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Hegel, Deleuze and the dollar

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Hegel, Deleuze and the dollar
Tobias
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Posted 03/20/09 - 02:13 PM:
Subject: Hegel, Deleuze and the dollar
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What is happening with the Dollar? Recently, I learned the fed has taken quite drastic measures, printing money. This will lead in turn to higher prices and a weaker dollar. How should we look at the world in the credit crunch? Possibly it will lead to a situation in which the dollar is no longer the default currency, perhaps we will see a multipolar world also in the financial world. Another possibility is that the dollar gets dumped by all nations who own them. This will lead to a downfall. Perhaps too a new reserve currency will be realised, but also that spells doom for the American economy. I am wondering how we can analyse such a situation. I am thinking of two methods, a Hegelian analysis of capitalistic economy, or a Deleuzian analysis.

Lets first try a Hegelian view. The Hegelian view sees a pyramid like world, in which the top always gets toppled to reach ever higher. Hegel prophecised that the spirit would move from Europe to the US and so it did. The European warring nations were taken up under the umbrella of US protection and have reconciled their differences. The reason for this umbrella and the reason that Europe accepted this loss of sovereignty was the thread of communist soviet union. What happened after the fall of the SU? Actually quite quickly, 20 years the economic system of the west is in a crisis.

This crisis can be analysed from a Hegelian perspective. The capitalist economy thrives by taking risks. One draws credit to invest it and earn more than the credit costs. One literally makes money. Now this money making carries risks, what if your investments go wrong? This is risk taking which should be assessed. The same risk is carried by the banks which supply the money for investors to make money. So they also need to assess risks vis a vis benefits. In last instance these banks take risks by lending money to people who take risks and the government is compelled to take risks to guarantee the individual savings which are put in banks which takes risks. The risks are spread everywhere, but the name of the game continues to be risk taking, a continuous risk taking, one is creditor to A, but debtor to B. If these streams of risk are still profitable, everyone profits. But inherent to risk is that there is uncertainty and if one plays the game of risk long enough, risks will realise themselves. So the game of ever more risk taking has an inherent inconsistency which makes its downfall inevitable. Risk is the core principle and can't be regulated, so the inherent contradiction makes this paradigm fall.

We are witnessing the fall now. Of course we will not embrace its opposition, planned economics. That would be totally unhegelian. Planned economics was negated by capitalist economy when globalisation set in, it already fell. The negation of the capitalist risk based economics would be a precautionary economics. No longer will we earn money by taking risks, but by being overcautious, strict regulation of financial markets, trust between investors only based upon mutual show of precautionary measures. What it will look like exactly we can't know, but it will not be communist, nor capitalist, but a response to the risk based capitalist economy.

A Deleuzian approach would see the following: Deleuze foresees the downfall of the whole Hegelian system of ever higher, more rational, more self reflective organisation. This idea is something for the world of the past, but not the multi polar world of today. Do we see that happening? Will this crisis be a move in a series of fragmentation as the whole post modern movement sees reality? In that scheme the ever reining dollar is an anomaly, doomed to disappear, just like the whole notion of super power. What will be left is a number of different power centra, which are all related to one another. Multiple different economies and mixed economies will emerge. The financial flows, just like the information flows, the technological assemblages and the migrations of people are not stoppable, or logically controllable. We will see a number of financial centres and ever shifting power structures based on a number of different criteria, military strength, but also artistic appeal. The Brazilian Samba might attract the brains of the nations, just as much as the art of Europe or the liberty of the US.

The whole analysis of the crisis is nonsense in this kind of view because it still holds on to the idea of a human subject stabilising the flow around him, but the human subject is dead. We have only flows of money, people, and information and these forces do not necessary assemble at a highest point, but assemble locally where it is profitable to do so and it will disassemble again when other conditions are more favourable. In this analysis we will ever have the stable world of one or two superpowers, but a multi polar world in which mobility is all. I might more to the US or to China, or to Johannesburg and so will power. The externalisation of power, currency, was the last recourse of a stable universe. Money lived in America. But perhaps this is the end of that idea and the beginning of a new world order, a multipolar world order where every Hegelian logic of fall and resumption is dead.

Edited by Caldwell on 03/22/09 - 12:41 PM

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Caldwell
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Posted 03/22/09 - 01:00 PM:
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This is a very good post. One that compares hegelian and deleuzean perspectives.

I would opt for both perspectives. They both have logical push. Societies want order and stability. This is how we understand reality. Or rather, this is how we want to understand reality. And so we do. The Hegelian view of order is such a world. There is always the higher place or higher ideal to strive for.

