Engines of Devastation
Does Postmodernism still seem cool to anybody? — Probably not. Having sold whatever simulacrum of a soul it might have had to the fickle gods of fashion, it has learnt more about the reign of Chronos than it might have expected to – the kids get devoured, and it’s on to something new. What was accepted for no good reason gets discarded for no good reason. In political science it’s called democracy (but that’s another discussion).
Clearly, there’s something profoundly just about the disappearance of postmodernism into the trashcan of random difference (what’s ‘in’ has to be new, preferably meaninglessly so). It’s even ‘poetically just’, whatever that means. But it also destroys information. Although Postmodernism was certainly a fad, it was also a zeitgeist, or spirit of the times. It meant something, despite its own best efforts, at least as a symptom. The disappearance of reality that it announced was itself real, as was the realm of simulation that replaced it. At least in its death, it might have amounted to something.
Consider its greatest mystagogue, Jacques Derrida, and his once widely celebrated ‘concept’ of differance (yes, with an ‘a’), a term within a series of magical words that mark the undecidable, ungraspable, unpresentable, and ultimately inconceivable ontological non-stuff that supplants real events, through an endless succession of displacements and postponements. We can’t really say anything about it, so we have to talk about it endlessly, and entire university departments are required to do so. It’s ridiculous (and so it’s over). But it’s also, quite exactly, the globally hegemonic culture of Keynesianized, macroeconomic, programmatic stagnationism, and that isn’t over yet, although its morbidity is already highly conspicuous. Unlike faddish academic Postmodernism, its death is going to be really interesting.
Long before the Derridoids got started, Keynes had taught governments that differance was something they could do. Procrastination – the strategic suspension of economic reality through a popularly ungraspable series of displacements and postponements – quickly came to define the art of politics. Why suffer today what can be put off until tomorrow, or suffer yourself something that could be somebody else’s problem? Postpone! Displace! In the long run we are all dead. Reality is for losers.
Differance as it really works is a lot cruder than its reflection in Postmodern philosophy (and what could be philosophically cruder than an appeal to the notion of ‘reflection’?). For instance, it is fished out of the ontological abgrund and processed by specific public policy mechanisms, sustained by concrete institutions in ways that are to a considerable extent economically measurable, within elastic but most certainly finite geographical and historical limits. Crudest of all, and ultimately decisive, is the circumscription of derealization, by the real, and the return of the apocalyptic, no longer as a phantasmatic avatar of the ‘metaphysics of presence’ (or false promise of a real event), but as an impending real event, and one whose process of historical construction is in large measure intelligible. Real differance didn’t ‘deconstruct’ the apocalypse, it built it. It’s not even that difficult to see how.
At EconLog, David Henderson has posted his notes from John H. Cochrane’s December 3 talk at Stanford University’s Hoover Institution conference on ‘Restoring Robust Economic Growth in America’. There’s no mention of differance, but there doesn’t need to be.
For nearly 100 years we have tried to stop runs with government guarantees — deposit insurance, generous lender of last resort, and bailouts. That patch leads to huge moral hazard. Giving a banker a bailout guarantee is like giving a teenager keys to the car and a case of whisky. So, we appoint regulators who are supposed to stop the banks from taking risks, in a hopeless arms race against smart MBAs, lawyers and lobbyists who try to get around the regulation, and though we allow — nay, we encourage and subsidize — expansion of run-prone assets.
In Dodd-Frank, the US simply doubled down our bets on this regime. …
Bailouts delay a painful economic event (postponement) whilst transferring financial liability (displacement). Risk is restored to virtuality, as disaster is turned back into a threat, but it isn’t the same threat. By any remotely sane method of accountancy, it’s now worse. Significant virtual deterioration is substituted for actual discomfort. That’s the cost of derealization.
How do things get worse, exactly? — In plenty of ways. Start with ‘moral hazard’, which is a polite way of saying ‘insanity’. Actions are decoupled from their consequences, removing the disincentive for craziness. The result, utterly predictably, is more craziness. In fact, anything that systematically enhances moral hazard is simply manufacturing craziness. It’s dumping LSD in the water supply, although actually probably worse. So bailouts drive us insane and destroy civilization (no one really disputes that, although they may try to avoid the topic).
Oh, but there’s more! — Much more, because all these displacements don’t just move things around, they move them up. Risk is centralized, concentrated, systematized, politicized – and that’s in the (entirely unrealistic) best case, when it isn’t also expanded and degraded by the corruption and inefficiency of weakly- or cynically-incentivized public institutions. This is trickle up – really flood up – economics, in which everything bad that ever happens to anybody gets stripped of any residual sanity (or realistic estimation of consequences), pooled, re-coded, complicated by compensatory regulation, and shifted to ever more ethereal heights of populist democratic irresponsibility, where the only thing that matters is what people want to hear, and that really isn’t ever going to be the truth.
