same thing as show me the truth, a phrase whose underlying assumption is that the truth can best be captured by abstract digits.

For the quants, “Alpha” was not some limited model of the financial world, but the deep, underlying truth of the it. Alpha was not a symbolic representation of the market, but was the market itself. The fact that this idea was neither rational, nor pragmatic, but instead constituted a sort of faith, can be seen in the fact that the quants’ belief in Alpha was not subject to doubt. Critics, such as Benoît Mandelbrot, or Nassim Taleb weren’t really engaged or answered, they were brushed aside because they didn’t conform to this “faith”. In an earlier age, such heretics might have been burned at the stake, but in our humane present, they were subject to the intellectual equivalent- they were ignored. This blind faith was only called into question by the quants when their “god” failed them and their models were shattered by the hammer blows of reality.

On the second point, I don’t think it is surprising that many of the quants started as gamblers, and not just because Wall Street is the greatest casino on earth, which it certainly is. Rather, gambling has a deep relationship with divination, and what the quants were really trying to do was peer into the non-existent future in order, as all divination does, to assert control over the existent present.

It’s a chicken-and-egg- question of whether gambling or divination came first in human history, and for all intents and purposes, it seems the further we go back the more indistinguishable the two probably become. The fact that a person’s future could be predicted using cards- the modern version of this is, of course, the Tarot deck, or dice, makes perfect sense if we put ourselves into an idolatrous frame of mind- which is essentially the frame of mind of almost all pre-scientific forms of thinking. The key mistake of idolatry is to confuse the symbol with the symbolized. This mistake seems to naturally imply that the more “like” the actual thing our symbol for something is, the more it actually is the thing being represented. An individual life is subject to chance, therefore, if we know the outcome of a game of chance we will be able to predict what will happen in an individual life.

The quants did almost precisely this with their models. What they did is construct extremely sophisticated chance games with one caveat: that the outcome of the chance games would trend towards the equilibrium of the Efficient Market Hypothesis. Like a fortune teller they played their Tarot decks, and then confused the outcome of these games with the economy the rest of us make our living in. Perhaps like the gut-level traders they replaced, and like the successful fortune teller, much of their initial luck arose as much from their intuition as their models. Perhaps, too, like the successful fortune teller, many of them were supremely good con-men who were quick to recognize and exploit the vulnerabilities of people who believed in their predictive power.

This world the quants had helped create only became supremely dangerous for the rest of us when the gap between their models and reality became too wide, or worse was ignored. The fall of idols is always difficult to bear, and given the fact that the larger economy had become tied up in the belief in these false models, their being proven false couldn’t help but affect the vast majority of us who had never heard of a quant or a hedge fund or, or algo-trading, or a credit default swap.

The markets were only saved when the public and quasi-public institutions, the world’s most powerful governments and central banks- (the latter, which especially, had up to that point, been the most vociferous proponents of the virtues of the free market) both turned tail and “got Keynesianism” flooding the markets with cheap cash. This magical elixir to cure the burdens of debt, however, was one limited to the richest institutions and elements of society. Financial deregulation and the exotic instruments devised by the quants had turned the creditors into their own debtors, and these debtors would be cured by the magic of cheap money, a concoction brewed by the world’s central banks who had previously treated even the hint of cheap money like poison.

Something seems to be seriously wrong with our financial system, something that reaches back long before the quants, and touches upon the fundamental assumptions behind the seemingly oldest elements of our economic life- money and debt. Which leads me to the last question along this train of thought:

How might something seemingly so essential to our lives as economic creatures, our money and our debt, be viewed through the lens of idolatry?

Until next time…

* Scott Patterson, The Quants: How a new breed of math whizzes conquered Wall Street and nearly destroyed it, Random House, 2010

Accelerando I

The New Earth Archive has a list of 70 books that help us think our way through the future that every educated person concerned with our fate is encouraged to read. Though his book is a novel, Charles Stoss’s Accelerando should be at the top of that list. Perhaps even, at the very top.

I picked up a copy of Accelerando after I heard an interview with Venor Vinge, one of the founders of the Singularity Movement, who praised the work as one of the few examples of fiction that tried to peer behind the dark veil of the singularity. I had originally intended to do a review of Accelernado all in one post, but then realized how much it made my head hurt, but in a good way. I figured that I might make my readers’ heads hurt in the same way if I tried to explain the book all in one go.  Accelerando is so bizarre, profound, and complex that it needs to be described in digestible doses, the same way I found myself wrestling with the novel. To take it all on in one post is a fool’s errand.

What follows below then is a general sketch of the plot of Accelerando. I then dive into what I think are some very important things Stross has to say about our current economic model through the medium of his novel. In a future post I’ll try to tackle something even more important he takes on in the book- the nature and evolution of technological civilization, and the fate of the human species.