At the same time, we also do not want to just sit back and let nature takes its course and carry us to where it goes. This is like waiting for the paint to dry. We want a hands-on relationship with everything. So, we take actions, we take risks, amidst some uncertainty, amidst bleak forecasts, and amidst the psychological and emotional sway of the financial or commodities markets, for instance.

Capital moves, labor moves, demands turn, information changes. Those who take the most risks sustain the most damage. The US has been very good in moving all of these: information, capital, labor. And it is very good in taking risks, and so naturally, it is understandably where the crisis started, but not without the help of other wealthy nations.
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Posted 03/24/09 - 05:22 AM:
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This crisis can be analysed from a Hegelian perspective. The capitalist economy thrives by taking risks. One draws credit to invest it and earn more than the credit costs. One literally makes money. Now this money making carries risks, what if your investments go wrong? This is risk taking which should be assessed. The same risk is carried by the banks which supply the money for investors to make money. So they also need to assess risks vis a vis benefits. In last instance these banks take risks by lending money to people who take risks and the government is compelled to take risks to guarantee the individual savings which are put in banks which takes risks. The risks are spread everywhere, but the name of the game continues to be risk taking, a continuous risk taking, one is creditor to A, but debtor to B. If these streams of risk are still profitable, everyone profits. But inherent to risk is that there is uncertainty and if one plays the game of risk long enough, risks will realise themselves. So the game of ever more risk taking has an inherent inconsistency which makes its downfall inevitable. Risk is the core principle and can't be regulated, so the inherent contradiction makes this paradigm fall.

The problem with this analysis is that while taking risk may be an inherent part of the capitalist paradigm, failure is not usually a problem. The problem is when you have a large volume of investments going wrong at the same time. A cluster of errors. The collapse of a speculative bubble in other words. And the longer these bubbles go on for before collapsing, the larger they get, the more people are sucked into them, the greater the damage when they do finally collapse.

So the question becomes: Are speculative bubbles an inherent problem for a capitalist system based on risk? I would argue not. Your assumption is the lack of institutional interference is what allowed the problem to emerge. I would argue that it was institutional interference itself that allowed the bubble to form and to go on for so long before collapsing.

A market economy has a built in mechanism to discourage failure and encourage success. It's called profit and loss. When a speculative bubble forms, it is indicative of a weakening of this mechanism in effect. Bad investments are allowed to go on making a profit when they should be making a loss. This encourages more investment to follow bad investment decisions and the bubble can expand. Eventually the market must correct or else break down and this is when the bust happens.

I've explained many times on these forums how institutional interference can weaken this crucial mechanism of a market economy. I shalln't repeat myself here unless it becomes neccessary. My main point being that just because risk is an essential part of a capitalist economy, it does not mean that failures are a problem for the market economy. It is only when there is a cluster of failures that a problem arises and I don't think this is an intrinsic problem of the market economy and risk taking.

In fact, risk and speculative action can never be eliminated because the future is always uncertain. Even in a centrally planned, command economy, risk is still present. The planners have to takes risks when the attempt to predict what will be needed in an uncertain future. Things will go innevitably go wrong in their plans. The difference however is that the planners do not have to worry about a fickle consumer that may not choose to buy what has been produced and in sufficcient quantities. They must take what they are given.
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Posted 03/25/09 - 02:23 AM:
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Fried Egg wrote:

Bad investments are allowed to go on making a profit when they should be making a loss. This encourages more investment to follow bad investment decisions and the bubble can expand. Eventually the market must correct or else break down and this is when the bust happens.

I've been hearing some analysts say the word "fraud", which certainly is against the free market economy principles. Fraud is what took place before the collapse in the housing market, when, the bad loans (knowing they're bad loans because of lack of qualifying income and/or job) were re-packaged into bundles of securities, and re-sold to investors, hiding the true nature of these products.

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Posted 03/25/09 - 02:40 AM:
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Caldwell wrote:

I've been hearing some analysts say the word "fraud", which certainly is against the free market economy principles. Fraud is what took place before the collapse in the housing market, when, the bad loans (knowing they're bad loans because of lack of qualifying income and/or job) were re-packaged into bundles of securities, and re-sold to investors, hiding the true nature of these products.

Well, if fraud genuinely took place, it should be prosecuted. However, I am not so sure that this was a general phenomenon.

I think the idea is something like this. If you bundle together two risky investments into one, the probability of their both failing (mathematically speaking) is less than them indiviually failing. As long as they are not highly correlated, this is all well and good. The problem is if they are highly correlated. And this was exactly the case and what caused these bundled securities to go "tits up".

