Anyone reading this blog is probably aware of the LOL-fad: the addition of witty captions to photos of cats, fashion models, and so forth, which has taken th’ interwebs by storm.
So in a moment of inspiration, I wondered: why couldn’t we do the same for economic sociology? I mean, I know I’m not the only one who spontaneously thinks of puns that mash up pop culture with “The Great Transformation,” right? Right? [Tap, tap, tap.] Is this thing on?
If the blogosphere is good for anything, it’s for allowing microscopically small interest groups to band together and share the kind of thoughts that would be greeted with disbelief or incomprehension by others. If the Ferret Fanciers of Greater Milwaukee can do it, why can’t economic sociological punsters?
Rather than keeping those gems of humor to ourselves, let’s enjoy them together. Friends, Romans and economic sociologists, send me your LOLs!
Here’s one that came to me when I ran across this picture of the Angel of Death during the earily days of the market meltdown–I know you can do better! So send in YOUR LOLpix! Operators are standing by!
“Talk to the Invisible Hand!”
I knew someone was on this…ladies and gentlemen, I give you LOLFed.com, the funniest site I’ve seen in ages. Here’s today’s LOL with a snippet of the accompanying text:
This one’s for all you crazy kids out there who said Sandy Weill’s experiment of creating a banking supermarket could never work, that its sheer size and the scale and multitude of services offered under a single roof were unsustainable, that no one management team or board of directors could possibly oversee its many arms. You were absolutely right!
Since today marks the end of a catastrophic calendar year in the financial markets, these snippets of etymology I ran across recently seem particularly appropriate, in a gallows-humor way.
On the origins of the term “money,” from the Latin monetas, meaning “warning:”
The Romans kept their coinage in the temple of Juno on the Capitoline Hill, putting the money under the protection of the goddess. Ever wonder why so many banks look like Greco-Roman temples? That’s why. “In God(dess) We Trust!”
Before she became the guardian of the Imperial Treasury, one of her original functions was to warn the Romans of impending danger; she was known as Juno Moneta, or Juno-Who-Gives-Warning. So her role as protector of the money supply and protector of the city were conflated, leading to the modern English word “money” for all forms of currency.
On the origins of the term “securities:”
The Latin words se and cura combine to form this word, meaning literally, “without care.”
This conjures up MAD magazine’s Alfred E. Neuman, whose slogan seems to have been taken up by our securities regulators.
The Catastrophe Haiku Challenge of December 11th brought many delights, not least of which was the realization that this blog has at least five readers (still counting myself) instead of the three I estimated. Huzzah!
Not only did the Challenge produce some fine entries (see the Comments section below the December 11th entry) but it introduced me to some kindred spirits, including one Tony Alfidi–a finance professional based in San Francisco–who has been blogging his own financial haiku (and limericks!) for some time. Check out his witty prose (and verse) stylings at alfidicapitalblog.blogspot.com.
Here are two of my favorites from his oeuvre, reproduced here with his gracious permission:
The Haiku of Finance for 12/18/08
Closing out short calls
Cash went to money heaven
Be careful next time
The Haiku of Finance for 12/18/08 (inspired by Bernard Madoff)
Smiling, lying guy
Trusted by rich investors
“Made off” with their cash
I find it strangely comforting to think of my life savings at peace in “money heaven.” I hope it’s next to “pet heaven,” so that the dollar bills can frolic with the souls of my late lamented hamster, Sunshine, and a passel of goldfish that have passed through my life.
Watching the financial mayhem unfold over the past weeks has been uncannily reminiscent of the early 1980s, when the AIDS virus was first discovered on American shores. The impact of the crisis has been startlingly similar to that of the deadly disease whose contagion changed the world forever just a generation ago. As in the early days of AIDS, the sources of the current crisis are poorly understood but its fatal effects are all too evident–a toxic combination that has spread fear around the world. We’re witnessing a kind of global infection among our social and economic institutions, and may need to start thinking like epidemiologists—the scientists who fight the spread of AIDS and other diseases—in order to stem our losses.
Epidemiology, a word with Greek roots, literally means “the study of what is upon the people.” Typically, it means the processes by which infections spread through populations. But there are a number of reasons to think that an epidemiological model is appropriate to our current socio-economic crisis, and can help us make sense of “what is upon the people” now.
What can we learn by taking an epidemiological approach to the market meltdown? Three things, all of which were applicable to the AIDS crisis, too. The point is not to drum up sympathy for financial firms, which would seem to deserve little of our compassion, and certainly far less than victims of disease. Rather, these observations highlight the social processes through which we respond to spreading crises, and how those processes can make a bad situation worse.
