Tuesday, April 22, 2014

Parasitic Supervillains and the Housing Bubble

The subprime mortgage crisis of 2008 has both exoteric and esoteric significance. Exoterically, the inflation of the housing bubble and the Great Recession that followed were grist for the punditry mill, events that were quickly spun by social engineers using code words that mesmerized the partisan spectators, reinforcing battle lines in the American culture war. The function of that war between mainstream ideologies is to dissipate emotional energy so that it’s not effectively channeled for any democratic purpose.

In this respect, the political culture war is similar to the separation of the government’s powers, which as Carl Schmidt said, also conflicts with democracy. Democracy is meant to uphold the individual’s right to self-determination so that everyone is sovereign over themselves, through their vote, and the majority rules by way of a compromise with anarchy. However, democracy turns out to be counterproductive when the population doesn’t deserve the capacity for self-determination, such as when the people are grossly uninformed and easily manipulated by self-serving demagogues. For that reason, the government’s ability to carry out the majority’s will is often practically limited by a separation of the government’s powers, to prevent a tyranny of the vulgarized majority. Conflict between the branches of government delays or prevents the administering of the majority-approved policies, but it also distracts the public with the spectacle of empty rhetorical exchanges or it exacerbates divisions among the constituents, creating gridlock between the parties. The liberal myth is that all rational individuals deserve to rule, because they’re godlike. But wherever voters are much more like animals than gods, liberalism entails in practice only superficial democracy. The government is literally broken into pieces to prevent an outbreak of real democracy, since such an outbreak would be like the oinking of wild, stampeding boars. 

Exoterically speaking, then, the meaning of the housing bubble is lost in the noise generated by so-called liberals and conservatives. Liberals blame the deregulation of big banks, even though neoliberals under Clinton continued the deregulation that had accelerated under Reagan and George H.W. Bush, and Obama’s economics team consisted of those same deregulators. Conservatives blame big government for pressuring banks to issue subprime loans. These are the same conservatives whose free market policies entail the capture of the government by the army of lobbyists from big business and by the revolving door between government offices and those in the private sector; moreover, as I explain below, the surge in subprime loans wasn’t the main cause of the collapse. To be sure, the political culture war is itself a sideshow in that it doesn’t reflect the American opinion as a whole, since at most only half of the eligible voters participate in the political system. Also, the American mainstream media, which establish the limits of exoteric meaning, that is, the consensus that takes on mythical status for the antiphilosophical masses, ignore the poor, the marginalized, and the radicalized, preferring to report on the Serious opinions that flatter those who are most responsible for maintaining the political and economic status quo. For their part, the disenfranchised masses are uninspired by the myths that buttress the American dominance hierarchy.   

Then there’s the esoteric importance of the economic crisis, that is, the enlightened interpretation made available especially to social outsiders. When the liberal and conservative caterwauling is duly ignored, along with the centrist, pseudo-mature middle ground in which either side’s rhetoric is merely reduced to its bland essence, “Stop fighting and let the system work!” what we find is that in 2008 a great mirror was raised to the face of the United States and the reflected visage was so hideous that only a masochist or a social outsider with nothing to lose could stand to look at it for long. The housing bubble was a titanic clusterfuck that deligitimizes nearly every facet of American society. Both parties and all three branches of the government along with the banks, the regulators, the accountants, the economists, the business journalists, the plutocrats and even the average American citizens are all implicated. From beginning to end, the economic crisis reflects the rottenness of postmodern America.

The Subprime Debacle

To appreciate both kinds of meaning, that for the unenlightened and that for the more enlightened, we first need to be clear on the facts. I’m hardly an expert on these matters, but here are some of the relevant facts as I understand them. The Glass-Steagall provisions had been put in place after the Great Depression to separate commercial and investment banking, but those provisions had declined in importance as banks discovered ways to circumvent them, and the provisions were finally repealed in 1999. Thereafter, the big American banks sought ways to leverage their secure assets, including mortgages. “Financial leverage” means the act of multiplying gains and losses, such as by purchasing more and more of an asset, using borrowed money. In effect, leverage is the bet that going into debt in the short-term can pay off in the long-term, because the payout from owning the asset will be greater than the cost of paying off the debt. Banks use financial instruments, devised by so-called financial engineers, to model ways in which owning certain assets will eventually outweigh the cost of the bank’s going into debt to obtain those assets. In this way, the banks might become flush with virtual, borrowed money, as they leverage their assets by a ratio of 15 or more to 1, meaning that for every real dollar they have they owe an average of $15, since they use their real money to entice investors to lend them much more money.

For example, a bank can take a mortgage, re-engineer it, and sell it at an inflated price so that the bank makes a virtual profit even though the bank is actually in debt because it uses that profit to borrow more and more money to engage in similar transactions. The benefit of going into debt in this way is that the debt comes back to haunt the bank only in the long-term, such as when the assets prove to have been fraudulent, whereas the elites who run the banks are paid only for their short-term performance. As long as the bank rakes in fees from its complicated transactions and its financial engineers are crafty enough not to let their bank be the last one holding the hot potato, the bank will temporarily appear to be solvent even though it’s slowly sliding into bankruptcy, or zombie bank status. However, the larger banks have little to fear even from the long-term cost of their “business,” since they’re infamous for being too big to fail, which means that the government implicitly enables their frauds by bailing out the banks when their schemes inevitably come to naught.

