That Sinking Feeling

Joseph Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (Norton, 2010).

One of the many disquieting things about the Great Recession that began in 2008 is how much the theory and practice of “business as usual” survived intact, not only in the world of business, but in politics, and the public forum as well. “One might have thought,” says Joseph Stiglitz, near the beginning of Freefall, “that with the crisis of 2008, the debate over market fundamentalism — the notion that unfettered markets by themselves can ensure economic prosperity and growth — would be over.  One might have thought that no one ever again — or at least until memories of this crisis have receded into the distant past — would argue that markets are self-correcting and that we can rely on the self-interested behaviour of market participants to ensure that everything works well.”

But that’s not what happened. Wall Street and the other global centres of finance didn’t appreciably change their way of doing business, and in the U.S., the financial sector, while happy to accept taxpayer bailouts, stubbornly resisted even minimal forms of government regulation, investing substantial sums of money in lobbying efforts to prevent constraints on its methods of transacting business. Not until mid-2010 was a moderate fiscal regulation law levered into place. Earlier, President Barack Obama and the Democratic Party representatives in the American Congress passed modest but significant health care reform legislation as well as a stimulus package in an effort to refurbish infrastructure, maintain public services, especially schools, and ultimately reduce a ten per cent official unemployment rate (the “real” numbers, it’s claimed, may be half again as high). Every initiative of the new president was almost unanimously opposed by the Republican Party opposition. Moreover, conservative political forces in the U.S. moved further to the populist right under the banner of a “Tea Party” movement, accompanied by a ratcheting up of the decibel level in the public forum, thanks to a rabid right wing media.

If the recession and near collapse of the economy might have been expected to instill a new respect for the role of government in public affairs, given that government action is what averted catastrophe, there has been little evidence of it.  Nor has there been much of a swing away from the libertarian ideas and rhetoric that have had free play ever since the era of President Ronald Reagan in the 1980s. Even though the effects of the recession are visible everywhere, the debate in the U.S., Europe, and elsewhere some two years after the “freefall”  focused not on further measures to alleviate joblessness, home foreclosure and diminishing public services, but instead concentrated on fears about government deficits. The resulting proposals to “tame” those deficits would further reduce services, government revenues, and consumption exactly at the moment when, according to many economic thinkers, further stimulus is precisely what is called for.

Joseph Stiglitz is one of those economists. Stiglitz is the 2001 winner of the Nobel Prize in economics, former chief economist of the World Bank, an advisor to the Clinton administration, a Columbia University professor, and one of the thinkers who predicted and warned against the impending recession well in advance of its advent. In Freefall, he attempts to explain some of what went wrong. His book is both an interim report on the causes of the crisis and a running assessment of the remedial measures taken by the Obama administration in its first year in office. Stiglitz’s book joins a growing (and perhaps groaning) shelf of works that try to explain the extraordinary economic events of the first decade of the new century, events that proved contagious in a “globalized” world where, as we’re frequently reminded, national economies are interconnected.

The profusion of books inspired by the economic crisis that deserve at least mention here present both detailed narrative accounts of the capitalist meltdown, such as William Cohan’s House of Cards: How Wall Street Gamblers Broke Capitalism (2009),  New York Times financial reporter Andrew Ross Sorkin’s thriller-paced Too Big To Fail (2009), and Michael Lewis’s The Big Short: Inside the Doomsday Machine (2010), as well as more analytical forays. The fiscal investigations and autopsies range from those that probe historical precedents, such as Liaquat Ahamed’s Lords of Finance: The Bankers Who Broke the World (2009), a re-telling of the run-up to the 1930s Great Depression, to works attempting a broader overview of the present.

Among the more readable volumes about the market: English novelist John Lanchester’s populist Whoops!: Why Everyone Owes Everyone and No One Can Pay (2010; the American edition is titled, I.O.U.), and various lively but more scholarly studies, including Paul Krugman’s The Return of Depression Economics (2009),  Jeff Madrick’s The Case for Big Government (2009), Nouriel Roubini  and Stephen Mihm’s Crisis Economics: A Crash Course in the Future of Finance (2010), and Stiglitz’s own Freefall. I’m focusing on the latter as something of a stand-in for an impressive array of analyses that necessarily cover similar and overlapping ground.

Stiglitz’s book “is about a battle of ideas, about the ideas that led to the failed policies that precipitated the crisis and about the lessons that we take away from it.” It’s a critique of shattered illusions and, in terms of what might be learned, an argument for what can be called “social democratic” economics and politics. “Economics need a balance between the role of markets and the role of government — with important contributions by nonmarket and nongovernmental institutions. In the last twenty-five years, America lost that balance, and it pushed its unbalanced perspective on countries around the world,” says Stiglitz.

In looking at “the making of a crisis,” Stiglitz warns against “too facile explanations” that begin and end “with the excessive greed of the bankers.” Yes, the bankers were greedy, but in part that’s because they had “incentives and opportunities” to be greedy. Stiglitz emphasizes the interconnectness of the elements that produced the crisis: a phantasmal housing bubble generated by worthless “sub-prime” mortgages; the bundling or “securitization” of those mortgages through instruments of fiscal “innovation” invented by very clever operators; the sale of those packages by both mainstream and “shadow bank” sectors to large investors, including mutual funds, pensions, and other banks around the world; the absence of regulation of both institutions and innovations, or the collusion of regulators who gave their imprimatur to Ponzi-scheme-like speculation; and the inevitable, even predictable, bust that followed the artificial boom.

It was mortgage securitization, the bundling and sale of “toxic” mortgages, “that proved lethal,” says Stiglitz, who likens the whole process to the attempts of medieval alchemists to turn base metals into gold. Here, “modern alchemy entailed the transformation of risky sub-prime mortgages into AAA-rated products safe enough to be held by pension funds. And the ratings agencies blessed what the banks had done. Finally, the banks got directly involved in gambling — including not just acting as middlemen for the risky assets that they were creating, but actually holding the assets.” When the day of reckoning came, it was not just investor institutions and individuals who were stuck with worthless assets; it turned out that the banks, both mainstream and shadow, had also been caught off guard.

Summing it up, Stiglitz charges that “America’s financial markets had failed to perform their essential societal functions of managing risk, allocating capital, and mobilizing savings, while keeping transaction costs low. Instead, they had created risk, misallocated capital, and encouraged excessive indebtedness while imposing high transaction costs.” The high transaction costs made for ballooning profits and instant multi-million dollar bonus compensation for the money managers. “At their peak in 2007,” notes Stiglitz, “the bloated financial markets absorbed 41 per cent of profits in the corporate sector.” That’s a number worth thinking about. It’s a reminder that in the midst of all the razmatazz, the economic system wasn’t making money from making things, but making profit by moving money around (often, imaginary money).

While the details of the story are fascinating, the fiscal innovations downright exotic, and Stiglitz’s telling of the tale engrossing, there’s something more going on here, and the shrewder observers, like Stiglitz, Krugman, and Roubini are quick to see it. “The current crisis,” says Stiglitz, “has uncovered fundamental flaws in the capitalist system, or at least the peculiar version of capitalism that emerged in the latter part of the twentieth century in the United States. It is not just a matter of flawed individuals or specific mistakes, nor is it a matter of fixing a few minor problems or tweaking a few policies.” Rather, there’s something wrong with capitalism. However, none of the major analysts at hand is proposing anything more than a social democratic reform of capitalism. This is not Karl Marx and The Communist Manifesto of 1848.

In arguing that the “problems are more deep-seated,” Stiglitz notes that even in the last quarter-century, “this supposedly self-regulating apparatus, our financial system” has repeatedly required government rescue from crisis. As for the world outside of the U.S., Stiglitz, who once worked for the World Bank and is something of a “crisis veteran,” reports that “crises in developing countries have occurred with an alarming regularity — by one count, 124 between 1970 and 2007.” Stiglitz also has the virtue of not treating the numbers as abstractions; repeatedly, he points to the toll caused by these crises on actual human beings.

Nouriel Roubini, an economics professor at New York University, where his gloomy but accurate predictions of the collapse earned him the sobriquet of “Dr. Doom,” goes further in underscoring the point that crisis is inherent in capitalism. He describes the idea that markets are stable, solid, dependable, self-regulating entities as a “simple, quaint belief.” His book, Crisis Economics, as he and his co-author Stephen Mihm explain, “returns crises to the front and center of economic inquiry… It shows that far from being the exception, crises are the norm, not only in emerging but in advanced industrial economies. Crises — unsustainable booms followed by calamitous busts — have always been with us… Though they arguably predate the rise of capitalism, they have a particular relationship to it. Indeed, in many important ways, crises are hardwired into the capitalist genome.”

