Sunday, November 24, 2013

Can I opt out of this society? Reading Schiller's "Finance and the Good Society"

I had first taken notice of Shiller's new book back when it first came out in hardcover.  It was on my wishlist for a bit, but got deleted on one of my frequent reconsiderations of what to read and when to do it.  I don't read too horribly quickly, so every book I choose is an investment in reading time.  However, when the Swedish thing was announced, I thought I'd have  a look.

The layout of the book is rather rote.  He takes different roles that exist in finance capitalism, and explains why they exists and why they're important.  His basic outlook is that markets work, but they need to be more liquid and there need to be more of them.  It made me think of the Leninist lamenting Stalin and claiming that true Socialism has never existed ergo the social system has not been disproven despite the states that have flown the banner and have failed (basically my starting position).

So basically, the book was kind of boring until it started to make me angry, which is half the reason I read finance and economics books.  It started on a chapter on insurance.  He makes the claim that the BP oil spill was exaggerated in its effects by the media, and that everyone was actually fine because of insurance (64-5).  People got paid back, so the suffering was ,moot, and the cleanup was effective. I don't have counter evidence to being forth to show that he's wrong, but this is just evidence that shows the worldview that opens economics up to criticism.  Not everything is measured in economic costs, and not everything can be quantified.  There is a human element that is missing.

For example, he defends inequality as necessary for a vibrant economy (141) but doesn't go into how much, or even define what a vibrant economy is.  I feel that if you're going to say the Gini can't or shouldn't be zero, you should at least look at what an optimal measurement might be.  Otherwise, it feels like elite hand-waving, ignoring the problems of the lower classes.

So basically, for Schiller, there will be losers, and that's fine as long as people have full information and participate in these deep and wide markets in a finance capitalism utopia.  It just feels wrong.  I can't imagine looking back at 2005 and saying that the main problem that was developing was asymmetries of information, though that was an issue.  To me, there were larger structural issues that are part and parcel of the system that we live under. 

Finally I have to add this to close, because it didn't fit in with the main thread.  You may be aware of the negative feelings a lot of people have about Goldman Sachs.  One thing some of their people did was load up a crappy deal, loaded off on a company and then took positions where they would benefit when the thing they designed to fail failed.  Look up Goldman Sachs and ABACUS when you have time.  It was an incredible nefarious plot that illustrates what people can do when they have financial power and no sunlight.

I bring this up because in the book, Schiller defends the deal (220).   I don't want to be part of that world.