Bubbles and Machines

Front matter

MICKY LEE

Gender, Information and Financial Crises

Micky Lee

Index

137 149 151

CHAPTER |

Bubbles: elusive, temporary, and illusory.

Machines: rational, concrete, and useful.

The definition of an economic bubble appears to be very straightforward: it is ‘a market phenomenon characterised by surges in asset prices to levels significantly above the fundamental value of the asset’! The word ‘phenomenon’ assumes that an economic bubble is a temporary problem that can be solved and hopefully prevented in the future. The definition implies that the difference between the asset price and the fundamental value can be known if there is a better formula. An accurate calculation would require better machines. Better machines would control bubbles.

In a financial crisis, bubbles are the feminine; machines are the masculine. Crisis is said to be a temperamental moment in a largely stable market, an irrational moment in a mostly rational market. The term ‘irrational exuberance — first coined by Alan Greenspan (former chairperson of the US Federal Reserve) and later adopted by Yale economist Robert Shiller (2000) as a book title— pointed to the herds of investors who drive up asset price above the fundamental price. An irrational market is seen to be lacking control, a party that has gone wild.

To prevent the market from behaving irrationally, machines are invented to perfect the market. There are machines to report stock prices, machines to communicate between buyers and sellers, and machines to predict the market. Few have asked: can machines be irrational? Can technology do things out of intention? Will irrational machines produce information that leads to financial bubbles? In other words, are financial crises embedded in information technology? If irrational markets are inevitable outcomes of presumably rational machines, then how can we understand the gender discourse of financial information and financial crises?

Lee, M. 2019. Bubbles and Machines: Gender, Information and Financial Crises. Pp. 1-27. London: University of Westminster Press. DOI: https://doi.org/10.16997/book34.a. License: CC-BY-NC-ND 4.0

These questions may not make immediate sense, but this book aims to make sense of them. I answer the questions by discussing and illustrating how feminist political economic theories and Actor-Network Theory (ANT) of Science and Technology Studies (STS) enrich a political economic critique of financial crises. I argue that a critical political economic approach to communication is the most promising to understand financial crises because it takes into account the capitalist context in which crises occur and because it historicises technology and economy. Current political economic writings on financial crises have however neglected two areas: first, the gendered nature and gender ideology of finance capital. Not only are women used as resources to facilitate the flow of capital to and through financial markets, but gender is also made flexible to accommodate the flow. Second, financial information and finance capital are materially and technologically embedded. The materiality of financial technologies gives a qualitative property to financial information and finance capital, making them appear to be useful to the markets. Because specific financial information creates specific temporality and spatiality, multiple machines lead to multiple temporalities and spatialities. The disjuncture between them is the financial crisis, which can be illuminated from the vantage point of gender.

To advance the arguments that finance capital and the ideology of the crisis are gendered and that financial information is materially and technologically embedded, I develop four themes in this book.

Theme 1: Women serve as resources in financial markets. The circulation of finance capital relies on values produced by women in both the public and private domains.

Theme 2: Gender ideology is used to legitimise an unequal distribution of resources between women and men, and between developed and developing economies.

Theme 3: The production, distribution, and consumption of financial information—be it analogue or digital—rely on machines.

Theme 4: Financial markets are heterogeneous; a market assumes a specific spatiality and temporality which constitute an economy.

The two arguments of the book and the four themes will be unpacked later in this chapter but a concrete example will illustrate the two arguments.

‘It’s One Big Lie’: The Bernie Madoff Case

The discourse of the 2008-9 Global Financial Crisis left us with a few memorable phrases: ‘too big to fail’, ‘toxic assets, ‘subprime mortgage’ and ‘it’s one big lie. The latter was uttered by Bernie Madoff when he confessed that he ran the largest Ponzi scheme in US history. Madoff lured clients to entrust their money in his company but he never invested it in financial markets. When the market was not ina crisis, he had no problem with money circulation. In a crisis mode, his clients withdrew money from their accounts and quickly emptied Madoff’s bank accounts. According to news sources, Madoff confessed to his family one morning that ‘it’s one big lie. He turned himself into the authorities and was sentenced to 150 years in prison and forfeiture of over $17 billion.

The general public may find the Madoff story easier to understand than a complicated analysis of financial information. He was not the main culprit of the financial meltdown, but he provided a human face to personalise it. His rags-to-riches tale resonates well with most: born to working-class Jewish parents in Queens, New York, he married his high-school sweetheart and started a family and his own business after college. He was said to be very selective of his clients who were recruited from Jewish networks. Madoff constantly yielded double-digit returns for his clients even though his extraordinary success had raised a few red flags among financial analysts. Before Madoff’s confession, he had lived the American Dream.