In his focus on the nature of “crisis economics,” Roubini indirectly echoes some of the ideas in Canadian analyst Naomi Klein’s The Shock Doctrine (2007). In her book on the rise of “disaster capitalism,” Klein argues that laissez-faire capitalist thinkers systematically seize on economic crises and other catastrophes to impose their version of American-style “cowboy” capitalism (or “neo-liberalism,” as it’s sometimes called) on the world. Roubini, relatedly, says that beyond the exploitation of crises by a particular school of capitalists, economic instability is part of what capitalism is all about. The amelioration of capitalist crises, insofar as it is available, is state regulation of capitalism to prevent “bubbles,” and the use of government as an instrument of economic stimulus in hard times. Stiglitz, Krugman and Roubini represent themselves as proponents of capitalist markets, but insist on the reform of such markets in the name of democracy, justice, and a morality that is seldom heard about outside of certain church pews and select university classrooms.

Stiglitz’s Freefall provides a running assessment of the Obama administration’s measures in response to the present recession as well as to the systemic flaws of capitalism. Stiglitz says that his experience as an analyst of Obama’s policies has been “painful.” The “spirit of hope” that marked the arrival of a new, more liberal president has substantially diminished.

Neither Stiglitz, Krugman or Roubini, three of the most prestigious economists working in the U.S., is satisfied that the American or global response to the crisis amounts to more than half-measures and muddling through. Although they call for policies that are much stronger than the programs and rules established to date, there’s a political problem.

It is not clear that the Obama administration, even if wanted to implement stronger measures, has the political clout to do so. What is most evident about American politics in the first years of the new century is how deeply divided the world’s most powerful empire is, riven by seemingly unreconcilable economic, cultural and political values.

No doubt, it’s too much to demand that economists like Stiglitz and his intellectual peers offer not only economic remedies but political formulas that will permit their implementation. Roubini cites a line from John Maynard Keynes, one of the mentors of the age. Keynes criticised economists who, “in tempestuous seasons… can only tell us that when the storm is long past, the ocean is flat again.” So far, the ocean is not yet flat again, and even the best economists, as the subtitle of Stiglitz’s book suggests, tend to leave us with a familiar sinking feeling.

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Berlin, July 5, 2010

Naomi Klein’s Excellent Adventures

Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (Picador, 2007); No Logo: Taking Aim at the Brand Bullies (1999/2000; 2010, Fourth Estate).

1.

If you’re a teacher, what your students are wearing tells you something about what’s going on in the culture. In the 1980s and 90s, I noticed that walking into a classroom was like hitting a stretch of highway crowded with advertising billboards. The students were wearing T-shirts, sweatshirts, and other paraphernalia that brazenly bore the names of the corporations that manufactured them. Unlike earlier displays of brand logos, such as the discreet crocodile insignia of a Lacoste shirt or the little horseman and mallet that decorated Ralph Lauren’s Polo shirts, which were meant to subtly but publicly indicate the wearer’s good taste and purchasing power, the new T-shirts were emblazoned with giant corporate names and company colours — Calvin Klein, Tommy Hilfiger, The Gap, and others — that tended to cover most of the surface of the garment being worn.

Puzzled as to why the students wanted to turn themselves into walking advertisements, I’d occasionally ask them what it all meant. Often as not, they would deny it meant anything and blandly declare, “It’s just a fashion thing.” Yes, I’d mildly persist, but how and why does a “fashion thing” become a fashion thing? And does the “thing” mean anything? Mainly, what I wondered was, How did the corporations get the consumers to not only advertise the corporation, but to pay for the privilege of doing so? The students were pretty resistant to my pointy-headed attempts at sociological analysis, and my “lessons from everyday life” tended to fall flat.

Lots of subsequent “fashion statements” have come and gone since the era of big logos. In the first decade of the 21st century, I’ve noticed that students and other “dedicated followers of fashion” (to recall a phrase from an old pop song by The Kinks), tend to express their fashion sense less by haberdashery and bodily decorations (tattoos and other skin piercings), and more by technological accoutrements, such as iPods, cellphones, and all sorts of mobile computer gadgets. It’s fairly de rigueur these days to be armed to the teeth with technology designed to facilitate multi-tasking, although spoilsport teachers often ask the students to turn off all electronic devices while the classroom is in session on the grounds that education is engaged in concentrating on the subject at hand or, what might be called, “mono-tasking.”

All of these passing observations (by myself and others) remained idle speculation until the beginning of the new millennium when a then 29-year-old Canadian journalist, Naomi Klein, in a brilliant stroke of “pattern recognition,” published No Logo: Taking Aim at the Brand Bullies (1999/2000; 2010). It quickly became a multi-lingual, million-copy bestseller, and it told readers a lot about the corporations that plastered their brands on the backs and fronts of their consumers, focusing as much on production and ideology as on the more familiar discussion of consumption. In the introduction to the tenth anniversary edition of No Logo — and it should be noted that a tenth anniversary edition of any work of non-fiction is a pretty rare publishing event these days — Klein points out that from the beginning of her writing career, she’s always been interested in the relationship between power and business, or what was once called “political economy.” (Small disclosure here: although I don’t know Klein, we were both members of the editorial collective of Toronto’s This Magazine at the end of the 1980s; she was the publication’s precocious managing editor; I was its Vancouver-based West Coast correspondent.)

Among the first articles Klein published as a journalist “were [those] about the limited job options available to me and my peers — the rise of short-term contracts and McJobs, as well as the ubiquitous use of sweatshop labour to produce the branded gear sold to us.” What’s more, Klein also picked up on “how an increasingly voracious marketing culture was encroaching on previously protected non-corporate spaces — schools, museums, parks — while ideas that my friends and I had considered radical were absorbed almost instantly into the latest marketing campaigns for Nike, Benetton and Apple.”

The notion about Klein’s ability to connect-the-dots hidden in otherwise disparate phenomena is borrowed from the title of Pattern Recognition (2003), a novel by Vancouver writer William Gibson, who’s best known for his “cyberpunk” speculative fiction. Klein mentions Gibson’s book in her retrospective reflections on the genesis of No Logo, and the kind of aha!-experience to which it refers. It’s something like the sociological acuity found in Douglas Coupland’s Generation X (1991) and other of his novels, but Klein’s recognitions tend to be more pointedly political. As she recalls, “I decided to write No Logo when I realized these seemingly disparate trends were connected by a single idea — that corporations should produce brands, not products.”

This was the era when corporate epiphanies were striking CEOs like lightning bolts from the heavens: Nike isn’t running a shoe company, it is about the idea of transcendence through sports, Starbucks isn’t a coffee shop chain, it’s about the idea of community. Down on earth these epiphanies meant that many companies that had manufactured their products in their own factories, and had maintained large, stable workforces, embraced the now ubiquitous Nike model: close your factories, produce your products through an intricate web of contractors and subcontractors and pour your resources into the design and marketing required to project your big ideas… Some called these restructured companies ‘hollow corporations’ because their goal seemed to be to transcend the corporeal world of things so they could be an utterly unencumbered brand.

In her 2010 No Logo essay, Klein explains that the move from the sociology of marketing to her later works doesn’t at all represent a break in her thinking. “For me,” she says, “the appeal of X-raying brands such as Nike or Starbucks was that pretty soon you were talking about everything except marketing — from how products are made in the deregulated global supply chain to industrial agriculture and commodity prices. Next thing you knew you were also talking about the nexus of politics and money that locked in these wild-west rules through free-trade deals and at the World Trade Organization (WTO), and made following them the precondition of receiving much-needed loans from the International Monetary Fund (IMF). In short, you were talking about how the world works.”

The enormous success of No Logo was rooted not only in Klein’s astute recognition of social patterns and their causes. It was also the result of intrepid on-the-scene reporting. “She ventures into sweatshops in the Philippines, attends classes for anticorporate crusaders and goes ‘culture jamming’ with groups who deface billboards in the middle of the night,” as one enthusiastic reviewer described Klein’s global beat (James Ledbetter, “Brand Names,” The New York Times, April 23, 2000). The reviewer also noted that “the book’s conclusions are largely grim. Klein links the development of multinational branding to the growth of international sweatshops, corporate censorship and the disappearance of the steady job,” but added, “She is careful not to equate her criticisms with a false nostalgia for an ad-free past; instead, Klein takes the fairly unassailable position that our lives ought to have at least some ‘unbranded space’.” Although the classrooms where I was teaching were no longer among those unbranded spaces, Klein’s book helped make sense of how they got to be crammed with displays of brand loyalties.

