fiat luxemburg

The following makes a great deal of sense to me, as it’s been my (admittedly less informed) intuition for some time:

By a financial system, I don’t mean the tottering cartel of banks and insurers loudly sucking newly printed cash into “collateral postings” and “deleveragings” and other meaningless nonactivities. That is no financial system at all. It is an ecology of intestines and tapeworms, tubes through which dollars flow and are skimmed en route to destinations about which the tripe-creatures have little interest or concern.

No, a financial system would be forward-looking. A financial system would be interested in the world, rather than fascinated by the patterns that formed behind its own mathematical eyelids. A financial system would hunger for information. It would leave no human preference overlooked and no technological possibility unconsidered. A financial system would embrace us all, would want to learn from us all. It would not be something external, something outsourced to specialists in London or Manhattan. It would want “savers” to express what they plan to do, how they hope to live, rather than offering generic claims on money along a disembodied spectrum of “risk”. It would thirst for proposals, ideas, business plans designed to meet the preferences thus expressed, or to achieve possibilities not widely considered. A financial system would be creative. No stock exchange could contain the vast and multifarious tapestry of investable ideas a financial system would educe. A financial system would offer us opportunities to invest not in distant opportunities where we are disadvantaged, but in projects that are informationally, if not physically, near to us. A financial system would be ruthless. It would allow us to have a voice in the most important decision we collectively make, but would force us each to bear the costs of our errors.

We simply do not have such a system. We don’t have anything remotely like such a system. (Interfluidity)

But I’ve doubted my sentiments in this because my impulse was basically just a demand that the world exhibit a capitalism that lived up to its idealized form: groups of people sharing capital—human, financial, intellectual, whatever—in order to accomplish projects collectively that they could not do alone; those projects with the most persuasive arguments on their behalf are the most likely to take flight; the desire to out do what has already been done incentivizes some riskier ideas; failures are learned from and success are emulated; variation continues…

That vision of the present is probably a reverse engineering of history from my own weird Marx/Deleuze inspired vision of the future. Lots of the “evidence” for such an eventuality—for things “following the refrain” (complexity, dynamism, everything that’s in the last parenthetical)—was suspiciously close to a weird = weird fallacy. Markets are like brains are like group organisms are like the Internet! Networks everywhere!

So I’ve been trying to learn from The Economist and other places how “modern finance” works and what it does. Surely it couldn’t be as pointless incoherent as it seemed to me. Surely there were advantage I simply wasn’t aware of or didn’t understand.

To some extent that was (and remains) true. And in the plaices I looked I found along side a general defense of modern finance a great deal of criticism and even some proposals for action to improve the state of things. But the defense blunts the criticism and the lack of truly thorough (ruthless) critique results in fundamentally modest suggestions.

And then (from the same post) there’s this:

There will never be a perfect financial system. But the system we have is so far from reasonable that it must be undone, or it will be our undoing. We should not be propping it up. We should be tearing it down, and using all these hundreds of billions of dollars to replace it with something sensible.

I’d bold parts of that, but would just end up doing it to the whole thing.

What this sensible form of capitalism might look like is, again, a question easily colored by existing assumptions. It’s the same as in the case of the well intentioned but fundamentally conservative (in the exact sense) critics that I mentioned above. A more radical objection to the economic system will also have its alternative determined in part by the ideas used to debunk the status-quo.

But maybe something is different if that critique isn’t based on an apology for the system’s errors and excess and instead on outrage over its failure to achieve its own ideal—an ideal defined by the very arguments used by conservatives to defend its continued existence, but taken to their extreme conclusion. Interfluidity goes there:

If we had a financial system, we wouldn’t require the world economy to collapse, just so we could learn how it might be put back together again (with expectations sufficiently lowered). Our financial system would be considering a wide array of possible futures, and using us all to push the world toward to a future that actually makes sense.

That “putting back together again” is the position of those apologists and modest critics. The alternative view of things insists that a “real” financial system would be better at its job—allocating capital of all kinds to better ideas and a better world. It gets tricky because “better” is defined somewhat tautologically here, but I’m bracketing that issue for the moment.

Instead, in something of a non-sequitur, I’ll return to return to my argument that Obama is a Marxist, sort of.

So, he understands that “markets” are “good.” The language he uses is vaguely world-historical, even if the caveat is in the typical language of intervention. […] It’s probably not a matter of a failure to keep “respecting the market”—he’s explicit on the point that current economic arrangements should repulse anyone with more than an ideological commitment to capitalism. […]

After all, it’s private sector growth that ultimately finances government. State spending should be about making the economy work better. If that means some bureaucracy because people are too stupid to handle their own affairs, so be it. If there needs to be redistribution for everyone to be productive, that’s just how it is.

Well, I suppose I’d like to dial back that claim about bureaucratically compensating for the failure of individuals to handle their own money because it sort of runs counter to the point I want to make here.

If one agrees with Interfluidity (and I contend Obama, to a degree) then inequality must be considered a significant barrier to the realization of a “sensible” global financial system. Not so much inequality in the sense of haves and have-nots, but in the sense of market participants and market participate-nots. The fewer decision making agents comprising the system, the less robust it is. I’ve long wondered what the world would look like if share holders actually exercised their corporate vote. Of course, the current arrangements make even that potential meaningless/impossible considering the ways in which ownership of public companies is mediated by financial institutions. But just as Obama is willing to pragmatically break from the ideological confines of a naively pro-market position for the sake of productivity, so too must one who believes in the possibility of a capitalism that lives up to its word decline to insist that no minor step is worthwhile.

Is there some way to “redistribute” economic influence so that more decisions aggregate to determine outcomes? Are there feasible short term steps on that path to advocate? A big problem is that those should ideally be informed decisions and as I allude to in the above excerpt the conditions of existence for most people (dictated by division of labor type stuff, also history) along with tendencies illuminated by behavioral economics make that something of a pipe dream.

But a more ruthless financial system must be possible. At the very least such a thing can be the goal: a more diverse and effective mechanism for aggregating many small information-laden decisions into larger decisions about how to allocate capital of all sorts. A system better suited to the task of “considering a wide array of possible futures, and using us all to push the world toward to a future that actually makes sense.”

If, as “it is well known,” the financial crisis can be blamed on the labyrinth created by complex financial instruments or whatever, maybe it’s needed correction. Will recent events result in a more decentralized, robust system that more closely approximates what Interfluidity describes? If so, I’ll be forced to wonder again about equating capitalism with other complex adaptive systems (brains, group organisms, the internet, etc) in terms of self-correction and evolutionary tendencies. Will Obama’s pro-equality but also pro-growth policies incrementally improve capital allocation by bringing more entities into the discussion? If not, I’ll be forced to reconsider what sort of pragmatic steps a good Marxist who wants to push capitalism to and beyond its potential should advocate. There’s a lot of ambiguity.

But regardless, much of the above can be summed up more briefly and more confidently with the following: “Unless people use capital productively, all the guarantees in the world ultimately mean nothing” (Keyholez).