I don't know whether you should really call this fraud. Were the purchasors of these bundled securities lied to exactly? Maybe they just didn't ask too many questions?
Tobias
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Posted 03/25/09 - 03:44 AM:
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A market economy has a built in mechanism to discourage failure and encourage success. It's called profit and loss. When a speculative bubble forms, it is indicative of a weakening of this mechanism in effect. Bad investments are allowed to go on making a profit when they should be making a loss. This encourages more investment to follow bad investment decisions and the bubble can expand. Eventually the market must correct or else break down and this is when the bust happens.

I've explained many times on these forums how institutional interference can weaken this crucial mechanism of a market economy. I shalln't repeat myself here unless it becomes neccessary. My main point being that just because risk is an essential part of a capitalist economy, it does not mean that failures are a problem for the market economy. It is only when there is a cluster of failures that a problem arises and I don't think this is an intrinsic problem of the market economy and risk taking.


I think the idea is something like this. If you bundle together two risky investments into one, the probability of their both failing (mathematically speaking) is less than them indiviually failing. As long as they are not highly correlated, this is all well and good. The problem is if they are highly correlated. And this was exactly the case and what caused these bundled securities to go "tits up".


But this is exactly what I mean. A. capitalism's focal point is the fully free market. But since there is never such a market interventions will be ecessary. The foundation of capitalism is inherently contradictory, A. one should not interfere with the market and B. There should be a fully free market, but the two tken together are inconsistent and than a Hegelian analysis would have it that this contradiction will at some point prove the dowfall of the system.

Than the risk business. Also that can be analysed in a similar vein. In order to contain risks one bundles more and more investments. This goes well if these investments are uncorrellated. However since more investments get bundled with each other, investments get correlated and tangled up in ways that will not be foreseeable anymore. And so an intrinsically sound judgement, spreading risk, will lead to a risky situation because by spreading all investments eventually get infected and when the risk finally comes to realise itself there is no safe haven anymore.

As with the example of intervention, a certain "nothingness" lies at the core of the capitalist economy, the fiction of the free market, which drives the system, but it never realised and the nihilating concept of risk. Risk introduces uncertainty, a certain lack, a negation, to curb it one negates the negation by spreading and diffusing it, only to create a further negation, namely the instability of the whole system instead of one private investment.

(This is all well and good, I know, perhaps there is no better system and this is just a temporary markt correction, possible. I am just playing around with frameworks for analysis)

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Posted 03/25/09 - 05:47 AM:
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Tobias
But this is exactly what I mean. A. capitalism's focal point is the fully free market. But since there is never such a market interventions will be ecessary. The foundation of capitalism is inherently contradictory, A. one should not interfere with the market and B. There should be a fully free market, but the two tken together are inconsistent and than a Hegelian analysis would have it that this contradiction will at some point prove the dowfall of the system.

I have read this paragraph 3 times over but it still doesn't make sense to me. Surely points A. and B. are the same? If so, how can they be inconsistant?
Than the risk business. Also that can be analysed in a similar vein. In order to contain risks one bundles more and more investments. This goes well if these investments are uncorrellated. However since more investments get bundled with each other, investments get correlated and tangled up in ways that will not be foreseeable anymore. And so an intrinsically sound judgement, spreading risk, will lead to a risky situation because by spreading all investments eventually get infected and when the risk finally comes to realise itself there is no safe haven anymore.

Only when they are based on a speculative bubble do you get this clustor of correlated errors. And it is precisely my point that such speculative bubbles are caused/exasibated by institutional interference in the markets.
As with the example of intervention, a certain "nothingness" lies at the core of the capitalist economy, the fiction of the free market, which drives the system, but it never realised and the nihilating concept of risk. Risk introduces uncertainty, a certain lack, a negation, to curb it one negates the negation by spreading and diffusing it, only to create a further negation, namely the instability of the whole system instead of one private investment.

Isn't that exactly what's happening now? By bailing out the banks and buying the "toxic" assets we are socialising the risk, spreading it out even further meaning that society itself must stand or fall with success or failure of the policy (rather than just the specific sectors directly exposed).
Tobias
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Posted 03/25/09 - 12:19 PM:
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I have read this paragraph 3 times over but it still doesn't make sense to me. Surely points A. and B. are the same? If so, how can they be inconsistant?