Klein notes that by the time No Logo came out (a first Canadian edition appeared at the very end of 1999, other editions shortly afterwards, in 2000), a popular political movement had emerged and “was already at the gates of the powerful institutions that were spreading corporatism around the world. Tens and then hundreds of thousands of demonstrators were making their case outside trade summits and G8 meetings from Seattle to New Delhi.” Klein was soon amid the demonstrators and occasionally spotlighted as a spokesperson for what was called the “anti-globalisation movement.” Klein regards the term as a misnomer. The spectrum of the movement, she says, ranged from anti-corporatism at the reformist end to anti-capitalism at the radical end. It was, far from being “anti-global,” insistently internationalist. Klein’s point is that “globalisation” was a bland euphemism for a “ruthless strain” of corporate capitalism.

For the next few years Klein joined protestors before the “gates of the powerful” and huddled in the conference rooms of various “counter-summits,” as an advocacy journalist and political participant. The reportage appeared as Fences and Windows: Dispatches from the Front Lines of the Globalisation Debate (2002). As a collection of columns and talks, while it drew far less attention than No Logo, it helped develop the images and metaphors of Klein’s thinking.

“When I first noticed that the image of the fence kept coming up in discussion, debates and in my own writing, it seemed significant to me,” Klein writes. Despite the promise that post-Communist global economic integration would mean barriers coming down, the opposite appeared to be happening. “The economic process that goes by the benign euphemism ‘globalization’ now reaches into every aspect of life, transforming every activity and natural resource into a measured and owned commodity,” Klein observes. An insatiable market continually redefines as ‘“products’ entire sectors that were previously considered part of the ‘the commons’ and not for sale… The invading of the public by the private has reached into categories such as health and education, of course, but also ideas, genes, seeds, now purchased, patented and fenced off, as well as traditional aboriginal remedies, plants, water and even human stem cells.”

What’s more, the fences and gates are increasingly literal. There are now, says Klein, “armies of locked-out people, whose services are no longer needed, whose lifestyles are written off as ‘backward,’ whose basic needs go unmet. These fences of social exclusion can discard an entire industry, and they can also write off an entire country” or even a continent. As for the protestors at global summits, they too find themselves behind actual fences, and “heavy-handed security measures… become metaphors for an economic model that exiles billions to poverty and exclusion.”

But in addition to the fences, there were glimpses through “windows,” occasions where Klein experienced the feeling that “some sort of political portal was opening up — a gateway, a window, ‘a crack in history’” (the phrase is that of the Mexican revolutionary, Subcomandante Marcos), but most of all,  a perspective where “the prospect of a radical change in political course does not seem like an odd and anachronistic idea but the most logical thought in the world.” If you’re of the party that wants to change the world, hope is probably an occupational hazard, as well as a necessity.

2.

Naomi Klein begins her alternate history of the unregulated global free market, The Shock Doctrine: The Rise of Disaster Capitalism (2007), on the ground, interviewing survivors at a Red Cross shelter in Baton Rouge, Louisiana, shortly after the 2005 Hurricane Katrina that devastated the city of New Orleans. Although the efforts of President George Bush’s federal emergency teams fell woefully short of performing the intended rescue of citizens and reconstruction of their habitations, one of the most curious things to emerge from the catastrophe, Klein reports, was educational reform.

The idea came from Nobel Prize winning economist Milton Friedman. The then 93-year-old doyen of free market economists (he died a year later, in 2006), author of Freedom and Capitalism (1962) and many other books, penned an op-ed piece in The Wall Street Journal (Dec. 5, 2005) lamenting the destruction of New Orleans’ schools, but also seeing the ruins as “an opportunity to radically reform the educational system.”

Friedman’s radical idea, Klein explains, “was that instead of spending a portion of the billions of dollars in reconstruction money on rebuilding and improving New Orleans’ existing public school system, the government should provide families with vouchers, which they could spend at private institutions, many run at a profit, that would be subsidized by the state.” The notion of “charter” or voucher-funded schools was an old hobbyhorse of Friedman’s, who regarded the entire concept of a state-run school system as smacking of socialism. The idea of implementing this “radical reform” in the midst of a disaster is what Naomi Klein’s book is about.

The idea was seized upon by right-wing think tanks, supported by the Bush administration, and “in sharp contrast to the glacial pace with which the levees were repaired and the electricity grid was brought back online, the auctioning off of New Orleans’ school system took place with military speed and precision.” Within 18 months of the hurricane, with most of the city’s poor population still “in exile,” as Klein says, the school board-run 123 public schools had been reduced to 4; the half-dozen existing pre-storm charter schools had burgeoned to over 30. The teachers’ union’s contract had been revoked and the union’s 4700 members had all been fired. Naturally, since a lot of what Klein has to say in this 600-page book is going to hinge on such facts, it’s useful to note that her claims and interpretations are consistently documented, although her interpretations no doubt are subject to debate.

Neither the discussion of the New Orleans catastrophe nor the appearance of economist Friedman are tangential to Klein’s concerns. Noting that The New York Times was soon calling New Orleans “the nation’s preeminent laboratory for the widespread use of charter schools,” Klein defines “these orchestrated raids on the public sphere in the wake of catastrophic events, combined with the treatment of disasters as exciting market opportunities” as the eponymous “disaster capitalism” whose history she is tracking.

Nor is Friedman just a passer-by. For more than three decades, Klein notes, Friedman and his many followers had been perfecting this disaster strategy, “waiting for a major crisis, then selling off pieces of the state to private players.” She cites his Capitalism and Freedom as articulating “capitalism’s core nostrum, what I have come to understand as the shock doctrine.” There, Friedman wrote that “only a crisis — actual or perceived — produces real changes. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”

Friedman became, unarguably, the most influential post-World War II economist in the world, displacing John Maynard Keynes, who had provided the outlines of the “welfare state” in response to the Great Depression of the 1930s. However, it wasn’t until the ascension, in the 1970s and 80s, of Margaret Thatcher and Ronald Reagan to the offices of British Prime Minister and U.S. President, respectively, that Freidman’s theories became official, mainstream, economic policy, emphasising reduction of the size of government, cuts in public spending, and the privatization of as much of the previous functions of the public sector as possible.

Friedman’s ideas, however, had received their try-out a decade earlier in Latin America, and from his academic base at the University of Chicago, he and like-minded colleagues had produced a generation of so-called “Chicago Boys,” economists who soon populated influential governmental posts throughout the region. Klein isn’t making the claim, as she is sometimes accused of doing by critics, that Friedman was personally engaged in or even supportive of every instance of economic shock therapy. For instance, his commitment to more or less unfettered free markets would mean that he disapproved of various moves by the International Money Fund and other institutions as government interference, even when the IMF policies followed his prescriptions and were administered by economists trained at Chicago. Rather, Klein’s point is that Friedman was the inspiration for a variety of free market “disaster” initiatives, irrespective of whether the governments taking them were nominally democratic or authoritarian. What’s more, Friedman was often on hand for advice on just such occasions.

The first instance of the exploitation of a large scale shock or crisis occurred in the mid-1970s, when Friedman acted as an adviser to the Chilean dictator, General Augusto Pinochet, who, in a violent coup, covertly supported by the United States, had overthrown the democratically-elected socialist government of President Salvador Allende. Klein describes Friedman’s proposals for tax cuts, free trade, privatized services, cuts to social spending and deregulation (even Chilean public schools were replaced with voucher-funded private institutions) as “the most extreme capitalist makeover ever attempted anywhere.” Since so many of Pinochet’s economists had studied under Friedman at the University of Chicago, the transformation, which Friedman dubbed “shock treatment,” was known as a “Chicago School” revolution.

The economic shock treatment in Chile was accompanied by more literal versions “performed in the regime’s many torture cells.” If “disaster capitalism” is the primary pattern Klein detects in her book, the use of torture and execution is a secondary, frequently interwoven, pattern that she identifies in a plethora of historical instances. “Many in Latin America,” Klein declares, “saw a direct connection between the economic shocks that impoverished millions and the epidemic of torture that punished hundreds of thousands of people who believed in a different kind of society.” Again and again, throughout Latin America in the 1970s, Klein documents authoritarian, violent takeovers of government, quickly followed by the shock of extreme capitalism implemented by policy makers trained by Friedman’s Chicago School.

Klein, who began writing her book while the U.S. was in the midst of its self-proclaimed “Shock and Awe” attack on Iraq and the subsequent free market “reconstruction” of the country, gives herself a broader investigatory mandate than the gruesome events of Latin America. In New Orleans, Iraq, Sri Lanka in the wake of the 2004 tsunami, Poland and Russia in the post-Berlin Wall period, East Asia during its fiscal crisis of the late 1990s, and even in China and post-apartheid South Africa, she traces similar shocks and reconstructions. The circumstances of disaster she examines are various and “economics was by no means the sole motivator,” she admits, nor were the traumatic episodes always overtly violent, “but in each case a major collective shock was exploited to prepare the ground for economic shock therapy.” In almost all the cases she explores, there is little evidence that the free market policies improved the lives of the inhabitants affected by them.

