The Revolt of The Public and the Crisis of Authority in the New Millennium

Barack Obama’s election to the presidency offered this class one last chance at redemption. Candidate Obama had called the crisis “the logical conclusion of a tired and misguided philosophy that has dominated Washington for far too long.” ⁴⁶ Once in office, President Obama reiterated the thesis that “failed economic theories” had brought the crisis about. “I reject those theories,” he asserted bluntly. ⁴⁷ Political considerations, the new president argued, had corrupted expert judgment in the Bush years. A new team, free of such animal spirits and guided by sound economic theories, would restore the country to prosperity.

The economic stimulus legislation, crafted by administration experts and passed by Congress in February 2009, implemented the president’s thesis. To help sell the \$787 billion package, two White House economists, Christina Romer and Jared Bernstein, provided hard projections of how the measure would bring down unemployment. ⁴⁸ Their report, I’d like to think, reflected the sincerity of President Obama’s intentions, but it was a political miscalculation.

Unemployment stood at 7.3 percent as of December 2008. Romer and Bernstein calculated that, absent a stimulus, it would climb to around 9 percent by early 2010, but with the stimulus in place it would peak lower, at 8 percent, and it would decline faster, by the middle of 2009. Here was a bold attempt at prophecy by the new team of experts: in the event, it was wildly over-optimistic. Unemployment peaked at 10.1 percent after the stimulus bill passed, and didn’t touch 8 percent until late 2012—much worse than the worst-case projections without the stimulus. ⁴⁹ In human terms, the White House numbers had missed the plight of over three million unemployed Americans.

Nate Silver offered two reasons for Romer and Bernstein’s disconcerting failure at prediction, and neither of them seemed flattering to the expert class. The first was ignorance of actual economic conditions. The economy in 2009 happened to be in far worse shape than the experts, for all their statistical wizardry, had realized. The second reason was overconfidence in tracking the trajectory of unemployment. It had never been possible to predict the movement of major economic indicators, such as unemployment, with anything like the decimalpoint accuracy claimed by Romer and Bernstein. ⁵⁰

Yet I suspect that it was equally impossible for a personage high in a structure of authority—a sitting president, a White House economist—to acknowledge, in public, the impossibility of prophecy. Within this contradiction, much about the crisis of authority of the institutions can be explained.

The experts in the new administration, it turned out, had performed no better than their discredited predecessors. The new economic theories had been no more successful at achieving desired outcomes than the old, failed ones. The bankruptcy of the expert class was a bipartisan affair. By publishing hard projections, the Obama White House had gambled on the qualitative difference between its expert-bureaucrats and those who had come before. It would have been better served by emulating Alan Greenspan’s purposeful obscurities.

Not that Greenspan’s reputation survived the shipwreck. The former chairman, once above criticism, was hauled before Congress in October 2008 and badgered by politicians desperately seeking a scapegoat. Greenspan himself, so adept at letting others perceive him as infallible, now admitted to being “in a state of shocked disbelief” and to have made a “mistake”—he had found “a flaw in the model . . . that defines how the world works.” ⁵²

“A critical pillar to market competition and free markets did break down,” Greenspan concluded, adding what might be considered the epitaph for the class he had helped raise to the heights of influence: “I still do not fully understand why it happened.” ⁵³

The failure of the elites in 2008 took place before the bewildered eyes of the public. A feeling of betrayal, of having been lied to, thus compounded the general fearfulness about the future. Of course, the public had connived in the impossible expectations heaped on the expert-bureaucrats. The public assumed that someone would be in control, demanded that the institutions of prosperity function smoothly, but left the dirty details to the machinations of the Center. Few complained during the fat years, but when the crack-up came, an unconquerable sectarianism shielded the public from any sense of responsibility, and allowed it to place the blame squarely on the shoulders of the people in authority.

Recriminations followed predictable patterns. People on the left blamed the crisis on the deregulation of the banking industry. To a certain extent, they were correct. People on the right blamed massive political interference in economic activity. They too had a good case to make. But both critiques, as well as others involving “greed” and more elaborate conspiracies, missed the larger point. One side assumed that only legislators and regulators could control the future, the other that only the markets could do so. On the evidence of 2008, however, the gap between the institutions’ claims of competence and reality had been vast and deep. Nobody knew what was coming.

