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“Neoliberalization has meant, in short, the financialization of everything”*…




Investing and deal-making occupy an outsized role in popular depictions of “business” like HBO’s Succession and Showtime’s Billions. They also occupy an outsized share of our elite: Over the last five years, the nation’s top business schools have sent nearly thirty percent of their graduating classes into finance.

But the buying and selling of companies, the mergers and divestments, the hedging and leveraging, are not themselves valuable activity. They invent, create, build, and provide nothing. Their claim to value is purely derivative—by improving the allocation of capital and configuration of assets, they are supposed to make everyone operating in the real economy more productive. The practitioners are rewarded richly for their effort.

Does this work, or are the efforts largely wasted? One might default to the assumption that an industry attracting so much talent and generating so much profit must be creating enormous value. But the elaborate financial engineering of the 2000s, which attempted an alchemy-like conversion of high-risk loans into rock-solid assets, and then placed highly leveraged bets against their performance, led to the collapse of some established Wall Street institutions, massive bailouts for others, and a global economic meltdown. Mergers and acquisitions, meanwhile, appear largely to be exercises in wheel-spinning: “M&A is a mug’s game,” explains Roger Martin in the Harvard Business Review, “in which typically 70%–90% of acquisitions are abysmal failures.”…

Hedge funds and venture capital funds appear to badly underperform simple public market indexes, while buyout funds have performed roughly at par over the past decade. Of course, some funds deliver outsized returns in a given timeframe; even a random distribution has a right tail. And there are managers whose strong and consistent track records suggest the creation of real value.

In other words, most fund managers are generating the results that one might expect from an elaborate game of chance—placing bets in the market with odds similar to a coin flip. With enough people playing, some will always find themselves on winning streaks and claim the Midas touch, at least until the coin’s next flip. Except under these rules of “heads I win, tails you lose,” they collect their fees regardless…

In the U.S., finance, insurance and real estate (FIRE) sector now accounts for 20 percent of GDP– compared with only 10 percent in 1947.  The thorough and thoughtful analysis– and critique–  of the frothier components of that sector excerpted above is noteworthy, beyond its quality, for it’s origin; it is an early product of a new conservative think tank, American Compass.

Read it in full: “Coin-Flip Capitalism: A Primer.”

Pair with “What Kind of Country Do We Want?“, a resonant essay from the amazing Marilynne Robinson.

(image above: source)

* “Neoliberalization has meant, in short, the financialization of everything. There was unquestionably a power shift away from production to the world of finance… Neoliberalization has not been very effective in revitalizing global capital accumulation, but it has succeeded remarkably well in restoring, or in some instances (as in Russia and China) creating, the power of an economic elite. The theoretical utopianism of neoliberal argument has, I conclude, primarily worked as a system of justification and legitimation for whatever needed to be done to achieve this goal.”  — David Harvey, A Brief History of Neoliberalism


As we look beyond price to value, we might recall that it was on this date in 1936 that Alan Turing submitted his paper, “On Computable Numbers” for publication; its full title was “On Computable Numbers, with an Application to the Entscheidungsproblem.”  In answer to Hibert’s and Ackermann’s 1928 challenge, Turing demonstrated that some purely mathematical yes-no questions can never be answered by computation; more technically, that some decision problems are “undecidable” in the sense that there is no single algorithm that infallibly gives a correct “yes” or “no” answer to each instance of the problem.  In Turing’s own words: “…what I shall prove is quite different from the well-known results of Gödel … I shall now show that there is no general method which tells whether a given formula U is provable in K.”

Turing followed this proof with two others, both of which rely on the first. And all rely on his development of type-writer-like “computing machines” that obey a simple set of rules and his subsequent development of a “universal computing machine”– the “Turing Machine,” a key inspiration (to von Neumann and others) for the development of the digital computer.

220px-Alan_Turing_Aged_16 source


“Wall Street people learn nothing and forget everything”*…




Perhaps, perhaps, this crisis marks an end of the “neoliberal era”.

The word “neoliberal” immediately provokes contention, but let’s not get fancy or upset here. For our purposes, neoliberalism is just a set of social heuristics: 1) that markets are in general the most capable institution for organizing human affairs; 2) that therefore, absent strong reasons to the contrary, use of market or market-like institutions should be maximized, “completed”, expanded even into domains heretofore intentionally insulated from them; and 3) that other institutions, including the state, should take a supportive, even subservient role: filling in gaps (“safety net”), addressing “market failures” that are presumed to be rare rather than pervasive, and only when a high burden of proof has been met. Any other intervention is a “distortion” to be avoided at all costs.