The plot of the novel centers- around the story of four generations of the Macx clan: Manfred, Amber, Sirhan, and Manni.  All of the Macx’s are befriended/manipulated by the robotic cat, Aienko, who plays a central role in the story.  The book begins with Manfred Macx, a kind of Julian Assange/George Soros who is hated by almost everybody- especially tax hungry IRS agents and his ex-wife, Pamela, (who happen to be one of the same) for giving his brilliant ideas away for free.

Manfred is an example of a type of human being Stross sees just over the horizon, constantly plugged-in, with so much of his self offloaded into the cloud, that he loses his identity the minute his” glasses”, which are his interface with net, are stolen.

He is also a new type of political figure managing to revive a form of communism by creating a centralized-planning algorithm that can interface with market based systems.  At the same time he is a pioneer in granting rights to increasingly sentient emergent AIs of whom a group of uploaded lobsters originally created by the KGB  can be counted.

If Manfred represents the first stage of the singularity, the stage we can now be said to be in, and are therefore somewhat familiar, his daughter Amber represents the stage that follows. Purposefully enslaving herself on a slave ship on a mission to mine a moon of Jupiter, Amber eventually sets up a “kingdom” on a small asteroid.  At this point the story becomes fantastical. The line between the real and the virtual essentially disappears, persons at this stage are able to split themselves into virtual “ghosts”, and Amber and her crew eventually set off in a star-ship the size of a Coke can, the crew able to embed themselves in its virtual world. Their destination is the source of alien messages some three light years away from Jupiter. What they discover are a particularly intelligent and ravenous group of space lobsters, who Manfred had liberated from the KGB years before, who exist as scavengers upon a civilization that has collapsed under the weight of their own singularity- more on the latter in a moment.

When the “virtual” Amber returns from her space mission she finds that the “real” Amber has married and had a child, named Sirhan, with Sadeq- the fundamentalist Muslim theologian who had come to the Jupiter system to bring the word of Muhammad to the aliens beyond the solar system, and found himself, instead, caught up in the legal struggles between Amber and her mother, Pamela.  The site of their empire now centers around Saturn.

What Amber and her crew discovered on their trip to the alien router outside the solar system was a dark fact about the singularity.  Many, indeed most, civilizations that reach the stage of singularity collapse, having consumed itself along with the original wet-ware species that had given it birth. What is left, or passersby, huddling closely to their parent star- a closed network.

Knowing this is their likely fate Amber, and her family, launch a political party the Accelerationista that is pushing a referendum to flee into the Milky Way from the “Vile Offspring” that have been created in the singularity, have consumed the inner planets in their quest for energy and processor space, and will soon consume what is left of the earth.  The Accelerationista lose the election to the conservative party who prefer to stay put, but Amber and her family still manage to get a large number of people to make a break for it with the help of the space lobsters. In exchange the lobsters want to send a cohort of humans, including a version of Manfred off to explore a strange cloud that appears to be another version of the singularity out in the further depths of the universe

It’s a wild plot, but not as mind blowing as the deep philosophical questions Stross is raising with the world he has envisioned.

Right off the bat there’s the issue of economics, and here Stross attempted to bring to our attention problems that were largely off the public radar in 2005, but hold us in their grip today.

The protagonist of the story, Manfred Macx, doesn’t believe in the profit economy anymore. He gives his ideas away for free, and indeed Stross himself seemed to be following this philosophy, releasing the novel under a Creative Commons license.  In the novel copyright comes under the “protection” of mafias that will break your legs if you infringe on their copyright as they threaten to do to Manfred for giving away the musical legacy of the 20th century, again, for free. This battle between traditional copyright holders and the “sharing” economy has only become more acute since Stross published his novel, think SISPA and beyond.

Manfred’s attitude to money drives both the US government (and his ex-wife) crazy.  America is creaking under the weight of its debt as the baby boom generation retires en mass, but stubbornly refuses to die.  Since Accelerando was published debt politics and the consequences of demographic decline have come to the forefront of political debate in the US, but especially in Europe. One thing Stoss got definitively wrong, or better probably will have gotten wrong, is that he imagines a strong European supra-state in our near-future.  From our current angle it seems hard to imagine how even the relatively weak union Europe has now will survive the current crisis.

Stross also seems to be criticizing, or at least bringing to our attention, the hyper-innovative nature of financial instruments and legal contracts and doing this several years before the financial crisis of 2008 made financial exotica like Credit Default Swaps household terms. For, it is precisely in this world of virtual finance and “creative” law where Manfred excels at being innovative.  Manfred may be like Julian Asange in his nomadic lifestyle, and revolutionary ideology, which manages to piss-off just above everyone, but in other ways he resembles George Soros in that many of his best innovations are the result of Soros-like arbitrage, exploiting the gaps between reality and expectation and especially the differences between states.  Manfred displays this skill when he frees his daughter Amber from her mother by having Amber sell herself into slavery to a company based in Yemen, where her slave owner will trump the custody rights of her mother.

Stross also plays with the idea of how crazy the world of virtual trading, and image management on platforms such as FaceBook  have become, imagining bubbles and busts of bizarre bits of ether such as those traded in his “reputation market”.

