Eye-rack, sub-prime, and three neo’s

Posted April 2nd, 2008 by Jerry Ravetz and filed in Ignorance of Ignorance

The two new words, Eye-rack and sub-prime, sum up the crisis in the American empire and its ideology. And they will help us to dispense with the three neo’s.
In both cases, there is the classic cycle of fantasy, mendacity, corruption and incompetence. The details differ. For Eye-rack, the fantasy has its obvious start in the ‘Project for the New American Century’ of 1995. In that neo-con manifesto, the prospect of absolute American domination in all spheres and dimensions was given as both a necessity and a plan. Then other fantasies came in, most famously the one where a ‘high White House official’ told the writer Ron Suskind that we no longer need to be reality-based (just as we no longer need to be faith-based); our will is supreme. The mendacity of March 2003 needs no rehearsing here, the corruption of the American occupation is legion, and its incompetence is acknowledged even by its supporters. Now we have a war that we cannot win and dare not stop.
For sub-prime, the fantasy has been that what goes up must go up indefinitely. The sophisticated mathematical models whereby traders moved their bets around simply did not have facilities for dealing with bad news (Alan Greenspan has confirmed this). Even when the U.S. housing market softened two years ago, the system could not recognize the change or its potentially lethal consequences. As to corruption, the shyster practices that were indulged in by the whole American financial industry, from the bottom to the top, are now known to all. This involved large-scale mendacity, as securities of junk quality were promoted and traded as if they had real value, rather than being just the numbers pasted on by the universal mutual con-job. And the incompetence needs no description, as we may all yet be engulfed in its consequences.
The effects on the American empire, both its power and its ideology, will be drastic. As the rest of the world decouples from its economy, they will surely decouple from its politics and military as well. Since South America has effectively declared independence, Africa has gone Chinese, and the oil has gone to the Iranians and the post-Soviets, there is little left for America’s super-profits or even security. As to GB, we can say that Gordon Brown’s journey to the east, with top businessmen as pilgrims, and shouting the message “Come and buy up whatever you want” was an early sign of a declaration of independence.
The consequences of sub-prime and Eye-rack for our ideas about society should be profound. The evil pair of neo’s, -liberal and -conservative, cannot survive this debacle with their plausibility intact. After the steady degradation of the Socialist and Statist ideals in the post-war period, the right-wing reaction really did seem like a liberation to many. ‘Regulation with a light touch’ along with the stripping down of the state, has remained the constant in British politics from Thatcher herself through the three Thatcherites who have followed. And now we find all those ardent apostles of free enterprise, with all their contempt for the nanny state, running to mummy for protection against the consequences of their own criminal folly. Can anyone now say, with a straight face, that Business Knows Best, that the profit motive is the way to get things done all through social institutions, and that we should all praise and welcome our millionaires?
The neo-conservative ideology has long since been in tatters. All those who have depended on it, including the right-wingers who control Israeli politics, will find themselves exposed. As the dollar sinks and the Sovereign Wealth Funds of the Gulf states increase in influence, the balance of power can shift only one way. It is impossible to tell how all this will work out, but the old assumptions can no longer be sure to hold.
There is yet another neo that might hopefully be a casualty of this whole affair. Along with –liberal and –conservation, we have –classical. The ‘science’ of economics, in its neo-classical variety, has for long been the great rhetorical resource of the big business ideology. Critics of all sorts have attacked it for its built-in bias, its lack of reality-testing, and its pernicious effects on policies at all levels. But it has been hard to land that knockout punch, since it presents as a closed system of ideas with a certain initial plausibility and enormous political clout. Now we may have seen its fatal weakness: quality.
The present predicament of the Western banking system might be seen as a malign echo of Oscar Wilde’s definition of the cynic, as someone who knows the price of everything and the value of nothing. For, as we all know only too well, the banks have gargantuan sums invested in products whose value they cannot determine. This is not some ethereal conception of value as a reflection of The Good; it is an estimate of the cash that might be realized if the product were put on the market. And no one knows, and cannot know; there are just too many of those products, starting with dodgy ‘subprime’ loan-shark mortgages, which were then chopped and scrambled ad infinitum.
The banks could not have entered into this madness without help from the regulators, and this is where the fatal weakness of neo-classicalism is exposed. For the neo-classical theory of the market involves only sellers and buyers. For understanding regulation we need recourse to Institutional Economics, a field which was bombed during the McCarthy period and never recovered since. So, in the best neo-classical spirit, the products of the regulators, the quality ratings from AAA downwards, became objects of buying and selling just like any other product! Why shouldn’t Quality be a commodity like any other? Outside the neo-classical framework of ideas, this would be called corruption. But inside, it is just business, which always Knows Best.
Thus the neo-classical conception of the market has now come perilously close to destroying the object of its analysis. Where will its gurus go from here? How will they apologize for this process where everything went totally according to plan and then exploded?
The interaction of ideas with politics is always messy and confused. Just now we know that neo-conservatism has collapsed, neo-liberalism is on the defensive, and neo-classicalism is threatened with total refutation. How that will all work out, remains to be seen.

One Response to “Eye-rack, sub-prime, and three neo’s”

  1. David Harley says:

    It’s not clear to me what distinction you are drawing between “neo-liberal” and neo-classical”.
    “Neo-liberalism” is no more than an abbreviation for “neo-classical liberal economics.” This usage has been required for Anglophones, because “liberalism” is now mainly associated with social liberalism, especially in the US.
    “Neo-conservative”, on the other hand, is a revival of liberal imperialism, which came to grief over the Boer War in Britain but survived as a workable ideology into the Cold War in the US.
    Thus, both neo-liberalism and neo-conservatism are just as much heirs of John Stuart Mill as social liberalism is. All three share the utopian individualism which depicts individual humans as preceding the existence of society, so that liberating people from the constraints imposed by society will lead towards self-perfection.

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