But this American Dream was one big bubble.

Journalists and commentators rushed to explain why the investors could not see through the bubble and why Madoff could maintain such an illusion for more than four decades. One common explanation is greed—an innate human flaw. Madoff is greed, deception, and immorality. The televised liquidation of Magdoff’s assets showed the struggling majority how the top 0.1% live. The victims who appeared in the documentary Chasing Madoff (2011; dir: Prosserman) were disgusted at how Madoff’s extravagant lifestyle was built on the hard earned money of the working people. Women victims were particularly convincing in illustrating Madoff’s immorality: some of them are single or widowed and lost their life savings; one was rumoured to be Madoff’s mistress who trusted that he would take good care of her and her money. Via Madoff, the public could express their outrage at the insatiable Wall Street power players.

The Madoff story has provided materials for fictional and non-fictional films and television shows. Two post-crisis films, Arbitrage (2012; dir: Nicholas Jarecki) and Blue Jasmine (2013; dir: Woody Allen), satisfy the audience's desire to see bad people being punished. They also manage public anxiety by fictionalising the personal life of upper-class fraudsters. In both films, the filmmakers had to construct women characters because little was known about the private life of Bernie Madoff and his wife Ruth Madoff. In both films, the women characters reflect the immorality of wealthy con men.

Cate Blanchett won the Oscars’ Best Actress award for her portrayal of a swindler’s wife in Woody Allen’s Blue Jasmine (2013). Blanchett reportedly used Ruth Madoff as a muse. Jasmine is portrayed as a materialist, a liar, a traitor, and a hysteric. She (not born into wealth) embraces the lifestyle of the wealthy. She turns her nose up at her sister, a working-class woman. After learning that her husband has been unfaithful, she calls the FBI and reports her husband’s fraud to the authorities. With no real assets other than a closet of designer clothing, Jasmine moves to San Francisco to stay with her sister and tries to hold down a regular job. Her lack of employable skills leaves her with one choice: re-marrying rich. She nearly succeeds, but a lie that she tells breaks off the relationship. At the end of the film, she has a nervous breakdown and sits on a bench talking to herself. Woody Allen is critical of Jasmine’s ethical decisions, which it is suggested are an indirect cause of her husband’s death by suicide. The character of the husband is killed off early on and is not publicly punished or humiliated. In contrast, Jasmine’s character lives on and receives the brunt of criticism from other characters such as the stepson and sister’s boyfriend, and also from the director and the audience.

The Blue Jasmine story draws on two gender assumptions about financial markets. Firstly, women testify to the immorality of men. A dishonest man not only deceives others in public, but he also betrays those who love him. Stereotypes such as the betrayed wife, the needy mistress, and the expensive prostitute regularly appear in both fictional and non-fictional films about financial markets (Lee and Raesch, 2015). The second assumption is that a hysterical female figure directly leads to the downfall of a masculine one. In Blue Jasmine, the neurotic wife who exposes the husband’s lies brings about the man’s death. Despite the fact that it is the feminine that brings down the masculine, the masculine can control the feminine through inventing better technology to control feminine hysteria, as seen from the second explanation of how Madoff successfully deceived so many.

Financial journalists showed Madoff’s clients’ foolishness by wondering why they did not notice the red flags raised in Madoff’s financial information. For example, clients had no electronic access to their accounts, only receiving hard copies of financial statements in the mail a few days after a trade took place.” In short, experts thought the delay in reporting information should have raised suspicion among investors. The experts assumed that ‘real-time, digital information reflects a real market; digital prices cannot be false because they are not prone to human error, thus are ‘pure’ and free of human interference. Digital technology is believed to simply transmit information from an unknown central system—such as an abstract market—to the investors’ screens.

The assumed quality of digital financial information being ‘real, ‘true, and ‘accurate’ is embedded in the medium and technology through which it is disseminated. When financial information is embedded in an analogue technology (such as the paper slips and printed statements in Madoff’s case), the information is believed to be likely inaccurate or false. Better machines and technology are invented to produce better information after a financial crisis because ideal information is believed to be truthful, quick, and accurate.

Contrary to the assumption of ideal financial information, this book advances the argument that inaccurate, delayed, or fabricated financial information is as real as ‘accurate, ‘real-time’, and ‘true’ financial information. Either type of information creates a market of a specific temporality and spatiality. Even though Madoff did not invest clients’ money in the financial market, he had facilitated a circulation of finance capital by putting clients’ money in bank accounts in the names of himself and others. The banks then circulated Madoff’s clients’ money in financial markets. If he had stacked the money—in the forms of cash and gold—away in a cupboard, the money would not have constituted a market because no economic activity would have taken place.