“Mess up enough, and you probably suffer or die” – that’s the truth. It’s a message that doesn’t translate into the language of Keynesian kick-the-can politics, which is folk Postmodernism. The nearest we get, as the jaws begin to close on the bail-out bucket chain, is “We’re going to need a bigger boat.” After innumerable episodes of that, we’re all huddled together on the Titanic, and things are kinda, sorta, looking OK. At least the band’s still playing …
When abstracted from its squalid psychosis, the pattern is mathematically quite neat. It’s called the Martingale system, better known to Americans as ‘double or nothing’ (and to Brits as ‘double or quits’). Cochrane already touched upon it (“the US simply doubled down our bets”). Wager on red, and it comes up black. No problem, just double the bet and repeat. You can’t lose. (If you like this logic, Paul Krugman has an economic recovery to sell you.)
What appears as disaster postponed is, in virtual reality, disaster expanded. The Wikipedia entry on the Martingale system helpfully connects it to the Taleb Distribution, otherwise known as scrounging pennies in front of a steam roller. The persistence of small gains makes this business model seem like a sure thing — until it doesn’t.
Nassim Nicholas Taleb and Mark Blyth expand on the idea in Foreign Affairs, with application to various aspects of the current (or impending) crisis. Asking why “surprise [is] the permanent condition of the U.S. political and economic elite” they trace the problem to “the artificial suppression of volatility — the ups and downs of life — in the name of stability.”
Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite. These artificially constrained systems become prone to “Black Swans” — that is, they become extremely vulnerable to large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.
Discussing this article at PJMedia, Richard Fernandez glosses and sharpens its conclusion:
Part of the problem is the consequence of [the elites’] own damping. By attempting to centrally manage systems according to some predetermined scheme they actually store up volatility rather than dispersing it. By kicking the can down the road they eventually condemn themselves to bumping into a giant pile of cans when they run out of road. … But the elites cannot admit to surprise; nor can they admit to bad things starting on their watch. Therefore they keep sweeping things under the carpet until, as in some horror movie, it spawns a zombie. To make systems robust, says Taleb, you’ve got to admit that you can make mistakes and pay the price. You will have to in the end anyway.
We aren’t in Postmodernism anymore, Toto. We’re nearer to this:
The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. (Ludwig von Mises, Human Action)
Or even this:
Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink, disappearing; whither, from the first origin of them, they were all doomed. For Nature is true and not a lie. No lie you can speak or act but it will come, after longer or shorter circulation, like a Bill drawn on Nature’s Reality, and be presented there for payment,- -with the answer, No effects. Pity only that it often had so long a circulation: that the original forger were so seldom he who bore the final smart of it! Lies, and the burden of evil they bring, are passed on; shifted from back to back, and from rank to rank; and so land ultimately on the dumb lowest rank, who with spade and mattock, with sore heart and empty wallet, daily come in contact with reality, and can pass the cheat no further.
Observe nevertheless how, by a just compensating law, if the lie with its burden (in this confused whirlpool of Society) sinks and is shifted ever downwards, then in return the distress of it rises ever upwards and upwards. Whereby, after the long pining and demi-starvation of those Twenty Millions, a Duke de Coigny and his Majesty come also to have their ‘real quarrel.’ Such is the law of just Nature; bringing, though at long intervals, and were it only by Bankruptcy, matters round again to the mark.
But with a Fortunatus’ Purse in his pocket, through what length of time might not almost any Falsehood last! Your Society, your Household, practical or spiritual Arrangement, is untrue, unjust, offensive to the eye of God and man. Nevertheless its hearth is warm, its larder well replenished: the innumerable Swiss of Heaven, with a kind of Natural loyalty, gather round it; will prove, by pamphleteering, musketeering, that it is a truth; or if not an unmixed (unearthly, impossible) Truth, then better, a wholesomely attempered one, (as wind is to the shorn lamb), and works well. Changed outlook, however, when purse and larder grow empty! Was your Arrangement so true, so accordant to Nature’s ways, then how, in the name of wonder, has Nature, with her infinite bounty, come to leave it famishing there? To all men, to all women and all children, it is now indutiable that your Arrangement was false. Honour to Bankruptcy; ever righteous on the great scale, though in detail it is so cruel! Under all Falsehoods it works, unweariedly mining. No Falsehood, did it rise heaven- high and cover the world, but Bankruptcy, one day, will sweep it down, and make us free of it. (Thomas Carlyle, via Mencius Moldbug, but cited all over the place recently)
Here it comes.