Klein’s book, finally, is conceived as “a challenge to the central and most cherished claim in the official story — that the triumph of deregulated capitalism has been born of freedom, that unfettered free markets go hand in hand with democracy itself.” In making that challenge, she also offers some sensible cautions: “I am not arguing that all forms of market systems are inherently violent. It is eminently possible to have a market-based economy… [that] coexists with free public health care, with public schools, with a large segment of the economy — like a national oil company — held in state hands.” It’s equally possible, she adds, to require decent wages, workers’ rights, and redistribution of wealth. “Markets need not be fundamentalist.” But in instance after instance, she demonstrates that the imposition of radical free market policies seldom occurs in conditions of enhanced democracy; indeed such policies, whether implemented by authoritarian regimes or the dictates of the International Monetary Fund, tend to be accompanied by a brutal curtailment of freedom.

What follows Klein’s initial overview is an ambitious account that need not be reprised in detail here (but needs to be read in all its devilish detail), a panoramic story that ranges from military coups in Brazil and Chile in the 1960s and 70s to the terrorism, wars, tsunamis and hurricanes of the last decade. Whether or not one entirely agrees with the delineation of the macro-economic “patterns” that Klein claims to recognize, her book offers a bold thesis, substantial research as well as first-hand reporting, and popular readability, all at the right political moment in the decade. For her generation, Klein conveys something of the urgency and astuteness that a previous era of radical readers had found in the work of Noam Chomsky.

The reception of The Shock Doctrine is also noteworthy. Klein had again written a best-seller, one that was widely reviewed, promptly translated into multiple languages, and named to numerous book-of-the-year lists. Succeeding editions carried an impressive roster of endorsements from economists, historians and political journalists, as well as writers and other cultural figures. Novelist Arundhati Roy hailed the book as “nothing less than the secret history of what we call the ‘free market’”; William Kowinski saw it as a possible revelation of “the master narrative of our time”; John Berger praised Klein as “an accusing angel.”

Even discounting for the hyperbole, thoughtful analysts reckoned that Klein had recognized something important. The British social critic John Grey saw Klein’s critique of neo-liberalism as both timely and devastating. “Many of the ideas of the far left,” he writes, “have found new homes on the right.” Once upon a time, it was the communist revolutionary Lenin who believed that conditions of catastrophic upheaval were crucial to social transformation; today, “the devastation of entire societies has been a key part of the neo-liberal cult of the free market,” says Gray.

Throughout the world, Gray argues, “policies of wholesale privatisation and structural adjustment have led to declining economic activity and social dislocation on a massive scale. Anyone who has watched a country lurch from one crisis to another as the bureaucrats of the IMF impose cut after cut in pursuit of the holy grail of stabilisation will recognize the process Naomi Klein describes in her latest and most important book to date.” The Shock Doctrine, he says, is one of those “very few books that really help us understand the present.” Disaster capitalism, Gray foresees, writing exactly one year before the collapse of Lehman Brothers and the beginning of a global Great Recession, “is now creating disasters larger than it can handle.” (John Gray, “The End of the World as We Know It,” The Guardian, Sept. 15, 2007.)

The 2001 Nobel Prize winner for economics, Joseph Stiglitz, a former World Bank and Bill Clinton administration economist, and currently a Columbia University professor, also thought “Klein’s ambitious look at the economic history of the last 50 years and the rise of free-market fundamentalism around the world” a significant accomplishment. “Klein provides a rich description of the political machinations required to force unsavory economic policies on resisting countries, and of the human toll,” Stiglitz writes, adding, “she paints a disturbing portrait of hubris, not only on the part of Milton Friedman but also of those who adopted his doctrines, sometimes to pursue more corporatist objectives. It is striking to be reminded how many of the people involved in the Iraq War were involved earlier in other shameful episodes in United States foreign policy history. She draws a clear line from the torture in Latin America in the 1970s to that at Abu Ghraib and Guantanamo Bay,” the two most notorious allegedly anti-terrorist prisons of the last decade.

As for the economics of the book, Stiglitz admits that “Klein is not an academic and cannot be judged as one. There are many places in her book where she oversimplifies. But Friedman and the other shock therapists were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets. Indeed, the case against these policies is even stronger than the one Klein  makes.” Some of that case is made in Stiglitz’s own subsequent book, Freefall: America, Free Markets, and the Sinking of the World Economy (2010).

Stiglitz recognizes that Klein isn’t a professional economist but a journalist, and what he likes about her work is that “she travels the world to find out firsthand what really happened on the ground during the privatization of Iraq, the aftermath of the Asian tsunami, the continuing Polish transition to capitalism and the years after the African National Congress took power in South Africa, when it failed to pursue redistributionist policies.” Stiglitz anticipates that Klein will be viewed by opponents as a mere conspiracy theorist. He points out that it’s “not the conspiracies that wreck the world but the series of wrong turns, failed policies, and little and big unfairnesses that add up.” Not conspiracies, but a mind-set: “Market fundamentalists never really appreciated the institutions required to make an economy function well, let alone the broader social fabric that civilizations require to prosper and flourish.” (Joseph Stiglitz, “Bleakonomics,” The New York Times, Sept. 30, 2007.)

Klein’s book also had no shortage of detractors, even among left-liberals who otherwise provided much of the chorus of praise. Perhaps the most dismissive of the criticisms was a lengthy essay in The New Republic (Jonathan Chait, “Dead Left,” July 30, 2008), but Klein was also shrugged off by the Left Business Observer (“Awe, Shocks,” March 2008), and frequently seen as a dupe of conspiracy theories (Tom Redburn, “It’s All a Grand Capitalist Conspiracy,” The New York Times, Sept. 29, 2007).

The most substantial of the critiques, Jonathan Chait’s, is also notable for a tone that mixes ill-disguised resentment (and perhaps some envy) at Klein’s prominence as a social critic, with a dismissal of her intellectual capability that tends to equate her with the nitwit teenagers who featured in the 1989 movie comedy, Bill and Ted’s Excellent Adventure. In that justly forgotten nerdish epic, the boys make use of a fortuitously available time machine in a desperate bid to pass their history exam. “It seems like a very long time — though in truth only a few years have passed — since the most sinister force on the planet that the left could imagine was Nike,” is Chait’s heavy-handed sardonic opener.

There’s a thumbnail sketch of Klein’s progress from “red diaper baby” (she comes from a leftist family, and is married to Avi Lewis, a younger member of a prominent Canadian social democratic lineage) to spokesperson for the “defining causes” of the era (she writes for The Guardian, The Nation and other lefty publications), and “darling of the left.” But under it all, Chait’s point appears to be that Klein is a simply a “classic Marxist-materialist” analyst, with a bit of derivative Frankfurt School cultural critique tossed in. It’s not clear whether Chait’s claim that she “managed to make old notions feel new” is an observation or a complaint, and it’s never said what exactly is wrong with Klein’s rediscovery of the evils of capitalism.

The main charge against Klein is that her book “has a single, uncomplicated explanation for everything that ails us,” namely “the worldwide spread of free-market absolutism as it was formulated by Milton Friedman.” That is, the great flaw of The Shock Doctrine is its over-simplifications, “an extremely crude sort of Marxist economicism” that “leaves little room for the non-economic varieties of conflict, such as ethnic or sectarian strife.” In the end, Chait says, “Klein’s relentless lumping together of all her ideological adversaries in the service of a monocausal theory of the world ultimately renders her analysis perfect nonsense.”

Other critics, such as Tom Redburn, also charge Klein with seeing “everything” as an opportunity “for a particularly ruthless form of capitalism to succeed where it otherwise would never take hold.” He admits that “there’s a measure of truth about the dark side of globalization in all this, but that’s a lot to lay on poor Milton [Friedman].” The unsigned critic of Left Business Observer thinks that there’s little new or “secret” in Klein, and that it’s simplistic to put such varied instances into a single theory. The LBO reviewer is a bit more-leftist-than-thou, chiding Klein for not including more pre-1970 history (particularly the Vietnam War) and for being nostalgic “for the Keynesian welfare state model,” implying that more than Scandinavian-style social democracy is going to be required to solve the deeper crisis.

Since Klein is a literate person, she’s perfectly capable of responding to her critics and has (see www.naomiklein.com; her specific rejoinder is posted on Sept. 11, 2008). Perhaps the most eloquent feature of her reply is the simply the citation of unemployment statistics in countries that have undergone economic shocks and shock treatment, whether it’s the quarter of all Russians who were living in desperate poverty in the mid-90s, or the doubling of unemployment in post-apartheid South Africa, or the extraordinary unemployment and absolute poverty numbers in post-communist Poland and other former Soviet Bloc countries.