I think it fair to describe the period from about 1980 until the 2008 financial crisis as a neoliberal era, a period of time during which these social heuristics were widely accepted by governing elites and policy, in the United States and the broad West, was informed and shaped by them. The period from 2008 until now has been a kind of undead neoliberal era. Post Great Financial Crisis, neoliberal ideas have been discredited among much of the public and are actively contested even within governing elites. But, absent consensus on some new set of social heuristics, not much has actually changed. Material interests in the continuity of institutions shaped by neoliberalism remain strong.

Continuity now is broken. When this pandemic is “over” (whatever that means), the undead bones of neoliberal governance may well yet again gather themselves from the chaos and reconstitute the suave, smooth-talking vampire to whose predations we have grown unhappily accustomed. But they may not. We may find ourselves in a period of social experimentation and change. If so, as we diminish (not eliminate!) the role of markets, it is useful I think to understand the variety of functions that markets serve, so that framers of new institutions understand what will be excised, what may sometimes need to be replaced…

The always-provocative Steve Randy Waldman goes on to enumerate and explain four key functions that markets have, for better and/or worse, played.  The entire essay is eminently worthy of a read; but for your correspondent’s money, his unpacking of the fourth role– “Markets launder history”– is the most striking:

A crucial function of status quo market institutions is to hide details surrounding the provenance of commodities, which contributes to the interchangeability or fungibility of commodities. Apple can shift the location of its production across the globe, but from a customer perspective, the only input to the process is their money which is transformed, as if by magic, into an iPhone. Outside of market processes, nothing is like this. When we produce goods for ourselves — “cottage production” as the economists call it — every item has a history. The coffee table Dad built is not the same as any other coffee table, even if it is physically not so different from some other table. As markets develop, firms try to reconstitute this kind of nostalgic, positive history, using labels like “hand-made” or “artisanal”. These attempts not very persuasive.

However, the history of commodities is not always positive. When our credit card dip magically transforms into an iPhone, it is the same iPhone whether the cobalt inside it was mined by well-treated workers or child slaves. Like Vietnam vs China vs the US, these “back ends” are interchangeable, except to the degree that one makes the product cheaper, which we prefer. But human beings are moral animals. No aspect of our experience is naturally immune from our judgments, individually and communally, and judgments have huge effects on our behavior and experience. We might not enjoy our shrimp dinner, if rather than pulling the shrimp from plastic in the freezer, it was delivered to us directly by the trafficked crewman who may have harvested it. We might feel bad, and that might impair preference satisfaction.

This function of markets is obviously essential to our neoliberal status quo… We all understand what a sausage factory is, and have some idea of why we famously might prefer not to observe one. But we all know, even if we don’t live like we know, that in fact there’s a lot of history in the goods and services we consume we’d at least be ethically squeamish about. As I write, the Federal government has just effectively coerced meatpacking workers to labor in manifestly unsafe workplaces, in the name of preserving our food supply. How should that affect our relationship to bacon? How does it, when our experience of the packaged, refrigerated product is mostly unaltered? In ordinary times, lots of us are fond of animals but do not become vegetarians. If we were required to personally kill the animals we eat, many of us would enjoy our carnivore lifestyle quite a bit less. Again, the abstraction markets offer make us richer, in the sense that we enjoy what we otherwise would not. Okay, maybe that’s gross, and we should all be vegetarians. But then what do you think about the conditions under which migrant workers harvest our garlic?

There is a case for this laundering of history. Modern production processes are complicated, involving a many stages and circumstances, each of which involves tradeoffs, conflicts, and shades of gray. If we tried as individuals to police all that, we’d do a poor job in an ethical sense and make ourselves poor in a practical sense. Instead we outsource the ethical choices to state regulation of production and trade. Then so long as commodities are produced and sold in legal markets, every purchase comes with a dollop of absolution. Individually, we might not all agree on the choices the state makes, but hey, this is a democracy right? On the whole, the theory goes, our choices will be more effective when they are collective and enforced, rather than if we tried to rely on more perfectly individualized consumer judgments, boycotts or such. So ethics as well as expedience are on the side of this arrangement.

