Crisis of legitimacy: What is to be done?
Well, damned if I know. But it is Sunday, so I suppose I should write an Op-Ed. But I've got to go caulk a tub. So in lieu of a thumbsucker, I'd like to yoke three not-to-heterogeneous sets of ideas together.
The first comes from George Friedman at Global Economic Intersection, another interesing financial blog, reprinting an article originally in Stratfor. Quoting in relevant part:
Classical political economists like Adam Smith (pictured) or David Ricardo never used the term “economy” by itself. They always used the term “political economy.” For classical economists, it was impossible to understand politics without economics or economics without politics. ... [See, for example, here, a post that while ahead of its time missed the nature and role of the rentiers.]
The current economic crisis is best understood as a crisis of political economy. Moreover, it has to be understood as a global crisis enveloping the United States, Europe and China that has different details but one overriding theme: the relationship between the political order and economic life. On a global scale, or at least for most of the world’s major economies, there is a crisis of political economy. ....
As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States. To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.
From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of political economy it raised a different question: the legitimacy of the financial elite.
This is the question that Obama, both legacy parties, Obama's career "progressive" shills, and tout de Versailles refuse to confront. Hence the crisis in the political system in the United States today. Friedman continues:
One of the systems, the financial system, failed, and this failure was due to decisions made by the financial elite. This created a massive political problem centered not so much on confidence in any particular financial instrument but on the competence and honesty* of the financial elite itself. A sense emerged [Note lack of agency] that the financial elite was either stupid or dishonest or both ["stupid and/or evil"]. The idea was that the financial elite had violated all principles of fiduciary, social and moral responsibility in seeking its own personal gain at the expense of society as a whole.
Fair or not, this perception created a massive political crisis. This was the true systemic crisis, compared to which the crisis of the financial institutions was trivial. The question was whether the political system was capable not merely of fixing the crisis but also of holding the perpetrators responsible. Alternatively, if the financial crisis did not involve criminality, how could the political system not have created laws to render such actions criminal? Was the political elite in collusion with the financial elite?
Oh, it's fair! And skipping to the end:
This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own. In the United States this would lead to paralysis [or a lot worse]. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.
These are all extreme outcomes and there are many arrestors. But we cannot understand what is going on without understanding two things. The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis. The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.
The followers of Adam Smith may believe in an autonomous economic sphere disengaged from politics, but Adam Smith was far more subtle. That’s why he called his greatest book the Wealth of Nations. It was about wealth, but it was also about nations. It was a work of political economy that teaches us a great deal about the moment we are in.
How to avoid "the third crisis"? I'll post some email musings of my own, based on a question from Roger Erickson (and I'm sure I'm doing great violence to his thinking by excerpting this small paragraph:
It's an issue of getting key info to key people in key institutions, fast enough to explore adaptive options. An inside view of the art of getting key info to key people across evolving contexts is what I'd call "maneuver context management", and what biologists call evolution.
Dunno about the focus on "key info to key people in key institutions."
On some days, since the world is complex, and degrees of separation work in surprising ways, I feel that plugging away day-to-day calling bullshit is the way to go; the idea that the best way to steer through a chaotic system isn't trying to model it, but to act from principle. After all, the spark (Mohamed Bouazizi) seems obvious only in retrospect.
On my "Kleptocracy on the Orient Express" days, I feel that "they're all in on it" (with exceptions, of course!) and the best way forward is out, off the train entirely. "Ambition must be made to counteract ambition" was once the motive to perform bullshit detection, but the flow of (rentier) money through the system has leveled everything and equalized ambitions across the board. See the well-known work of Outis Philalithopoulos, amply confirmed, as if it needed confirming, by Galbraith's experience at an academic conference where the presenters refused to mention the word "fraud."
And then on darker days, I feel that the looters and liars and thieves and con artists who infest and dominate our feral elites (the "looting classes") ARE the adaptive specialists, and that in a massive die-off, say -- which they are fully capable of producing, whether through climate change, or a pandemic, or famine, or war of sufficient lethality -- they will be the ones to survive in their gated Valhallas. "We're an empire now, and when we act, we create our own reality." (Growing my own food is my hedging strategy for that.)
[Note that since MMT is policy neutral, it could well be adopted in any of scenarios above, including the gloomiest.]
So, and again, "key info to key people in key institutions." I was trying to think of a society that had, in the end, thrown off a kleptocracy, and perhaps I'm wrong, but I couldn't come up with one single country. (See Jared Diamond's story in Collapse of the Norse Greenland colony that starved to death in the Little Ice Age, even eating the hooves of their horses, and in the midst of the richest fishing grounds in the world. "Vikings don't eat fish!"
But then, in the paragraph above, I conflated "society" and "country." But -- at least on the level of political economy, as opposed to the real operations of taxing and spending -- we're dealing with a transnational rentier elite, aren't we? So operating at the correct level of abstraction, there's a perfectly obvious equivalent: The Reformation, with the Catholic Church of that time playing the role of rentier. (The analogy between the sale of indulgences and collection of, say, ATM fees becomes more suggestive the more I think about it. Why do I need the intermediary, the priest? Why EXACTLY do I pay two bucks to get twenty bucks of "my own" "money"? Get a few million people to think that way whenever they're at the ATM, and the battle is won...)
So where is the church door, and what are the 99 theses to nail on it?
So, lots to think about, and clearly my own thinking is still inadequate. However, dear readers, I thought that Friedman's post, Erickson's ideas, and my own meanderings were sufficiently thought-provoking for a Sunday read.
NOTE * Note here Friedman's unwillingness to use the word "fraud." It's the eternal question: Stupid and/or evil? In Friedman's view, the crisis of legitimacy comes because the financial elite were wrong ("stupid"). In my view, the crisis of legitimacy comes because the financial elite engaged in systemic accounting control fraud ("evil"). Fortunately for me, my view of the financial elite's nature and role is supported by evidence.