Debt Rattle Jul 16 2014: Market Society: Money For Your Soul

By The Automatic Earth

Marion Post Wolcott Old buildings in New Orleans Jan 1941 

There’s a lot of interesting pieces being written on a daily basis, if you care to look for them, and there’s never enough time and space to afford them the attention they should really deserve. Luckily, there are still many people out there, even in the financial world, who have a pretty astute understanding of what’s going on versus what we are told to believe there is. Not that I don’t think there are no smart people in finance, just that many of them watch the world through the blinders their world comes with. Most of us – and therefore them, too – follow the herd, after all.

I like, for instance, the angle of Joe Calhoun at Alhambra Investment Partners, who argues that the US has already turned into Japan:

Return To Normalcy – Even The Supply Of Greater Fools Is Limited

For all those who worried that the US might turn into Japan, well worry no more, that ship has sailed. Over a half decade of zero interest rates says we already have become Japan, with the same demographic, productivity and structural problems so well documented. High taxes, a shrinking workforce, offshored production, protection of large incumbent firms, political gridlock, a falling savings rate, a growing xenophobia and an affinity for sushi all point to America as the economic kissing cousin of the land of the setting sun. Turns out the Vapors were not just one hit wonders but keen eyed economic forecasters as well.

The US economy isn’t acting normally, now in the 6th year of an anemic expansion the likes of which we haven’t seen since, well, never. The temptation is to compare this period with the Great Depression but even the recovery from the early part of that self inflicted economic wound was better in some respects. The unemployment rate has fallen but the path of improvement has been a road less traveled in economic history. No matter the reason, full time employment has become an unreachable dream for too many Americans. Multiple part time jobs and underemployment have made debt a way of life [..] to achieve the perception, the illusion, of success, if not the real thing.

A return to normalcy would mean a rejection of the idea that debt is the sine qua non of economic growth. A return to normalcy would mean a recognition that the Fed’s monetary gnomes are the ones who got us in this mess and are therefore wholly unsuited in their role as the economy’s knight in shining armor. A return to normalcy would mean rewarding and recognizing savers as the unsung heroes of economic growth. A return to normalcy would mean a shared prosperity for all rather than just the privileged few with access to the Fed or the ear of their congressional representative.

Achieving the goals of the Fed’s extraordinary policies – full employment and low inflation – would require an extraordinary set of conditions to develop. The economy would have to achieve a rate of growth that has escaped it for years while the Fed would have to extricate itself from a policy regime they barely – and that is generous – understand. I see no reason other than wishful thinking to believe those conditions can be met.

And what I also like a lot is Salient Partners’ Ben Hunt and his take on Mario Draghi in Wonderland:

Mario Draghi is Alice. The Red King? Well, That’s Us

We’re all familiar with the Queen of Hearts from Alice in Wonderland, less so with the Red King. He’s sleeping all the while, and when Alice goes to wake him up she’s warned off by Tweedledee and Tweedledum, who tell her that everything in Wonderland – including Alice herself – is perhaps just the dream of the Red King. Wake him up and maybe, just maybe, everything goes … poof! Europe is once again nearing a potential Red King moment, something last seen in the summer of 2012.

Then the wake-up call was a series of national elections, particularly in Greece. Today it’s a restructuring of the European financial system, a process started in 2012 with the recapitalization of Spanish banks, continued with the depositor bail-in of Cypriot banks, and now at a tipping point with the imminent ECB regulatory control over all large EU banks. Mario Draghi is Alice, and the dream is a unified European identity triumphant over individual national identities, symbolized and crystalized in a single currency, the Euro. The Red King? Well, that’s us. [..]

So what makes the summer of 2014 different from the summer of 2012? If Draghi sang a lullaby to the fitful Red King two years ago with his “whatever it takes” pledge, why won’t he do the same today by following through with a no-muss-no-fuss ECB regulatory take-over of major EU banks? Odds are he will. But what’s different today is that it’s his own institution on the line. What’s different today is that a heartfelt speech and a mythical OMT program – pure Narratives, in other words – are not sufficient. The ECB actually has to assume responsibility for these banks if Draghi is to move forward with the next step of the Grand Plan, and there’s nothing intangible or mythic about that.

I think that the best way to understand the recent spate of write-downs and default notifications from European banks (Erste Bank on July 4th, Espirito Santo on July 10th) is in the context of this regulatory unification of big EU banks. For the first time in decades these banks are being examined for real. No more patsy national regulators with their revolving doors and inherited culpability, but a highly professional independent banking bureaucracy looking carefully at every bottle and tin in the pantry because they’re scared to death of swallowing some poisonous balance sheet. The problem for the ECB, of course, is that Espirito Santo and Erste are not isolated incidents, any more than Laiki and Fortis and Anglo Irish and WestLB and BMPS and … should I go on? … were isolated incidents.