1) Failing to act on signs of danger allows a problem to become an epidemic.
The panic spread by the AIDS virus was driven in large part by its terrifying unknowns: though its fatal effects quickly became apparent, it took almost 25 years to track down its origins to chimpanzees in southern Cameroon. Turns out that AIDS has been present in humans–who hunted and ate the chimps—since at least 1930, but it took 50 years to mature into a global epidemic.
Just as AIDS appeared in the 1980s, as if out of the blue, the collapse of the global economy has seemed similarly unexpected to many investors. After all, only a little over one year ago—in October 2007—the Dow Jones Industrial Average ended several trading days above the 14,000 mark. Who could have predicted that the index would plummet by almost 50% in 12 months, and that we’d be contemplating the bankruptcy of such institutions as General Motors?
In fact, some of the most distressing news about the current crisis is that people in the financial industry did see this crisis coming years ago, but nothing was done to stop it. Instead, that knowledge became the basis for unimaginable profits. Last spring, John Paulson (no relation to Treasury Secretary Hank) topped the list of world’s highest-paid hedge fund managers, earning $3.7 billion for 2007 after directing his firm to short-sell America’s sub-prime mortgage markets. And Paulson was no lonely prophet, crying out in the wilderness; he had lots of company. In 2006, at the same time Paulson was warning his fund’s investors about the imminent collapse of the mortgage market, brokers on the NYSE were predicting that GM would go bankrupt by 2009. Other hedge funds, like the UK’s GLG were busy making piles of cash on the basis of such predictions: so much so that the top three executives in the fund split a $1 billion paycheck for 2007.
Over the next year or two, we can expect to learn that the “sudden” collapse of the world economic system was in fact an open secret in the financial industry, and probably elsewhere. Given the close connections between Wall Street and Washington (it should help that our Treasury Secretary used to run Goldman Sachs, right?), this begs the same question that haunted America during the AIDS epidemic: what were our elected representatives and regulators doing when there was still time to prevent, or at least mitigate, the damage?
2) Putting ideology above pragmatism only makes the crisis worse.
If you were alive during the early days of the AIDS epidemic, you may recall that once the disease was identified, it was thought to be limited to gay men and IV drug users. Unfortunately, the ideology of the time turned that into a rationale for complacency: in the eyes of some who had the power to make a difference, the plague was a just consequence of high-risk behavior by a sub-set of the population who didn’t deserve help.
We all know how well that worked: just ask anyone who had a blood transfusion during that period. While then-President Ronald Reagan dithered, refusing to allow public service announcements to even mention safer sex practices that might have limited the spread of the disease, HIV infection rates exploded, reaching millions of people worldwide who had never had gay sex nor used drugs. Oops.
Reagan’s heirs have now had the opportunity to show how that “ideology first” strategy plays out when the economy gets sick. So, in the name of a theory—free market capitalism—Republicans let Lehman Brothers, mired as it was in toxic sub-prime mortgage debt, go bankrupt instead of arranging the kind of bailout or buyout that AIG enjoyed. For about five minutes, this looked like a win for the non-wealthy majority whose taxes pay for the bailouts, and a rare show of congruence between talk and action on the part of the political right. Two cheers for the Lehman liquidation!
The third cheer was silenced by the realization that as Lehman went down, it would take the rest of the market with it—including parts that had no direct exposure to the sub-prime crisis and were thought to be safe as houses (pun bleakly intended). The Reserve Primary fund, which had made the kind of ordinary short-term business loans known as “commercial paper” to the venerable Lehman Brothers, became the first public money market fund in history to “break the buck:” that is, since it would never get repayment on its loans to Lehman, the Reserve fund’s share price dipped below $1. Because money market mutual funds are supposed to be as secure as savings accounts, this one event caused the entire credit system to hit the breaks, hard. Since it appeared the anything could happen, and nothing was safe, banks wouldn’t even make short-term loans to each other, to say nothing of businesses and individuals. And that’s how the DJIA lost another couple thousand points. Oops.<
3) As the contagion spreads, it destroys the trust needed to fight it.
Our current economic crisis could be explained with haiku-like simplicity, as follows:
·no trust means no credit—nobody can get a loan
·no credit means no capital to make payroll or build things
·no capital means no capitalism
Congress may have approved a $700 billion bailout package, but since the banks who got the money are hoarding it instead of lending it out as intended, we accomplished nothing besides adding a zero to the national debt.
How could this happen? Part of the problem was undoubtedly that the bailout came with no strings attached and no oversight—a political move which will live in infamy. Perhaps more importantly, the bailout didn’t directly address the trust problem: there was nothing in the deal to either assure banks that the risks of making loans had returned to an acceptable level, or to force them to lend despite heightened chances of default.
