Please Go See Inside Job

Inside Job is a very fair, rational, and accurate accounting of the global financial crisis which began in 2008.  As far as it goes, it is superbly done.  I highly recommend seeing it.  Nine out of ten stars.

However the essential storyline had already been covered by an earlier documentary by PBS Frontline, which has appeared several times with updates, called Inside the Meltdown.  If you haven't seen that, you can watch it free online.

What the Movie does more completely than the earlier documentary is probe various conflicts of interests, personal payouts and excesses, and the corruption of academia.  As a publically funded enterprise, PBS is a bit reticent to peer into those areas.

And also there is the better ambient background music and awesome helicopter views over Manhattan that were momentarily triggering my friend's acrophobia.

Rather than recounting what ought to be a familiar storyline to everyone, but still hasn't gotten through to most Americans, what I want to do is explain how both of these fail to give the complete context (which Michael Moore's Capitalism: A Love Story does somewhat better, while not being so much an explication of the Global Financial Crisis itself).

I think it would be wonderful if somehow we could bring back Glass Steagall, fully regulate like fire insurance or abolish credit derivatives, eliminate the bonus system and cap pay in the financial sector so it pays about the same or maybe less than farm work, and throw the entire crop of banksters into the slammer, and all those are all worth fighting for.  But even all that still wouldn't be enough, and it is important to know why.

It's because the finance system is about more than just finance.  It is the heart of all markets and ultimately capitalism itself.  We have let that heart, rather than our eyes and brains, rule the world.

Stripped to their essence, modern capital markets like Wall Street are like giant casinos where short term speculations are transmuted into long term investments in the real economy of manufacturing and services.  It works after a fashion for the gamblers, particularly the bigger ones, but is disasterous for everyone else.

The greatest economist John Maynard Keynes, himself a brilliant speculator, once said it very well in his General Theory::

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

Keynes' entire chapter reads like it was written today, even though it was actually written during the Great Depression.  Keynes suggests a remedy that is still being proposed: a rather stiff financial transactions tax.  That would be very good indeed.  But even that isn't enough.

To see why, we have to make a much larger storyline, back to the industrial revolution and the philosopher Adam Smith, whose essential ideas have almost always been misrepresented, even before his death, in such a way as to justify rule by markets, and therefore to the benefit of the most wealthy who have the tools to dominate them.  In fact this horrified Smith so much that he wrote an entire book on ethics, still, unfortunately, very inadequate to the ultimate question of how the productive enterprises of society should be directed, and to what ends.

To be continued ...