What’s wrong with the new economy? Frankfurter Allgemeine Zeitung‘s editor Frank Schirrmacher gives the following answer: the toxic combination of three elements: Game Theory (which principles already govern competition and the markets), selfishness of homo economicus (tenet of the current radical market doctrine), and the complete digitalization of the economy. Nowadays stocks go from hand to hand at a disturbing speed. For how long, on average, stocks are in the hands of individuals and legal entities? The answer: 22 seconds. Not so long ago it was 4 years. How can one ask a co-owner to be held accountable if he/she holds the ownership for just 22 seconds. And if shareholders can’t, then who should be held accountable?
The above is not a traditional criticism against capitalism. Recently a capitalism criticism has unexpectedly emerged among German intellectuals. Schirrmacher, born in 1959 in Wiesbaden, studied in Heidelberg and Cambridge. He is a doctor in Philosophy and, since 1994, editor of the renowned German newspaper. Schirrmacher is the author of the book, Ego. The title is stealing hearts and minds because it questions the margins of freedom of States nowadays, facing an automatized economy based in a “radical selfishness and amoral”. Karl Blessing just published the book.
According to Schirrmacher, the capitalist system is getting out of hand to an extent that we can talk of a general manipulation by “the monstrous economy of nowadays”; which means “a new cold war where only your own benefit matters, and moral is not important”. A new economic dictate–where only automatic machines manage stock and exchange markets, like in Wall Street. Estimating that governments are loosing their independence and autonomy.
Therefore, democracies become puppets of the markets, the ball with which the monster plays. A game we will all loose one day.
In his book Ego, Frank Schirrmacher, criticises the fact that the inhuman model “homo economicus” has the power to govern the real economy and the individuals, society, institutions and democracy. This egoist model has information capitalism at its core due to a complete digitalization of the economy. Therefore market’s principles are universalised as if it were a casino. How did this happen? Schirrmacher points out: due to Game Theory.
The basis of the economic use of game theory has its origin in the pioneer essay of John von Neumann and Oskar Morgenstern, “Games theory and economic behaviour”, published in 1944. Today the Games Theory is a major tool for the analysis of political economy. In 1994 the North American professors John C. Harsányi y John F. Nash and the German Reinhard Selten, from Friedrich-Wilhelm University, in Bonn, where awarded the Nobel Economics Prize for their “fundamental analysis of the balance in the non-cooperative Game theory.
Game theory gained momentum during the Cold War. The Americans quickly identified the advantages this theory presented in the context of the conflict with the Soviet Union. It was later applied to the economy. Schirrmacher: “now it is not used against the soviets but against all of us.” The principles of Game Theory are behind all the mathematical programs used by investors, bankers, brokers and companies facing competition and rivalry.
On top of that, there’s a basic rule that makes every player follows it’s very own interests, in a rational way and with the sole aim of earning benefits. Where is it applied? In financial markets, in the derivatives business and the acquisition of companies. Selfishness is the basis of the radical market doctrine.
Schirrmacher has received criticism from Germany arguing that even though his is a Smart analysis of the current economy, he fails to give any solution. Instead he appeals to the real economy and expects SMEs to react.
According to the editor of the weekly Der Spiegel, Jakob Augstein, your latest book “is an intellectual joy and transmits a political signal of hope because scepticism (toward the current system) increases.” What’s the main problem of our economic system?
I will use the current euro crisis as en example, which is the most interesting case resulting from the application of the new economy. Every day, we listen to the same old song: politicians are trying to solve the crisis and the economic problems that come with it. But the truth is that, since the bankruptcy of Lehmann, politics are part of a game that as any poker game has one main goal: avoiding bankruptcy. And if wining is not possible, at least one should try to keep playing. What do I mean with this? Well, take Germany as an example. Mrs. Angela Merkel is only “buying time” with her European policy. On the other hand, we got so much used to these new rules of the new economy that we fail to realize they demand players a different rationality than the one we considered normal before the crisis. The most surprising thing is how fast our understanding of what is reasonable is changing.
Could you please tell me what is reasonable and what is not in terms of the management of this crisis?
This rationality can be defined from the Game Theory’s point of view. This Game theory–the modality developed by John F. Nash, which became an important strategic weapon during the Cold War. And also highlighted by senator Obama in 2004 referring to the Soviet Union–is based in a mathematical formula where all players look for their very own interests looking to achieve the maximum benefit.
