The GameStop story, which is becoming more of a general short squeeze story, is a good example of what happens when an economy is fully financialized. Since there is little money to be made in making things or creating things, the best human resources flow into finance, where a bright person can get rich finding a slight imbalance in the marketplace for an asset or an error in the holdings of another player. The economy becomes a massive poker tournament with the central bank as the house.
If you step back and think about the transaction at the heart of this story, there is no moral or economic reason for it to exist. The practice of shorting a stock can have both moral and economic utility. In the former case, an investor seeing some corruption in a company or sector is letting the world know about it by betting against it with his own money. On the latter point, the blend of shorts and longs provides useful data about stocks and sectors for investors and planners.
When everyone at the table is using chips borrowed from the house and many of the whales at the table will never have to repay the house, both of these functions are flipped on their head. In the case of GameStop, some sharps were gaming the system in an effort to artificially deflate the value of otherwise good companies. GameStop is a solid little company that is an example of modern retail. They are a value-added retailer, which is the future in the world of digital commerce.
The point of the shorting activity was not to reveal some flaw in the company’s approach or signal a lack of faith in the retail sector. The point of the trade was to fool other investors into piling in on the short, so the price of the stock would collapse. This would allow the hedge funds behind this scheme to make a quick profit. The losers in this will be the people holding the stock and the company itself. Like all victims of piracy, their only crime was in trusting the system.
The neoliberal defenders of financialization will counter that the WallStreetBets activity is exactly the sort of self-regulation imagined when the process of financialization began in the 1980’s. Instead of government bureaucrats with no understanding of the market picking winners and losers, savvy players would do battle in the marketplace. In this case, clever traders saw an opportunity to raid the pirate ships raiding companies like GameStop and they carried off some booty for themselves.
This sounds great, if you are a pirate. There is no doubt that the people involved here love the action in the same way gamblers love it when some guy is on a huge roll at the craps table. It is an exhilarating drama, even for the observers. The thing is most people are not pirates and have no interest in being pirates. More important, they do not wish to be ruled by pirates. They do not want to live in a world of no fixed rules, just the shifting standards of the pirates making war in the economy.
This brings us to the purpose of having markets and rules to govern trade between people within a society. In order to have a society with any chance of survival, you have to have rules governing exchange between members. Otherwise, your society is a war of all against all. This opens the prospect of outsiders exploiting these constant divisions in order to conquer or destroy your society. Obviously, you want to prevent this, so the rules are designed to reduce division.
Put another way, economics is a tool. That tool is used to bind the people closer together, by rewarding the things that promote the common good and punishing those things that harm the common good. Inevitably, they help the society to strengthen itself against other societies. Just as males compete with one another for mates, societies compete with one another for resources and status. One is linked to the other as an immutable part of the human condition.
Neoliberalism reverses the relationship between society and economics. Instead of society wielding economics as a tool, pirates pick up parts of society and swing them around like flails at one another. In this example, a little company that probably should be private, is seeing its share prices stuffed into the cannons of financial pirates and fired at the ships of other pirates. When it is all over, the pirates will sail away to the next skirmish, while a little company lies in ruins.
This type of economics is inherently unstable. For one thing, the pirates must always be looking for new raiding opportunities. This is why the United States, the pirate’s cover of globalism, is always belching out raiding parties around the world. The quest for new plunder is insatiable. The constant war with Russia, for example, is over the pirate’s desire to financialize the vast natural resources of Russia. The Middle East is chaos, in part, because it is endlessly plundered by pirates.
More important from the perspective of the West, financialization undermines the institutions, because they become partners in the endless raiding. Instead of being the source of stability in a society, they are seen as aiding and abetting the pirates endlessly plundering the economy. Look around the West and the one universal thread is the public no longer trusts or respects its institutions. The people inside the institutions look out seeing nothing but sails on the horizon.
The age of pirates ended when the British government decided it was no longer in their interests to promote it. The British navy went out and sank pirate ships where they found them, and pirates were hung when they were caught. Eventually, order was restored to sea commerce. The modern world lacks an authority with the will and ability to bring the pirates under control. The public, on the other hand, demands such an authority, so eventually, they will find one or create one.
A new year brings new changes. The same is true for this site as we adjust to the reality of managerial authoritarianism. That means embracing crypto for when the inevitable happens and the traditional outlets are closed. Now more than ever it is important to support the voices that support you. Five bucks a month is not a lot to ask. If you prefer other ways of donating, look at the donate page. Thank you.
Promotions: We have a new addition to the list. Havamal Soap Works is the maker of natural, handmade soap and bath products. If you are looking to reduce the volume of man-made chemicals in your life, all-natural personal products are a good start. If you use this link you get 15% off of your purchase.
The good folks at Alaska Chaga are offering a ten percent discount to readers of this site. You just click on the this link and they take care of the rest. About a year ago they sent me some of their stuff. Up until that point, I had never heard of chaga, but I gave a try and it is very good. It is a tea, but it has a mild flavor. It’s autumn here in Lagos, so it is my daily beverage now.
Minter & Richter Designs makes high-quality, hand-made by one guy in Boston, titanium wedding rings for men and women and they are now offering readers a fifteen percent discount on purchases if you use this link. If you are headed to Boston, they are also offering my readers 20% off their 5-star rated Airbnb. Just email them directly to book at firstname.lastname@example.org.