Stross’s critique of capitalism may even run somewhat deeper for he has Manfred align himself with the old school communist Gianni to bring the command economy back from the dead using artificial intelligence able to link up with market mechanism- what exactly that means and would look like is really not all that clear, but that order is quickly superseded by another period of hyper-competition known as Economics 2.0

Indeed, this updated version of capitalism Stross portrays as the biggest threat to civilization as it approaches the singularity. Such hyper-capitalism built around  “corporations” that are in reality artificial intelligences might not be a phenomenon of human begun civilization alone,  Stross seems to be providing us with one possible explanation to Fermi’s Paradox – the silence of the universe seemingly so ripe for life.  Civilizations that reach the singularity are often so ravenous for resources, including the intelligence of the very beings that sparked the singularity in the first place, that they cannibalize themselves, and end up huddled around their parent star with little desire to explore or communicate after collapse.

The fate Stross paints for Economy 2.0 societies reminded me of a quote by Hannah Arendt who interpreted the spirit of Western capitalism and imperialism in the desire of the arch-imperialist Cecil Rhodes to “annex the planets”, and Thomas Hobbes conception of human kind’s limitless lust for more and more power that became the core assumption of the modern age:

But when the last war has come and every man has been provided for, no ultimate peace is established on earth: the power accumulating machine, without which the continual expansion would not have been achieved needs more material to devour in its never ending process. If the last victorious Commonwealth cannot proceed to” annex the planets” it can only proceed to destroy itself in order to begin anew the never-ending process of power generation*

I will leave off here until next time…

*Origins of Totalitarianism, Imperialism, 147

In the birthplace of democracy

“The mortgage-stones that covered her, by me Removed, — the land that was a slave is free;
that some who had been seized for their debts he had brought back from other countries, where
— so far their lot to roam, They had forgot the language of their home;
and some he had set at liberty, — Who here in shameful servitude were held.”

                                                                                                                      Solon, Plutarch’s Lives

When the history of the conflict between the market and democracy is someday written, the events in Greece this Sunday will almost certainly be seen as a major victory for market forces. There, the Greek parliament, under enormous pressure from the financial markets along with Germany and France committed what may amount to political suicide in the upcoming Greek elections. Members of the Greek parliament are willfully taking the country into what is in effect a deflationary induced depression in order to avoid the default and exit of Greece from the Euro-based economies.

Opposition to the draconian cuts necessary to secure funding support by bond holders, European governments and the ECB quite literally set Greece ablaze.

As in the ancient myth, Greek society is caught between Scylla and Charybdis.  Their only choices seem to be that of the chaos that would likely be the result of  a default, and a self-induced economic depression. The latter might prove preferable if it were likely to work in the long-run to restore, and  therefore secure the long term prosperity of Greece.  Such an outcome, is sadly unlikely.

The democratic process is now dictated by the electric speed of the international markets. Greek politicians were in a race against the clock before markets opened on Monday.

 Despite the German’s ridicule of the Greeks’ spendthrift ways, the Greek social system has its origins in the history of the country, which for decades endured brutal right-wing rule opposed only by a defiant left. The social-rights of Greeks were in effect the price to be paid for the left’s acceptance of the fact that Greece was to be a normal rather than a revolutionary country. Dismantling this system is a denial of history, and on par with the most utopian of top-down social transformations. Here the market is at war not just with democracy, but with history itself.

The German view of “lazy” Greeks also fails to take into account the very structural imbalances between Germany as an export economy and almost everybody else in Europe as playing a major contributing  role in the crisis. German exporters are greatly helped by the weakness of a currency they share with backward countries such as Greece. The Greeks get no such benefit, suffering a much stronger currency than would otherwise be the case. The real gain of Greece sharing a currency with mighty Germany has been Greek access to cheap debt. That is over now, and turned out to be not such a good thing, after all.

Rather than being isolated, the Greek crisis is symptomatic of the current state of capitalism, both globally and in Europe. As Robert D. Kaplan pointed out way back in 2009, as Greek riots were already starting to occur before the Arab Spring or Occupy Wall Street movements had even been imagined:

It’s tempting to dismiss this as a purely Greek affair that carries little significance to the outside world. But the global economic crisis will take different forms in different places in the way that it ignites political unrest. Yes, youth alienation in Greece is influenced by a particular local history that I’ve very briefly outlined here. But it is also influenced by sweeping international trends of uneven development, in which the uncontrolled surges and declines of capitalism have left haves and bitter have-nots, who, in Europe, often tend to be young people. And these young people now have the ability to instantaneously organize themselves through text messages and other new media, without waiting passively to be informed by traditional newspapers and television. Technology has empowered the crowd—or the mob if you will.

Likewise, a European Union that could have served to shelter the European social system from the relentless leveling of market forces has shown itself instead to be the most powerful instrument in the hands of such forces able to bring, despite the resistance of history, whole governments, and the societies upon which they rest to heel.

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