America’s biggest financial bubble burst in 1929 and then the bubbles went away for fifty years until they started re-appearing in the 1980’s as the American economy became increasingly bubblicious, leading to the crash of 2008. The book Griftopia by Matt Taibbi is the story of how the grifter class brought the bubbles back through a campaign of political lobbying aimed at both policy-makers and the general public.
The key to reviving a bubblicious financial system was getting rid of the regulations designed to prevent bubbles. In order to sell the de-regulatory proposals it was necessary to offer something in their place, and that something was the concept of self-regulation. As ridiculous as the concept sounds, the advertising campaign for it was successful and this book provides an insightful explanation as to how it was done.
Taibbi gives us an excellent example with Alan Greenspan of the disconnect between what we’re sold and what we actually get. As Taibbi writes, “Greenspan’s rise to the top is one of the great scams of our time. His career is the perfect prism through which one can see the twofold basic deception of American politics: a system that preaches sink-or-swim laissez-faire capitalisms to most but acts as a highly interventionist, bureaucratic welfare state for a select few … If you can see through him, the rest of it is easy.”
Taibbi makes clear how Greenspan was the archetypal player among the priestly class of corporatism. Greenspan used his economics background to provide a thin veneer of academic respectability for each proposal to increase self-regulation. Without this academic endorsement the magical mechanisms of market-induced restraints would’ve been painfully easy to see through.
The book documents the pattern that played out repeatedly where the financial industry lobbied policy-makers for regulatory changes, while at the same time lobbying public opinion by promising rich rewards if the changes were implemented and dire consequences if they were not.
Taibbi more than amply justifies his characterization of the financial industry as grifters. He shows how they mis-represented their product offerings. They never came out and said that their gambling schemes were designed to scoop up money from everyone else and shift it into their own pockets. Instead they presented each new scheme as a magical plan to shower profits on all those who were true believers in these seemingly too-good-to-be-true opportunities. The impression was that the grifters would be taking only a small share of the take, with the majority of the benefit accruing to the public at large. This is the grifter modus operandi.
Books such as Griftopia are essential both to the democratic process and the economic future of the country. It’s imperative that significant segments of the populace become sufficiently capable of discerning the difference between advertising and economics. As essential as a book like this is, it can be a tough sell because many people want to hang on to what they think they know. Taibbi’s message can be a difficult one because it requires us to give up the something-for-nothing fables that the grifters lured us into with the help of their priestly class allies.
There’s plenty at stake here. Bubbles produce massive misappropriations of capital which cause serious damage to the long-term growth of the economy. It is the job of the financial industry to direct capital into the most productive ventures. It has become necessary for the public to insist that this industry get back to doing its job. It will also be necessary to insist that decisions be made based on the empirical record which is pretty clear about how poorly self-policing policies have worked in the past. The current gas price surge in the absence of any change in the supply/demand ratio is an excellent illustration of how the bubble pushers continue to rob us.
If the principle of self-regulation is ever going to be repudiated unequivocally then the public needs to get its head out of its ass, and this book is a great place to start.
On a personal level, my favorite aspect of this book is the fact that the author himself is a vindication of my view that there are heroes out there willing to endure all of the conflict and recrimination and slander and accusation in order to defend those of us outside of the grifter class.