Saturday, September 20, 2008

The Ultimate Shell Game

There is much to be gained from this morning's Financial Times account of the basic nuts and bolts involved in our President's decision to rescue major financial institutions on the brink of collapse:
The Bush administration sought congressional support Saturday for a $700bn bailout for US financial institutions to quell the turmoil in financial markets.
The plan would allow the government to buy the bad debt of any US institution for the next two years, raising the legal ceiling on the national debt from $10.6 trillion to $11.3 trillion.
President George W. Bush said: “We’re going to work with Congress to get a bill done quickly.” Treasury officials and members of Congress were meeting throughout the weekend to secure broad agreement on the package by the time world markets reopen on Monday. Legislation could pass early next week.

Saying the administration was faced with preventing the collapse of a financial “house of cards”, Mr Bush said: “People are beginning to doubt our system, people were losing confidence and I understand it’s important to have confidence in our financial system.” he said.
Consider first those numbers, which offer two radically different points of view:
  1. With a "stroke of the pen" (as political writers like to say), the President will have the power to increase the national debt by $700 billion, a quantity that most of us can barely (if at all) comprehend.
  2. On the other hand that same "stroke of the pen" would be increasing the national debt by "only" a little more than 6.5%, which is the sort of markup that would not surprise us if it were applied to the groceries we were buying as sales tax.
Put another way, do these numbers have anything to do with "real money" (as Everett Dirksen supposedly put it); and, if so, just what is that reality? Invoking the language of Richard Neustadt and Ernest May, what are likely to be the consequences of that "stroke of the pen," not just for those financial institutions being rescued for whom "business as usual" rarely regards money as anything other than a "fiction of convenience," but for those of us for whom money is all-too-real, since without it we most likely will be deprived of food, clothing, and shelter (not to mention health care). Sadly, the Bush Administration (apparently with the McCain campaign conveniently in tow) has revealed, through its track record, how loath it tends to be when it comes to thinking about consequences, let alone deciding upon action based on such thoughts.

The pathos of this negligence is painfully underscored by the use of the word "confidence" twice in the final sentence in the above quotation, a sentence uttered by George W. Bush. The only thing I could think of as that sentence stuck in my craw was a cautionary piece that Rafe Needleman had written for his CNET blog back in August of 2006, where he described the Cluetrain Manifesto in terms of "shiny new values competing with reasonable but conservative older values." The irony of course is that it is through such "shiny new values" that the Bush Administration is now threatening our reality by playing reckless games with fictions of convenience. Indeed, when I wrote my commentary on Needleman's piece, I observed that he had overlooked how the "shiny new value" of confidence was winning out over the "conservative older value" of credibility, which is probably why the blunter description of a "fiction of convenience" is "confidence game."

Of course the very use of the word "value" is so abstract that just about any interpretation amounts to a confidence game. However, pulling a fast one in the philosophy of semantics is one thing; doing it with the working man's wallet is quite another, which is why Robert Solow has felt so strongly about the need for economics to dispense with the notion of "value" and stick to more ordinary observables, like price. That is where hit on the fundamental ugly truth of the chaos of this past week: For most of those large financial institutions, price is as remote an abstraction as value is; and, as we can see from the way of Government talks about the national debt, it is just as abstract in both the Legislative and Executive Branches. I suppose you could say that, contrary to what Solow believed, price is only an "ordinary observable" to those of us who have to pay it!

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