Of course if neoliberalism is defined in part by an attitude of state subservience towards markets, perhaps, in a neoliberal era, it should not surprise us if expedience came to eclipse ethics. Many of us now think that modern supply chains are sexy Apple packaging wrapped around horrifically ugly production arrangements, and that legal and financial markets often serve to wrap theft and extraction in pretty paper bow ties. This “function” of markets is part of what motivates us to challenge them. But it remains to be answered how much and just how we might want to retain the blissful ignorance delivered by virgin commodities. Inscribing all the history markets erase on a blockchain or whatever, and then relying on individuals to evaluate the ethics of every stage of production of every good and service they consume, does not seem workable or effective. On the other hand, if markets launder history too effectively, that short-circuits the capacity of democratic politics to insist upon ethical production, as voters are shielded from the harms of cruel supply chains but enjoy the benefits of lower prices. Some variant of the status quo, where ethical choices are collectively made and enforced by states, seems like the only way forward. (Perhaps I am too uncreative?) It’s one thing to speak abstractly about retrenching from neoliberalism, with its corrosive effect on collective action in pursuit of moral ends. But what, concretely, do the political institutions and processes look like that would render it ethical for us to enjoy the goods and services available for purchase as though they had no history? What would be the trade-offs in what we perceive as prosperity if we instated those institutions?

Do read the full piece on his blog, Interfluidity: “Four functions of markets.”

See also “Neoliberalism: the idea that swallowed the world” and “Neoliberalism” [from whence, the image above]

* Benjamin Graham (legendary “value investor,” mentor of Warren Buffett)


As we bid and ask, we might recall that it was on this date in 1626 that Peter Minuit, the new director of “New Netherland” for the Dutch West India Company, landed there– that’s to say, on what we now know as Manhattan Island.  Later that year, he “purchased” the island from the the Canarsee tribe of Native Americans for a parcel of goods worth 60 guilders: roughly $24 dollars at the time, now roughly $1,000.  In the event, the Carnarsees were happy to take payment in any meaningful amount for land that was mostly controlled by their rivals, the Weckquaesgeeks.


1626 letter from Pieter Schaghen (a colleague of Minuit) reporting the purchase of Manhattan for 60 guilders



“I just saw some idiot at the gym put a water bottle in the Pringles holder on the treadmill”*…



Like millions of other people, I put a fair amount of effort into “being healthy.”  I don’t smoke, try to eat a reasonable diet, and so forth.  I do all of this with the backing of a strong scientific consensus that such behaviors are likely to be very good for my health and longevity.  None of this makes me special in any way; I am trying to follow what one might call the medical truth of health.

What I want to suggest here is that there is a dark underside to all that healthy behavior. The underside is that the healthy behavior encourages the view that individuals are largely responsible for their own health outcomes, and that if people end up unhealthy or diseased, it’s their fault for not having engaged in sufficiently healthy behaviors.  Call this a “social truth” of health.  This social truth has real consequences. On the one hand, if individuals are to blame for their poor health, then they should bear a lot of the cost of their disease.  After all, there is a sense in which they “chose” to be sick because of their unhealthy lifestyle.  On the other hand, policies designed to create healthier environments or at reducing structural factors associated with poor health outcomes, like poverty, start to seem less important.

“Healthism,” as a prescient article from 1980 called it, has been a growing part of the American social landscape since the 1970’s, when jogging emerged as a fitness trend.  The rise of healthism coincides with the rise of neoliberalism, a loosely-grouped set of policies that aim at analyzing all parts of society in economic terms, expanding the reach of actual markets, encouraging competitive behavior between individuals, and encouraging people to view their lives in entrepreneurial terms (for example, treating education as an investment the value of which is measured in terms of its probable future returns in the form of higher income). Because of the focus on individuals and market behaviors, neoliberal governance tends not to see systemic or public problems except insofar as they can be reduced to the problems of individuals…

It is in this context that we need to see our healthy lifestyles and the dilemma they pose.  It is obvious that those who have the good fortune and the means can and should want to be healthy, for its own sake.  On the other hand, the effort to be healthy directly feeds a narrative that says that poor health is the product of poor management, in the way that poor returns on financial investments might be.  No one is ever simply “healthy;” even health today may hide illness to come, future illness that must be detected and prevented.

The problem is that the wellness narrative causes us to over-estimate the degree to which it is fair to blame individuals for their health outcomes…

The importance of separating what is an individually-healthy behavior from good health policy: “Is Your Healthy Lifestyle Bad For You?

* meme


As we emphasize empathy, we might recall that it was on this date in 1850 that the first classes were held at The Female Medical College of Pennsylvania, the second medical school in the U.S. exclusively for women.  (The New England Female Medical College had been established two years earlier.)  It soon changed its name to The Woman’s Medical College of Pennsylvania, then much later was renamed as The Medical College of Pennsylvania after opening its doors to men in 1970.

The school’s first building



Written by LW

October 12, 2017 at 1:01 am

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