Now, banks had prime and subprime mortgages to choose from. The subprime ones were riskier to trade with (to turn into “derivatives,” or conditional contracts), since they were based on predatory lending or on governmental pressure through Fannie Mae and Freddie Mac to increase the rate at which lending was given to poorer buyers of “affordable” homes. Still, these subprime loans had higher payouts than the more secure, prime mortgages which have fixed interest and payment levels. So, pressured by the government (under Clinton and then Bush II) and motivated by the economic incentive to maximize profits even in a poorly-regulated and thus highly unstable market, the banks leveraged subprime mortgages, using financial trickery to sell them for more than they’re worth so that the banks could profit in the short-term and externalize the costs of the long-term inevitable disaster (i.e. they could let others pay those costs, namely the taxpayers). As Nomi Prins explains, the banks took $1.4 trillion in subprime loans and created $14 trillion in derivatives, that is, in reworked, traded versions of those loans, which means that they went into debt 10 times over on the back of those real estate assets. The banks then borrowed an average of 10 times more still, using those $14 trillion in allegedly secure assets, to profit from international deals, from the steam rising from the hot potatoes, as it were. Thus, $140 trillion in borrowing and hence debt was created from $1.4 trillion in subprime loans.

Under President Clinton, Brooksely Born, chairperson of the CFTC lobbied to regulate the derivatives market, which is part of the shadow side of the US economy in which trillions of dollars of phony, notional, prophecy-dependent money floats around in computers that nevertheless hold the real US and thus the global economies hostage. She was overturned by Greenspan and Summers, who argued that the market can take care of itself. Indeed, the lack of regulation allowed the credit ratings agencies to give the highest ratings (triple-A) to the debt at the bottom of the banks’ subprime mortgage-backed deals, because those ratings were purchased by the banks to carry out their frauds. When they were later hauled into court, the Big Three ratings agencies were forced to admit that they’re in the business only of offering their “opinions” for sales purposes, not practicing anything like a science with iron-clad math for the sake of making the market transparent. Far from regulating itself, the derivatives market is now less transparent, less stable and more monopolistic than it was before the 2008 crash. Due to moral hazard, the incentive for all highly influential, “rational”—which isn’t to say ethical—participants is to make out like bandits until it’s time to jump ship.

Why, though, did anyone buy those re-engineered forms of what were actually toxic assets? The triple-A ratings provided cover, but the fraud was based also on the assumptions that the mortgages themselves were secure, since the loans would either be repaid or the banks would repossess the homes, and that there would always be increasing demand for those homes so their worth would never decline. The market operated under the big banks’ fraudulent representation of the assets, and so when more and more homeowners than expected foreclosed on their mortgage payments beginning in 2007, the costs ramified throughout the derivatives market and the banks’ debt bubble burst. Whereas demand for homes was always thought to increase, demand eventually fell because of the success of the derivatives scheme itself, since that success was predicated on a secret and quite unsustainable conflict with reality: the false expectations generated by the insiders’ deceptions were dashed when the reality behind the “liars loans” became more widely apparent, and the irrational exuberance was replaced by fear that owning a home at that time wasn’t as valuable as had been advertised. That fear helped to lower the demand for home ownership.

Think of a magic trick that mesmerizes as long as you’re looking where the magician wants you to look. But as you catch a glimpse of the hidden reality, of the magician flicking his wrist so that something you’re not supposed to see falls out of his sleeve, the spell is broken and you’re left with your understanding of the real mechanism at work and with skepticism about magic. The bursting of the debt bubble was like that except that the enormous profitability of the fraud ironically ensured its downfall, because reality and the inflated expectations were bound to conflict. The fraud succeeded because an alternate reality was created for those entranced by the shine on the debt bubble, and that artificial world operated under rules that favoured the insiders who conjured it. The bubble expanded until its victims began to suffer at the hands of the real world that had been misrepresented, which caused the victims to lose faith in the alternate reality and to withdraw their investment in it. Specifically, the flurry of subprime lending brought homeownership to record levels, driving up the price of houses and thus the payments in the homeowners’ adjustable-rate mortgages, which they could no longer afford to pay. As that hidden reality began sinking in, there was a surplus of homes built, since demand had dried up. That lowered the cost of homes, disinclining the lenders to allow the homeowners to refinance their mortgages, which caused them to default.

Moreover, after the earlier energy and telecom busts, when Enron, WorldCom, and other institutions perpetrated similar frauds from 1999 to 2001, posting phony profits based on the shadow banking system, Alan Greenspan lowered interest rates from 6% to 1.75%, between 2001 and 2003, creating the cheap money that facilitated the borrowing in the first place. Americans felt free, then, to max out their credit cards and to take out mortgages they couldn’t afford. Why so much debt in the US? Because, as Thomas Piketty shows in Capital in the Twenty-First Century, from 1977 to 2007, 60% of US national income went to the richest 1% of Americans. Wages for middleclass Americans have stagnated for decades while the costs of living have increased, forcing Americans to go into debt to maintain their living standards.

