Mark Blyth (4): Why they call it “going for broke”

Click to listen to Chris’ conversation with Mark Blyth (20 minutes, 10 mb mp3)

Photo from Mark Blyth’s Austerity video

Mark Blyth confirms the the sneaking suspicion that the meltdown is still melting down — and that you get sharper economic news in from the noisy guy in a Glasgow pub than from the newspapers covering the IMF sex scandal.

“It’s like watching Fukushima — it literally is.” First: how could this happen? Then: ah, they didn’t build the wall high enough, whatever. An institutional design problem! World catastrophe averted, but then another crisis, and another. Then a kind of creeping meltdown. Not on page one any more. The problem isn’t fixed, but people are used to it. “In the Eurozone, it’s ‘Oh, yawn, another European crisis. Uh, tell me something I don’t know.’ You know what? Eventually this thing gets to a tipping point. You don’t know where it is, and then bad things happen.”

We haven’t learned a damned thing from the banking crisis. Dodd-Frank will basically put a little bit of a speed bump into the road and some airbags into the car. Other than that the model remains unchanged. And because of that, we are now more exposed and more at risk than ever. There’s no reason that this model won’t go bang again, and the next time they do that, they won’t be landing on public balance sheets with a 40 percent debt to GDP ration, they’ll be doing it with 80 percent. And that means there’s no money to bail them next time. So when they go down next time they really go down.

Now if you’re a banker at the top of the game you know that. So what’s your incentive? Is it to play nice, to reduce your profitability, to downsize your business? Or is it to go for broke before the whole thing goes up? We’re not going to bankrupt ourselves because of the so-called profligacy of the state. This is all politics by other means. What’s going to get us once again is a credit cycle: a super-boom followed by a  super-bust. Only this time we’re doing it on really highly-levered state and public balance sheets. That’s the real problem. We’re kicking the state and the state is the thing that will save you. We’re kicking away the foundations of the building that we’re relying on to protect us from the hurricane as the hurricane approaches. It’s beyond stupid.

Political economist Mark Blyth with Chris Lydon at the Watson Institute, Brown University, May 25, 2011.

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  • The ROS interview with Mark Blyth is illustrative of a first-class ability on Blyth’s part to see the fragility-nomics behind the mood-control efforts of central banks and Obama-type perorations which are escapist.

    However there’s another dimension to these analyses which is “orthogonal” or equidistant to these two “planes,” ie. the Establishment mood-control adhocery one versus the fragility expose one.

    Fragility-nomics a la Byth/Taleb is roughly a contrarian-economics setting for a Robert Kaplan-type world of “the coming anarchy”.

    This senses an out-of-control accident-prone “black-swan” ricochet system leading to some kind of ungovernability crisis or frank meltdown. It is incisive in its way and a great corrective to orthodox economics which is clueless.

    There is another possibility of course: with the right statesmanship, (Franklin Roosevelt II meets Alexander Hamilton II) all the debt structures could be ‘folded into” a new world order dependent on West/Third World/Opec coordination with Third World Development as the locomotive.

    The obstacle in the road causing the world political “traffic jam” blocking this “punctuated equilibrium” (sudden pent-up saltation into new global system) is Zionism on a world scale which keeps promoting a conflict of civilizations and blocks a rendezvous of civilizations.
    (the phrase punctuated equilibrium is explained in the writings of the late Harvard biologist Steven Gould, in his final Harvard University Press opus on the theory of evolution).
    With massive West/Third World/Opec/G-20 coordination one could morph into the next world-system and sidestep any systemic “coming anarchy” and terminal Blyth/Taleb “fragility-nomics.”

    This would presuppose not something economic but something political:
    President Obama finally realizing that appeasement won’t work with Netanyahu and his Congressional amen corner but involves the breaking of Netanyahu by any means necessary.

    Failure to win this “knife-fight” means the out of control and rudderless global ship of state floats in an ocean of “black swan” mines indefinitely.

  • Maybe the future is public/private partnerships for nation states:
    I think the future is more Demolition Man than Mad Max: you are now entering “Goldman Sachs, Barclays and HSBC present ‘Ireland'”?

  • The politics is a sort of excuse making machine for over consuming what we can’t afford. Our living standards are too high and what’s amusing is that the working class wages haven’t gone up in real terms in 50 years.

    So who really wants to burst this bubble when everyone knows that it’s working people who’ll be told to take the burden of higher prices and lower wages and not those who are actually in control.

  • MarcMcElroy

    Another refreshing outlook on economics. I can’t get enough of Mark Blyth with Christopher Lydon, a man who knows how to ask questions and a man who actually answers them. I listened to all these Mark Blyth appearances multiple times. Thanks again, and bring him back as much as you can stand it.

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  • Tom

    I’m reading this post a few months after it was written. You were spot on about the economy continuing to melt down. I’m defaulting on my mortgage and the only thing Dodd-Frank has done for me so far is to give me a form to sign saying that I can’t get help on my loan if I’m a criminal. And exactly how is that helping the consumer?

  • I loved your blog post.