The Myth of the Unexpected Crisis and Security

THE MYTH OF THE UNEXPECTED CRISIS


By Tobias Straumann


[This article published on October 1, 2014 is translated from the German on the Internet, http://blog.fuw.ch/nevermindthemarkets/. Black swans were once unthinkable.]


Since Nassim Taleb wrote his bestseller, “black swan” is talked about everywhere. Up to the 17th century, Europeans believed all swans were white. Then Australia was discovered where there were black swans. People fundamentally erred.


The outbreak of the First World War, the terror strike of September 11 and the success of Google are examples of unthinkable events according to Taleb. Such positive and negative surprises are the real drivers of history and occur much more often than we admit, he is convinced.


Many events are actually not foreseeable in all their consequences. Still Taleb’s thesis is somewhat unsatisfying. It ignores those crises that were foreseeable but nevertheless occurred because there was not possibility of averting them – whatever the reasons.


The most recent financial crisis is an example. That a decline of housing prices in the US would lead to a worldwide financial and economic crisis could not be foreseen. Many knew the rise of prices for years had to come to an end some time or other. People also knew that a real estate crisis would be expensive. This problem had to be thrashed out. For other reasons, people in the past did not act to counter the negative effects.


A new analysis on the conduct of the US Federal Reserve confirms this impression. The Fed saw that the housing market was overheated in certain regions of the US. While people were surprised at the extent of the crisis, it was not a black swan that one day appeared completely out of the blue.


The authors take two steps. Firstly, they reject four widespread theses that explain why the Fed was not active during the real estate boom:


1. Power of lobbyists: there are no signs that the members of the Fed board were bribed or uncritically accepted the arguments of the banks.


2. Market ideology: Fed chairman Alan Greenspan was well-known for his aversion to market incursions. However he was always extremely pragmatic and non-ideological in the meetings. Even members of the Fed close to the Democratic Party frequently admired his flexibility.



3. Trust in abstract academic models. The discussions in the Fed were always based on a huge number of formulations. Qualitative and empirically-grounded judgments had their place.


4. Narrow focus on the inflation rate (inflation targeting). The Fed was not one-dimensional in considering the indicators.


In the second step, the authors come to the heart of the investigation. In their opinion, the Fed remained passive because it represented a certain doctrine that had a majority after the bursting of the Internet bubble. This doctrine consisted of three elements:


1. Identifying bubbles is very difficult.


2. Preventive counter-measures could be very harmful.


3. Central banks have the means for containing a systemic crisis when it breaks out.


Moreover the Fed was hindered by formal barriers. So the discussions always ran according to a strict pattern that made it hard to analyze the situation in detail. Re3acing a consensus as to interests was central, not understanding the state of the financial market in detail. Finally, the focus on the whole was lacking because the individual departments within the Fed hardly worked together. The persons of the Division of Banking Supervision and Regulation (S & P) were hardly present at the meetings. A kind of “silo mentality” prevailed. Every department only looked at their problem and ignored the rest.


Thus the reasons for the hesitant conduct of the Fed are much more banal than the frequency of the crisis would suggest. The picture of the black swan may explain a part of the history but the matter is more complicated.


The banality of the reasons does not mean there is no reason to worry. On the contrary, the doctrine and the formal barriers exist more or less unchanged today. At the same time more monitoring duties are transferred to the central banks.


SECURITY? WHAT SECURITY?


The Autobahn is the most beautiful part of Germany


By Georg Seesslen


[This article published 9/3/2014 is translated from the German on the Internet, http://www.seesslen-blog.de/2014/09/03/sicherheit-welche-sicherheit/.]



Only “security” can mediate between freedom and control, it seems. Almost everything is allowed when it helps security. The “for your own security” commands and explains everything. But what security means is hardly discussed like what freedom means.


On one hand, security should avert dangers from the outside and on the other hand preserve the laboriously established system from inner contradictions. In our budget, there is no service and no machinery that we cannot provide with “security switches” or security plugs and at least security locksmiths against burglars. That is also good, it is said. The assumption is that things do not become useless, unusable and uncontrollable through sheer security precautions.


When security is the only thing that can keep us from dangers, then every kind of security is an expression of a danger that must be resisted. Concrete or hardly concrete dangers correlated to security are important.


We set up relational lines:


SUBJECT individual – community – state

DANGER error – violence – disorder – spying

SECURITY locking – excluding – destroying – refusing to see - (lying)

OBJECT lack of discipline – folly – enemy – spy – ringleader – dissident – sick person


The question is: who must be secured with what means against whom or what?


The two main components are:

We must be secured against the others (with all means)

and

Everyone must be secured against him/herself (with many means)


In both cases, freedom must be given up for that. By the way Benjamin Franklin said “those who are ready to sacrifice freedom for more security deserve neither freedom nor security. The trick is to sacrifice the freedom of others as much as possible for one’s own security. This is nothing but an enormous self-deception. To quote Rosa Luxemburg, freedom can only be realized as the freedom of others.


Control of the means of security is crucial… Can one really secure oneself against oneself or against others without the help, authority or knowledge of a third? Every form of security does not depend on the praxis of a power but every form of power depends on the promise of security.