Why the income inequality? Partly for Piketty’s reason: the US has nearly become an oligarchy in which dynasties rule, owing to the fact that capital (some real, non-financial good that’s used to produce sellable goods) historically earns a higher rate of returns than the growth rate of national income. Thus, those who own the material means of producing profit can greatly multiply that inheritable wealth, by being able to afford to take risks on the stock market, by effectively purchasing the government to write laws in their favour, and so forth. But more precisely, the reason so many Americans have fallen out of the middleclass is the one given by Chris Hedges in Death of the Liberal Class: liberals don’t fight for their values with the same ferocity as conservatives, and so they’ve allowed unions, for example, to become corrupt or to disappear altogether. Thus, while the plutocrats have teams of lobbyists to enforce their will, ordinary Americans are effectively unrepresented. This is why, as shown by a 2014 Princeton study which looked at 1,800 policy issues over the period between 1982 to 2002, “Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic Elite Domination…” Incidentally, that finding helps explain why most Americans haven’t voted in their presidential and congressional elections for decades.

Why has the liberal class died? In a word: postmodernity. The problem isn’t just that Americans are traditionally individualistic so that they’re suspicious of welfare states. It’s that liberal values have had only modern philosophical justifications which no longer energize liberals, in view of postmodern historical developments. Of course, quasi-liberal values of social progress and of the intrinsic, equal worth of each individual used to have Christian justifications, but modernity put an end to the social functionality of theistic myths. Modernists replaced them with secular, typically scientistic philosophies that founder on the naturalistic and genetic fallacies. Consequently, postmodern liberals are crypto-nihilists and are emotionally unable to offer more than lip service to their slogans, since they’ve lost faith in the modern myths that drove the liberal agenda which included social democracy, capitalism, and consumerism. This is at the root of why, for example, the liberal occupiers of Wall Street left empty-handed.

The Distraction of Free Market Economics

That explanation is only part of the story, but I think it’s a fair representation of the whole. Again, those facts have been spun into the exoteric diagnoses that feed the mainstream culture war between nominal liberals and conservatives. But what was really going on at the philosophical level? One way into this is to reflect on the ideality of the mathematical models used by economists. These mathematical models make unrealistic assumptions to provide the illusion that economics is a science like physics that can boast genuine, exact laws in its theories of economic behaviour. These laws are extraordinarily ceteris paribus, or hedged, in that they apply to delicately-balanced situations that don’t actually obtain in the real world. The benefit is supposed to be that the laws provide for piecemeal understanding, since the economist can say that were certain conditions to be met, such and such is precisely how the system would play out. In other words, the so-called laws or principles amount to models, which are highly simplified, indeed counterfactual representations of reality. These models function more like fictions that inspire social engineers to make the real world match the economic ideal. That is, the economic models are prescriptions, not descriptions, and so the predominant kind of economics is actually a branch of ethics, not a science. But you might find that surprising, because economists hide the normativity of their statements behind an impenetrable wall of dreary mathematics.

In The Use and Abuse of Mathematical Economics, the economist Michael Hudson points to another way in which the math obfuscates:
The important thing is that no structural problems are recognized, that is, no problems that cannot be solved by marginal quantitative adjustments in incomes, prices and wage levels, the money supply and the interest rate. It is in this respect that the mathematics of laissez faire monetarism are microeconomic, depicting the economy narrowly rather than broadly through the long-distance lens of historical development. The analysis may be valid as far as it goes, but it doesn’t go very far, as it formulates problems marginally rather than with an eye for structural reform.
In particular, says Hudson, “At the microeconomic financial level it seems wise to maximize one’s return on equity by indulging in debt pyramiding. But for the economy as a whole this debt accumulates interest.” And “Perception of the debt-overhead problem is concealed by the characteristic feature of today’s finance capitalism: an asset-price inflation of property markets, that is, rising land and stock market prices.”

