Oh dear look, Deutsche Bank has just lost seven billion euros in one quarter. How on earth did that happen? ‘The late night announcement shocked analysts’ wrote The Guardian. It did?
One thing is for sure: whatever the ‘explanation’ behind a loss this big from Europe’s most overleveraged bank, you won’t find it in last night’s profits warning. The statement drivels on about over-regulation and litigation as if we should wish to compare them to somebody nicked for sex offences by the
Murdochian Metropolitan police.
But for my money, too much attention is being paid to this incident: when Deutsche finally does go bang, there’s going to be a lot more money involved than €7bn. No, other media items today worried me far more.
Two Federal Reserve economists, Andrew Chang and Phillip Li, recently finished ploughing through 67 top academic and other papers concerning economics ‘and how it works’ published in 13 highly reputable journals. A staggering 49% could not be replicated on any basis including models and field trials. Kenneth Rogoff is one of the giants of contemporary economics, but the paper he co-authored with Carmen Reinhart about sovereign debt was found to contain a significant Microsoft Excel error that changed the predicted outcome completely.
Now you may think it doesn’t matter if ‘academic’ studies turn out to be poop, but you would be wrong-headed so to believe: the most stupid, assertion-riddled falsehood in economic history – neoliberalism – was dreamed up by Milton Friedman, an academic. Margaret Thatcher transformed, and ruined, the social fabric of Britain on the strength of it, and 36 years on it is still busy unemploying, underpaying labour while obscenely over-rewarding the greedies who follow it as if it might be the word of Allah.
Marxism used an entirely bogus concept – dialectical materialism – which consisted of starting history at that moment most likely to prove Karl Marx’s point on any given subject. Also an academic, Marx himself told a French friend towards the end of his life, “Moi, j’suis pas Marxiste”. But the theory he’d already written off as tosh came close to ruling the entire planet over the following 80 years.
Until recently, Ben Bernanke was the Chairman of the US Federal Reserve. He was and is from time to time a Professor at Princeton, one of the most distinguished members of the Ivy League, and in 2003/4 proposed the Bernanke Doctrine, in which he identified the main measure used to combat deflation – Quantitative Easing. It has been tried to date on 17 separate occasions around the world, cost many trillions of Dollars, and never once been shown to be effective. Three years before the biggest market crash since 1929, Ben proudly launched his theory of the Great Moderation – viz, that traditional business cycles have declined in volatility in recent decades through structural changes that have occurred in the international economy….particularly increases in the economic stability of developing nations. Tell that to the tapered and tottering Brics.
First enthusiastically adopted by the political establishment (in the shape of Ronald Reagan) as the best way “to grow the wealth of all and balance the national books”, Friedmanism wound up leaving the US with the biggest real national debt in its history after two terms of Ronnie. Mrs Thatcher’s economic adviser, the somewhat strange Keith Joseph, told voters in 1979 that neoliberalism (or as it was then, monetarism) would allow wealth “to trickle down”. During the next four decades, it gushed upwards to produce a UK not dissimilar in wealth inequality to 1785 Bourbon France.
One of the weirdest things about econo-political affairs in the 21st century is that ‘the news’ is only vary rarely important. Established and well known modes of dysfunctional behaviour – alongside funny business going on we don’t know about – are infinitely more newsworthy. But the sensational sells more papers and gets more hits than secret wrongdoing, and allows the public to engage in its unquenchable appetite for Schadenfreude.
Example: Tuesday’s Slog exclusive about Raid being sold globally, even though it doesn’t work: hits to date, 976. A Slogpost from last winter about the footballer Ched Evans and a somewhat unedifying ménage à trois shag in a seedy hotel: hits to date, 937,124.
Which is the chicken and which the egg in this odd hierarchy of interests? I think it’s a bit of both. The lower end of British prurience (it was always there, behind twitchy curtains) was exploited for 40+ years by Murdoch and other soft pornographers. Education then dumbed people down to Murdoch’s level, and so now that sort of thing is both supplied and expected.