An interesting and efficient model in the context of the bipolar and paranoid world before 1989. When no one wanted to be the first victim of the Atomic bomb. Nonetheless, when this model is applied to the management of the crisis, the rationality through which problems are seen changes. Imagine what happens when Maths are taking the stage: applied algorithms–following the principle of the Game Theory and maximum benefit–in the stock markets which, at the same time, act at a very high frequency. You may read the book Dark Pools. I recommend it. We know what was said about the American financial group AIG and the Federal National Mortgage Association Fannie Mae: “They won’t let us drown because with us the world will drown”. Or if we recall the words of the American businessman Warren Buffet in 2008 referring to the business of financial derivatives as “weapons of mass destruction.”
Is this a war?
It’s a new Cold War between the civil society and the modern financial markets. But it’s a situation we are not fully aware of because we all tend to judge these mechanisms from a moral point of view. And this attitude doesn’t take us too far; except for the case of events such Indignez-vous! (the French Stéphane Hessel’s essay) or the Indignados movement. However, it’s important to acknowledge the fact that a new rationality has emerged. So we need to ask ourselves what is rational and what is not. In my book I talk about all this. Politicians and financial players are asking themselves how a European country should act to operate reasonably. But the Game Theory sees following one’s interests as the rational thing to do. Hence, one’s interests might not necessarily meet the interests’ of the rest. And what I am saying is not a theory, rather the mindset of the powerful bodies we have nowadays.
In 2012 a study from Bank of America estimated that Europe would fall apart starting from Italy. The bank used the Game theory to built its argument, saying that “the price of the Italian rescue was too high; whereas the price of Europe’s disintegration was acceptable”. These kinds of evaluations have nothing to do with politics. The most serious thing is that these reductionists models, developed first to be used as investment strategies, might end up creating the reality they talk about.
What is happening nowadays in Europe sounds like a rational selfishness manual. Another example is the doctrine of reciprocal dissuasion that follows a rational behaviour by creating fear. Europe is only using fear as an argument: if you don’t do it this way, if you are not cooperative, you’ll drown. Something that I see as very alarming.
In Germany we have Merkel’s motto: There is no alternative. Yet, politics is a science that always entails alternatives. But since we forget about it, we find ourselves in a very delicate situation. Germany pays and others hate her because the popular argument among other countries is the following: Germans are paying little because they want to save themselves, but we pay the price for it.
How can we get back to normal?
Homo economicus was always just a model. Now it is part of a mathematical model and it is considered the ideal one in the context of the digital economic era we live nowadays. The fact that economists are the ones who talk about the monster or the Frankestein laboratories of Wall Street is not a coincidence. Like the former German federal president Horst Köhler, who was director of the IMF between 2000 and 2004. Reagan talked about the economics of the spirit, but it was a reaction against the deindustrialization system in the USA and the new digital wave. At the beginning it sounded good: the magic of an iPhone. When in the eighteenth century the vascular circulatory system was discovered, the economy took it as an image to explain their economic theories. Nowadays we take the nervous system.
Internet and the digital world are a nervous system. A system already described by Friedrich Hayek in the 50s: an economy with stimulus, investments and disinvestment. That’s why we are now all connected to this economy that comprises everything, from high-frequency markets to Facebook accounts. They all look for preferences: from Wall Street robots to Amazon’s algorithms able to automatically recommend books when one accesses their online store. Also the friends we find in Facebook represent the new economy. I am not a cultural pessimist. I think it is great Amazon recommends me some books. Nevertheless, I can’t overlook the fact that all the systems in this world are organized in the same manner. Following the efficiency model of Homo Economicus. A model where the only thing that matters are the preferences of all the actors in the market. Where these preferences come from is not relevant. In the context of digital economy there is nothing as efficient as the Game Theory to discover the preferences of those who are an active part of the market. As a result we live in a permanent auction state. Something that worries me a lot: life, success, achievements, one’s biography… Everything is permanently evaluated in a permanent auction. Which means that each and every one of us must be able to always sell oneself as if one where in an auction.
Mr Schirrmacher, do we need a new capitalism?
Germany had a new capitalism; the social market economy. It would have been a success if exported globally: A vision, a good idea for Europe.