As he goes on to explain,
Monetarist models [i.e. free market ones] serve largely to distract popular attention from the extent to which more wealth is being generated more by the asset-price inflation—than by building new factories to employ more people. What has happened is that the classical distinction between productive and unproductive credit has been replaced by an ostensibly value-free theory claiming that money earned in one way is just as economically worthwhile as money earned in any other way [my emphasis]…“Hard” facts tend to be the preoccupation of technocratic economics, whose predictions focus on the short run, that is, on marginal changes rather than structural transformations. But economic truth involves a much broader evaluation of society and even culture, as economic theory itself may be viewed as an exercise in cultural history.
So as I understand it, free market economists are forced to ignore cultural and even biological factors in their bid to make economics seem as objective and exact as physics. In particular, their models ignore the structural role of debt, focusing on micro issues that can be solved by technocrats, such as by the postmodern, nihilistic neoliberals. The question this raises is about the cultural significance of a debt-based economy. In The Silence of Animals, John Gray compares Wall Street bankers to alchemists:
Debt is potentially limitless, feeding on itself and increasing until it can never be paid off. The immaterial wealth created by the new capitalism was also potentially limitless…[The] practice was a kind of alchemy. Lending people money they could not afford to borrow was a way of creating something from nothing. Even as industry was being offshored and workers deskilled, prosperity would continue rising. Wealth need not be wrenched from the earth as in earlier times. Through a process whose workings no one could specify, wealth could be conjured into being. (67, my emphasis)
Some crucial cultural background that’s left out of free market economics, then, consists of the biological, pragmatic, and psychological factors I discuss in Sociopathic Power Elites, Beta Herds, and Omega Watchers. The upshot is that our default social order since the rise of Neolithic civilization concentrates political power in the hands of some minority who are corrupted by that power and come to see themselves as superhuman or godlike. These predatorial power elites confirm their elevated status by dehumanizing the masses, turning them into what Lewis Mumford calls megamachines, which include the workforces that built the Egyptian pyramids, the Great Wall of China, or the mass-produced goods in the Industrial Revolution. America, then, is managed much more by plutocrats than by the majorities that elect their politicians. Only in local, day-to-day affairs does the representative’s judgment matter. With regard to the laws that structure the society as a whole, a minority of power elites tends to rule. In that respect, the US isn’t democratic, nor is it the leader of any free world. There is no free world, or at least none that competes for long with the default, dehumanizing social order, which is the one found in most social species. True, the more democratic societies aren’t police states, so most Westerners are free to live as they choose in their local ways; in particular, they’re free to consume whatever’s available, assuming they can afford it. But they aren’t usually responsible for the choices made by their government, even when that government is supposed to be democratic.

From Robber Barons to Postindustrial Parasites

To return, then, to the Wall Street bankers, their financialization of the US economy, which Gray calls the new capitalism, seems like the proverbial smearing of lipstick on a pig’s snout. In spite of the real US economy being hollowed out, due to globalization (competition with old-school, illiberal megamachines in places like China and India), the rise of the machines, and postmodern disenchantment with America’s civic religion, the US hasn’t relinquished its status as the military superpower. Thus, the American way of life is funded now by magic, by financial alchemy. Matt Taibbi maintains that the Wall Street schemes are just frauds that amount merely to rich people stealing from the poor. To be sure, the boom and bust cycle benefits the too-big-to-fail insiders at everyone else’s expense, resulting in greater economic inequality. Moreover, in his Rolling Stone articles, Taibbi does show how Wall Street insiders profit from techniques that are similar to those of lower-scale scam artists. Indeed, these insiders’ intention is surely nothing as lofty as a desire to be godlike. Instead, postmodern American plutocrats are merely greedy and, ultimately, sociopathic (egoistic and indifferent to the suffering of their many victims). Nevertheless, the 2008 crash is part of a hidden process which has broader significance, as opposed to being best explained in terms of mere theft. Just as the financial predators aren’t likely aware of that process, since they’re personally just greedy sociopaths with little sense of their larger role, Satan the Accuser in the Book of Job is motivated by general skepticism, not by an evil plan to embarrass God by proving that people praise God only when they fare well. Still, the myth of Satan’s testing of Job helps us see the deeper process at work in the US, as I’ll show in a moment.

But another distinction must first be drawn between the titans of financial capitalism, including the Wall Street bankers, and the industrial monopolists or robber barons who at least leave behind tangible monuments to justify the megamachines they assemble. The concentrated power of robber barons is needed to undertake any massive endeavour such as the building of railroads or skyscrapers, the refining of oil, or the mass-production of goods. The robber baron’s fortune is made in a real industry that visibly reshapes the environment for everyone; moreover, these industrialists, from Carnegie to Rockefeller to Bill Gates, tend to be philanthropists. Of course, they’re not saints since no one who controls a vast fortune retains his or her scruples for long. Powerful people deal with the devil, as it were, in that they’re brought low by their tragic flaw of hubris. Still, robber barons are comparable to the rulers of old who were the original theocrats, who used theistic myths to rationalize their own evident, albeit relative godhood, which they demonstrated with their colossal creativity.

By contrast, the postindustrial oligopolists build nothing. They are, then, parasites rather than superhuman creators. Instead of transforming the real world, replacing the natural wilderness with artificial microcosms that alter civilization as a whole, they manage dream worlds just long enough to scurry away with their private fortunes which they turn merely into the miniature worlds of their gated mansions. They do indeed seek to create something from nothing, a universe ex nihilo, but what they create is entirely for their benefit, and since their dream worlds siphon the life force from the masses who find themselves lost in the Kafkaesque financial maze, these postindustrial power elites are primarily takers, not makers. They gamble in the stock market, using weapons of mass financial destruction, including supercomputers to outmaneuver fellow con artists who are likewise looking for a free lunch. As China has taken over manufacturing, Americans are left more and more with their talents for hucksterism and myth-making. Their new ideas can be productive, as in the fine arts or in technological innovations, but they can also be cons, as in the case of the financial scams in the weakly-regulated American economy. But the postindustrialists aren’t just shameless thieves. They’re fallen angels, gods that have the misfortune of manifesting their glory in a languishing nation.