Different than control that forms a dialectical unity with its means and its limitation, security is a linear antithesis to freedom. In nearly all laws and constitutions, social contracts and conventions, threatened security is the exception that restricts the rights and freedoms of others. If the security of the state is threatened, the rights and freedoms of people are suspended. What threatens the security of the state is always the same: foreign agents and spies, unrest, insubordinate conduct, sabotage, dissatisfaction, threats by enemies who don’t give a damn about freedom and so forth. What is strange is that the threat scenario substantiating inner and outer force or the suspension of freedom rights proves again and again to be a propagandistic bubble and yet we fall into it time and again.


Speaking purely theoretically, there are three exceptions from the rule:


1. The supposed dangers for whose resistance the measures of security are used are fictional, owed either to the works of a propaganda machine or the socially produced work of a general sense of danger and threat (a conspiracy paranoia).


2. The supposed dangers for whose resistance the measures of security are produced by the authority controlling the security measures (a classical strategy of the fascists of this world).


3. A social, political or economic system is so organized that the dangers requiring security measures are part of the system.


These three possibilities could be envisioned with a simple reflection. What “security” means for the protagonists of the economy is not the same as what security means for politics. What security means for citizens is not the same as what security means for migrants, refugees and asylum-seekers. To whitewash or gloss over these differences, “security” in the post-democratic state must become a myth or fetish. So we do not seem to notice that security in the economy is purchased with the insecurity of human life.


Security is first of all a part of the “contract” or at least of the legitimation of rule. Submission and tribute are given because the prince offers security and not only has power and myth on his side. Security is now from the outer and the inner enemy. More and more security becomes a “deal” that is a very precarious asset in a democratic society.


Neoliberalism with its idea of a “night-watchman state” demands nothing more than guaranteeing security. For this and only for this, people are ready to pay taxes, transfer payments, and support education and medical provisions while rejecting what is called “social security” (which does not exist in the eyes of neoliberals). All this should be left to “the market” or entrepreneurship. An economized society, a society of inequalities and injustices, must inevitably trigger a higher demand for security in its beneficiaries. The deal is: capitalism allows the state insofar as it offers security against “envious persons” and “social parasites” that would-be revolutionaries and brakemen, migrants and illegals and also against powers preventing access to markets and raw materials and the free control and devaluation of workers, the defenders of human rights against capital, rival market systems, hegemonies and so forth. In short, neoliberalism unavoidably demands and maintains more and more military and police and does not only reduce the state to military and the police.


The only possibility of making this reduction of the state to military and the police sound appealing to the losers in this system (disregarding state legitimation of banks and corporate power and administration of justice that absolves those above and punishes those below) is the de-regulated and de-specified idea of security.


Capitalist production in itself produces insecurity. Despite considerable efforts, the cyclical crises are neither calculable nor governable. Since the economic crises cause political crises, social crises and cultural crises, the state becomes an instrument that must secure the economy from insecure persons and not protect persons from the insecure economy. Only the choice of its means decides over the degree of civilization, democracy, rule of law and so forth.


According to this model, states exist to control the effects of crises and not to prevent crises. Generally speaking, the state exists to fight hunger revolts, not to fight hunger. Whether it does this with alms or with the police is a second question. As a rule, the state attempts this with a mixture of the two. The history of this transformation of the state is certainly longer than the history of neoliberalism… Every neoliberal (even so-called “conservative”) government owes its election victory to the promise of that security which does not exist as a whole and its approval to supposed or real threats.


The Merkel austerity policy which does not yet show its social effects in Germany as elsewhere functions in this sense. The social and ecological crises and catastrophes (as seen in energy- and environmental policy) are accepted because people always believe instruments for their mastery will be developed that are useful for the state, profitable for the economy and acceptable for the population.


In this policy, the person in him or herself becomes a security risk. Since the 1970s, neoliberalism was often allied with dictators. In other words, neoliberalism only functions with states whose main focus is on the production of security. It only functions with force, we say point-blank. The two decisive plot-points of its development, the coup d’etat in Chile and the suppression of the miners’ strike during the Thatcher government in England, are the evidence that those gladly suppress who see the elements of soft power, consumer seduction and media manipulation at work in neoliberalism. Brutal police actions against citizens who claim their democratic rights and not against terrorists or rebels are structural elements of neoliberal and post-democratic policy and not unfortunate derailments.


The main contradiction is that this neoliberalism needs a maximum of freedoms on the market (for consumers and not only for entrepreneurs) and a maximum of oppression of all those regarded as “insecurity factors.”


This does not only lead to model persons who as workers are more or less slaves and as customers more or less princes. It also means a coercive fetishizing of security. The system that produces more and more social insecurity produces at the same time more and more political “security.” The only security guaranteed us and affecting all three sectors, state, economy and population, is that nothing will change, nothing in the basic hierarchy of power or in the constant return of those crises that will bring the further dismantling of social securities and freedom rights and further growth of media appeasements and manipulations. We can only say with certainty that we will be deceived.