The problem is that no amount of public scrubbing and show trials can change the fact that the entire European banking system has been an enthusiastic accomplice to domestic political interests for the past 30+ years, stuffing their collective balance sheets to the gills with loans in direct or indirect service to domestic political demands. [..] But precisely because the politically-inspired rot is so widespread, taking a bank like Espirito Santo into the street and shooting it in the head no more solves Europe’s systemic banking crisis than executing Bear Stearns in March 2008 solved the US systemic banking crisis. As Dorothy Parker once wrote, “beauty is only skin deep, but ugly goes clear to the bone.” That’s the European financial system: politically ugly, clear to the bone.

But my favorite for the day has to be the rather incomparable Paul B. Farrell at MarketWatch, who watches events unfold with a combination of the liberty and experience that come with age, and the brains he was born with. Farrell writes about the work of Harvard philosopher Michael Sandel, who makes one wish we had a whole bunch more solid philosophers, and, even more, that they would be listened to. Sandel himself perhaps best explains the reason why we are are not listening.

Our Market Society Has Made A Deal With The Devil (Paul B. Farrell)

For years we’ve been asking: Why does capitalism blindly drive the human brain down this self-destructive path, whether it’s money, global warming, gun sales or voting rights? Why more books and ministers filling arenas with the message, God Wants You to Be Rich? Why is Pope Francis warning that a new “worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy?” Why? There is someone who brilliantly explains why free-market capitalism is controlling our brains, sabotaging our world: Harvard philosopher Michael Sandel, author of bestseller “What Money Can’t Buy: The Moral Limits of Markets, and Justice: What’s the Right Thing to Do?”

For more than three decades Sandel’s been teaching us why capitalism is undermining human morality. And why we choose to deny it. Why do we bargain away our moral soul? His classes number over a thousand. You can even take his course online free . He summarized capitalism’s takeover of the human conscience in “What Isn’t for Sale?” in the Atlantic. Listen:

“Without being fully aware of the shift, Americans have drifted from having a market economy to becoming a market society … where almost everything is up for sale.” Capitalism is America’s new “way of life where market values seep into almost every sphere of life and sometimes crowd out or corrode important values, non-market values.”

“The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation — an era of market triumphalism,” says Sandel. “The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.” Then in the 1990s the “market-friendly liberalism of Bill Clinton and Tony Blair … consolidated the faith that markets are the primary means for achieving the public good.” Yes, Ayn Rand’s “pure, uncontrolled, unregulated laissez-faire capitalism” took over America’s brain, our soul, became the nation’s collective unconscious.

Today “almost everything can be bought and sold,” warns Sandel. “Markets, and market values, have come to govern our lives as never before.” Yet few are aware of this historic shift. “We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel.

As a result, “market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.” Everything has a price.

Examples everywhere: “For-profit schools, hospitals, prisons … outsourcing war to private contractors … police forces by private guards … drug companies aggressive marketing of prescription drugs prohibited in most other countries.” Ads in “public schools … buses … corridors … cafeterias … naming rights to parks and civic spaces … blurred boundaries within journalism, between news and advertising … buying and selling the right to pollute … campaign finance in the U.S. that comes close to permitting the buying and selling of elections.”

Here I would argue, since I don’t see either Sandel or Farrell do it explicitly, that in the end, if you follow the logic, this means that people, too, are for sale. If everything has a price, everyone has a price. Or at least everybody has to work their behinds off not to be for sale, but they do so working jobs that, if you look with an objective eye, simply mean they’ve sold themselves. Basically, anyone who works a job they wouldn’t work if they weren’t paid to do it, is for sale. Not a popular point of view when you ask people to look in a mirror, but hard to argue with.

The 2008 crash ended our faith in conservative free-market capitalism: “The financial crisis did more than cast doubt on the ability of markets to allocate risk efficiently. It also prompted a widespread sense that markets have become detached from morals,” says Sandel. But so what? “Why worry that we are moving toward a society in which everything is up for sale?”

Two big reasons concern Sandel, both echo the warnings of Pope Francis and Piketty: One is inequality: “Where everything is for sale, life is harder for those of modest means.” If wealth just bought things like yachts inequalities might not matter. “But as money comes to buy more and more, the distribution of income and wealth looms larger.” Second, corruption: “Putting a price on the good things in life can corrupt … the meaning of citizenship.”