Moreover, banks realized, as did many others, that by allowing Lehman to go bankrupt, the US government had given the remaining firms in the financial industry a really good reason to lie about the true extent of their exposure to the sub-prime crisis. Following the Lehman liquidation, there was an undignified scramble to make firms look financially healthier than they really were, distancing themselves as much as possible from bailouts and forced mergers. They may have fooled Congress, but not the banks.
And thus we find ourselves re-learning one of history’s most important lessons about plagues: trust is among the first casualties. Fear of each other erodes the very cooperation we most need to contain the crisis. Thus, when banks stopped lending to each other, as well as to the mortgage and commercial paper markets, they deepened the crisis in much the same way as institutions and individuals did when faced with the spread of AIDS in the early 1980s. As the virus spread, and became associated with gay men and IV drug users, those groups became literally untouchable—including by the doctors and nurses whose care they desperately needed. And when it became clear that the disease was not limited to “high-risk” groups, even hospitals turned away the infected until the practice was halted by a series of court decisions and new legislation.
Now that we find ourselves facing the economic equivalent of AIDS, we are making the same mistakes our forebears made in the face of those earlier contagions. Even those who aren’t directly harmed by the sub-prime crisis are infected with fear. What can we do differently this time? Unfortunately, the time for early action has passed. That leaves us with pragmatism and cooperation, two of the great virtues traditionally attributed to Americans. Let’s live up to our reputation and reject the ideologies and isolation that have only made things worse.
For all three regular readers of this blog (and yes, I’m counting myself), I’ve decided to revive my Olde Tyme classroom haiku tradition. I used to offer this for extra credit to my students in the big “Organizational Sociology” and “Money and Society” lecture courses I taught at Brown University. I can no longer offer extra credit as an incentive for participation, but I hope my esteem will be a decent substitute.
To get things started, I offer my own modest entry, which attempts to boil the current economic crisis into 17 syllables:
In my ongoing quest to document the under-examined world of populist economic sociology, I submit for your inspection this surrealist gem, snapped in Milan, 26 May 2007 on the wall of an alleyway.
I hasten to include the date because if the image were more recent, I would have taken it for a witty visual metaphor for the sub-prime mortgage crisis: the one-eyed pyramid representing the US government, via Fannie Mae and Freddie Mac, reeling in borrowers with the promise of easy money, only to “get them on the hook” for debts they couldn’t service.
Then again, that seems to be the modus operandi of the US government in relation to other countries, as well. The record of American presidents offering cash-for-compliance to foreign governments goes way back: for an account straight from the horse’s mouth, as it were, click here; for an anecdotal account of the practices (a bit thin on supporting evidence, in my view, but nonetheless an entertaining read) click here. The practice of withholding cash to punish non-compliance with the US agenda has an equally long history, Cuba being one of the most glaring examples.
So perhaps this graffito simply reflects the way US power is experienced overseas: as a kind of “fishing expedition” to see what other countries can be made to do in return for cash. It’s worth noting, however, that according to the OECD, Italy actually deploys a larger percentage of its GNI overseas than the US (source document):
These data could be interpreted in a number of ways in relation to the graffito. Perhaps Italians see a significant qualitative difference in the way their country uses foreign economic aid, in contrast to the US strategy. Or maybe the sheer volume of money the US has to distribute overseas (in absolute terms, rather than as a percentage of GDP) leads to the perception that we can lure other nations as easily as a skillful fly fisherman working a stocked pond.
But then, what are we to make of the angelic wings on the one-eyed pyramid? Do they suggest benignity or ubiquity?
What do you think?
I also wonder why the best graffiti I’ve seen anywhere in the world–both in terms of aesthetic value and socio-economic commentary–come from Italy. I’ve seen graffiti everywhere in my travels around Europe, Asia and the Americas, but the Italians produce by far the most intellectually sophisticated and visually appealing images (see my “Socialist Snail” post below for another example). I wonder if it has something to do with Italy’s strong Communist Party affiliations, and the excellence that current and former Communist countries have exhibited in producing propaganda…a more formal medium than graffiti, to be sure, but one with similar persuasive objectives. I’ll try to find some photos from my personal collection of Chinese, Russian and Cuba propaganda posters to illustrate my theory…watch this space!
Did you notice that international stock markets had a little party this week, despite worsening economic news? The latest US unemployment report is shockingly bad, most of the nation’s retailers are reporting double-digit declines in sales (bad news in a country where consumer spending represents two-thirds of GDP), and American stock markets remain in the tank, with the DJIA 40% lower than this time last year. And things don’t look much better in Europe and Asia, where signs of recession are multiplying despite frantic efforts to shore up their economies with stimulus packages and interest rate cuts.
