On being occupied, and the process of occupation...

There was a time, within my lifetime, that "occupied" had meanings ranging from "being used" as in a house or toilet, to "doing something" deriving from the idea of "occupation". The active meaning of the latter has now transmogrified to include the first, so that the idea of "occupation Wall St" and its international derivatives has made a profession of inhabiting a space to prevent its use by others. Perhaps on reflection that idea is not as new as it has been presented. F'rinstance it was a regular family occurance for one member (usually my mother) to complain about the toilet being used as a reading room; a practice that went as far as the old man installing a small bookshelf on the wall behind the toilet so that books were not left on the floor.

So that history has somewhat coloured my attitude to those who have occupied Wall St, or closer to home, Aotea Square. Add to that a strong feeling that it was the wrong people making the wrong protest about the wrong thing and you might begin to understand why the ol probligo has been fairly quiet on the occupy front. OK, and to take the point from a recent post me old mate Al put up, I will explain why.

The wrong people? It is usual in recent times for protest to be led by the young, the idealist, those who want to improve this world for their own benefit. There is nothing wrong with that really, but I do think that the protest should be led by those who have put their faith in a system in expectation that they would gain due benefit for their participation and have been sadly let down as a consequence of their trust.

The wrong protest? The right protest would be against those whose actions led to the loss. The bankers are in part to blame, no question! But I do not believe them to be the reason, though they are part of the cause. The politicians are no more to blame than the bankers. Politicians respond to the same kind of pressures as bankers; to give people what they want. I don't think that individuals are at fault either. So to protest about the "profits made by the bankers" is a waste of time in my book. And that leads to the last...

The wrong thing? The fault really starts with the fundamental nature of our society; the basis of which is measuring societal success in terms of profligance, material and monetary wealth rather than ethic, virtue and contribution.

To which end comes a book review that is very a propos the general theme. Debt (written by David Graebe) is a book which I shall be reading as soon as I can lay my hands on a copy through the local library.

Debt's striking synchronicity with OWS should not overshadow the fact that it's also a formidable piece of anthropological scholarship. The book spans the concept's evolution from the great Axial Age civilizations—adapting Karl Jaspers's label to describe the period between 800 BCE and 600 CE in Greece, India, and China—into the age of global conquest, and finally though its bizarre mutations over the past forty years. As Graeber shows, debt could not have taken the form that it did during the Axial Age without the appearance of currency, but it was also far from being only, or even principally, an economic matter. Debt was originally a moral and cosmological notion, about our debt to the gods (in India), to our parents (in China), or to the cosmos (in Greece, and sometimes in India).

I need to put the idea of debt into the context of my opening argument. Bear in mind here that I am using "debt" in both sides of the transaction; it is an obligation, it is the act of being obliged to another, of owing.

The change that has taken place is from a communal debt to creator, to cosmos, to the principle of personal debt. The measurement of personal debt I suspect does precede currency by some great margin. As evidence of that I can point to Maori who, before European contact, had a strong sense of personal indebtedness which could lead to either death or enslavement as payment of those debts. There was no monetary measurement of either cause nor settlement; cause could include losing mana (societal position) to the "debtor" requiring utu (revenge for the loss and reinstatement) as payment.

In the barter economy, survival would have depended upon ethic and virtue (like simple honesty) in dealings between individuals. Hence an agreement to provide in return for a provision (work for work, work for material object) could also operate without the need for currency.

I suspect that currency was put in place primarily so that those in power - the mafia of the time - could easily obtain a portion of the value of each individual's global indebtedness. That value in return was used to obtain the services necessary to maintain the power to collect; the coertion that libertarians like to hate.

To return to the review -

The guiding principle of Graeber's sweeping global history is that debt must not remain the exclusive property of economic historians, and moreover, that anthropologists are better equipped to take on the issue. The foundational myth on which economics rests, and which Graeber relishes debunking, is the "touchingly utopian" idea that money emerged directly out of primitive barter systems and had only to do with interest-maximizing exchange. Arguing against this from an anthropological perspective, Graeber claims that debt is the basis of society, and as such is inherently ineliminable. He illustrates this point through the example of debt to one's parents: to seek to cancel that debt would be impossible. Graeber describes a system of gift-giving in traditional societies that takes place over time, and involves gifts of slightly more or less value than the ones that preceded them, thus ensuring that everyone is always slightly in debt or in credit to everyone else. This sort of debt, he says, is nothing less than the continual creation of society. It is not so much that we owe something to society, but that society "just is our debts."

But there is also a foundation principle that has not changed in all of that time; from the time of the Axis Wars. It is a principle that I would dearly like to see whether Graebe has picked up on; it is the main reason for wanting to read his book. It is the action that society took against people who did not comply with the "accepted debt" under which they lived. In times past (and I base this on the Ancient Greeks in particular) the consequence of not complying with societal expectations was to be excluded from the protection of that society. That would mean living in what was essentially enemy territory, making and getting as best one could; truth be told it was an effective death sentence.

That prompted the idea that the process of indebtedness has changed indeed, and changed most rapidly over the past 300 years. The bridge at that time between cottage industry to industrialisation saw changes to society, and not least to the processes of economics. That change continues. It is evidenced by the recent (the last 40 years) change toward the "technology based" society.

The debt to society no longer exists. Debt has evolved to the extent that it is now expressed solely in currency terms. Debt is now owed to others, in return for complying with societal expectations.

From the review, it seems that I will not at all agree with Graebe's conclusion, no matter how much I might agree with his rationale.

