The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ from the warehouse, but within a couple of years they were having to wait ten to fifteen times as long—674 days at one point, according to investigations by the US Senate and the New York Times. Metro’s customers would also have to pay to store the aluminum for two years before they could get their hands on it. What is more, prices went haywire. MillerCoors, a big user of aluminum for drinks cans, reckoned the dysfunctional market had imposed an extra $3 billion cost on users; some industry experts estimated American shoppers had paid $5 billion extra from 2010 to 2013 through a thousand tiny price hikes in the cans, automobiles, and other aluminum products. Over this time, Goldman was ramping up its trading of financial products linked to aluminum, and other players—notably Germany’s Deutsche Bank, JP Morgan, a British hedge fund called Red Kite, and the Swiss-based commodity trader Glencore—inserted themselves into and milked this strange market. All of this was overseen and approved from London, a den of rogue regulators that we’ll meet properly in chapter seven and that hosts the London Metal Exchange.²⁰

      Britain also provides an even more blatant, brazen example of sabotage. There, a unit of Britain’s giant Royal Bank of Scotland used the crisis to hit thousands of fragile small businesses with crippling, unexpected fees, fines, and interest-rate hikes. It became known as the bank’s “Vampire Unit”: under its Project Dash for Cash, financial terms were engineered to make more struggling businesses fail, so it could get hold of their assets cheaply. “Rope: sometimes you need to let customers hang themselves,” one internal bank memo said. An independent report said the bank wasn’t alone either: it found “profiteering and abhorrent behavior” all across retail banking. “Some of the banks,” it said, “are harming their customers through their decisions and causing their financial downfall.” This sabotage led to family breakdowns, heart attacks, and suicides.²¹

      Veblen made an observation about such behavior that remains relevant today. The fountains of profit that can ensue from this kind of rapacity and market rigging underpin what he sneeringly called “business sagacity.” We hear “business sagacity” every day from the leaders of politics, industry, and finance. We hear it when CNN or Fox brings out know-nothing bankers or financial pundits to applaud the latest merger-driven rise in the stock market, the latest deregulatory or tax-cutting gift to Wall Street, or a surge in banker bonuses or private equity activity, as if these things benefit the country.²² To the extent that these soaring profits are extracted from the veins of our economy, they are signs of rigged markets and economic atrophy, not health. As Veblen famously put it, “business sagacity reduces itself in the last analysis to the judicious use of sabotage.”

      Veblen and Tarbell were often pilloried by their contemporaries, yet they were both proved correct again and again, throughout the twentieth century and beyond. After her exposé of Standard Oil, Tarbell was vilified by sections of the media. “The dear girl’s efforts … are pathetic,” wrote one academic. She and her followers were “sentimental sob sisters,” wrote another. Rockefeller called her “Miss Tar Barrel,” a socialist, and “that misguided woman.” She pretended to be fair, he said, but “like some women, she distorts facts … and utterly disregards reason.” The vilification made her long to “escape into the safe retreat of a library” and be liberated from “harrowing human beings confronting me, tearing me.”²³ But in 1911 her investigations bore fruit. Standard Oil was broken up into thirty-four different companies, to become the forerunners of today’s oil giants ExxonMobil and Chevron, and even a part of British Petroleum. The breakup didn’t last, though: at a meeting in 1928 at Achnacarry Castle in Scotland, the heads of some of the biggest fragments of Standard Oil got together with some foreign rivals and hammered out a secret criminal deal to carve up the world’s oil industry into profitably collaborating fiefdoms.

      Veblen died in 1929, a few weeks before the great financial crash vindicated his big ideas. The crash, and the ensuing turmoil, fed dark forces that eventually plunged the world into bloody global warfare, still in the lifetime of Tarbell, who died in 1944. The work of Tarbell and Veblen, and history, contain warnings: these great financialized malignancies of capitalism must be tackled.

       CHAPTER TWO

       Neoliberalism without Borders

      Sometime in the mid-1950s a disagreement took place in the cafeteria of Northwestern University, in Chicago’s northern suburbs, between Meyer Burstein, a conservative economist, and his colleague Charles Tiebout, a high-spirited left-winger who was teaching microeconomics on the faculty there. The argument, when it started, was simply about high rents, but by the end it had developed into something bigger: a grand and influential new theory about how states and nations “compete” with each other. The two colleagues got on well enough as friends, but Tiebout was irritated that Burstein had become one of the fast-growing band of what he called Friedmaniacs, a group that blindly followed Milton Friedman, the Chicago School economist who was then on his way to becoming America’s financial godfather of the Right.

      Tiebout was “one of the funniest guys I have ever known,” said Lee Hansen, one of his only surviving close friends. Tiebout would imitate academic bigwigs in his classes, give them silly nicknames, and turn up to meetings in dungarees despite the university’s traditional suit-and-tie uniform. When a student’s father complained about a “socialist” book Tiebout had assigned as part of his course, Tiebout impishly got the dean to send a letter back stating, “This is to inform you that Professor Tiebout is not a socialist; he is a communist.”¹

      Tiebout was not in fact a communist; he was just a mischief-maker. Back then, though, communism was a risky thing to even joke about: Senator Joseph McCarthy had been conducting anticommunist witch hunts in Hollywood, government, academia, and other parts of American society. He had even accused George Marshall—originator of the Marshall Plan to block global communist expansion by providing aid to Europe after World War II—of having communist leanings.²

      Behind the fun, though, Tiebout did believe that government could do good. And at that lunch in the Northwestern cafeteria he felt the need to defend this belief when Burstein started griping about the high rents in the part of Chicago where he lived, which reflected high property taxes that paid for public services he didn’t use.

      “Why should I pay for good schools when I have no children?” Burstein asked.

      “But Meyer,” Tiebout said, “you don’t have to pay those high rents! Why don’t you just move to Rogers Park?”³

      Later that day Tiebout was chatting with an undergraduate student, Charles Leven. “You know, Chas,” Tiebout said, “I was absolutely right. People do have a choice over their local public goods and a way of showing it through their revealed preference simply by moving. In fact, that’s a damn good idea. I should stick to my guns and write it up!” In less than a week he had written a first draft, and he submitted it to the conservative Journal of Political Economy, which published it in October 1956 under the dull title “A Pure Theory of Local Expenditures.” Tiebout could not know it then, but his hastily drafted article would become, a few decades later, one of the most widely cited articles in economics.⁴

      A phrase in that conversation with Leven—“revealed preference”—ought to twitch the antennae of any mainstream economist. Tiebout was referring to Revealed Preference Theory, a concept the US economist Paul Samuelson had put forward in 1938. The basic idea was that while you can’t insert psychological probes directly into people’s minds to figure out their consumer preferences, you can do the next best thing: if you study their buying habits you can reveal their preferences and plug this data into the Chicago School’s elegant mathematical models and graphs. This data will allow you to study the effects of government policies and subject them all to the penetrating analyses of market economics.

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