Never Let a Serious Crisis Go to Waste

by Philip Mirowski

  It must be conceded that Wallison did preface his dissent with the right question: “why Congress bothered to authorize [the FCIC] at all? Without waiting for the Commissioners’ insights into the causes of the financial crisis, Congress passed and the President signed the Dodd-Frank Act.”161 Of course, the obvious answer was that the FCIC was set up to fail from the outset; but that might reflect badly on Wallison’s willing participation. So instead he opted for an answer that shed some light on agnotology. He began by quoting Rahm Emmanuel saying “Never let a good crisis go to waste,” and then suggested that the real purpose of the report was to gain some control over the “first draft of history.” Wallison’s behavior demonstrated that the NTC appreciated the importance of venturing beyond the mere short-term partisan bickering of the first dissent, or the sloppy endless laundry list of the majority report, to providing a simple pithy narrative to contrast with the general cacophony of noise concerning the crisis.

  I do not propose to go into detail here why Wallison’s own narrative indicting the GSEs is fatally flawed, although I believe it is.162 If there is any truth to the notion that the GSEs were much more heavily invested in subprime than in the consensus narrative, especially 2006 and after, it would have to do with the backdoor bailout manipulation of Fannie and Freddie purchases to prop up private label securities by the Treasury, which of course hastened their insolvency. The point here is rather to suggest that economists from both sides of the (narrowly conceived) political spectrum have conspired to divert attention from serious analysis of the crisis, each for their own respective agnotological purposes. The Bloomberg journalist Jonathan Weil best captured the brazen impudence of pretence behind the FCIC report:

  This, in journalistic parlance, is what we call a clip job. And that’s the trouble with much of the commission’s 545-page report. There’s lots of breezy, magazine-style, narrative prose. But there’s not much new information. You can tell the writers knew they were sprinkling MSG on a bunch of recycled material, too, by the way they described their sources. The text and accompanying notes often seem deliberately unclear about whether the commission had dug up its own facts, or was rehashing information already disclosed in court records, news articles or other congressional inquiries . . .

  The FCIC’s failure was predictable from the start. To examine the causes of the financial crisis, Congress created a bipartisan panel of 10 political appointees led by Democrat Phil Angelides, a former California state treasurer. What was needed was a nonpartisan investigation directed by seasoned prosecutors (like Pecora was) who know how to cross-examine witnesses and get answers. Whereas Pecora had no fixed deadline, Congress gave the crisis commission until December 2010 to complete its inquiry. Witnesses who didn’t want to cooperate fully could simply milk the clock. The panel got a budget of less than $10 million to investigate all the causes of the financial crisis. Lehman’s bankruptcy examiner got $42 million to produce a 2,200-page report on the failure of a single company.163

  Having watched some of the hearings online, I can attest that witnesses were tossed one whiffle ball after another. Yves Smith reported the disgust of one of the FCIC staff, who complained, “I am still getting the stink out of my clothes.” He understood that both the majority line that it was all the fault of wicked deregulation, and the Wallison line of “Fannie/Freddie did it,” were equally unavailing. Both versions conspired to help perpetuate a myth that Wall Street financial firms were as much the victim of the crisis as everyone else, and existed to keep the proceedings from tripping up the sausage machine that eventually became the Dodd-Frank act.164 Supposedly neutral economists participated in this travesty. Anat Admati of Stanford wrote, “Peter Wallison in his dissent attributes blame solely to the government housing policy of earlier administrations. While he is right to identify this as important, he misses other critical ingredients.”165 Jeffrey Miron of Harvard muddied the waters further by introducing the Rogoff Reinhart neoliberal line: “In asking whether the recent financial crisis could have been avoided, the crucial fact is that crises of various flavors have occurred for centuries in countries around the world. Thus, any explanation based mainly on recent factors—subprime lending, derivatives trading, or financial deregulation—cannot be the whole story. A full account must identify factors that have been present widely, and for centuries.”166 How the Dutch Tulip craze would help illuminate the structural deficiencies of a CDO-squared was left for someone else to figure out. I cannot find an example of an orthodox economist who came right out and said that the entire exercise was a cynical whitewash, although many bloggers came close.