[Graebe] believes that ... at a moment when capitalism seems unsustainable, the great hope for the future is to turn back to traditional human economies of mutual, loving indebtedness. For Graeber, capitalism is as much a fantasy as any utopian option: "We could no more have a universal world market," he writes, "than we could have a system in which everyone who wasn't a capitalist was somehow able to become a respectable, regularly paid wage laborer with access to adequate dental care. A world like that has never existed and never could exist. What's more, the moment that even the prospect that this might happen begins to materialize, the whole system starts to come apart."

One of the problems of history is that there is no winding back the clock. I do not think that a graceful return to (for example) an agrarian society is any more possible than the Russians or the Chinese have tried to make it. It may come about if there is a cataclysmic close to industrialisation - the kind of cataclysm that made the dinosaurs extinct be it physical disaster or disease.

I think that what I am struggling with is the separation of "capitalism" as an economic process from the underlying engine that "requires" continual growth. To that extent I know that I already disagree with Graebe but I acknowledge that the disagreement could be based upon differing ideas of what "capitalism" is.

If there is an evolutionary step to come from the current and future economic crises it is going to have to start with a re-evaluation of the relationship between society, capital, and the idea of indebtedness. In particular, the idea that societal expectations can be met by possession of material wealth will have to change; the idea that societal wealth can be represented by increasing personal indebtedness will have to change; the idea that there is a free lunch for some may have to go as well.

Libertarianism R.I.P.

An interesting little debate between Jacob Weisberg in Slate and
Richard Epstein in Forbes on the “Death of Libertarianism”, HT to my mates at ALD.

Each has their own little hobby-horses which to trot around the stage and play at jousting in the lists.

On the subject of the causes of the “current” collapse of the financial and banking systems, there is as might be expected considerable difference of opinion.

Epstein, predictably, blames government involvement and interference –

Alas, the financial rot started in the underlying home-mortgage market, with the government decision to subsidize home mortgages generally through low interest rates, and compounds the problem by offering special Fannie and Freddie guarantees at the low end of the market.
These foolish decisions prompted market actors to react just as libertarians fear: to profit privately from public foolishness. Savvy lenders looked less to the creditworthiness of their borrowers and more to unwise government guarantees that insulated them from risk. A high-risk loan of $1,000, without that guarantee, could be worth half that sum before the ink was dry. But who cares, if a government agency will pick up the slack?
Similarly, self-interested borrowers eagerly grasped at cheap-money loans, thereby driving up the price of underlying assets. But once these subsidies became too expensive to sustain, the capital markets raised the price of interest, which killed off refinancing for persons living beyond their means.

All of that is quite true, and quite logical. I am not going to argue against it.

Weisberg lays his “cause” like this –

Perhaps the most alarming moment was the failure of a giant, superleveraged hedge fund called Long-Term Capital Management, which threatened the solvency of financial institutions that served as counter-parties to its derivative contracts, much in the manner of Bear Stearns and Lehman Bros. this year. After LTCM's collapse, it became abundantly clear to anyone paying attention to this unfortunately esoteric issue that unregulated credit market derivatives posed risks to the global financial system, and that supervision and limits of some kind were advisable. This was a very scary problem and a very boring one, a hazardous combination.

Those with memories might dredge out the graphic I stole from Herald back in September; the inverted pyramid of the “money supply”. Weisberg I think could well have included that to illustrate his point.

I have to say that my views are no more valid than either of these august gentlemen. I balance that by admitting that in terms of erudition and learning they probably stand a few miles ahead of me.

I think that both these jousters are correct – in the small and very specific parts of the overall train of events that they have presented to support their respective views. That, I submit, is the danger of taking both of these gentlemen at face value and in isolation.

So, when Epstein says

” At this point, securitization, which diversified some risks, accentuated others by spreading the bad paper throughout the entire system. Now the high default rates on mortgages introduced massive uncertainty for valuing these financial instruments, which triggered government mark-to-market re-evaluations--which in turn forced a premature liquidation of assets. And presto, the failure of the Wall Street investment banks mushroomed into a larger financial crisis.”

...he is right on that thin edge of untruth. It is a matter of regulation in most markets – regulation set by the markets themselves and by the participants – that many different contract forms must be regularly, and as regularly as daily, revalued (mark to market) and the difference if negative lodged with the market. That is practice, and not something that “the government” suddenly undertook, and which he implies caused the collapse. Yes, it is likely that mark to market pressures were a major partial cause. But that was likely as a result of traders not being able to obtain the readies to lodge with the market as practice and convention required.

In my view the reality is that there was little that any government could have done to prevent the collapse of the banking and credit systems. So much of the system is based upon the fundamentals of fair dealing, of personal and commercial trust, of open and honest trading that regulation was (and still will be) an impossibility.

For that very same reason, the future control and regulation of the credit supply will continue to be at the hand of commercial practices and market convention rather than by government control.

Despite that midpoint conclusion, and to balance the number of times I quote the two protagonists, I do like Weisberg’s conclusion

The worst thing you can say about libertarians is that they are intellectually immature, frozen in the worldview many of them absorbed from reading Ayn Rand novels in high school. Like other ideologues, libertarians react to the world's failing to conform to their model by asking where the world went wrong. Their heroic view of capitalism makes it difficult for them to accept that markets can be irrational, misunderstand risk, and misallocate resources or that financial systems without vigorous government oversight and the capacity for pragmatic intervention constitute a recipe for disaster.

As I have said before – the perfect system will fail, because humans are involved in its operation.