To return to Job, notice that myth’s political subtext. Yahweh wagers that the good man, Job, won’t curse God even if Satan torments him. Satan takes nearly everything from Job and Job calls on Yahweh to explain himself. Dissenting from the common view of the time, that earthly suffering is divine punishment for sin, the myth features Yahweh’s pseudo-theodicy: by listing dozens of his mighty works which no mortal can hope to understand, God establishes merely that Job isn’t on God’s level and so Job has no standing to challenge the Almighty—although the reader knows that Job’s suffering is due to the wager with the professional skeptic, Satan. Read in the context of the default, autocratic social order, the angel Satan represents the earthly ruler who dehumanizes his subjects, but who justifies the megamachine by virtue of his possessing the divine power to create worlds. Just as Job can’t understand God’s ways, but must humbly bow to the majesty of God’s creation, so too peasants must cringe before the human autocrat who employs not miracles but machines made of thousands of people to create and hold together artificial microcosms.

The robber barons could likewise have justified their sociopathy and the misery brought about by their monopolies, by roaring like Yahweh who has Satan’s back: “What do you really know of the magnate who controls an industrial empire?” they could have rhetorically asked. The inequality between power elites and the masses must be accepted as a fact of natural life, and the lower class has no right to complain about the upper one, because the two are incommensurable. Peasants understand the rarefied domain of godlike robber barons about as much as ants comprehend human culture. But the plight of so-called postindustrial power elites is that they have no track record of public works to justify the demand that we cease our complaints and merely worship them.

Indeed, a number of Wall Street CEOs have responded to the 2008 crash not by apologizing, let alone by killing themselves out of shame, as they might if they’d grown up in certain Eastern cultures, but by heaping more bonuses upon themselves and their cronies and by lamenting ordinary Americans’ right even to verbally hold them largely responsible for the disaster. These banksters couldn’t just thank Obama for not prosecuting them and for not breaking up their banks, but they had to protest his occasional populist rhetoric. It goes without saying that in the US there can be no true deterrence for those who commit colossal financial frauds, now that both parties are so dependent on private funding from wealthy individuals whose fortunes are tied up in the shadow banking system. These oligopolists hold the world hostage, thanks to globalization. (As William Black points out, many people went to jail for the S&L crisis of 1986-1995, but the scope of those frauds was puny compared to that of the more recent financial schemes, and it’s hard to believe that the American government which is in bed with private industries could successfully prosecute the new breed of plutocrats.) So any punishment of them can at best be symbolic, as in the case of fines or populist speeches, but the point is that these oligopolists have the gall to be outraged even by such token gestures, by mere rhetorical questioning of their magnificence.

The postindustrial plutocrats pretend they have a right to an attitude like Yahweh’s towards Job, whereas what we know now about postmodern America is that not only is God dead, but so too are the human autocrats. All that’s left are the self-deluded parasites, the hollow shells that they enslave, and the omegas who watch from the wilderness. Even to speak of “postindustrial society” is to credit a meme that’s meant to celebrate the genius of the new overlords, whereas obviously high-tech industry will be needed to build the world of tomorrow. The so-called postindustrial power elites are hardly more divine than the robber barons. Their wealth and corruption may be greater, but gods are worshipped because of the mightiness of their deeds. Gods don’t have to lie to enthrall the masses. True, human autocrats exaggerate their power by mythologizing themselves, to rationalize the debasement of the workers in their megamachines. But those myths are merely hyperbolic, because most autocrats demonstrate their absolute control by putting their megamachine to work. By contrast, the financial elites appear to have no creative vision; they’re not noble predators who lead their dominance hierarchies to greater glory for all, but parasitic supervillains hiding out in their lairs.

What, then, is the hidden meaning of the 2008 crash? That the host carrying the parasites stirred but failed to awaken from its stupor. That the US is in cultural decline and that, with its immune system weak, as it were, due to loss of faith in its founding myths, the least inspiring predators gather to pick clean the sickly body. In principle, the hapless animals killed and eaten by a lion could at least marvel in their dying moment that they’re inches away from such a marvelous beast that’s chosen to feast on them, lowly creatures that they are. Likewise, even being trod underfoot by the megamachine guided by an autocrat or an industrial monopolist carries with it the dignity that Job could have felt in his suffering at the hands of Satan who worked for the Lord Almighty. But Americans are going out with a whimper, not a bang. Apparently, the more creative class of predator doesn’t see much of a challenge in exploiting the American peasantry. So rather than being chewed up and spit out by the human equivalent of lions, most Americans are being bled dry by dysfunctional predators whose sociopathic genius is wasted in that it’s not paired with artistic boldness. These postindustrial predators don’t really know themselves. They haven’t come to terms with the job of the vices they’ve mastered: their sociopathy makes for the only divine beings that exist, for gods who can reshape the world in their image.