  The Democrat electoral debacle of November 2010 only exacerbated the tensions underlying the jousting agnotologies within the FCIC, as Rep. Darryl Issa subsequently convened an investigation into the mismanagement of the Inquiry to settle scores in Spring 2011. His subpoenas then unintentionally delivered another lesson in agnotology: it seems Peter Wallison had broken a number of confidentiality rules while serving on the FCIC, leaking secret Fed data to the AEI, while co-chair Bill Thomas secretly prepped many of the representatives of the banks on the level of questions they might expect.167 The purpose overtly had never been to find new things out, so much as it was to make the preset narrative look good in public. Journalists yawned—so what else is new on the Hill?—but few pulled back to reconsider what this meant about the ongoing miasma that surrounded discussions of the crisis. Here, years after the crisis hit, and millions of dollars thrown at the economics profession, people were still no closer to a richer and more plausible understanding of the crisis than in its immediate aftermath. Worse, this was the unapologetic bottom line of some of the economic orthodoxy as well!168 Where was the bracing lucidity born of years of training in the most difficult technicalities of theory, or the ballast of reams of numerical data at our fingertips? Where was the clarifying steel of econometric technique, or the glassy grand transparency of axiomatic method?

  None of that seemed to have had any influence whatsoever. Instead, it was the dogged persistence of the Neoliberal Thought Collective that had overcome the vast tidal wave of analysis, and the endless vistas of economists’ mumble jumbo, and occupied the public mind. Is it any wonder that the most common impression among people who have not bothered to read up on the crisis is that it has been the fault of the government, and that Fannie and Freddie are somehow behind it all?

  6

  The Red Guide to the Neoliberal Playbook

  For someone who has just spent a few hundred pages arguing that the economics profession has been proven hopelessly corrupt by virtue of its behavior during the crisis, and that the Neoliberal Thought Collective has managed to weather the crisis by expanding to fill the entire space of political discourse left void by the dereliction of the economists, I am now going to do something a little counterintuitive: I am going to start by agreeing (in a limited way) with one famous Mont Pèlerin member, Hernando de Soto. In a retrospective on the crisis, he insisted, “the recession wasn’t about bubbles but about the organization of knowledge.”1 Of course, this was not entirely unexpected, coming from a member of the NTC: it has persistently been an outlier in the history of reactionary movements, a political formation built upon a realization that their own core foundational commitments were epistemological, rather than simply “conservative” or capitalist or traditionalist;2 but I think it is more revealing than perhaps he himself would concede. For it gestures toward the key question that has been raised by the neoliberal ascendancy: What is it that the opponents of neoliberalism believe that markets are capable of “knowing,” and conversely, what is it that humans can know that falls outside the precinct of markets and their supposed omniscience and information-processing capacities? How much of any forward-looking political program can be premised upon a set of faculties and competences with regard to the economy that are not reducible to simple profit-seeking?

  It has become a trite habit of the thousands of books and articles discussing the crisis of 2007
–? to wind up their final chapter with a set of bullet points on what is to be done about our predicament. In this, as in other ways, this book breaks with precedent. The time has come to acknowledge that this obligatory genre of pithy programmatic statements has been sadly ineffectual, if not cringingly jejune. Heartfelt exhortations of “End This Depression Now!” have become sure signs of chicanery, the half-disguised theurgy of an often shadowy clique of economists. The neoliberals have triumphed in the face of this cacophony, at least in part, because their nominal opponents and their nostrums have proven so clueless. The resistance to the neoliberal tide has repeatedly looked to orthodox economics for succor, and it has betrayed them time and again. Beyond orthodoxy, even the intellectual case for a return to Keynes, or Marx, or Minsky as a panacea for the crisis has proven thin and insubstantial. Not only does the left lack a clear agenda for their own political objectives, but they have repeatedly mistaken or misunderstood the nature of the neoliberal political project, and consequently found themselves co-opted into it, or worse. This book preaches a simple message: Know Your Enemy before you start daydreaming of a better world. In this one particular respect, Carl Schmitt was right.