The search for culprits was less divisive than the search for causes. All who had been in a position of authority when the disaster struck were denounced as frauds and scoundrels. All the justifications which had propped up the political and economic status quo were put in question. Trust in government as a whole reached all-time lows. ⁵⁴ The Bush administration departed in disgrace, and the Republican Party lost the presidency and both houses of Congress in the 2008 elections. After the failure of the stimulus, the tide of distrust turned against President Obama and the Democrats, who had their ruling coalition shattered in the 2010 mid-term elections.

Trust also tumbled in the banks, the stock market, corporations. ⁵⁵ Many pressured the government to prosecute bankers responsible for the crisis—a criminalization of failure roughly parallel to the L’Aquila earthquake affair in Italy. One opinion poll showed a large majority of Americans favoring a public audit of the Fed, while another survey of US investors showed minimal trust in Fed chairman Ben Bernanke. ⁵⁶ The expert-bureaucrat had been discredited and dethroned. The alternative to the expert, however, was always another expert: Bernanke for Greenspan, Janet Yellen for Bernanke. The elites’ failure in economic governance confronted a public unwilling to do much more than condemn and punish. The non-economic consequence of the 2008 financial crisis, therefore, was a feast of negation, celebrated with rare unanimity in both mass and social media.

A CORPORATE BUM’S RUSH, OR THE ECONOMIC RAMIFICATIONS OF

THE FIFTH WAVE

Enter any large shopping center if you wish to challenge my hypothesis. Enter, for example, Tyson’s Galleria, a golden temple of consumption for upscale shoppers, which I sometimes visit on rainy days. Built in 1988, it was expanded in 1997 and made to appear—so the designers believed—“like a European streetscape.” In reality, it looks a bit like a hallucination by the artist M. C. Escher.

Here, you will be insulated from the bitter negations of 2008. You will encounter no discernible effects from the great insurgencies of 2011. In this book, I have described traumatic assaults by the public on the centers of authority in every domain: meanwhile, Tyson’s Galleria rolls on, imperturbably ostentatious. Stores come and go, but the system endures, untouched. A top-down, brick-and-mortar, hierarchical structure—the shopping center—appears to be surviving, in fact thriving, in a networked age.

If you pursue this line of questioning, you will soon arrive at a fundamental dilemma. The disasters of 2008 were at bottom a failure of capitalism. The people in authority who were discredited and swept away in the aftermath could be described as the capitalist elite. They had claimed authority over the sources of prosperity, but were shown to be clueless and unsteady. The closest thing to a papal figure in capitalism, Alan Greenspan, now acknowledged that the system failed to grasp how the world really worked.

Yet here you are in Tyson’s Galleria, a dazzling little chapel in the capitalist church. You might as well have been there in the boom years before 2008: little has changed. Capitalism, it would appear, is still very much with us.

So my dilemma is how to square the revolt of the public and the crisis of the institutions with the apparent survival of capitalism. Note that I am prevented, by my own methods, from claiming that a reckoning will take place in the future. I have rejected prophetic analysis. The story I tell must be bound to the empirical evidence, which means, generally speaking, to talking about the present and the past.

Because I find this dilemma to be rolled up into layers, like an onion, I will try to peel them back, one at a time.

If the question is whether capitalism survived the trauma of 2008, the answer must be, “Yes, so far.” It may have suffered terrible wounds which will be the cause of its demise. We may look back some day and realize 2008 was the end of the capitalist era. That is unknowable. At the moment, six years after the crash, no alternatives exist, no one is calling for revolution, and Tyson’s Galleria opens its doors to affluent consumers rather than protesters.

If the question is whether the revolt of the public has constituted a threat to capitalism, the answer must be, “Not really.” The people of the left denounced capitalism in 2011, but they had always done so. The proclamations of the indignados in Spain and the US Occupiers were sprinkled with anti-capitalist and anti-“system” rhetoric, and even Israel’s tent city protesters, mildest of the lot, felt compelled to attack “swinish capitalism.” If my interpretation of 2011 was correct, however, anti-capitalism was only one element in the vast utopian ambitions of the street insurgents, who aimed to abolish history, the determinism of cause and effect, and ultimately themselves, on behalf of a purified future. That such airy ideals were unrealizable fit the sectarian temper of the rebels: they meant to protest, not replace. Anti-capitalism was never an alternative to capitalism. It was another path to negation—when pushed hard enough, to nihilism.

The people of the web, on the other hand, pictured the perfect future in terms of powerful personalized technologies, and glorified the venture capitalists, and, above all, the techno-hipsters like Steve Jobs, who made those technologies possible.

