Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

20 November 2011

Can Markets Be Wrong?

Human history is a tale of the elite controlling the masses by manipulating popular belief.

In the bad old days, back before science and near-universal literacy, the priests did it. They “read” the entrails of recently slaughtered animals or the “signs” of weather. They found “meaning” in unusual movements of birds and animals. The natural world “spoke” to them in a language only they could hear.

Random natural phenomena of course didn’t “speak” intelligibly. They were ambiguous at best. They required interpretation by “experts.” And why shouldn’t the “experts” construe them as best fit their own interests, even if dimly perceived?

Ever since the days of polytheism, a priest class has been with us. Once every rock, tree or peal of thunder could become its own special god. When uncertain leaders sought guidance, priests “read” the unknown for them, and so increased their own numbers, prestige and authority.

At first they did so unconsciously. Later, after the fall of Rome, they acted quite consciously. For the better part of a millennium, the Church ruled the West as a secular power. Innovation ceased by religious command. Intellectual activity devolved into passing on the Word of Authority, in the form of beautifully illuminated manuscripts.

The people who did the utterly boring (but safe!) work of passing on the Word of the Powers that Were won refuge (in monasteries) from the ceaseless wars, famines and feudal class exploitation that had overtaken the West. It was a hard time.

We call that the Dark Ages. It ended with the rise of science, the Renaissance of human thought and the rebirth of individual initiative, along with democracy in modern form. For all the violence and tumult it caused, the Protestant movement was a key factor in that rebirth, based on each individual’s personal relationship with God and therefore individual thought and conscience.

Human history repeats itself, but never precisely the same way twice. Our modern priests wear no robes or jewels and carry no scepters. They wear business suits. The old ones we have relegated to supporting roles, teaching basic human virtues like kindness, charity, and humility.

There’s an easy way to tell who has the real power in any human society. Just look for the tallest buildings. In the Dark Ages, they were the cathedrals. Societies mired in poverty and misery spent all their meager resources building for the priests, often for decades and sometimes for centuries. In Morocco and other Islamic societies, even today, the tallest buildings (often by law) are the minarets of the mosques.

But in the West our modern cathedrals are different. They bear the names and logos of banks and insurance companies. Or, like the Empire State Building and the now-demolished Twin Towers, they served the needs of Capital without fear or favor, renting their vertical space to banks, investment banks, brokerages and real-estate offices―and their handmaidens in law and accounting.

Our high priests today are mostly anonymous. Except for minor narcissists like Donald Trump and Jamie Dimon, they work behind the scenes. But collectively they have far more power than any priest class in human history, with the possible exception of the Dark Ages.

These priests rule by a sort of public oracle that has become a central institution of every advanced human society. It’s called “The Markets.”

The last few weeks have shown just have much power The Markets have. Without a shot fired, and with nary a public objection (except from the hoi palloi), they have brought down democratically elected governments in Greece and Italy. And they have done so by supporting programs of public austerity that the public universally opposes.

Think about that. Here are the remnants of ancient Greece and Rome, the seats of ancient democracy and the progenitors of modern political thought and architecture. And The Markets blew their modern remnants away like a child blowing a bubble.

What does it all mean? Well, it certainly doesn’t mean that The Markets know the way to Truth, Light and Happiness for all humanity. Alan Greenspan taught us that.

Not four years ago, Greenspan was the highest priest of The Markets, charged with supervising The Markets of the world’s largest economy. Just like the ancient world’s high priests, he commanded a combination of science and art. He ruled, mostly successfully, for decades. He understood sophisticated quantitative economic science, with all its horrendously complex computer models. And when that didn’t suffice, he ruled by the seat of his pants, using his extraordinary insight and intuition.

But as a high priest of The Markets, Greenspan had a fatal flaw. Unlike most priests―but like most scientists―he was (and is) an honest man. When the tower of cards that derivatives had created finally fell, destroying human history’s largest economy and most of the world’s with it, he recanted. The Markets, he said, don’t regulate themselves, and he was wrong in so believing.

Greenspan’s recanting was a giant milestone in human intellectual development. It didn’t take the brilliance (or the hard work) of Newton’s calculus or theory of gravitation, Darwin’s theory of evolution, or Einstein’s theories of relativity. But it took similar intellectual and moral courage. It was as if the Renaissance Pope had put his arm around Galileo and said, “You know, Gally, you’re right and I’m wrong. The Earth really does revolve around the Sun.”

But in our chattering, gossiping culture, morons like Palin, Bachmann and Perry occupy weeks of public attention. (That, too, is part of the ruling class’ plan.) So the seminal moment of Greenspan’s recanting passed without much notice. He left the stage, disgraced as a mere tool of the financial ruling class.

We should have lionized him as an intellectual hero. For he was the high priest who confessed, in effect, “Look folks, there’s no God in The Markets; there are just bankers’ self-interested hands.”

Educated people today are far too smart to believe in a personal, anthropomorphic God―one who answers their prayers and tilts this huge and impossibly complex Universe in their favor. Their “God” is much more abstract―a silent and largely unseen force of Reason, Order, and Truth. They can’t square their education and sophistication with the idea of an old, bearded gentleman sitting on a cloud, who gets mad at them when they don’t bend their knees or observe the proper rituals.

But at the same time, they’ll believe in the theology of Adam Smith. They think he taught that Markets are the individual Hand of God, operating invisibly and automatically for the betterment of humankind, without friction, without transaction costs, and without perceptible conscious intervention.

Voltaire would laugh out loud at this naïve faith in an invisible force making this the best of all possible worlds.

Of course this belief is nonsense. Markets are human institutions. They have leaders (or rulers, if you like accuracy). Hedge-fund managers and their banker buddies, along with their trading computers, can move hundreds of millions or trillions in minutes. They don’t have to agree or conspire because they all think alike. So when secular leaders have the temerity to question their rule or their bailouts, or their sacred status as “too big to fail,” they make The Markets dive and governments fall. Just ask Papandreou or Berlusconi.

This was not the inevitable reaction of some ineluctable celestial force. It was a conscious and deliberate international power play. Who were and are the beneficiaries? Do you really have to ask?

Are these hands behind the masks supernatural? Hardly. Are they smarter and better than the rest of us? Recent economic history suggests not.

But these new high priests of an unseen economic religion are just as powerful as ever were the Pope and Cardinals in the Dark Ages or the oracular “seers” of ancient Greece and Rome. And as we increasingly fall under their spell, forsaking science, reason and democracy, we begin to resemble history’s most dysfunctional societies. We follow them and enrich them because we believe the myths they have spawned.

Can markets be wrong? Of course they can. In an historic burst of unaccustomed honesty, the Great High Priest Greenspan told us so. But we didn’t listen.

The Markets are just our new religion, and bankers its unseen priests. They are neither honest scientists not disinterested public servants (if in fact any such exist). Like all the high priests in human history, they will run their special religion for their own enrichment and aggrandizement until the rest us―the vast majority of our sorry species―wise up.

Maybe the Chinese can help. They appear to be the only people on Earth whose leaders can still think clearly, without the taint of manipulated economic religion. But good luck in getting our Western sheep to follow China’s pragmatic and sensible lead.


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