  The Privatization of Protest and the Occupy Movement

  The current problem of left political movements, whatever that benighted term might encompass nowadays, is that they have fallen into the trap where discussions of the crisis end up being hopelessly backward-looking: perhaps preaching “restoration” of proper “regulation,” reenergizing mid-twentieth-century configurations of state power, or returning to a more “fair and equal” income distribution, or redeeming and making debtors whole through debt forgiveness, refurbishing an economy less beholden to and less composed of financialized corporate entities, resembling that which reigned during the immediate postwar period. Some have waxed openly nostalgic about the New Deal; others idealize the 1960s. Yet this ignores a basic truism learned by conservatives long ago: “To preserve the regime, the conservative must reconstruct the regime.”3 The superior insight of the neoliberals, in particular, is that you can never go home again, largely because they have sought to build intentional irreversibilities into their previous political interventions. To take but one telling example, if the hundreds of lobbyists and millions of dollars of campaign contributions were not sufficient to neuter all attempts at financial reform in the United States, such as the so-called Volcker Rule, then the banksters were not subtle in summoning their second line of defense, insisting that any such rule would violate NAFTA and other international “free trade agreements” instituted under prior transnational neoliberal regimes.4

  Although it seems impolite to mention it, the collapse of the “Occupy” movement over 2011–12 was largely due to the long-discredited notion that political action could be sustained and effective in the absence of any sort of theoretical guidance and hierarchical organization of short- to longer-term goals. The Tea Party had Ayn Rand; the closest thing to an Occupy inspiration seemed to be John Stewart. People seem to have forgotten that the initial Occupy Wall Street encampment on September 17, 2011, was sparked by a call from Adbusters, a “global network of culture jammers” based in Vancouver, built around a media collective and a glossy magazine. Its founder, Kalle Lasn, has asserted, “What we’re trying to do is pioneer a new form of social activism using all the power of the mass media to sell ideas rather than products”; its website proclaims, “The purpose of life is not to find yourself, but to lose yourself.”5 More neoliberal sentiments would be hard to find. The website also has a set of pages devoted to economics; under the rubric “Meet the Mavericks” it profiled Paul Samuelson, George Akerlof, Joseph Stiglitz, and Herman Daly. Kalle Lasn Associates has also published an anti-textbook entitled Meme Wars: The Creative Destruction of Neoclassical Economics which contains contributions by George Akerlof and Joseph Stiglitz. At least the graphics were radical. Similar ideas were promoted in the curiously titled Occupy Handbook, which included chapters by Raghuram Rajan, Tyler Cowen, Martin Wolf, David Graeber, Jeffrey Sachs, and Robert Shiller.6 Besotted by the millenarian idea of starting anew, and lacking any sense of the history of protest and political organization, both neoliberals and neoclassical economists rapidly addled whatever political curiosity and radical inclinations that the well-intentioned protestors might have had. Rebels railed against corporate power, but apparently had no idea how it actually worked. The result was predictably utter failure. For instance, the protestors never actually managed to “Occupy Wall Street,” since Zuccotti Park was four blocks away. Once the security apparatus was mobilized across more than eighteen different sites across the country in the space of a few days, Zuccotti Park was cleared on November 15, 2011, and the movement essentially collapsed.