I am sorry, I phrased it wrong. There should be a fully free market, with perfect information, fully free entry etc. That is teh capitalist focal point. But such markets never realise themselves. Market parties block access to markets, engage in kartels etc. In the name of realising a fully free market the state intervenes. But a fully free market is a market without state intervention there the paradox lies.

en they are based on a speculative bubble do you get this clustor of correlated errors. And it is precisely my point that such speculative bubbles are caused/exasibated by institutional interference in the markets.


If capitalism makes money taking risks, than it is a good idea to spread the risk, but the more you spread it, the more all investments become interconnected and the graver the consequence of an investment going wrong are. Perhaps a bad investment is allowed to 'rot' more easily with intervention, I can't judge that, but the logic is the same. One doesn't want one investment to go belly up, so one will spread the risk around and if one makes a loss one will try to compensate for this with other investments which also involve risks and so on.

Isn't that exactly what's happening now? By bailing out the banks and buying the "toxic" assets we are socialising the risk, spreading it out even further meaning that society itself must stand or fall with success or failure of the policy (rather than just the specific sectors directly exposed).


Exactly, this follows the same logic, we spread it more and so is another negation of the problem which will, because the same inconsistency is still there, causes another even graver collapse.

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Posted 03/26/09 - 01:03 AM:
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Tobias
I am sorry, I phrased it wrong. There should be a fully free market, with perfect information, fully free entry etc. That is teh capitalist focal point. But such markets never realise themselves. Market parties block access to markets, engage in kartels etc. In the name of realising a fully free market the state intervenes. But a fully free market is a market without state intervention there the paradox lies.

Ah, I see what you're saying. I'm fully aware there's no such thing as perfect information, zero transaction costs, etc. in a free market but I don't see these things as being necessary for a market to be free. I certainly don't favour government intervention to try to make it more "free". Such a notion is contradictory, I agree. You don't make a market more free by intervening.
If capitalism makes money taking risks, than it is a good idea to spread the risk, but the more you spread it, the more all investments become interconnected and the graver the consequence of an investment going wrong are. Perhaps a bad investment is allowed to 'rot' more easily with intervention, I can't judge that, but the logic is the same. One doesn't want one investment to go belly up, so one will spread the risk around and if one makes a loss one will try to compensate for this with other investments which also involve risks and so on.

I don't think that pooling risk necessarilly increases the risk of systemic failure. Only to the extent those risks become highly correlated And that has nothing to do with how much risk has been pooled.
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Posted 03/26/09 - 05:13 AM:
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Fried Egg, in certain cases I do think government intervention, especially where it concerns obligations of providing information to consumers, is beneficial for increasing competition due to informed decision as a consequence of standardised information.

Although it limits the freedom of suppliers in how to or which information to provide, it increases competition, however, for consumers as there is more information available or at least information that's more easily comparable. Although the demand for information is a market in itself, there is such a large discrepancy between the power of market actors there; producers with all the knowledge and consumers who are laymen, that such markets are inherently unfair. Add to that the insistent misinformation represented in advertisement and we have a recipe for fraud.

Now, this is not to say that most such obligations have gone into the extreme in certain cases but some guarantee for consumers to a minimum level of information seems a very healthy and supportive government intervention, e.g. in principle it can be a good thing when applied properly.

I think blanket statements that intervention limits the free market should be qualified that they always limit the freedom of certain market actors but might have overriding beneficial effects.

Personally, what I wish the synergy will bring about is smart deregulation, at least in the Netherlands, but I think we will be faced with increased stupid regulation.

As managers are blamed people forget that the incentives and instruments for several banks were created by governments in the first place. A start for a solution of this crisis is to remove these regulatory incentives and instruments, that means major changes in monetary policy and especially letting go of the idea of unlimited, unbounded growth.

The Special Purpose Vehicle should also be killed.

By minimising the monetary influx of money people will most likely start investing more in the long run of companies instead of day trading in their stock, which simply no longer has anything to do with investments nowadays. Some speculation smoothes out the market but the way it has been going on in recent years basically meant large financial institutions were gambling with pension money AND they damn well knew they were gambling.

Certainly such changes would mean slower growth but the growth would be steadieder and healthier and due to presumably much lower levels of inflation the wage-earner doesn't quite get fucked over as he is now.

The main issue with corporations and banks is to ensure transparancy. Not through Sarbanes-Oxley monstrosity (as reaction to ENRON which was purely a SPV problem again!) but something more simple but effective - did I mention it before? - abolishing SPVs.

Obama is humping the pump in an effort to re-inflate an economy that looks more like a balloon with a 55 caliber bullet hole in it. - Joe Bageant
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