The prosperity of Tyson’s Galleria, and of similar gilded places all over the globe, indicates that the public in revolt hasn’t been notably anti-capitalist, antibusiness, or even anti- any particular corporation, no matter how unpopular or powerful. No protests took place against BP during the 2010 Deepwater Horizon oil spill. Google and Microsoft have inspired anxiety in Europe’s political class, but the European public has been happy to exploit the platforms provided by these companies to evade and abuse their elites. Similarly, the campaign against Walmart in the US has been conducted by organized pressure groups and elected officials, and is not the result of a revolt from below.

The public can strike at a corporation, ferociously and with the speed of light, when it feels that its peculiar interests have been threatened. An example was the backlash against GoDaddy, after that company announced its support of the Stop Online Piracy Act (SOPA), a measure which sought to expand the reach of copyright law over web content. A boycott organized online was so successful that within 24 hours GoDaddy had caved in and proclaimed its opposition to SOPA. The incident was short-lived: once GoDaddy changed its stand, the protests ended. But it demonstrated the public’s ability to unleash chaos on the marketplace, if it were interested in doing so.

Moving on to the next layer: if the question is whether a networked public has influenced the conduct of business, the answer must be, “Yes, in spades.” The public has imposed a single all-important demand on business, the same as it has done on government, politicians, educators, media, and service providers: that every transaction treat the customer as a person, with active tastes and interests, rather than as a passive and undifferentiated member of a mass.

Remember that ugly word, “disaggregation.” Meaning: to unbundle, to unpack— to tear apart. As it was in politics, the disaggregation of the masses has been a revolutionary economic event. It marked the passing of John Kenneth Galbraith’s “new industrial state,” in which Big Business and Big Labor divided the spoils of the modern economy at the consumer’s expense. Today, Big Business faces a radically shortened life expectancy, Big Labor is in full retreat, and the consumer—the mutinous public—is in command.

Companies which cater to idiosyncratic tastes have flourished. The standard example is Amazon, with its vast inventory and “people like you” algorithm, although a host of online stores fits the bill as well. (The trajectory of the \$1.4 trillion commercial web can serve as Exhibit A for the public’s lack of interest in anti-capitalist jihad.) For a success story in brick and mortar I would nominate Starbucks, where you can linger as long as you wish, sipping “latte” with cinnamon and caramel but no trace of milk, if that’s what you happen to crave.

But these are momentary victors, who may be—many certainly will be— defeated and replaced tomorrow. The revolutionary economic impact of the demand for subjectivized treatment is not to be found in “long tail effects” or the growth of the digital bazaar, but rather in the marketplace turbulence such a demand must cause—in the churning of innovation and production, of corporate organization and corporate extinction. Industrial behemoths which imposed on the public the inflexibilities of their production systems are being toppled: the economic equivalent of the Mubarak regime is surely GM. Their successors, however, will lead an impermanent existence in a landscape swept by contradictory impulses.

followed the logic of the assembly line. The conversion of the masses into a networked public, we have seen, only became possible with the arrival of digital technologies and the development of the global information sphere. A very different logic now seems to be at work—innovation has caused an atomization of demand, and atomized demand has driven ever faster rates of innovation in nearly all fields of economic activity. It is not an illusion that life today feels like a sequential wrestling with one new thing after another, in a vertiginous cycle of change.

In Race Against the Machine, Erik Brynjolfsson and Andrew McAfee conjectured that this frenzy of innovation has been a major reason for the stagnant economic growth since 2008. “The root of our problems is not that we’re in a Great Recession or a Great Stagnation, but rather that we are in the early throes of a Great Restructuring,” they argued. “Our technologies are racing ahead but many of our skills and organizations are lagging behind.” Normally, these authors wrote, a “well-functioning economy” would adjust to the current transition in consumption patterns.

However, when the changes happen faster than expectations and/or institutions can adjust, the transition can be cataclysmic. Accelerating technology in the past decade has disrupted not just one sector but virtually all of them. ⁵⁹

I find Brynjolfsson and McAfee’s thesis somewhat speculative. But reflect, for a moment, on the chart above. It isn’t just speculation that this churning of new things must be disastrous for companies which specialized in producing the old things. Half the firms listed on the Fortune 500 in 1999 had dropped out by 2009. ⁶⁰ According to Richard Foster, the average lifespan of a company on the S&P 500 has declined from 67 years in the 1920s to 15 years today. ⁶¹