Faux capitalists look for the free lunch

The US President Barack Obama, despite being articulate, is allowing his team to sound like philosophers and researchers when they explain what is going on in the marketplace and what the business plan is to fix it, rues Barry Ritholtz in ‘Bailout Nation’ ( “This is the first time we’ve had to handle this situation, and it’s incredibly complex and difficult. While it takes great minds to devise a solution, when it’s time to explain it to the typical family, it needs to be kept reasonably simple and clear.”

The author gives an analogy from the field of sports, thus: “If a football coach has a brilliant game plan on the blackboard but cannot simplify it so it is crystal clear to the players, that plan will not get executed properly. The probability for failure increases.”

Perhaps, Obama’s speech last week, in the Federal Hall on Wall Street, was to make amends for the absence of clear communication. He had then chastised the industry for still engaging in “reckless behaviour,” “quick kills,” “bloated bonuses,” and taking “exorbitant risks that were unsustainable for the system,” as reported on September 15.

The book has a chapter titled ‘Casino capitalism,’ which suggests that a simple solution to banks’ problems is to identify the banks that are insolvent and temporarily nationalise them. “Appoint new management, and give them six months to spin out 10 per cent of each of the separate viable pieces, with the taxpayer retaining the rest as passive investors. Bank of America can spin out five major pieces: BoA, Merrill, Countrywide, a toxic holding company, and the rest of its holdings,” Ritholtz recommends.

The call for nationalisation, he reasons, is not a move toward socialism, but an attempt to prevent casino capitalism from bankrupting the country. “Real capitalists nationalise; faux capitalists look for the free lunch.”

An example of the latter is the backdoor bailout of major financial institutions with AIG serving as the middleman; for, it is actually a bailout of private speculators, the author fumes. “Not only are US taxpayers subsidising the bad decisions made by executives in the US, but we are also bailing out the poor judgment of the rest of the world.”

Worth a read.


Love is a hyper public good

Markets are the cutting edge of the loss of human connection, rues Stephen A. Marglin in ‘The Dismal Science: How thinking like an economist undermines community’ ( “Impersonal markets accomplish more efficiently what the connections of social solidarity, reciprocity, and other redistributive institutions do in non-market societies.”

An example that he gives is of fire insurance, with a yearly premium of $200; “and if my barn burns down, the insurance company pays me $60,000 to rebuild it.” A simple market transaction, observes Marglin, has replaced the more cumbersome process of gathering the neighbours for a barn raising.

“In terms of building barns with a minimal expenditure of resources, insurance may indeed be more efficient than gathering the community each time somebody’s barn burns down. But in terms of maintaining the community, insurance is woefully lacking. Barn raisings fostered mutual interdependence.”

Commodification may make for greater efficiency, but every time a good or service is turned into something that is bought and sold, the result is to substitute impersonal market relationships for personal relationships of reciprocity and the like, the author avers. “Eventually economic ties wither altogether, and the community is put at risk.”

There are, however, economists such as Dennis Robertson who would justify the use of impersonal relationships of markets to do the work of fulfilling our material needs, so that we can economise on our higher faculties of affection, reciprocity, personal obligation, and love, which can then be devoted to higher ends.

Alas, Robertson made the mistake of thinking that love, like a loaf of bread, gets used up as it is used, Marglin frets. “Love is a hyper public good: it actually increases by being used and indeed may shrink to nothing if left unused for any length of time.”

Ideal for a contemplative study.


Social Darwinism

The first of ‘six particularly dangerous myths’ is to think nature is inexhaustible, says Ervin Laszlo in ‘Global Shift in the World Mind’ ( In good old days, people could move on, colonising new lands and exploiting fresh resources, but today there is nowhere left to go, he reminds. “In a globally extended industrial civilisation wielding powerful technologies, the belief in the inexhaustibility of nature gives free rein to the overuse and thoughtless impairment of the resources of the planet and the unreflective overload of nature’s self-regenerative capacities.”

Another myth, dating back to the nineteenth century as a consequence of the popular understanding of Darwin’s theory of natural selection, is to look at life as a struggle where only the fittest survive. Varieties of ‘social Darwinism’ go beyond armed aggression to the more subtle but in some ways equally merciless struggle of competitors in the marketplace, says Laszlo.

“No-holds-barred competition produces widening gaps between rich and poor and concentrates wealth and power in the hands of a shrinking minority of unscrupulous managers and speculators. It relegates states and entire populations to the role of clients and consumers, and if poor, dismisses them as marginal factors in the equations that determine success in the marketplace.”

Forceful presentation.


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Printable version | Sep 27, 2021 1:00:44 AM |

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