The bubble yesterday, the bubble today, the bubble tomorrow

This is from September, 2007. It is still relevant, save for the fact that I now live in Paris, France. But the bubble machine is still humming

I read the papers. Everybody reads the papers. So the papers say retail sales are sluggish. They say that retailers have predicted lower sales for fall. And they say, the stock market went up again. They say the stock market went up because of the news about retail sales. Out of the bad news, the market honed in on a report from Walmart predicting better sales this fall. And that was enough to send the market up 65 points.

Arthur Burns, the head of the Federal Reserve Board under Nixon, who injected money into the economy in 1972

American capitalism is infinitely interesting – not as interesting as the way of a man with a maid, but as interesting as the mating dance of the great horned grebe. In the last fifteen years, the economy has done something that it isn’t supposed to do, according to past history. In the past, the business cycle has given us numerous examples of bubbles that blew up at a certain point. After the bust, there was always an overreaction and a downturn. After the collapse of the market in 1929, for example, there was a tremendous collapse of consumer spending in 1930. There are also long term overreactions. The implosion of the South Sea Bubble in the 1720s set back the stock market in England for fifty years.

Economic history seems to have taken a turn in the 1970s, however. At least since the last big recession in 1991, the Bubbles are now being succeeded by other bubbles. This is made possible by changes in government policy, the increase, by several orders of magnitude, of the cash on hand commanded by the wealthiest five percent, the elevated purchasing power of the consumer, and the interregnum in which the internal American consumer market has been allowed to quietly go on, churning up purchases and debt. So the stock market crash of 2001-2002 is succeeded not by an overreaction, but by the quietest loss of two trillion dollars in history, succeeded by a bubble in the housing market, a targeted bubble, so to speak, which is crashing now just as a bubble in the stock market, which we can fairly date to the intervention of the Fed this summer, takes off. Is this genius or a confidence game?

The Maestro who accelerated pluto-capitalism

In the beginning, economics was tugged between Smith’s optimism and Ricardo’s pessimism – between the notion that the market would take the place of the monarchs and prime ministers in that neat little history of the progress of mankind, worked out by the Edinburgh philosophes, on the one hand, and the worry that the winner take all nature of the market, plus Malthusian constraints of our restricted supply of natural resources, would doom us to an increasingly immiserated working class, a pampered and overcompensated upper class, and a world of busts. As Marx saw, quite accurately, the same internal dynamic that drove capitalism to produce affluence drove it to periodically collapse in the midst of its products, helpless to utilize them. Unless this system were overturned, we were inevitably headed to the world of Wells’ Time Traveler, where “the queer little ape-like figures” of the working class Morlocks kept up the world of the haves, pursuing pleasure and comfort and beauty like Bloomsbury eternalized – the Eloi, the elect.

Of course that didn’t happen, or hasn’t yet. One could say that the Morlocks have just been moved out of the gated community countries into the ghettoized, but that would still not be quite right – besides which, it would transform Marx’s precise notion of the relations between the working class and the bourgeoisie into almost any two-fold conflict. No, life more abundant was wrung out of the capitalist system by the workers through unionization and, not least, the threat of communism, and it took a long time, and involved the full use of the countervailing powers of the state, which was put in the unaccustomed position of actually operating, seemingly, against the interests of the corporations. This short interval has long closed, but the corporations find it useful to keep up the pretense that the state and private enterprise are matched in deadly combat, with all the other nonsense about our pious preference for a smaller scale of the state. But the long march to abundance took enough time that the system not only assimilated the greater purchasing power of the working class but learned to exploit it. And then, of course, inevitably, manufacturing began, in the U.S., to follow agriculture in the train of obsolete sectors. Or, more precisely, just as the Great depression was about the shrinking of the agricultural dependent population and the final displacement of rural America, the Reagan years – which we still live in – are about the shrinking of the manufacturing sector and the final displacement of Rust belt America.