To conclude, the Bernie Madoff case shows that finance capital is gendered because gender ideology is used to explain economic crisis: while women could be used to testify against men’s morality, women's hysteria is also used to explain why crisis happens. The case also shows the materiality of financial information, that different technologies give different qualities to information which in turn constitutes different markets. In the following, I explain how critical political economy, in conjunction with materialist feminist theories and ANT, will shed light on the gendered nature of financial markets and the materiality of financial information.

Theoretical Framework

Among all communication perspectives to examine financial crises, a critical political economic perspective is the most promising because it pays attention to the historical nature of capitalism and the struggles that led to the domination of finance capital. A critical perspective also pays attention to the unbalanced power relation between the dominant group and the subordinate group. It asks how the unbalanced power relationships between developed and developing economies, between male bankers and women borrowers, stabilise capitalism. Lastly, a critical perspective also advocates for changes, that large-scale societal transformation is only possible when humans exercise their agency. Even though communication scholars from cultural studies and journalism studies have critiqued the relationship between financial crises and capitalist institutions such as the press and popular culture (see Lee 2014c), they stopped short at theorising the relation between finance capital and the media.

Because political economists are interested in the historical nature of capitalism, they reject ahistorical explanation of financial crises in popular culture. The Bernie Madoff case illustrates that human greed and investors’ foolishness are often used to explain a crisis. This popular belief fails to take into consideration the broader political economic context in which financial markets operate. The emphasis on innate human nature implies that political economic contexts are irrelevant to human actions and that human actions do not constitute political economic relations. Unsurprisingly, innate human flaws have also been used to explain the tulipomania in the seventeenth-century Dutch Republic (see Ch. 2). Using human psychology to explain the markets also implies that financial crises are natural and can neither be stopped nor prevented. Political economists do not think financial crises are natural, instead they point out financial crisis epitomise crises of capitalism.

Political economists are also interested in understanding how the circulation of finance capital can be situated in the trajectory of capitalism. They do not assume any political economic system to be universal. Capitalism, along with communism/socialism, feudalism, and slave-based society, is a political economic system that is constituted by social relations resulting from historical struggles. Financial markets are however specific to a capitalist society because its sole function is to lubricate the flow of capital by extending the temporality of value realisation into the future. Madoff probably could not have established a successful business in a communist or slave-based society. A communist/ socialist society privileges use value over exchange value; social beings would channel resources and energy to produce goods that can sustain lives such as food and shelter. Social beings in a communist/socialist society may not see the need to reinvest surplus capital in a market because they don’t see the need to accumulate so much surplus. The dominant class controls resources (such as land) in a slave-based society by actively denying ownership to other classes.

Political economists do not see capitalism as a static system; it metamorphoses itself over history. According to Amin (1994), capitalism has arrived at a new phase since the mid-1970s when Western economies experienced stagnation. Three schools offer explanations for the long-term economic crisis: first, the regulation school believed that institutions play a role to stabilise an inherent unstable capitalist system. This approach sees history as systematic, logical and coherent. Second, the neo-Schumpeterian approach highlights the role that technology played in initiating and maintaining long-term economic prospects. This approach also believes in the systematic and cyclical nature of capitalism. Third, the flexible specialisation school believed that capitalism accommodates the competing paradigms of mass production and flexible specialisation.

What Have Political Economists Written About Financial Crises?

Political economists seized on the 2008-9 Global Financial Crisis as an opportunity to understand financialised capitalism. Here I review four different explanations of the crisis: financial market as a spatiotemporal fix of an inherent contradiction of capitalism (Harvey, 2010); the dialectics between value and anti-value (Harvey, 2018); the permeation of finance capital into spheres of production, circulation, and consumption (Lapavitsas, 2009, 2011, 2014); and social production and resistance from the bottom-up perspective (Hardt and Negri, 2017).

The first explanation is offered by Harvey (2010) who wrote that financial crises epitomise the contradictions in capitalism: the financial market was invented to overcome the inherent problem of surplus overaccumulation by extending the time for the absorption of excess capital. In a capitalist logic, the exchange value of a commodity must be higher than the cost to produce it. The capitalist will partially pocket the profit made in the market, partially re-invest the money in the market by acquiring more raw materials and labour power. However, capitalism is an inherently contradictory system because excesses always have to be invested in a market. Stagnation is an enemy of capitalism: capital not invested, goods not consumed, and labour power not bought are seen as harmful to the economy. In order to facilitate a continuous absorption of surplus, financial markets were created to offer capitalists a temporal fix to invest excess capital in return of future dividends. However, financial markets only absorb surplus capital, not surplus labour or goods. A rallying financial market only means that the wealthy will be better off, but the working class will not directly benefit from gains on title ownership. As a result, the financial market widens the disparity between the most affluent populations and the rest. According to the Organisation for Economic Co-operation and Development (OECD), income inequality was exacerbated in the past half-decade. Moreover the 1990s, the average income of the top ten per cent was seven times higher than the bottom ten per cent; in mid-2010 it was nine times higher.’

