Inducing the Madness of Crowds

After losing a fortune speculating in the South Sea Bubble, Isaac Newton reportedly said that he could calculate the motions of heavenly bodies, but not those of the madness of crowds.

Today, millionaires and billionaires are pretty much united in the proposition that even kind of social provision must wither in order that the state can afford to clean up the mess that the wealthy have created. In addition, raising their taxes is not only unfair, but destructive of health of the economy. Yves Smith’s opinion piece in the Times, largely lifted from her wonderful book, ECONned, reports how corporations are hoarding their cash. They have also been investing in their own stock, which raises executive bonuses, which helps to amplify the obscene redistribution of income.

Of course, common sense shows that austerity is the worst policy in the face of an economic decline. In a market economy, without consumer demand, business activity dries up.
I can understand why the millionaires and billionaires promote their self-interested ideology. I can also understand why the democrats have joined in the millionaire and billionaire ideology rather than upset their base — the millionaires and billionaires.
What I cannot understand is why more people have not caught on to this game. Yes, a small number of sensible economists have spoken up, but without any real effect. Instead, supposedly progressive people go along with the Democrats on the ground that the Republicans would be worse. But again, why have so few people seen behind this good cop/bad cop game?
The New York Times can publish an article describing how destructive austerity has been in Ireland
Alderman, Liz. 2010. “In Ireland, a Picture of the High Cost of Austerity.” New York Times (29 June): p. A 1.
http://www.nytimes.com/2010/06/29/business/global/29austerity.html?ref=business&pagewanted=all

However, buried within a mass of millionaire and billionaire ideology, such information has no effect.

Of course, people are angry, but the millionaires and billionaires have been able to divert this anger for their own purposes. Of the 538 members of Congress, none of them gives any indication that they have a clue. Of course, some of them know very well what is happening, but fear speaking out, lest the millionaires and billionaires come after them.

Given this mess, we live in an era of induced madness. Virtually nobody gives any indication that s/he has the sense of Isaac Newton to recognize this as madness, which now appears as common sense. Congratulations to Pete Peterson and his ilk — at least until this mess you are creating falls apart.

11 comments so far

  1. Jim Farmelant on

    The Polish Marxist economist Michal Kalecki in his 1943 article, “Political Aspects of Full Employment,” long ago made the point that rentiers and capitalists would tend to be resistant to the use of Keynesian-style fiscal and monetary stimulus policies to reduce unemployment. In the case of the rentiers, such opposition would stem from the fact that the resulting dropping of interest rates from such policies would directly reduce their incomes. In the case of capitalists, the reasons were a bit more complex. Very often such policies, in Kalecki’s view, would boost business profits, but they would also also make the working class more truculent, since they would now become less fearful of becoming unemployed. Kalecki believed that generally speaking capitalists were more fearful of the loss of political power and social status to the working class than they were of the loss of profits. Given the fact that since the 1970s, we have seen a radical reassertion of the power of rentiers, and given the loss of power of trade unions and industrial capital, the fact that most governments in the industrial nations have been responding to the current economic crisis with austerity policies should come as no surprise.

  2. Paul Tarr on

    I think you are missing the point. The economic system is broken. “Common sense” doesn’t say that “austerity is the worst policy in the face of an economic decline”. Analysis indicates that in thre current economoc climate stimulus policies actually make things worse and have the added problem of inflation.
    http://getoddnews.com/2009/05/24/the-naked-economy/

    • mperelman on

      Inflation? The immediate risk on the horizon is deflation.

  3. The Arthurian on

    Yes, Mr. Perelman, and in equal doses deflation is a far greater problem than inflation. However, I think Paul Tarr has a good point: Keynesian policies are not a good solution this time around. Bernanke and Obama are fighting the last Depression.

  4. mperelman on

    Bernanke and Obama are not fighting the last Depression. They are playing footsie with banks and big business. Some of the stimulus program worked, but it could have worked much better.

    Roosevelt came into office without a clue, but he powerful forces caused him to take more decisive action. Now this generation is Twittering.

  5. mark hansen on

    not to worry, the banks are profitable.
    they borrow money from the federal reserve at 0% interest and then loan it to the government at 3% on ten year bonds.
    three cheers for profitabliity and
    “Free enterprise”.

  6. Mike B) on

    While the capitalist class has its State functionaries practicing sadistic ‘spare the rod spoil the child’ policies, the working class seems possessed by a social psychology grounded in cognitive dissonance. Of course, it doesn’t help that the billionaires and millionaires donate vigorously to stables of intellectual sophistry like the American Enterprise Institute and the Hoover Institution whose dedicated staff manufacture consent to masochism amongst the broken wretches, narrow individualists, cowardly journalists and religious idiots.

    Tiny minds of a tiny class, sitting in cities of tiny lights cannot see beyond their next quarterly dividend.

    Proof?

    They’re so gripped in the vice of their own ideology that they cannot grasp the message that 98% of their scientists are telling them about the need to act NOW on climate change.

    • Jeremy Lammerding on

      “They’re so gripped in the vice of their own ideology that they cannot grasp the message that 98% of their scientists are telling them about the need to act NOW on climate change.”

      I dont believe the issue is whether climate change is real or not, the issue is who should jump off the cliff first?

      California did a few years ago with AB32 and other climate change legislation which subverts the entire political system by empowering a board of unelected officials to steer our economy. Look what that got us. It is a global issue and needs to be dealt with as such. Most sane individuals will agree domestic policy is pointless if China, India and a litany of other offenders do not do anything to curb their emissions. That will only shoot our economy in the foot while empowering our competitors.

      If you asked the average American if they would be willing to send their job to China so that we can emit less, while they emit more, can you blame them for being hesitant? If you think you can get all the major powers in the world and the LDC’s to sit around a camp fire, sing kumbaya and take out all incentives to cheat on an emissions cap, then maybe more narrow minded Americans would be on board.

      • mperelman on

        China is doing lots of bad things with respect to climate change, but they are also ahead of the pack in a lot. If we do nothing here we will end up losing jobs to China, the inverse of the danger you describe.

      • Jeremy Lammerding on

        Further demonstrating the precarious nature of this global issue. If COP15 and Kyoto have taught us anything in regards to the mitigation of carbon emissions, it is that the issue is larger than any individual, company, community, coalition or nation. American apathy has to be one of the smallest hurdles when considering the difficulty of this issue and the players involved.

  7. Mike B) on

    If you asked the average American if they would be willing to send their job to China so that we can emit less, while they emit more, can you blame them for being hesitant?

    *********************************************
    The capos who own the means of production have been sending the capital the workers create to China for years. It’s the wage system itself which is problem. Wage-slaves have no choice but to sell their time and skills in order to make a living. It’s not a question of preserving this social relationship, it’s that this social relationship leads to political powerlessness and the continuation of the rule of capital, which of course, is leading us to the edge of climate change catastrophes which we’re only beginning now to experience.

    I stand by what I said in my first comment.


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