That leaves us with symbol pusher America. And with a nagging feeling…

The usual case against a bubble is that there is nothing tangible that it attaches to. The land being sold by John Law’s company near the wonderful Mississippi river was a dream; the electric combination of Samuel Insull’s was a fraud. The Enron guys were beyond fraudulent, taking their profits on future sales in 2009 in 1999 and the like. Bubbles are about spreads, rather than tangibility. The conservative in us shrinks back at the edge of the world of spreads, for here there seems to be a great abyss, filled with numbers, with not a product to back them. Thus we get the hoary economic chestnuts, like the one about the Fed ‘taking away the punch bowl’ after a too vigorous elevation of equity prices, and the like. And of course after a bubble, we are supposed to feel some pain. Economists generally will criticize deliberately nurturing a bubble – although of course, to explicitly deliberately nurture a bubble is a contradiction in terms. One has to do it while pretending not to do it. Because there is a residual moralism here warning us against building our dwellings on sand. It is as if the alternative – to let the business cycle do its work, to let the invisible hand smite the evildoers – is favored precisely because we need some hygienic punishment after the orgy. Kraus once said that Germans confounded God with his stagecraft – with thunder. Take away the lightning and you take away God. Some related emotion is involved in treating bubble to bubble economic policy as bound to fail. For if it doesn’t, there is no God. Especially one who laid down the iron laws of economics.

All of which doesn’t mean, by the way, that bubble to bubble economic policy isn’t bound to fail. I can’t help but think this cycle of stock market expansion is not going to go on long, since it seems to utterly discount the signals that we are headed for an economic downturn of some kind. However, spread is king, and the question is: do those economic signals matter? For the wealthiest themselves exist behind one of the greatest bubbles ever. If we think of the tegument of the bubble as consisting of the difference between the wealth commanded by the top five percent and the rest of us, it has now assumed a monumental thickness never seen before. And inside that bubble, the difference between the top one percent and the rest of the wealthy has created a similar bubble. It is hard to believe that any hard times, ever, will poke through that mass. Though surely there is some limit that no bubble pumping by the state can violate, I don’t know theman that can say lo, it is here, or lo, it is there.

…So much for the balance of doom and gloom against the lack of a long run. I’m more interested, frankly, in the social and cultural effects of the age of the spread than whether it is sustainable. In former bubble periods, there have always been those who suspected that this was all a dream. I don’t feel that about this period: people are acclimated to the No Choice, Never a Choice dominant of our time.

As a writer, it used to bug me that I am in such a poor position to see this moment of Americana. I am, after all, mired in the lowest strata of the American economy, the bottom 20 percent. Fuck the money, the problem for me as a writer is that I seem to be deprived of the tacit knowledge of how the vast majority of my fellow yahoos live their days. I can bike past the cars, I can imagine the restaurants, the clubbing, the life of consumer products, the day to day in offices, the laptop computers on which one does – something. But that vital displacement which is the writer’s life, daydreaming about other people – I used to think that I had blown it by becoming such a scag. Can I even imagine going home to my McMansion and watching the wall sized tv’s high def pictures of whatever? No.

However, my choices and failures don’t bug me so much any more. First, of course, that lifestyle bores the shit out of me. It bores me the way Emma Bovary’s life bored Flaubert – only in the writing of it could Flaubert find the almost imperceptible nuances that made it a real life for him, and only then could he have mercy. Mercy is the final stage in writing, it is what one blindly tends towards. Second, in the age of the spread, there is a real advantage to living, as the poor necessarily live, among tangibilities. The McMansion and the wall sized tv pale in comparison with the tangibility of, say, the strategic buying of dairy products, waiting for five cent shifts in prices. While I suspect that the demon of intangibility really does haunt the days and days and days of the average householder, who have built their McMansions on spread, the real demon of climate haunts us Morlocks – there is no way to avoid the cold when it is cold if you are walking, or riding a bike. Or hot when it is hot, or rain when it is raining. That this isn’t omitted from life puts one in an oddly advantageous place. Hardy remarks of Tess Durbeyville that she was a Victorian lass, educated by the State, while her mother was still a Jacobin – that in one generation, a two hundred year gap had grown up between them. A clever observation. So what if Tess’ mother had written the book? I can write sci fi just observing what goes on about me, because it goes on in the future – the future being defined by income strata in the U.S.

Emma Bovary (Mia Wasikowska in Madame Bovary, 2014)

Now, this isn’t to say that the heroes of nineteenth century novels are unacquainted with spreads. On the contrary, their heroism rises out of the struggle with the spread – Emma with her lenders and Dmitri Karamazov with his; Pip with his benefactor, Nana engulfing the mortgaged estates of syphilitic Second Empire syncophants. When, in the Sun Also Rises, Jake Barnes checks his bank account and finds he has 2,000 or so bucks in it, he is declaring his independence from this old, nineteenth century crew. The heroes will now always have money in their bank accounts – Rabbit gets rich, and even crazy Herzog builds a house for himself. However, Rabbit is as dead as Buffalo Bill. Except, of course, for the thirty percent on the bottom. But this may be where the richest stuff is, the phantoms in the street, walking in plain daylight. Phantoms of tangibility.

Roger Gathmann
Roger Gathmann

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