The second explanation of the crisis is the dialectics of value and anti-value. Harvey (2018) explains the financialised economy with debt being an anti-value in ‘the paths of value in “motion” (p. 6) in Marx’s political economy. Harvey highlights the dialectics of value and anti-value in the ecosystem of value production and distribution: value is only realised in circulation during which the negation of value occurs. To give an example, capitalists pay for labour hours and raw materials to produce commodities, but commodities on the shelf have no value until consumers buy them. Commodities that are left on the shelves for a long time slow down circulation. Because capitalism relies on a continuous circulation of capital, money, and goods, an economic crisis occurs when goods are left on the shelves for a long time. This signals that consumers may not have money to buy them and capitalists cannot recover the money invested in the production.

The dialectics of value and anti-value were applied to understand the debt economy because ‘it is fundamental to [understand] the crisis tendencies of capital’ (Harvey, 2018, p. 84). In a debt economy, loans and debt, as interestbearing capital, are anti-value that circulates in the credit system. Debt can only be redeemed through claiming future value production. If the redemption fails, then a crisis occurs. At a personal level, an unemployed person will have a hard time repaying debt; at a national level, a bankrupt country may be forced by the World Bank and International Monetary Fund (IMF) to revamp its financial system. While Marx saw crisis as a moment of renewal because use value is degraded and exchange value is depreciated, Harvey (2018) is less optimistic than Marx because crisis forecloses the future, leaving no alternative for the present.

The third explanation of a financial crisis is the permeation of finance capital in the spheres of production, circulation, and distribution. Lapavitsas (2009,

2011, 2014) asserts that the concept of financialisation is rooted in Marxist political economy, it that it signals an epochal change of capitalism, a systematic transformation of economy, and a problematic relationship between finance and the rest of the economy. Lapavitsas believes that finance capital is not separate from productive capital and that the 2008 housing crisis illustrates three trends of financialisation in mature economies: large multinational corporations relying less on banks; banks restructuring themselves and targeting individuals and households; and consequently financialising individuals’ personal revenue in the form of debts and assets. Lapavitsas’ stance on finance capital permeating productive capital is different from that of political economists belonging to the monopoly school. The different viewpoints will be explained in the next section.

The fourth explanation is offered by Hardt and Negri (2017), who examined financial crises from a bottom-up standpoint. They ask how a crisis is formed from the perspectives of social production and resistance. They argue that high inflation in 1970s had led to social grievance, which pushed government to pay for more services for the disfranchised. Governments then became ridden with debt, and transferred public debt to the private sector. The invention of new economic instruments and the growth of financial power generalise an economy of dispossession ‘in which processes of extraction and mechanisms of debt spread exploitation across society’ (p. 157). Hardt and Negri further detail that finance extracts value from the commons such as natural materials and societies: not only do industries such as mining and forestry depend on loans from financial institutions, industries of big data also capitalise on social relations. Similar to Lapavitsas (2009, 2011, 2014), Hardt and Negri disagree that finance capital only remains in the circulation sphere because it generates wealth through value extraction.

Political economists have offered plausible explanations of financial crises but they have ignored the role financial information plays in crisis. For example, Harvey has not addressed how financial information is generated to measure the value of past, present, and future commodities. Hardt and Negri hint at information being extracted from social relations as a commodity, yet they neglect how financial instruments produce information of different qualities. I will suggest how an ANT approach will remedy these oversights later in this chapter.

What Have Political Economists in the Field of Communication Written About Financial Crises?

The Global Financial Crisis has led many communication journals to publish special issues in which journalism and critical scholars have analysed the relationship between the financial market, everyday life, and the media industry (see Lee 2014 for the scope of this literature, which cannot be adequately covered here). In this section, I focus on political economic work that is at the forefront in critiquing a historical materialism of financial markets by understanding ‘how capital flows and how capitalism evolves’ (Lee, 2014a, p. 891). Some political economic work published in special issues are Chakravartty and Schiller (2010) in the International Journal of Communication and Fuchs, Schafranek, Hakken, and Breen (2010) in triple C: Communication, Capitalism and Critique. Given the brief length of this introductory chapter, it is impossible to summarise the conversations between political economists, but I will briefly state in the following what political economists from two schools of thought—the monopoly capital school and the digital capitalism school—have written about financial crises. Both schools of thought are able to fill the gap n the current political economic understanding of financial crises by taking into consideration the role of information in finance capital.