Superhumanity is and has always been just the autocrat’s sociopathic inhumanity. The gods have been nothing more than monstrous humans, the rest being naturally undead. Yahweh’s answer to Job is monstrous in its narcissism and callousness. Yes, Yahweh occupies a higher plane of existence, but that’s precisely what corrupts his character! Likewise, as Taibbi shows in The Divide, the American plutocrats are above the law as well as being beyond good and evil. The saving grace of a divine being’s corruption, though, is that the god is arrogant enough to create a world to magnify its glory. So when the monster decides not to create and merely to annihilate what’s already been made, we see the impersonality of nature’s underlying evolution to nowhere. The natural world has no personal creator, of course, so nature creates itself. Living things evolve and, taking pride in their vitality, they’re alienated from nature’s undeadness. Animals rebel and modify their environment to better achieve their goals. The best of us recreate the world out of the madness that comes from confronting such existential facts. There is no permanent escape, but we can be tragic heroes, putting our stamp on monstrous nature with our more refined monstrosity. This was the existential significance of the dominance hierarchy, of civilization, autocracy, and the megamachine. And when our power elites fail to create, merely stewing in their egoism and hackneyed social Darwinism, they allow undead nature to have its way with us—without doing their part in the great struggle. This is the pity of postmodern American society: its supervillains are good merely for an anticlimax.  


  1. Wow, this is all extremely accurate. Quite impressive in both depth and breadth of understanding.

    I am personally interested in the idea that the financial crisis is merely an example of a general rule. You mention that the mathematical models are myths. You also stated that demand fell due to the success of the scheme itself.

    The financial crisis was built on two categories of models that interacted in an "unexpected" way. One is qualitative built on the general neoliberal "homo economicus" assumption about the nature of man, and at a greater level, the nature of reality. These assumptions are fundamentally absurd and dangerous but garner control to those who have convinced the populace that they are true. I am actually not sure that the oligarchs believe this myth at all -- it merely provides cover for enforcing class base rule in the modern era.

    It should be noted that these models are all created by economists who are said to have physics envy. Any scientist worth their salt will instantly reject these models once they understand the assumptions, because they are obviously so inaccurate.

    The second type of model is the quantiative type about financial transactions and how the mortgages can be packaged into derivatives. These are statistical models and in contrast to neoliberalism, they are accurate as long as their constraints are met. These models were not created by economists -- they were created by statisticians, many of whom were physicists. When expected funding for NASA and Fermilab didn't come through, many unemployed (or recently graduated) statistical physicists flocked to Wall Street because they could be themselves while getting paid great wages.

    From reading first person accounts, the model creators were very adamant about the exact conditions in which the models would apply and where they would not apply. The problem is that they were so lucrative in the beginning that management had no incentive to keep within the model boundaries. A few firms took risks on the model and made enormous profits, so then the other firms followed and pointed to earlier successes to justify their risks. Starting in 98 or so, it became clear the boundaries were close to being breached, and the creators stated that the banks needed to stop. Their concerns (and sometimes them personally) were dismissed, because the great scam was on the verge of full bloom.

    It is unclear exactly when the higher ups knew that they were perpetuating fraud because they were so far out of the boundaries. Of course they blame the model creators in the first place so they don't have criminal liability, but they have to have known.

    Anyway, this interests me as a general pattern. In any system there will be strategies that create a competitive advantage inside the current ruleset. The actors that take advantage of those will grow in power and it is only natural that they will maintain their strategy as they grow because the larger they become the more effective they will be. At some point their success has fundamentally changed the system and so their strategy is now absurd, but they will not acknowledge this because it means changing what they are doing and even worse, the switchover point occurs fairly early in the cycle -- say 30% of the way through. They put in so much effort to become major players and if they changed when it was rational, they'd lose out on most of the easy profit.

    I believe this general thought process explains power dynamics and evolutionary shifts of all kinds.

    1. My second interest is your comment about how society is being changed to conform to the rules. I actually do not think the oligarchs are doing this for the reasons stated above. In fact, if the rules were true then their power would be at risk! It is by exploiting the asymmetry between what people believe and what actually is that they gain riches.

      In contrast, it is the quantiative minds who are pushing this. Physicists tend to be disconnected from social reality and this allows them to state exactly what they know and don't know. As I mentioned above, the physics envy of the economists is that they don't have the models; so they created them and reality be damned. In contrast, the technophile types punctuated by Silicon Valley have physics envy in that social reality itself doesn't conform to physical laws. They are the ones who are pushing to quantify the entirety of human experience, so that we can all be optimized and turned into rational actors.

      In a way, they are the enemies of Wall Street because if they succeed then Wall Street has no role. But that will be a long time coming. Politicians and Wall Street support the efforts thus far because it gives them social control over the increasingly sociopathic population. What used to drive neoliberalism was paean to American greatness, but now that myth is failing, they are forced to rely on algorithmic Gods.

      As you accurately note, this is the true death of American Liberalism. Because it has no grounding, it can do nothing to combat rule by algorithm. Indeed, the classic Valley identity is a modern liberal that "cares" about social issues. They just believe they will be remedied by turning everyone into bots of flesh.

      While what you write about the plutocrats being parasites is 100% true, the algorithmic mindset makes *everyone* into parasites. In its pure form, we will create robots to handle physical tasks and then those who act within the social rules will be able to live without effort for their entire lives. We will all become superhumans ruling over robot slaves.