  While brave activists had proven willing to invent new forms of civil disobedience, much of their tweeting and blogging tended to reveal a reversion to themes already promulgated by the usual suspects covered in this volume. When not openly appealing to a lost world, like the “Take Back the American Dream” motif, they would propose “reforms” dating back to the 1980s, such as the Tobin tax on financial transactions, or a “fairness doctrine” for political ads, or an ineffectual public financing scheme for election campaigns. Mostly in the heat of Occupy, disputations over the crisis and financial sector were dominated by backward-looking ambitions and nostalgia for a happier and more prosperous time. Slogans like “We are the 99%” seemed to be calculated so as to be overly inclusive, confusing expansiveness with democracy, and therefore ineffectual. But even those wistful recollections were selective. The Occupiers were disdainful of close ties to trade unions, only to witness their own dreams of a General Strike fizzle in May 2012. Obsessed with dangers of being hijacked by existing organized political entities that might be sympathetic to their energy and fervor, they eventually found themselves utterly abandoned instead. Contemptuous of government, existing government returned the favor, eavesdropping on their communications and swooping down to arrest protestors while neutralizing press presence. Heavily informed by libertarian, “anarchist,” and neoliberal elements, the belief that nothing more than endless General Assembly discussion and finger-waggling would lead to sustained political success was brought up short by police raids, harassment through the legal system, organizational breakdown, and the fleeting fickle attentions of the media. Quickly they were poleaxed that their pledges of allegiance to some political version of “spontaneous order” had come to grief.7 They apparently held fast to their conviction that their primary role in life was to express themselves, especially with cameras nearby, rather than to work patiently for a thought-out political project. As one journalist observed about Occupy Wall Street (OWS), “They saw themselves as a counterculture; and to continue as such they had to remain uncontaminated by the culture they opposed . . . The ambitions of the core group of activists were more cultural than political, in the sense they sought to influence the way people think about their lives.”8 But that would presume they had a firm grasp of what it meant to inhabit a neoliberal persona in the first place. The trademark shout of “mike check” revealed their orientation pointed toward mimicry of media technologies as opposed to concerted political mobilization. The fascination with Twitter, Facebook, and other social media components of neoliberal technologies of the self revealed their lack of acquaintance with the ideas of their nominal opponents.

  Indeed, I would suggest that the palpable failure of the Occupy movement demonstrates the relevance of the thesis of chapter 3: the neoliberal worldview has become embedded in contemporary culture to such an extent that when well-meaning activists sought to call attention to the slow-motion trainwreck of the world economic system, they came to their encampments with no solid conception of what they might need to know to make their indictments stick; nor did they have any clear perspective on what their opponents knew or believed about markets and politics, not to mention what the markets themselves knew about their attempts at resistance. With the generous assi
stance of economists, libertarians, and a raft of pundits, all their incipient neoliberal tendencies were amplified and encouraged, while their nascent attempts at political organization that might effectively challenge the NTC were quashed.9

  People do not generally imagine themselves trapped in a world that is upside-down relative to what they think they know; indeed, persistent faith in the reliability of our own epistemic capacities is one of the more touching frailties of the human race. But when people on the left are rousted to action, the first qualm they must confront is that, at least in the contemporary world, most conventional notions of political protest themselves have been transformed and subverted by privatization and commercialization. This begins with their opponents, but does not end there.

  The Tea Party is one of the prime examples of the metamorphosis of protest movements through the revamping of politics in a commercial privatized direction. Not only was the movement largely professionally astroturfed by a few large shadow private organizations, such as Americans for Prosperity, American Majority, the Tea Party Express, and FreedomWorks, but it derived much of its energy on the ground through open encouragement of small-bore entrepreneurs to make money in whatever ways they might imagine off the cascading sequence of rallies, bus tours, self-publication of pamphlets, conferences, disruption of town meetings, and other public gatherings.10 In a sort of chain-letter Ponzi scheme, or better yet, an Amway franchise, the disgruntled were first financed and regimented through large quasi-corporations, made to feel empowered by encouragement to do the same on a smaller scale with their own venture-capital start-ups, then themselves motivated to recruit others to join the movement.11 For instance, 41 percent of the booths at the Tea Party convention in Phoenix in February 2011 were manned by for-profit groups; an additional 35 percent were large business interests such as Philip Morris and Exxon Mobil. The top-down direction was thoroughly obscured by the groundswell of profit-making activities. Although the crisis might seem a horribly complicated phenomenon, the organizations at the core of the Tea Party franchise kept trumpeting simple “explanations” for the economically challenged, like “It was all the fault of the government, and especially, Fannie and Freddie,” covered in the previous chapter, as well as stranger notions for the economically challenged and memory-impaired, such as the notion that Obama’s election precipitated the crisis. All the while, they would guilelessly repeatedly testify that the entire movement was a wonderful example of “spontaneous order” (if they had read a little Hayek) or else the indomitable populist spirit of bottom-up American democracy, like that of the Founding Fathers (if they had read almost nothing).12