Nor is Klein about to disappear. She continues to wade into the daily debate. A Wall Street Journal article declared, in the wake of the 2010 Chilean earthquake, that countless Chilean lives had been saved thanks to the strict building codes instituted by Milton Friedman, whose “spirit was surely hovering protectively over” the country. Klein pointed out that there “one rather large problem with this theory”: the building codes were instituted in 1972 by the socialist government that was overthrown by Pinochet’s coup the following year. And, in any case, she adds, Friedman was ambivalent about building codes, seeing them as “yet another infringement on capitalist freedom.”  (Naomi Klein, “Milton Friedman did not save Chile,” The Guardian, Mar. 3, 2010.)

It may be that Klein’s “pattern recognition” of “disaster capitalism” is over-extended. Still, I’m disposed to give her the benefit of the doubt in most instances, and I’m not much interested in whether her manner or fame are irritating to some. If anything, the years of the global capitalist crisis since The Shock Doctrine was published tend to bear out Klein’s and others’ arguments about unregulated free-market capitalism. The accuracy of Klein’s “pattern recognition” is important, but it’s outweighed, in my view, by the overall substance of her narrative.

For myself, Klein’s work in the last decade inspires two reflections, perhaps also a bit simplistic, about history and memory. Whether or not Klein has absolutely correctly recognized the patterns of the past half century, her tour of benighted and brutalized places on the globe (as if everywhere, including the “homeland,” are now among Conrad’s “dark places of the earth”) is a historical reminder of the horrors of our time. If overt torture doesn’t occur in every historical episode Klein examines, her insistence on its ubiquity seems appropriate.

One reviewer chides Klein for repeatedly implying “that there is something immoral about using crises to advance the right-wing agenda without explaining why this is so.” I suppose Klein could say more about why it’s morally dismaying that the richest country in the world thinks it is acceptable that 50 million of its citizens have no access to health care. On the other hand, the U.S. insistence on the privatization and outsourcing of everything from health care to the interrogation of its war prisoners in Iraq and elsewhere may not require additional moral disapprobation to be understood. By now, you would think, the effects of unfettered capitalism are clear enough to warrant a measure of Beckettian gloom.

As one of the readers of The Shock Doctrine who has lived through all of the historical events adumbrated in its pages, I’m surprised by both how much I’ve forgotten and how much I never understood. Even though I don’t think of myself as someone given to the instant amnesia that characterizes much of contemporary mentality and mindlessness, I’d more or less completely forgotten that Boris Yeltsin had come to power in post-Soviet Russia in a bloody coup. Further, I realized, reading Klein, that I either hadn’t paid sufficient attention or actually understood the attempted shock therapy program meant to catapult Russia into contemporary capitalism and away from the faded social democratic dreams of the deposed Mikhail Gorbachev.

What’s more, I’d worked as a journalist in Poland a quarter century ago during the Solidarnosc period, and had interviewed the shipyard workers of Gdansk, with their yearnings for a democratic syndicalist future, but I hadn’t really followed the subsequent radical free market policies that crushed those vague yearnings without necessarily enriching the country’s inhabitants. I knew something had gone economically wrong in post-apartheid South Africa, but I wasn’t sure what. Much of Klein’s writing works as an aide-memoire to our own times.

In terms of writing in the last decade, the most prominent literary figures among Naomi Klein’s Canadian compatriots are undoubtedly Margaret Atwood, Alice Munro and Michael Ondaatje. But I think a case can be made that Klein is not only her country’s bestselling author of the last ten years, but also its most relevant writer.

Berlin, March 7, 2010.

Decline and Distraction

Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle (Knopf Canada, 232 pages, 2009)

 

One recent end-of-the-semester morning, while taking attendance in the “philosophy and literature” course I teach at Capilano University, I checked off the name of a student who had missed the previous class. “Where were you last week?” I asked. Since attendance-taking is a desultory ritual, I try to liven it up with some low-level banter. But this time, instead of the equally desultory dog-ate-my-homework excuse, there was something new.

“Modern warfare was released at midnight,” he said.

It took me a nano-second of mental double-take to realize that he wasn’t announcing an apocalyptic event that had been forecast by Nostradamus or the biblical Book of Revelations. In that same micro-instant I saw that I needed to make an orthographic tweak to his sentence to understand what he was saying. I had to italicize the subject of the remark: it wasn’t “modern warfare,” but instead “Modern Warfare.” Actually, Modern Warfare 2, Call of Duty 6, accompanied by its ubiquitous “TM” trademark logo.

But he didn’t have to say all that because it was common knowledge. As I could tell from the collective chuckle, almost everyone in class got the picture immediately or, like me, an imperceptible nano-second later. Modern Warfare is a popular series of videogames and a new version of it had been recently released. Like Harry Potter novels, vampire movies, or certain musical/video releases, part of the marketing strategy is to begin selling them at midnight, giving early customers a more vivid prestige-enhancing sense of being the first one on their block to own one.

So, my student had dutifully lined up outside the mall emporium, purchased a copy of the game ($59.95 a pop, according to Amazon.ca) in the middle of the night, went home and blasted away until the wee hours, and was of course fast asleep by the time morning classtime rolled around. He wasn’t the only one. In the initial marketing surge (or should that be, these days, “surge”?), 4 million-plus copies were sold, according to the Modern Warfare 2 website, and the company has to date raked in about a half billion dollars in sales. So, this is not merely an anecdote about the latest cute excuse for missing class.

Naturally, I took the opportunity of the occasion to deliver a medium-level rant about the vacuity, shallowness, and dopey nature of the pop culture foisted on young people today, although I soften the blow by pointing out that their consumption of such junk isn’t entirely their fault. Since attendance-taking is generally agreed to be a desultory chore, the students are prepared to put up with these diverting rants as long as I don’t go on too long and turn it into nagging.

Anyway, fulminating about the state of the culture is a legitimate sub-theme of the philosophy and literature class, and such jeremiads can be counted as a form of classroom entertainment. Soon, we were back to our discussion of Italo Calvino’s Mr. Palomar, Diana Athill’s Somewhere Towards the End, Julian Barnes’ Nothing to be Frightened Of, and Jose Saramago’s Death with Interruptions, the four books that make up “Endings,” the last thematic of this semester’s course. But in the back of my mind, I was aware that Calvino et al.’s ideas about death were hardly a patch on the colourful blow’m-up-good version offered by Modern Warfare.

I offer this little story of cultural catastrophe in support of Chris Hedges’ critique of American culture, politics and economics, Empire of Illusion. However, I have to admit that I view such scenes with a bit more wry amusement than Mr. Hedges, who tends to be rather grim-lipped about the whole thing. Hedges is a Pulitzer Prize-winning former foreign correspondent for The New York Times who subsequently turned into a political radical, and is currently a senior fellow of the leftist Nation Institute, a columnist for Truthdig.com, and the author of War is a Force That Gives Us Meaning (2002). He begins his account of the “triumph of spectacle” with a protracted description of “entertainment” wrestling (as contrasted to the sport found in schools and Olympic contests).

It’s a ghoulishly fascinating 15-page portrait of the larger-than-life superheroes and lower-than-snakes villains of WWE, the World Wrestling Entertainment tour, one of the spectacles of U.S. cultural life. I’m not one of the 7.7 million monthly visitors to WWE’s website, so I found Hedges’ saga of the soap-opera-like fake wrestling world a bit confusing. Instead of old-fashioned half-nelsons and body slams, WWE is apparently more about bizarre storylines involving provocative taunting, cuckolding, and derogatory genealogies (as in, “Y tu mama tambien”). But Hedges’ main point is that the popular culture in which the masses, as they used to be known, are immersed, willingly or otherwise, is trivial, salacious, distracting, intellectually mind-numbing and, above all, a terrible illusion that signals the decline and fall of the Empire.

Subsequent vignettes in the opening chapter about celebrity culture include a visit to a “celebrity cemetery,” beauty makeover shows, “reality” TV fare like American Idol, Survivor, and Big Brother, and “humiliation” programs of the Jerry Springer type, where sub-proletarians duke it out over paternity DNA and who slept with whom. All of it serves to drive home Hedges’ message about the mindlessness of “mass-cult.”