      And in their delusion, they believe they are actually producers.

      This post gets to the root of the reasons why I left the US. I grew sick of mass sociopathy, feebleness and arrogant destruction of ignorance. There are aspects of this spreading throughout the world through globalization, but the US remains the epicenter.

      After diagnosing this, I realized that the US would fare the worst in the context of limits to growth and global warming so I left. However now that I've been out of it, I see how the whole of America is -- it is truly undead.

    2. Thanks! I've been meaning to criticize economics for a while now. I think that what we're saying here is largely complementary. I was aware of the physics envy thesis and I'm quite interested in it. Have you read Philip Mirowski's More Heat than Light or Machine Dreams? Great stuff, although much of it goes over my head. The Zachary Quinto character in the movie Margin Call, I think, is a rocket scientist who goes to work for Goldman Sachs.

      I doubt, though, that the recent crashes were entirely bottom-up or accidental affairs. There's a lot of history here that mustn't be forgotten. In particular, there was the Great Depression which Nomi Prins's new book shows was caused by similar bank schemes. The managers at these banks come out of Ivy League institutions, so they're aware of what they're doing. They know how the system works, they've got a social Darwinian mindset and they're looking to push the envelope.

      I can see them being surprised by the opportunity afforded by the new statistical models, as you say, but I'd be inclined to see this in terms of adaptation to a niche. The niche is the free market ideology which centers around the plutocratic power of godlike sociopaths. Like Gordon Gecko, they demand whatever edge they can find to maximize their profits. That's why they lobbied to deregulate the markets, so they could perpetrate their frauds which are the surest money-makers, as Matt Taibbi shows. Physics geeks adapt to the niche, as you say, to make money, by supplying the models to make the frauds work.

      As for the wider sociopathy of the masses and the quantification of human nature, this is pretty much the thesis of Machine Dreams. Cybernetics came out of the Cold War mentality. I speak of "automated beta masses," but I reserve the term "sociopathy" (subcriminal psychopathy) for the power elites, because there's a feedback loop established by the concentration of power which forces the elites to master their vices, to exacerbate the crypto-nihilism at the heart of their postmodern liberal sentiments.

      Have you seen Adam Curtis's documentary All Watched Over by Machines of Loving Grace?

    3. I only watched the first episode of Machines. I've seen almost all of Curtis' documentaries and found it to be largely a rehash so didn't bother with the rest.

      Curtis has an extremely narrative style that is a morality play told in a classical tragedy way. It is interesting to watch how the same people/institutions pop up in his different documentaries in different ways -- in one Nixon is a corrupt incompetent and in another he is the closest thing to a savior that Curtis ever gets.

      These Just-So stories are factually accurate but certainly not objective, even within Curtis' repertoire. I generally have no issues with this for two reasons. First, I think life itself is narrative and it makes sense to tell a consistent story as long as you hear lots of different stories, because then you can pull together what holds up the most. And secondly, he largely tells the perspective from the players themselves: it comes off as *their* objective truth.

      However, on both of these measures, the first episode of All Watched Over was a mess. I am very steeped in dynamics systems theory (what cybernetics is now called) and although he was factually accurate in its development, he dropped both social and technical developments over the last 30 years that completely invalidate his story. Even worse, by doing so he smeared the people in the field by getting away from their own perspective.

      For instance, he talked about how hard they tried to prove homeostatic ecosystems and eventually failed. This failure led to the development of chaos theory and the realization that reality itself operates in disequilibrium. Even the body does not demonstrate a lot of homeostasis.

      These realizations completely undermine neoliberalism, or indeed, the entire idea that we can even have good prediction systems in the first place! It shifts the weight from trying to control what is going on to one in which systems have certain checks and balances but have a lot of dynamics within them. When you try to control it too much then you get what is called over-optimization and the system becomes brittle (what I talked about above is the tendency for winners in an evolutionary system to always over-optimize and lead to their own downfall).

      Once you understand this, then you see that industrial society is extremely fragile and the environmental devastation we are causing is certain to cause full collapse. The effects and dynamics of something as enormous as climate change will be far far beyond what the presented "serious" worst case is (such as in the IPCC) and may occur on very rapid timescales. The paleoclimactic evidence supports these assertions.

    4. So in his quest to create a pat story, he left out the most interesting and relevant part of history. The Limits to Growth people -- far from advocating stasis -- realize how this disequilibrium work and understand that if you have a zero growth economy then it makes power structures weaker, not stronger! This is because in a zero growth economy, the winning strategy becomes efficiency and process oriented instead of extractive, and so there will be much more pressure from upstarts.

      Indeed, in a zero growth economy, oligarchy has a very hard time functioning and distributed cooperatives with local decision making will be able to win out.

      So their recommendations are actually one of the most radical and biggest threats to the power hierarchy ever conceived. They are at least on par with Marx, except the proposed social organization is much more realistic than Leninism or other central planning Marxism.

      I have no idea how Curtis got from this that it would freeze power structures and be supportive of the status quo.