So what should we make of the chart on the right?
It shows Japan’s Nikkei Index, which–despite all the bad news, and with no end in sight–experienced a significant surge on Wednesday.
In fact, markets around the world did a little happy dance following the US Presidential election.
Did someone declare a global holiday from doom-and-gloom?
Here in Germany, people are celebrating and offering congratulations to any American they meet. They were practically singing “forget your troubles, c’mon get happy”–an unexpected burst of optimism in the nation that coined the term schadenfreude .
But it looks like Wall Street didn’t get an invitation to the party.
While the Dow was up on election day itself, once the results were in, it went right back down.
As did the S&P 500…
..and the NASDAQ.
Maybe the US markets are more in touch with the grim reality of the world economic crisis. Or maybe US markets are just more sanguine than others. That interpretation might seem risible given the extreme ups and downs we’ve seen in the past month, but it’s supported by the historical evidence. Over the past 50 years, momentous events in politics have rarely made much of an impact on US stock prices. Indeed, Cutler, Poterba and Summers showed in their 1989 Journal of Portfolio Management article that even events of world-historical significance, like the JFK assassination or the Soviet invasion of Afghanistan, have barely registered on the US markets.
Which makes it all the more fascinating to see the financial exuberance (which may or may not be irrational) that greeted the news of Obama’s election overseas. Let’s see if there’s another surge on Inauguration Day. And here’s hoping that next time, the party will last a little longer and include the US markets.
Ubiquitous in American commercial establishments, this object is a monument to the social meaning of money.
This one, snapped in a coffehouse in Santa Cruz, California, is based on a premise that any label-conscious teenager could explain:
How you spend is who you are.
Postscript: Tip Jar Theft
Several years ago, I heard from a friend who managed a teahouse in Providence, Rhode Island that the store’s tip jar had been stolen right off the counter; it had been placed in the traditional “tip jar spot,” right next to the cash register, in full view of the cashier, staff and other customers. The thief apparently just grabbed the beer stein full of change and ran out the door onto the crowded college-town main street before anyone could stop him.
This prompted a cascade of reactions on my part, in roughly the following order:
Tip jars, like the “poor boxes” found in many churches, are part of the informal “gift economy” that long predates the contemporary payment economy–the one in which money is transacted as payment for goods and services. The two economic systems coexist, sometimes clashing with and sometimes reinforcing one another.
Stealing a tip jar is a lot like stealing the “poor box” from a church–it means taking gifts intended for other people. That makes it more than a property crime: it’s also a crime against the basic law of social life–reciprocity– which has been found in every society, everywhere in the world, in any historical period for which data are available. (I’m happy to send references to those who would like to geek out on this…)So the money in that tip jar was given voluntarily, like a gift, above and beyond the formal price of the good or service purchased. Whatever the tippers’ motives–perhaps gratitude for a good tea recommendation?–their gesture enacted an age-old practice that serves in part to express goodwill and fellow-feeling within what can otherwise be sterile, impersonal transactions.
The tip jar theft story induces the same kind of shock we experience in response to any form of desecration–thus, you don’t have to be a Buddhist to be appalled by the destruction of the Bamiyan sculptures by the Taliban. By stealing the tip jar, the thief dragged an emblem of the pre-capitalist “gift economy” (back) into the commercial matrix, desecrating a symbol of secular sanctity. The result was a kind of reverse-transubstantiation: turning gifts back into “just money,” there for the taking by anyone willing to bear the social opprobrium.
After I got past my initial “Dang, that is cold” response to the story, I started thinking like an economic sociologist again and my reaction turned to surprise…specifically, surprise that this was the first time I’d ever heard of a theft of this kind. And, like all good cases of feral economic sociology, it caused me to consider a question that had never before crossed my mind:
Why don’t people steal tip jars more often?
It’s money literally sitting on the table (or counter, as the case may be), open and unsecured. You’d think this sort of thing would happen all the time, and that businesses would either stop the practice of the tip jar entirely, or take measures to protect it from theft (as my friend did in his teahouse, by chaining the new tip jar to the cash register).
Yet the very vulnerability of the tip jar, sitting there unprotected on the counter, is a very important part of its appeal and its symbolic resonance. Perhaps that’s why the custom persists, despite problems of theft. Display of an unsecured cache of tips, easy to spot and easy to steal, represents a very positive thing for any society: impersonal trust, the ability to rely on the basic honesty and fairness of strangers. On this, the integrity and robustness of whole societies, and particularly economies, depend. The past month in the stock market is a testament to what happens when people lose that trust, in one another and in institutions (Alan Greenspan, of all people, explained the problem very well in his 1999 commencement address at Harvard).
