Dec 10, 2008

On Economic Recessions, the Media, and a Post-Capitalist World

The high priest of the Cult of the Invisible Hand: Adam Smith

I have a friend who is a staunch conservative and who is an unabashed devotee of Adam Smith. In a recent conversation about the economy, my friend turned to me and repeated a mantra that I hear from many folks who belong what I like to call The Cult of the Invisible Hand.

"For starters, economic conditions are not really that bad, and definitely not as bad as the Great Depression," he intoned. "But the big problem is the media, which keeps feeding us these 'hard times' stories and putting people into a frenzy about the coming End of the World and all that."

When he gets like this, I usually segue into a less fractious topic of conversation, like college football, since my friend is utterly doctrinaire in his approach to politics and economics. Like other devotees of the religion of capitalism, he cannot be shaken from his fervent belief that free markets are the Alpha and Omega of human existence.

I would be more successful trying to demolish a masonry wall with my forehead than I would to change my friend's opinions on matters related to capitalism.

Anyways, I found intriguing the premise that the media somehow creates, perpetuates, and worsens economic recessions and depressions. Certainly as a primary conveyor of information, the media makes investors aware of market trends, and perhaps there could be some truth that greater media attention paid to the economy might reinforce existing financial anxiety.

However, I think that my friend and other like him simply do not like to acknowledge the fact that capitalism has flaws far beyond any caused by media hype or, for that matter, government intervention in the economy. Not only do we live in an era of global markets that operate with a complexity beyond human comprehension, we also live in an age when trading is increasingly performed by computers that have been programmed to buy and sell at preordained prices and market conditions.

Hypercapitalism, I like to call this.

Of course, it is reassuring to simply blame the usual demons - like Democrats and the media and liberals - than it is to question one's faith systems. The idea that there could be alternatives to capitalist economics is in itself a form of heresy, and triggers the Pavlovian response that such an apostate must be, therefore, a Communist or Marxist.

I am neither, and yet as a historian I know that capitalism will eventually run its course in the manner of all anachronistic systems and be replaced by...something else. Certainly Soviet-style communism did not pan out, nor did the visions of socialism espoused by Mao or Pol Pot. Yet we are not limited to considering alternatives to capitalism that are derived from failed communist states.

I am thinking here of the coming post-monetary world, as we evolve from people hoarding bits of shiny metal and slips of paper into people who develop a more rational method of economic exchange. I try to picture a world in which herd mentality or gloomy media reports cannot weaken an economic system, or where capital flight cannot wreck entire economies, like the 1997 Asian financial crisis or the 2001 implosion of the Argentine austral.

I do not delude myself that a harmonious Utopia is just around the corner, but I find equally absurd the notion that the scribbled musings of a long-dead Scottish political economist should be accepted as revealed truth.


Middle Aged Woman said...

Many of those Hypercapitalistic ideals work wonderfully under ideal conditions with at least semi-altruistic participants. How's that for a dream world?

Mad Jack said...

Is your crazy friend a gun owner? Better disarm him for his own good!

Your friend has a valid point. The news media has a profound and measurable influence on the economy as well as on the quality of life in general. Where I suspect we part company is that the real truth is that the commercial media is not the only influence on the economy, nor is it more or less powerful than other major influences.

I'm a little short of time, so briefly:
Capitalism is excellent so long as certain inflexible conditions exist (closed society, no monopolies, etc.). The US is demonstrating what happens when capitalism fails due to the violation of these precepts.

The economy is not overly complex. Politicos with their own agendas make it so, as does commercial media. You may find the current economy easier to understand if you'll accept the unsatisfaction of human wants (a form of greed), political opportunity cost and the distorted view of our world that is presented by commercial media as being major influences.

I don't know if you've ever considered the amount of real unemployment versus the figures quoted by the US government. Real unemployment consists of all people who want a job, are able to work and can't find employment. This is generally much higher than anything the US government cares to think about.

Finally, I have a request. Inspired by the recent attack on Troy, I'd be interested to read your thoughts on road rage and possible solutions.

steve said...

To me, as an average "Steve", (Joe's been taken), A mixed economy makes the most sense. The Gov is best at huge projects that need unimaginable resources.. like going to the moon, or building a national infrastructure, or providing health care to all citizens in a just and equitable manner, but the Gov is terrible at micromanaging the minutia of smaller projects, like running an airlines, or drilling for oil.. or running a car company! Capitalism is best at harnessing and spurring the human capacity for genius and creativity, but is terrible as a social vehicle for the common good. I think the problem with this country is that we view capitalism as an "Ends" that is justifiable at all costs, instead of a "means", an economic tool... and that's how I think Adam Smith envisioned capitalism.. Not the be – all – end - all of social organization. I just don't understand why it has to be "all or nothing" in this country. We've seen lately what hypocrites the "capitalists" are in this country anyway- they’re hardcore about their values, until they need a government hand out to keep them solvent.

dr-exmedic said...

There is at least some evidence that the media do see things differently based on who's in office.

Anonymous said...

I believe our post- capitalist America's correct label would be corporatist. Wall Street bail out, corporations "too big to fail" such as the big 3 will eventually get money, the way the IMF and WTO work...

And somehow capitalism gets blamed when capitalism hasn't existed in the United States since the early 1900's.

Somehow, the Chinese have become better capitalists than we. They are going to be cutting corporate tax rates, not bailing out and putting duct tape on the ready - to - explode dam.

back to a stupid paper for my dumb methods class, lol,


craig said...

Adam Smith was dead on about how corporations would suck at managing their money:

"The directors of such companies ... being the managers rather of other people's money rather than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which [they would] watch over their own," he wrote. "Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company."