Eventually, Hedges moves from the ring to Plato’s cave and spells it out. “We are chained,” he says, “to the flickering shadows of celebrity culture, the spectacle of the arena and the airwaves, the lies of advertising, the endless personal dramas, many of them completely fictional, that have become the staple of news, celebrity gossip, New Age mysticism and pop psychology.” This is not exactly news, as Hedges readily admits. Not news then, but apparently more distortions of reality than ever, and perhaps some usefulness in pointing them out. Though shudder-inducing in places, Hedges’ book is strangely unsatisfying, and it’s not immediately clear why. Maybe it’s the tone of what my students would identify as “nagging.” But no, it’s more than tone.

In an opening chapter called “The Illusion of Literacy,” (and in a book partly sub-titled “The End of Literacy”), Hedges has surprisingly little to say about the subject, almost as if he’s not particularly interested in the possibility of literacy as a remedy for cultural mindlessness. There’s a scant couple of paragraphs citing an approximately 40 per cent functional illiteracy rate in North America, but nothing about the decline of book reading, especially among young people, nor anything about other “knowledge deficits” in history, geography, science and civics, and really not much about how the Internet is actually used by its consumers (9 out of 10 of young people’s most visited sites are devoted to “social networking”). For that sort of information you have to go to books like Mark Bauerlein’s The Dumbest Generation, Susan Jacoby’s The Age of American Unreason or Andrew Keen’s Cult of the Amateur.

The paucity of literacy discussion in a book that advertises itself as being about that topic is only part of a larger problem. The “illusion of literacy” chapter is followed by others that explore the “illusions” of love, wisdom, happiness, and America itself. There’s a lot about porn, the pretensions of higher education, pop psychology, and the dismaying condition of a pseudo-democracy. Most of what Hedges says is factually true, yet I found myself periodically surfacing from the account of cultural and political sludge to mumble, “Yes, yes, but this isn’t what all of life is about or how I experience it.” At least in some monastic corners of the world, the kid who’s playing Modern Warfare is also reading Italo Calvino’s Mr. Palomar. That Hedges thinks bleak catastrophe is indeed the whole of contemporary life appears to be Hedges’ own illusion.

It’s never quite clear who Hedges is writing for nor what he wants his readers to do. Certainly, his unrelieved polemical essay is not aimed at the benighted masses watching Ultimate Fighting Challenge and poker on TV, clicking onto YouTube or YouPorn, “friending” strangers on Facebook, or blowing up imaginary worlds on Grand Theft Auto and Modern Warfare videogames. It’s not for them, since they’re not reading at all.

So, it’s a book about rather than for the unwashed but shampooed masses whose minds are inundated by junk culture. Hedges must be writing for the rest of us, the — let’s be generous — 10 or 20 per cent of us who read books, participate in politics and civic culture, and who keep a worried eye on the CO2 counts in the atmosphere. But most progressive middle-class intellectuals already know most of this stuff, and some of them have even read theoreticians like Guy Debord on “situationism” and Jean Baudrillard on “simulacra” (neither of whom is mentioned by Hedges), both of whom early on spotted “the triumph of spectacle.” Moreover, Hedges’ intended intellectual audience, while dimly aware of most of the phenomena Hedges excoriates, live lives that only peripherally partake of mass popular culture. Given that his readers likely pay only corner-of-their-eye attention to the details, maybe Hedges’ intention is to present mass culture to us as a form of at-home exotica.

The chapter on the “illusion of love,” which is entirely devoted to a journalistic visit to a pornmakers convention in Las Vegas, is characteristic of Hedges’ perspective. Beginning with an epigraph that offers a lurid passage from the late Andrea Dworkin’s Pornography: Men Possessing Women, Hedges hews to her particular version of feminism, presenting an Inferno-esque, “graphic” account of heterosexual commercial porn that emphasizes its increasing violence and degradation of women. Interviews with porn performers, peddlars, and recovering porn actors reiterate the sadistic nature of this particular illusion, and in case we’re unfamiliar with its contents, Hedges provides extended vile snatches of porn video dialogue and detailed descriptions of how tab A is slotted into inserts B, C, etc., in such productions. After a few pages of this, you realize Hedges isn’t planning to go beyond the confines of the commercial sex industry, and you idly wonder why the chapter isn’t billed “the illusion of sex,” since it doesn’t seem to have much to do with love or any similar affectional state.

This cinema verite presentation builds to the climactic message that “porn reflects the endemic cruelty of our society. This is a society that does not blink when the industrial slaughter unleashed by the United States and its allies kills hundreds of civilians in Gaza or hundreds of thousands of innocents in Iraq and Afghanistan.” Mr. Hedges goes on (and on). Porn is soon linked to the plight of  the mentally ill and the unfairly imprisoned, as well as the dangers of gun ownership, obnoxious nationalism and “rapacious corporate capitalism.” Predictably enough, porn is eventually equated to the infamous Abu Ghraib prison in Iraq and we’re assured that “torture and pornography inevitably converge.”

I’m puzzled by the rhetorical overkill, both here and throughout Hedges’ tract. While it’s reasonable to sharply criticize both the content of hetero porn and the conditions under which it’s made, it’s not immediately clear what the purpose is of a hyperbole that insistently ties porn to all of the world’s assorted ills. It’s as if, in the name of some form of radicalism, Hedges’ intent is to crush all possible discourse about the subject. In this leftist vision of liberation, one can sense the mirthless commissars just over the horizon.

In any case, Hedges’ edicts about the meaning of porn seem designed to render any further discussion of sexual representation either trivial or irresponsible, or both. A question like, “Momentarily leaving aside the egregious conditions and content of contemporary pornography, is there a moral objection to the representation of sex between people and the viewing of such representations by other people?”, becomes irrelevant or even blasphemously incorrect. Why would one want to ask such a question?

Well, for one thing, the question challenges some North American attitudes about sex. While porn may represent commercial views about sex, a dominant religious attitude among Christian fundamentalists (and perhaps the view is held more broadly than merely as a religious tenet) is that sex ought to be strictly regulated — preferably, within heterosexual marriage and utilized primarily for procreational purposes. The debate about attitudes toward, and practices of, sex had a lot to do with both feminist and homosexual political struggles in the last half century. None of that will be found in Hedges’ Empire. Nor, when it comes to cruelty and wanton killing, will readers find anything about porn-deprived jihadis, who manage a good deal of slaughter and torture without the aid of salacious imagery.

Maybe Hedges just isn’t a very good sociological writer. In service to agitprop, Hedges excises anything that complicates his “correct line.” In my experience of gay porn, while it’s true you can find niches for everything from S&M to foot fetishism, mainstream homo porn is overwhelmingly focused on the vanilla sex of “twinks” (18-21-year-old, more or less clean-cut, late-teen beauties). While one can probably criticize the conditions these boys endure while making porn, and can cite the ways in which porn sex distorts ordinary real sex, the behaviour of the boys is generally friendly and non-violent, there’s lots of kissing and gestures of affection, they use condoms in the name of “safer sex,” and the sex, apart from being hot (if you’re inclined to find such sex hot) is pretty inoffensive unless you find the whole thing offensive. I’m not offering a brief intended to mitigate the sexist horrors of heterosexual porn, I’m just suggesting that the world is more various and complicated than Hedges, in the grip of an ideology, allows.

Subsequent chapters on higher education and positive psychology are similarly uneven. Hedges opens his chapter on the “illusion of wisdom” by saying, “The multiple failures that beset the country, from our mismanaged economy to our shredding  of Constitutional rights to our lack of universal health care to our imperial debacles in the Middle East, can be laid at the door of institutions that produce and sustain our educated elite. Harvard, Yale, Princeton, Stanford, Oxford,  Cambridge, the University of Toronto and the Paris Institute of Political Studies… do only a mediocre job of teaching students to question and think. They focus instead… on creating hordes of competent systems managers… The elite universities disdain honest intellectual inquiry… They organize learning around specialized disciplines… [they] have banished self-criticism. They refuse to question a self-justifying system. Organization, technology, self-advancement, and information systems are the only things that matter.” Naturally, Hedges doesn’t want to lay at the door of those elite universities such things as the end of slavery, free speech, civil rights, notions of ethnic and gender equality, sexual orientation, or even the attempt to reform health care in the U.S.

But if elite universities are that bad, it makes me almost glad to be teaching in a non-elite, marginal, backwater university where we’re still allowed to read Italo Calvino and modestly rant about the mindless culture foisted on the young by the capitalist Axis of Evil that manufactures those Modern Warfare videogames. Since I’m likely to be accused of frivolity anyway, I might as well confess upfront that at the end-of-the-semester “Goodbye Class” in ethics, where one of the students, Veronika, provided us all with cupcakes that she’d stayed up baking the previous night, we spent a rollicking hour discussing the morality of David Levy’s Love and Sex with Robots (2007), a review of which was the subject of Veronika’s final essay of the semester. Having debated the ethics of everything from abortion to vampires, it was fun to imagine “sexbots” at the end. The class and I found the discussion pretty hilarious, even educational. Mr. Hedges would perhaps think otherwise.