The “invisible hand” is the one that isn’t stealing from the tip jar. Or the “poor box.” If I had to propose a “decline of civilization index,” the frequency of such thefts–along with the destruction of other public goods and symbols of impersonal trust–would rank high on the list of index components.
One of the best bumper stickers I ever saw was on a red Chevy truck in Northern California about 15 years ago: it read, “In case of Rapture, this vehicle will be unoccupied.” That slogan came to mind following the uncanny confluence of God and Mammon in America in recent weeks. First we got a Vice-Presidential candidate, Sarah Palin, whose Pentacostal faith includes belief in the Rapture, in which God takes all the “elect” (those “saved” by belief in Jesus Christ) into heaven, leaving behind the “unrighteous” to suffer the throes of the world’s end. Next we got hit with the Economic Apocalypse, in which some of the “elect” (like A.I.G.) got raptured into the heavens of solvency, while the rest of us have been left behind to gnash our teeth and rend our garments, tormented by a plague of foreclosures and bankruptcies. Coincidence? You decide.
Living as an expat in Germany, I get a lot of questions about Americans’ behavior. Most recently, I’m being asked why we accept the selective bailout of some failing businesses—many of which have appear to have brought about or hastened their own demise with irresponsible debt—while the vast majority of us will receive no assistance at all. It seems particularly galling to these European observers that our political leaders scold us for our bad financial habits, then turn around and use our tax dollars to bail out firms whose risky borrowing and lending practices are incomparably more destructive than our own. Those are usually the same politicians who voted to stiffen the penalties for individuals declaring bankruptcy, and who wouldn’t dream of supporting “socialist” programs like a national healthcare system, but who are all too ready to socialize the debts of private firms.
The Europeans I know ask: why aren’t Americans taking to the streets to protest this outrageous inequity? In answer, I can only refer them to one of their own best thinkers, the late German social scientist Max Weber. Almost a century ago, Weber had a revelation of sorts about the connection between the near-simultaneous rise of Protestantism and capitalism in 16th century Europe. His theory, sketched out in “The Protestant Ethic and the Spirit of Capitalism,” suggested that among the unintended consequences of writings by Martin Luther and John Calvin were the spiritual legitimation of profit and the release of individuals from the moral obligation to share their wealth. In fact, believers in predestination came to see material prosperity as a signal from God that they were among the saved: after all, they reasoned, God would hardly allow the elect to suffer privation during their time on earth if they were destined to spend eternity in the many mansions of the Father.
Thus, economic inequality was interpreted as a sign of divine judgment: both riches and poverty were deserved. This laid a semblance of fairness over conditions that otherwise might seem patently and intolerably unjust. And it dampened Americans’ impulse to revolt against the unequal distribution of wealth: the majority-Protestant American colonies might take up arms over taxation without representation, but it took a majority-Catholic country like France to rebel in the name of an impoverished, starving peasantry, giving “Equality” and “Brotherhood” as much weight as “Liberty.”
While these beliefs may seem anachronistic, they are deeply embedded in American life, particularly in the way we think about fairness and the distribution of wealth. The Puritan colonists were fervent Calvinists, and the institutions they and their descendants established became the basis for our nation’s financial and legal systems. They also created the templates for today’s “culture wars,” which aren’t just about abortion or gay marriage, but about who deserves to be “saved” economically.
The conflict we’re seeing now is just the most recent engagement in a long national struggle. During the Gilded Age of the late 19th century, notions of Social Darwinism became popular by updating the Puritan perspective with a pseudo-scientific twist: arguing that Nature, rather than God, created the rich and the poor through a process of “natural selection.” That is, wealth was a reward for superior genetic fitness, while the biologically “unfit” were condemned to poverty. But while this theory shifted the source of socio-economic division from God to Nature, and redefined the defect as biological rather than spiritual, the result was the same: the poor were still “undeserving” of any help. It’s interesting to note that the “War on Poverty” 60 years later was led by the nation’s first Catholic President, John F. Kennedy.
This history, in turn, suggests a legitimate policy reason for Americans who support the separation of church and state to care about the religious beliefs of candidates for the nation’s highest offices: their faith will shape how they perceive the distribution of wealth, including the provision of government aid to businesses and individuals in financial distress. With the economic End Times upon us, and the election just six week away, we’re awaiting a new answer to an old question: Who among us will be saved this time, and who left behind?
About Economic Sociology
Brooke Harrington explores the social underpinnings of money and markets. Read more…