Sandel warns America’s new capitalism brain is devaluing “nonmarket values worth caring about. When we decide that certain goods may be bought and sold” they become “commodities, as instruments of profit and use.” But “not all goods are properly valued in this way … Slavery was appalling because it treated human beings as a commodity, to be bought and sold at auction.”

Nor do we permit “children to be bought and sold, no matter how difficult the process of adoption can be.” The same with citizenship … jury duty … voting rights. “We believe that civic duties are not private property but public responsibilities. To outsource them is to demean them, to value them in the wrong way.” Yet today many are for sale, have a price.

I’m doing the equivalent of licking my fingers here.

Sandel’s core message is simple: “The good things in life are degraded if turned into commodities. So to decide where the market belongs, and where it should be kept at a distance, we have to decide how to value the goods in question – health, education, family life, nature, art, civic duties, and so on. These are moral and political questions, not merely economic ones.” But in today’s new capitalist world, everything has a price.

Worse, that debate never happened during the 30-year rise of “market triumphalism … without quite realizing it, without ever deciding to do so, we drifted from having a market economy to being a market society.” The difference is profound: “A market economy is a tool … for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavor … where social relations are made over in the image of the market.” Where everything has a price.

But not only did the debate not happen, it may never. Because politicians aren’t up to debating values. They’re pushing America past the point of no return. Today, “political argument consists mainly of shouting matches on cable television, partisan vitriol on talk radio, and ideological food fights on the floor of Congress” warns Sandel. So it is “hard to imagine a reasoned public debate about such controversial moral questions as the right way to value procreation, children, education, health, the environment, citizenship, and other goods.”

Here I would add what I’ve often talked about: basic human necessities should not be part of a market either. Since everyone needs water, food, heat and shelter, we should never even risk leaving them in the hands of just a few people or corporations. And this is the ultimate slippery scale: if you give them one finger, they’ll take your whole hand at some point. It’s like when you allow money into your political system: money will end up buying the entire system outright. Once it’s got a way in, there’s nothing you can do about it anymore.

But look at where we are with regards to our water supply, our food supply; much of it is already ‘reformed’, privatized and owned by big corporations. And look at how much money people must pay for their homes, in 30 or 40 year loans. In Sweden, they have trouble getting people to pay off their homes in 50 years. There are countries where multi-generational mortgages are the norm. We sold our ethics, our values and our necessities, and for the most part we never even noticed. We put ourselves up for sale.

Can we change? “The appeal of using markets to put a price on public values is that there’s no judgment on the preferences they satisfy.” Morals become irrelevant. No debate is needed. Markets don’t “ask whether some ways of valuing goods are higher, or worthier, than others. If someone is willing to pay for sex, or a kidney … the only question the economist asks is ‘How much?’ Markets … don’t discriminate between worthy preferences and unworthy ones.”

Unfortunately capitalism eliminates moral values, just as Nobel economist Milton Friedman and capitalist philosopher Ayn Rand were to preaching conservatives for a long time. As Sandel puts it: “Each party to a deal decides for him- or herself what value to place on the things being exchanged. This nonjudgmental stance toward values lies at the heart of market reasoning, and explains much of its appeal.” But unfortunately, market capitalism “has exacted a heavy price … drained public discourse of moral and civic energy.” Capitalism never has to ask the tough question: “What’s the right thing to do?”

Sandel is a great teacher. And, yes, he’s too idealistic. We need more like him. But you don’t have to be a fatalist to know that without a global economic catastrophe, today’s market capitalists — billionaires, bankers, CEOs, hedgers, lobbyists and every special interest group getting rich off the new Market Society — will never, never voluntarily surrender their control of America’s wealth machine. No, they will keep blindly driving us down their self-destructive path with the delusional conviction God wanted them to get rich. The truth is, they made a wager with the devil … money for a soul.

Thing is, we’re not just talking about billionaires or bankers here, we’re talking about ourselves. We are the ones who allowed this to happen. We are the ones who in out increasingly blind chase for more lost sight of what we incrementally had less of. We let it slip out of our hand because we were too busy doing other things. We never realized we couldn’t win one without losing the other.

Farrell says that Sandel’s writings should be “required for Wall Street insiders, corporate CEOs, and all 95 million Main Street investors.” I think it should be for every single one of us. Because we no longer understand what we lost, and how much we lost. And blaming other people for it is not helpful either; only by seeing our own faults and failures in what we lost do we have a shot at getting at least some of it back.

TLB recommends you visit The Automatic Earth for more great articles and pertinent information.

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