If Hedges can offer sweeping, half-true, generalizations about elite education, he’s also capable of astutely pointing out that in our “deteriorated educational landscape,” it’s the case that “there has been a concerted assault on all forms of learning that are not brutally utilitarian. The Modern Language Association’s end-of-the-year job listings in English, literature and foreign languages dropped 21 per cent for 2008-09 from the previous year, the biggest decline in 34 years. The humanities’ share of college degrees is less than half of what it was during the mid-to-late ’60s… Only 8 per cent of college graduates, about 110,000, now receive degrees in the humanities.” There have been precipitous declines in all fields, from English to mathematics to social sciences. “Bachelor’s degrees in business, which promise to teach students how to accumulate wealth, have skyrocketed. Business majors since 1970-71 have risen from 13.6 per cent of the graduating population to 21.7 per cent. Business has now replaced education, which has fallen from 21 per cent to 8.2 per cent, as the most popular major.” All true, too true, but this isn’t the place for a full-scale dissertation on the plight of the shaping of the educated mind.

Hedges is much better when he gets to the “illusion of happiness.” That’s where he skewers self-help gurus peddling “positive thinking” and punctures the intellectual pretensions of various psychology departments to put “Positive Psychology” on a scientific footing. Barbara Ehrenreich’s Bright-Sided: How the Relentless Promotion of Positive Thinking Has Undermined America (2009) does a more extensive and thorough job on the topic, but Hedges’ acerbic view of the matter ought to be enough to get you to stash your “Smiley” buttons and shelve your copy of Rhona Byrne’s The Secret.

The worst is saved for last. It’s Hedges’ chapter on the “illusion of America,” and clearly the one he was most itching to write. As is his wont, the screed is unrelieved, but tinged with bitter affection for a land that once was. “The country I live in today uses the same civic, patriotic, and historical language to describe itself… but only the shell remains,” Hedges laments. “The America we celebrate is an illusion. America, the country of my birth, the country that formed and shaped me, the country of my father, my father’s father and his father’s father… is so diminished as to be unrecognizable. I do not know if this America will return, even as I pray and work and strive for its return.”

In place of the recognizable America, “our nation has been hijacked by oligarchs, corporations, and a narrow, selfish, political and economic elite, a small and privileged group that governs, and often steals, on behalf of the moneyed interests… During this plundering we remained passive, mesmerized by the enticing shadows on the wall, assured our tickets to success, prosperity, and happiness were waiting just around the corner.”

Hedges makes it clear that Barack Obama and the “bankrupt Democratic Party” are not the “hope” he “can believe in.” About the only closing-line relief Hedges can offer is “love,” whose power is greater than the power of death. “Love will endure,” Hedges asserts, “even if it appears darkness has swallowed us all, to triumph over the wreckage that remains.” Hmm, bleak stuff.

Somewhere in the  course of Hedges’ final sermon (he was trained, he remarks in passing, as a seminarian), I think I figured out who he’s writing for. The intended readership, I suspect, is left liberals and social democrats, and Hedges’ polemic is designed to persuade moderate progressives that they don’t fully understand the gravity of the situation. In failing to understand the situation, the moderate leftists become, in Hedges’ view, the real enemy, more culpable than the right wing conservatives, because they prop up the shell of the system, even when they should know better. If that’s what’s going on here, it echoes the 1920s Communist Party’s verbal and physical assault on social democrats as “social fascists,” and at least some of us remember where that revolutionary strategy led.

Hedges’ Empire of Illusion is a difficult book to deal with because much of it contains more than a grain of truth. Even if he could persuade left liberals and social democrats to repent and see the light, I’m not sure what he wants them to do. Become cadres in the true Revolutionary Party and set off to free the masses from their illusions? I don’t recall that working the last time it was tried.

It might be more helpful to see the situation as one of a divided polity, a divided culture in the midst of “culture wars,” in which there are left-of-centre Democrats and social democrats, Obama included, and right-wing Republicans and angry anti-government libertarians and self-proclaimed “independents.” That perspective at least makes possible an answer to the question, “What is to be done?” What we should do is continue to teach people to read books and to criticize the gadgets and content of capitalist pop culture. We should continue to try to reform health care, regulate and restrain capitalism, and attempt to save the planet. We should do the little things in our neighbourhoods, and we should join political parties and other organizations and try, as we used to say, to change the world.

This modest program is admittedly less spectacular than Hedges’ despairing vision of spectacle and decline. But what’s the alternative? I saw an ad on TV the other day advertising the latest apocalyptic movies and games, the screen filled edge to edge in high definition exploding objects. The voice-over punchline said, “The end of the world never looked so good.”

 

Vancouver, Dec. 19, 2009.

Haunted by a Spectre

Paul Krugman, The Return of Depression Economics and the Crisis of 2008 (Norton, 2009).
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My only literary prediction for 2009 is that we’re all going to be reading a lot more books about what was formerly known as The Economy, and is currently variously called The Crisis, The Collapse, Things Are Going to Get Worse Before They Get Better, The Brink of Great Depression II, and “A  Spectre Is Haunting…”  The spectre is haunting not just Europe, as the opening line of Marx and Engels’ Communist Manifesto of 1848 had it, but the entire globe, though it’s unlikely that it’s the “spectre of Communism” that’s doing the haunting, as the mid-19th century revolutionaries claimed. What to call the spectre will no doubt be the subject of many of this year’s forthcoming books.

Personally, I’m looking forward to the book that tells-all about the aptly-named Bernie Madoff, the New York financial wizard who allegedly made off with $50 billion in investors’ money in the biggest Ponzi scheme in history. (According to a book blog I recently glanced at, there are 8 such accounts in the works.) Or the inside story of that night in September 2008 when then President George W. Bush, the enemy of big government and lifelong proponent of unregulated cowboy capitalism, was told by Treasury Secretary Hank Paulson and Federal Reserve chair Ben Bernanke that the U.S. would have to, more or less, nationalize the entire finance and banking sector… or else. What did Dubya mutter, I wonder? “Gadzooks, that’s socialism! What will my daddy say?” We won’t know until the next Bob Woodward inside-the-White-House tome appears, I guess, but in any case it promises to be more exciting than Dan Brown’s sequel to The DaVinci Code.

While awaiting these nasty-pieces-of-work-in-progress, we already have available a range of tempting titles that includes Canadian economist Jim Stanford’s indispensable primer, Economics for Everyone: A Short Guide to the Economics of Capitalism (Fernwood, 2008), and the British-born Harvard historian Niall Ferguson’s latest TV-series-text, The Ascent of Money: A Financial History of the World (Penguin, 2008). For those still catching up with the last century, there’s Robert Skidelsky’s suddenly relevant massive biography, John Maynard Keynes (1883-1946): Economist, Philosopher, Statesman (Pan, 2003).

My own favourite Virgil-like guide to our present economic Hell is Paul Krugman, winner of the 2008 Nobel Prize for Economics. He’s also a Princeton professor, a New York Times columnist, and a self-declared liberal economist, author of The Conscience of a Liberal. It was Krugman who asked in a recent column (“The Madoff Economy,” New York Times, Dec. 19, 2008), “How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?” But before contemplating the possibility that much of capitalism is itself a Ponzi swindle writ large, we need a little background.

That’s provided by Krugman in his slim and cautionary new book, The Return of Depression Economics. Actually, as Krugman explains in his introductory chapter, Depression Economics is a recycled version of his not-much-noticed 1999 text about the bursting of the Asian monetary bubble and other warning signs ignored, hence the add-on subtitle, …and the Crisis of 2008, for this year’s edition. It’s a literary example of “doing more with less,” a conception that millions of us will probably have to adopt in the coming months.

As recently as the beginning of the 21st century, as Krugman reminds us, it was believed that “nothing like the Great Depression can ever happen again.” The monumental slump of the 1930s was now seen by economists and other policy makers as a “gratuitous, unnecessary tragedy.” If only the U.S. president of the day, Herbert Hoover, “hadn’t tried to balance the budget in the face of an enormous economic slump”; if only “officials had rushed cash to threatened banks, and thus calmed the bank panic”; if only… But in today’s enlightened era, claimed many prominent economists, we know better. Or do we?

Krugman sets up his account of the present crisis by reviewing various economic disasters and near-disasters of the past two decades in Mexico, Japan, Thailand and other points east and south, as well as doing the forensics on recent American economic “bubbles” that eventually burst. He also explains some of the machinations of the stock market and other frightening institutions. Occasionally my eyes glazed over as Krugman explained how fortunes were made by turning Thai bahts and Mexican pesos into other currencies, but for the most part, the analysis is pretty accessible, thanks to his commitment to ensuring that “there are no equations, no inscrutable diagrams, and (I hope) no impenetrable jargon” in his little treatise.

