Sunday, February 14, 2010

Capitalism and Resistance, Part I: In which two farmers encounter an insurmountable problem.

I've found it interesting, in reading coverage of the recession, to notice that while people often use small-scale examples when talking about the banking crisis, they abandon these small-scale examples when it comes to explaining how the banking crisis affects the rest of the economy. I thought I'd give that a shot.

Let's say I'm a corn farmer, and you're a barley farmer. Every year, I grow more corn than I need, and you grow more barley than you need, but fortunately, I want some barley to get me through the winter, and you want some corn. Since neither of us has any money, what happens is this: I go to the bank and get a loan for $100. I meet up with you, buy some barley for $100, and you buy some corn from me for $100. I bring the bank back their $100, and everyone's happy.

But then one year (let's call that year "2009"), when I go to the bank, it's closed! They got suckered into buying some mortgage-backed securities from Goldman Sachs, they made some predatory loans that didn't pay off, their credit rating got downgraded so they had to put some collateral on all their loans, whatever -- point is, they're closed.

So when I show up to our meeting, I tell you about this, and I say, "So that means I don't have any money to buy your barley."

And we're like, "What are we gonna do?"

So you see why no one ever covers this aspect of the financial crisis this way. Because if you shrink the size of the economy, the solution is obvious. Just give me the damn barley, and I'll give you the corn, and we both get the same results we got before (in fact, we get better results, because what I left out in my description was the little bit of interest I'd be paying to the bank).

The thing is, though, in principle the inclusion of more people in our economic picture doesn't really affect the feasibility of this solution. Add another person, it's fine -- we'll just do the same exchange we would have done if we'd all had the loans, everyone gets the same amount of goods they would have gotten otherwise, and we just eliminate the money. Everything's fine.

Seriously -- imagine for a moment that you hadn't been culturally conditioned to believe in things like markets. Imagine that you're a music teacher, and your boss says to you, "You have to stop teaching those kids music, because some people are refusing to pay of completely unreasonable mortgages."

You'd check if hir pupils were dilated. Then you'd sit hir down, offer hir some toast and tea, and remind hir that you're a fucking music teacher, and that has nothing to do with mortgages. Nothing.

So how did we get to the point where we allow these people, the Lloyd Blankfeins of the world, to have so much control over our lives that they affect whether our kids learn music? They don't have our best interests at heart. I'm not even sure they have hearts. They definitely don't listen to music -- except maybe Wagner and Ted Nugent.

More importantly, how do we rearrange our lives so that these people don't have this sort of power?

Tomorrow I'll start answering these questions by looking at what I think is the key reason for the involvement of the banking sector in our economy: insecurity.

2 comments:

  1. Ok, so let's make this analogy more complicated. Let's say I work for a retailer who has been cutting costs since 2004 in order to compete with "Walmart" or other ghosts in the machine. It reallly doesn't make a difference whether farmer Barleycorn or the other has $100 to spend; they are not spending it. But it doesn't matter anyway, because spending decisions are driven by a management that has goals that has
    absolutely nothing to do with the market. Nonetheless, braindead people in management continue on reading the news, acting as if the "market" has any bearing on peoples spending. I'm not sure if anybody has proved that stock prices has any bearing on retail spending. The unfortunate thing is that it has less bearing on peoples employment. Perhaps the stock market is not even a good gauge of how people are doing.

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  2. Yeah -- of all people, Eliot Spitzer made the good point that people often conflate "the financial services sector" with "the economy." He didn't go as far as he should have -- what I would have said is "real people share no interests whatever with the financial services sector, so what's good for them is actually bad for us -- and when that's not true, it's because we've given way too much power to sociopathic organizations that are out to destroy our lives" -- but it's a start.

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