      Indeed, all of that body of work -- and the problems that underpin late stage capitalism -- arise out of Game Theory, which is built on fundamental premises which dynamic systems theory blows away. It is game theory that leads to the Silicon Valley/no regulation mentality, and now we are seeing the explicit "gameification" of life pushed as a personal and social good because of that reason.

      One of the fundamental premises of Game Theory is that all players are sociopaths. One of Curtis' best moments is at the end of an episode on Game Theory, Nash says that he thought of it when he had untreated schizoid paranoia and he now realizes that it was what drove him to make the assumptions behind it in the first place.

      In that same episode he recounts that they first tested the theory on their secretaries and when the secretaries failed to play the game the way it was predicted (instead playing with a mutualism strategy) they just decided that the problem was with the secretaries, not the theory. And when they gave it to a wide swath of people, the only two groups who played consistently according to the rules were economists and diagnosed psychopaths.

      Yet that was 30 years ago. Now you hear rationalizations and explanations on a daily basis that use game theory as their core...even in sciences with branches like evolutionary psychology. Game theory has come to dominate elite thought processes and in order to survive you must play according to the rules; which is explicitly sociopathic.

      But systems theory is not like this. In systems theory you can accommodate all sorts of strategies and motivations, instead of trying to force an optimal outcome. Indeed, optimal outcomes are actually impossible to calculate because of systems dynamics.

      Anyway, it just bugs me because it misses out on key insight of physics envy in general. The difference between much of physics and complex systems describes why we can split apart atoms or launch ships that land on asteroids, but not predict the weather more than a couple of days out or even how basic biology functions. It also explains how even complex physics oriented fields like materials science are still almost entirely trial and error, instead of having easy to find solutions.

      Society's attempt to mimic physics (both in sciences and politics) is leading to social, psychological and environmental devastation. Curtis completely dropped the ball on documenting the one type of science-based thought that can overcome it -- and how it arose out of scientists trying as hard as they could to prove a theory, only to accept it was wrong; leading them to greater insight.

    5. I certainly agree that Adam Curtis weaves complex narratives in his documentaries; indeed, the narratives are almost Hegelian in how the themes interlock, except that instead of climaxing in harmony, his narratives end in ironic tragedy. His approach to history and to rationalism is similar to John Ralston Saul's in Voltaire's Bastards.

      I think it's the second part of All Watched Over that disappointed you. I haven't watched it in some time, but judging from the Wiki write-up, it seems like he wasn't criticizing systems theory itself, but how it was abused by economists in their attempt to sell deregulation. The idea was that natural systems are allegedly self-stabilizing, so artificial ones should likewise be left alone to find their equilibrium. You're saying that natural systems are actually in disequilibrium, because of chaos. But I'm not sure Curtis would disagree with that. Here's a quote from the Wiki article (see especially the last part):

      "Norbert Wiener laid out the position that humans, machines and ecology are simply nodes in a network in his book Cybernetics, or Control and Communication in the Animal and the Machine, and this book became the bible of cybernetics.

      "Howard T. Odum and Eugene Odum were brothers who were both ecologists. Howard collected data from ecological systems and built electronic networks to simulate them. His brother Eugene then took these ideas to make them the heart of ecology, and the hypothesis then became a certainty. However, they had distorted the idea, and simplified the data to an extraordinary degree. That ecology was balanced became an unexamined and unscientific assumption."

      Anyway, here's an amusing short parody of Curtis's documentary style:


    6. Oops yeah it was the second. The first was so much like his entire previous series that I had completely forgotten about it!

      My objection is that it is true the Odums did that, but then they, Forrester and the Club of Rome associated people (Donella Meadows, etc) came to realize this view was wrong by examining the results of their own work in the real world. From that, they started arguing that in reality you can't have total control, etc.

      The way I see it, Curtis came into conflict with his own narrative style. He likes to end in ironic tragedy brought by never ending ignorance, but in this case, the conclusion is that the scientific process allowed the community to let go of its unrealistic ideas. The methodology is "correct" (although as we have talked about previously, that doesn't mean its correct in a physics sort of way in that you can't use it to get universal predictions) and it was just the parameters that were wrong.

      Knowing the history, it's almost like Curtis was selectively editing out points that would lead to this optimistic ending. Of course, it is still tragedy because their views were adopted quickly enough and so the general educated public cannot accurately assess ecology or climate change and economics as a profession is crippled.

      At the end of the day, we're almost exactly on schedule for the Limits to Growth path that we took, and yet the common wisdom is they said we'd already have no civilization by now. Or that there was nothing that could be done. Both of which is completely incorrect.

      It makes it a Cassandra tragedy.

    7. Oops, "their views WEREN'T adopted quickly enough"

      I guess to sum it up, the whole of Curtis' body of work is great for its explanatory power but it is not prescriptive in the slightest. For this particular episode, he had the opportunity to say, "but wait! There is a nascent world view that can help lead to wisdom. It can also be abused, sure, but it can give us a fighting chance."

      And yet he left this out.

  2. ". . . evolution to nowhere."

    Probably the most eloquent way of summing up the universe that I've ever read.