Whew. Also, Bailouts and the Neoliberal Dilemma

So, it turns out being in grad school is very busy-making. I have had several medium-length post-ideas come and go this week, but I have too busy with school and school-related socializing to do much else. I think things have calmed down a bit now that I’ve finished a presentation (in my science studies course) and generally started to get things settled. In any event, still too busy for one of my epic posts, so here’s a short version.

There’s been a lot of news of late about financial bailouts – Fannie and Freddie, Lehman Brothers (just announced today), etc. While interesting on their own, these bailouts are particularly interesting in the light of the supposedly neoliberal regime running the show (headed by, as the Daily Show likes to call him, “Still-President Bush”). One of my advisors has a neat, and fairly recent, paper on central banking* and what she calls the “neoliberal dilemma”. Here’s the abstract to get a taste of the paper:

This article explores the implications of the Federal Reserve’s shift to transparency for recent debates about neoliberalism and neoliberal policymaking. I argue that the evolution of US monetary policy represents a specific instance of what I term the “neoliberal dilemma.” In the context of generally deteriorating economic conditions, policymakers are anxious to escape responsibility for economic outcomes, and yet markets require regulation to function in capitalist economies (Polanyi 2001). How policymakers negotiate these contradictory imperatives involves a continual process of institutional innovation in which functions are transferred to markets, but under the close control of the state. Thus, under transparency, Federal Reserve officials discovered innovations in the policy process that enabled “markets to do the Fed’s work for it.” These innovations enlisted market mechanisms, but did not represent a retreat from the state’s active role in managing the economy. [Emphasis added]

I think the recent bailouts are an excellent follow-up to this line of thinking, but also demonstrate the limits of the ability of the state to maintain the neoliberal illusion that state, society and market are separate. In the case of Bear Stearns, and presumably soon with Lehman Brothers, the government performed a half-market bailout – letting one company buy another to salvage the system, but providing funds and guarantees to make the buyout possible.

On the other hand, Fannie and Freddie already stretched the plausibility of the neoliberal model, with their implicit state-backed mortgages. Sarah Quinn, of UC Berkeley, had a really interesting presentation at ASA about the history of Fannie and Freddie, and how the federal government managed to create a market for mortgages where previously there was almost none by creating this huge, at the time public institutions. Then, during the Vietnam war, Fannie and Freddie were privatized (in part), to hide some of the war costs (as the government books did not take into account lost revenue from Fannie and Freddie’s profitable mortgage business, but simply marked the whole sale down as profit). Now, 40ish years later, Fannie and Freddie faced failure, and the government had to step back in officially. The tactics Greta discusses in her paper – of, say, the fed declaring it’s going to do something and then the market making it true without the fed having to bother to actually take action – failed here. Paulson asked Congress for the authority to bailout Freddie and Fannie, assuming that simply having that authority would prevent the need to use it. This time, of course, that did not work, and the neoliberal state was forced to intervene very directly in the market it had established and then, as if a jewel thief, carefully wiped its fingerprints from.

* The paper also contains an excellent, brief description of what it is that central banks actually do. I was blown away by how much can be explained in just a few pages, and it made me hopeful for future work I want to do that requires readers to understand Free and Open Source Software (FOSS). If Greta can explain the basics of central banking in 10 pages or less, I should be able to do so for FOSS without problem.

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