In due course, Krugman gets to the irrational housing bubble that initiated the present crisis. “Americans have long been in the habit of buying houses with borrowed money,” Krugman notes, then adds, “but it’s hard to see why anyone should have believed, circa 2003, that the basic principles of such borrowing had been repealed. From long experience we knew that home buyers shouldn’t take on mortgages whose payments they couldn’t afford, and they should put enough money down so that they can sustain a moderate drop in home prices and still have positive equity.”

Instead, “what actually happened was a complete abandonment of traditional principles.” A small part of the blame can be pinned on “the irrational exuberance of individual families who saw house prices rising ever higher and decided that they should jump into the market, and not worry about how to make payments.”

But the real culprits, says Krugman, were the lenders. “Buyers were given loans requiring little or no down payment, and with monthly bills that were well beyond their ability to afford — or, at least would be unaffordable once the initial low, teaser rate reset. Much though not all of this dubious lending went under the heading of ‘subprime,’ but the phenomenon was much broader than that,” and the total amount of the loans was in the hundreds of billions.

Why did the lenders relax the traditional standards, and why were they allowed to do so? Well, first, they too bought into the psychological bubble of believing in ever-rising house prices. They didn’t have to worry about whether the borrowers could make their monthly payments. If they couldn’t they could either get more cash by taking out a home equity loan or else sell the house, at a higher price, and pay off their mortage.

But far more important — and here’s where it gets interesting — the lenders didn’t worry about the loans “because they didn’t hold on to them. Instead, they sold them to investors, who didn’t understand what they were buying.” The process is known as “securitization” of home mortgages — “assembling large pools of mortgages, then selling investors shares in the payments received from borrowers.” Previous “securitization” had been limited to “prime” mortgages, that is, loans to borrowers who could make a substantial down payment and had enough income to meet the mortgage payments. Defaults were rare.

As the bubble inflated, everyone reached for a piece of pie-in-the-sky. Construction boomed, materials for construction were in demand (including wood from British Columbia), low unemployment and money in hand fuelled consumer purchases on big ticket items such as SUVs and newly-invented electronic gadgets (all aided and abetted by the availability of further borrowing via credit cards), and you could even call in for pizza. All boats were lifted in the rising tide of prosperity, including all those borrowed boats. Eventually, when the people who made the loans they couldn’t afford stopped paying, the foreclosures on houses began, housing prices plummeted, construction and consumption stopped, the boats whether bought or borrowed ran aground, and the bubble had burst. It was only when the plug was pulled that we learned that these weren’t real boats, but only children’s toys in a bathtub. The boats may not have been real, but people’s lives going down the fiscal drain surely were.

According to Krugman, the “financial innovation” that made this enormous conjuring trick possible was something called “collateralized debt obligation” (CDOs).  The CDOs created “senior” shares that were supposedly secure, and junior shares that were more speculative. The CDOs were touted as a very safe investment because “even if some mortgages defaulted, how likely was it that enough would default to pose problems for the cash flow to these senior shares?” The answer: “Quite likely, it turned out.” But because of the hype, the supposed watchdog or rating agencies were willing to classify senior CDO shares as AAA, “even if the underlying mortgages were highly dubious.” Of course, “as long as housing prices kept rising, everything looked fine and the Ponzi scheme kept rolling.” Since the CDOs were rated safe, that “opened up large-scale funding of subprime lending” to such institutional investors as pension funds that “were quite willing to buy AAA-rated assets that yielded significantly higher returns” than ordinary bonds and other super-safe properties. But once the bubble burst, we got this, the present monstrous mess.

In order to make the scheme work, there had to be institutions to bundle together and peddle the ultimately worthless mortgages. At this point Krugman introduces us to the crucial concept of the “shadow banking system.” Krugman asks, “But wasn’t the age of banking crises supposed to have ended seventy years ago? Aren’t banks regulated, insured, guaranteed up the wazoo? Yes and no. Yes for traditional banks; no for a large part of the modern, de facto banking system.”

In his thumbnail history of banking, Krugman notes that something eerily similar to what’s going on today happened one hundred years ago in the Panic of 1907. “The crisis originated in institutions… known as ‘trusts,’ bank-like institutions” originally intended to manage inheritance and estates for the wealthy. “Because they were supposed to engage only in low-risk activities trusts were less regulated and had lower reserve requirements and lower cash reserves than national banks.” As the economy boomed in the first decade of the last century, “trusts began speculating in real estate and the stock market areas from which national banks were prohibited.” As long as the bubble inflated, “trusts were able to pay their depositors higher returns.” When the bubble burst, it took all the republic’s bankers to restore a semblance of fiscal order. Even though the actual panic lasted only a week, “it and the stock market collapse decimated the economy. A four-year recession ensued, with production falling 11 per cent” and unemployment almost tripling.

Krugman then describes the far larger crisis of 2008, one that has a global rather than a merely national reach, and along the way he discusses the various arcane instruments and institutions of investment from the “auction-rate security system” to “hedge funds” and all the rest of the shadowy shadow-banking system that ultimately caved in, beginning with the 2008 bankruptcy of Lehmann Brothers. Krugman notes that the unsustainable risk of such institutions wasn’t really a result of deregulation, but rather that the shadow system, which was almost as large as conventional banking, was never regulated in the first place, even though the top five investment banks had balance sheets totalling $4 trillion. The catastrophe is a result of what Krugman calls “malign neglect.” Nonetheless, what permitted much of the malign neglect was an ideology of unregulated market capitalism and almost-theological opposition to government.

My recurrent emotion while reading Krugman’s account (and I’ve only reprised a small portion of the complexities) was one of shock. Again and again, I found myself gasping with astonishment, “They let them do that?!” Much of the operation of the financial system looks like little more than a besotted weekend of casino gambling. Though I can hardly claim to be utterly naïve about the workings of capitalism, Krugman’s brief book repeatedly brings home how little most people (including me) really know about what’s going on. I guess that as long as our credit cards still work with a simple swipe through a machine perhaps we don’t want to know. But at this point, continued ignorance is not an option.

Krugman wraps up with the important “What is to be done?” question. His solution, which is pretty close to that of the ideas of President Barack Obama’s economics team, is straightforward, and not especially radical. “What the world needs right now is a rescue operation. The global credit system is in a state of paralysis and a global slump is building momentum,” Krugman declares. Reform “is essential, but it can wait a little while.” Right now, policy-makers around the world “need to do two things: get credit flowing again and prop up spending.”

Krugman guesses that “recapitalization” of the economy will come close to requiring “a full temporary nationalization of a significant part of the financial system.” Other leading economics experts have been openly discussing the same thing (see “Nationalizing the Bank Problem,” New York Times, Jan. 22, 2009). Apart from loony-tune right-wing Republicans and neo-conservative thinktanks (a “shout-out” to the fabled Fraser Institute is appropriate here), there’s a near-consensus that temporary nationalization is not unthinkable. Since the spectre haunting global capitalism isn’t a radical reorganization of economic life, Krugman underscores that he isn’t advocating the long-term seizure of the economy’s commanding heights, as the Marxists used to say, and insists that “finance should be reprivatized as soon as it’s safe to do so, just as Sweden put banking back in the private sector after its big bailout in the early 1990s.” He adds, however, “Nothing could be worse than failing to do what’s necessary out of fear that acting to save the financial system is somehow ‘socialist.’” Some of us might be tempted to further add, “So what’s wrong with a little socialism?”, but we can leave that debate for another occasion.

Even if the credit markets can be brought back to life, what to do about the gathering global depression? “The answer, almost surely,” says Krugman, “is good old Keynesian fiscal stimulus.” That is, the next plan “should focus on sustaining and expanding government spending — sustaining it by providing aid to state and local governments, expanding it with spending on roads, bridges and other forms of infrastructure.” That’s pretty much what Obama proposes in his most recent $800 billion stimulus package, including such other forms of “infrastructure” as education and green technology.

Krugman says, more than once, “We’re not in a depression now, and despite everything, I don’t think we’re heading into one,” then parenthetically adds, “although I’m not as sure of that as I’d like to be.” If depression itself has not returned, depression economics — meaning, “the kinds of problems that characterized much of the world economy in the 1930s” — is back with a vengeance. Krugman’s useful discussion is hardly deathless prose, nor is it meant to be. It’s more on the order of “dispatches from the front,” a front that’s not located in some distant land, but is as close as your local haunting spectre.

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Vancouver, Jan. 22, 2009.