Brussels want to cut bankers’ salaries, symbol of the financial crisis’ greed. The German SPD party wants to make the fight against the disproportionate financial system the tenet of their electoral campaign. Because the Germans support a bigger control of the Banks. The very Bundestag now wants to limit the computerized business with stocks. The financial expert, Carsten Sieleing, from the SPD wants the ownership of stocks to be at least longer than a minute and a half. Is that enough? Are we on the right path? Or the financial world has already gotten out of hand?
Indeed, there are things being done. I follow the debate about the need of limiting the high frequency commerce. However, I think we must question the rationality behind presumably rational actions. Thus, for instance, now everybody thinks is not rational to talk about an idea of Europe that requires money as a way to ensure European cooperation. Why this has to be irrational? Or isn’t politics also in charge of moving things that are not part of the economy? Well, what we are living is actually the opposite. And the worst thing is that even the Law has become a commercial priority. Something that sometimes is valid but sometimes is not. How could some European politicians seriously suggest that elections won’t be held in the South for some time? In other words, people won’t vote to avoid creating greater market insecurity. I understand why they are worried. But I also understand this is the path toward a permanent state of emergency.
In Spain there is the feeling that the Germans are here to tell the South how to do things well. Does Germany get everything right?
After the bankruptcy of the investment bank Lehman Brothers, the former president of the American Central Bank Alan Greenspan said that incredible sentence: “Our entire mental structure has just collapsed.” That’s why I’d rephrase your question. From my point of view this crises could be an opportunity to politically review our way of thinking. Economy is not an exact science. Neither are physics, even though they constantly affirm it is. Merkel’s physics, as well as many other European politicians’, should do what they already know they should be doing: give priority to politics ahead of pure economics. If not, economic imperialism will intervene economizing everything, including private life. This is the madness of many politicians: be able to manage societies through behavioural economics. But we have already seen that through incentives one can’t govern well enough a society. There’s always the need to make a social and political decision. And only the money and the benefits can achieve so. And there is exactly where a great part of the political debate is failing nowadays.
Also in Germany the trend is moving toward greater social inequality. Specially due to the divisions created by the labour market when they separate precarious, temporal and bad paid work, from the qualified and well-paid job. We also see a strong division in education. Between the well educated kids from accommodated social clases and kids from poorer families. There’s also the retirement dilemma. Which ideals do we need? How to fight for them?
In my opinion, the issue of how we see the future is the most important point. One of neoliberalism’s collateral effects comes with a slogan: “one is responsible for one’s luck”. Before Lehman’s fall, the esoteric book “The secret” was a world best seller. The message was pretty clear: “you can have it all. The only thing you need to do is wanting it”. This is the trivial version but is very interesting as a cultural symptom. The journalist Barbara Ehrenreich explains she attended one of the “Secret” classes until one day she told her mentor: “it doesn’t work”. He replied with a question: “you mean it doesn’t work with you?”. I see in this anecdote an example of what we are going through. Everything is possible: you can be a Youtube star, be famous and rich! Everything is possible, but, unfortunately for you it is not. The “economy of spirit”, that evaluates and sells thoughts has also economized our soul. This is like when Alchemists wanted to turn lead into gold. And since they couldn’t make it work they said it was due to the soul, that it wasn’t pure enough”. This is the new orthodoxy.
And how we change it?
I’ll quote the book of Linkedin’s chief, the biggest professional platform in the world. He says something like the following: “do not hold on yourself. Instead become a liquid matter, you are a different person every moment”. To put it simple: where there is no Me –what is something more than his/her economic priorities-, you don’t need to be loyal, you don’t need long term contracts. Here we get very close to the mathematical games they used to play with us in current economy. My suggestion is: do not play.
What does do not play mean in the case of Europe?
In particular, not to play would mean both for Europe and Germany deciding that these continent and its youth is highly valuable for all of us. But it should be us who put the price for it, not the stock exchange. How much is a cooperative Europe? What sovereign rights and competences do we have to transfer, also Germany, to build a strong continent? Europe is not Ayn Rand (the Russian writer that defended rational selfishness and laissez faire capitalism, rejecting socialism, altruism and religion). It is not China either. The vision you were asking for earlier can be found in our history books. To be clear, Europeans will have to decide what price are we ready to pay for a cooperative Europe. Not for an egoist Europe.