Observations on Credit and Surveillance

Good book reviews take a lot of time and effort, so why did I spend my weekend writing a review of an academic book on deregulation for a tumblr site? The reason is that Capitalizing on Crisis scratched a pet peeve of mine, which is liberal mythos disguised as real history. Ensuring the pervasiveness of myths peddled by the powerful is a key tool in the decision-making architecture that subverts democracy. For a time, I thought the internet could puncture this mythic clothing, but after the financial crisis ended I got the sense that everyone wants their myths for the time being, be they global warming denial or the heroism/victimhood of charlatan liberals. Very Christopher Lasch-like, I suppose. This delusion won’t last forever, of course, people will eventually want the truth again.

My first stab at the problem of myth was a post on how the intelligence community never really was reformed in the 1970s, contra to the fables spun by Frank Churck and his people. This is revealed in the stellar work of Kathryn Olmstead, and I cannot recommend her book “Challenging the Secret Government” highly enough. If you want to get a sense for how poisonous this fake myth really is, check out this embarrassing interview by Church Commission staffer and current professor Loch K. Johnson. In the wake of the Snowden revelations, Johnson ran as quickly as he could to argue Church’s reforms worked, making ludicrous claims about the how the intel community now works within the law, is subjected to rigorous oversight, and is not abusive like it was in the 1950s and 1960s. Um, ok. 

Church’s basic problem was that he wanted to pin the intelligence abuses on a partisan political figure, President Richard Nixon, and a rogue agency, the CIA, as opposed to the imperial Presidency itself. There was very little antagonism to Church’s investigation among the intel folks, at least compared to what Congressman Otis Pike found out in his parallel House investigation (which you probably haven’t heard as much about, funny enough). Pike was a heroic figure, and his report was ultimately classified by the U.S. House of Representatives after Kissinger and Ford falsely accused him of basically causing the murder of a CIA station chief in Greece by wrongly declassifying information.

Pike asked a more basic set of questions - what is the budget for the intel community? (A lot). And did the spooks predict things like the six day war? (No). Pike concluded that the national security apparatus is basically welfare for white engineers and lawyers with creepy escapist fantasies. His commission, in contrast to Church’s, fought bitterly with the intel folks over access to documents.

But since Pike was written out of liberal history, as Mark Ames points out, and Church’s myth allowed FDR, Truman, Kennedy, LBJ, Clinton, and all Dem Presidents to go unmarred, Church’s myth it was. Thus, the revelations of spook abuse and graft are organized in a reformist Church-like environment, rather than a Pike-like fiscal approach. If he were in power today, Pike would grab these guys hard - he would chop their budgets, not put in fake legal limits. Pike would know that the intel budget is as much about McMansions in McLean as it is about anything else.

But anyway, this brings us to the second big fake myth, which is about financial deregulation and the crisis. Greta Krippner’s book on deregulation is great because, like Olmstead’s, it is grounded in broad original sourcing. She tells a story based on the evidence, not a fake mythos of what is good for liberals (even though she probably is quite leftist, from what I can tell).

By contrast, Paul Krugman avoids looking at the evidence. Here he says that deregulation is Reagan’s fault. Case closed, we have our bad guy. Literally he says “Reagan did it." 

The law he uses as evidence for Reagan’s push, the Garn-St. Germain Depository Institutions Act, was passed in 1982. And he cites this paper, on how the buildup of debt in households began in the early 1980s, consistent with the Reagan administration’s stewardship of the White House. First of all, he ignores that Congressman Fernand Joseph St. Germain was a Democrat and that this law passed a Democratic House. But more importantly, he also ignores the Depository Institutions and Monetary Control Act of 1980, which began the deregulation of the savings and loans and was signed into law by Jimmy Carter. The Garn-St. Germain Act made the problem worse, for sure, but it was a Democratic President and a Democratic Congress (and a Democratic Fed Chair in Paul Volcker, if you’re counting) that really put in place the system of a free-flowing national credit market, as opposed to the New Deal system of channel-specific lending. And the very paper that Krugman cites as showing higher debt loads starting in the 1980s includes both the Garn-St. German and the Depository Institutions and Monetary Control Act as causal. These two laws are seen as part of the same legislative conversation, like how we subsume a set of bills passed in the 1930s into ‘Glass-Steagall’ because they were all part of constructing one coherent system.

Moreover, deregulation didn’t come out of nowhere, and the alternative wasn’t doing nothing. Savings and loans had been having serious problems for twenty years, problems induced by inflation and legal restrictions on their activities. They had lots of mortgages on their books, and they were bleeding from high interest rates and a loss of customer deposits. The mortgage market had to be fixed. It’s why the government invented mortgage securitization in 1968. There were many other ways of dealing with the problem, but it was Jimmy Carter and partially liberals (like Ralph Nader who quickly realized his mistake) that disassembled the New Deal financial architecture. 

Today, discussions about reregulation and a new Glass-Steagall are not informed by the purpose of this original architecture. One reason is that Reagan is seen as a single sole cause of financial deregulation, when in fact the problems were structural and something was going to happen. Paul Volcker, who in many ways is to blame for the destruction of the New Deal financial state, helped craft the Volcker rule in Dodd-Frank. It’s not a bad law, it probably will help reduce risk in the capital markets. But the point is that we used to have a system that wasn’t organized around financialized capital markets run by gamblers, it was organized around an explicit industrial policy run by politicians. You can argue having sociopathic weirdos run a boom and bust fraud-driven cycle is better than politicians driven by consumer groups setting up rules for who gets credit, but those are the choices. This is a fight over who controls our social resources, and someone is in charge, even if that means they are hidden behind a smokescreen disingenuously called a 'free market’.

But let’s not pretend it was big bad Reagan that made all of this happen. He did some very bad things - his antitrust decisions for example were horrific. But fake mythos is fake mythos, and it’s designed to trap us in debates we can’t win, because the terms are stacked against us.

No, the FBI didn’t get rid of all of its J. Edgar Hoover habits in the 1970s, and let’s not pretend it did.

And no, it wasn’t just the Republicans who sought deregulation, it was a collapsing New Deal system of political economy we never figured out how to fix. Carter’s answer was to do what Krugman is blaming Reagan for doing.

If we want a democratic system, we will eventually have to face up to the truth.