Political economists from these two schools have written about an information economy before the Global Financial Crisis; their critiques of the digital economy are highly relevant to an understanding of financial information. Both schools object to a mainstream economic view of information which believes that information is borne by prices generated in the markets, that perfect information leads to perfect competition, and that sellers and buyers have perfect knowledge of each other in a perfect market. Political economists question these assumptions by questioning the economic value of information. For example, Robert Babe (1995) points out a paradox in mainstream economic thought: if information is generated by prices in a market, then how can the market determine the price of information? In other words, while mainstream economists see information as economically neutral data, political economists see it as a commodity. If financial information is a commodity with exchange value, then how can it measure its own value? While both schools of thought have provided plausible explanations why financial crises occur, each of them has a major blind spot which I will explain in the following sections.

The Monopoly Capital School

The post-Second World War US experienced fast economic growth because of massive infrastructure projects such as interstate construction and military spending. However, the economy cooled down in the 1970s. In 1966, Baran and Sweezy wrote Monopoly Capital to forewarn that a concentrated market could lead to economic stagnation and inflation. Magdoff and Sweezy (1977) later explained that inflation and stagnation are inherent in a monopoly economy: a quick expansion of surplus leads to inflation; corporation-controlled prices and wages lead to stagnation. To combat a sluggish economy, the government looked for large-scale game-changing projects, such as the ‘information highway initiative in the 1990s. The financial sectors were all deregulated to allow for a freer flow of capital from the productive to the financial sectors. In the US, the repeal of the post-Great-Depression-era Glass-Steagall Act had allowed commercial banks to engage in investment. In the UK, the Big Bang was implemented to make the London stock markets more competitive. Financial deregulation led to unfettered capital flooding the financial markets, which increased risk for both productive and financial capital. McChesney, Wood, and Foster (1998) and Foster and Magdoff (2009) applied the monopoly capitalism argument to critique the over-blown information economy in the late 1990s and the speculative housing market in the late 2000s. Those authors argued that new information and communication technologies had failed to bring along sustainable growth, like infrastructure construction, in the post-Second World War period. The speculative housing bubble not only failed to stimulate the economy in the long run, but it also created a massive fictitious capital.

The monopoly school sees fictitious capital as separate from productive capital. It has long been suspicious of an economy that is not production-based. Activities such as accounting, marketing, and information-generating—according to Marx—are not productive activities. To the monopoly school, accountants and marketers are parasites who feed on the surplus value created by productive labour. Marx wrote that profit in the financial market is ‘a mere appropriation of the surplus-labour of others’ (Marx 1999/1894, p. 303). Drawing on Marx, the monopoly capital school thinks the production of financial information creates a fictitious market; the value reflected from title ownership is not real value because there is no production of commodities. Financialisation is seen as a cover up of stagflation, since it gives an illusion of a growing economy (Foster and Magdoff, 2009).

The financial market not only does not resolve the problem of overaccumulation, but it also exacerbates the problem because surplus capital is more likely to be invested in the financial markets rather than in production. To give a concrete example, the gains in the financial markets only benefit very affluent populations. They may spend money on luxury property and goods, but they will not need many more daily necessities such as food and basic shelter to sustain their lives. Therefore, even though they may hire more household help, they do not necessarily hire thousands of farmers, factory workers, and construction workers to produce life-sustaining goods. The employment rate will not sharply increase if only a small fraction of surplus labour has exchange value. What makes the matter worse is that capitalists may see the financial markets as a faster way to make money, thus devaluing the temporality for profit realisation in production.

A flaw of the monopoly capital school is that it believes there are two kinds of capital: productive and fictitious. Productive capital is seen as ‘real’ while fictitious capital is seen as unreal. The digital capitalism school that will be discussed below has offered a good reason why the divide between productive and fictitious capital is artificial. Schiller (2007) stated that many production activities rely on information: large-scale farming relies on information technology such as GPS and data analysis, factory production relies on ‘just-in-time data. The belief that farming or factory work is all done by hand and by simple machines is a romantic notion, not the reality. Adding to Schiller (2007), Lapavitsas (2014) agrees that finance capital is not fictitious and that the financial market is a refuge of surplus capital because they could not explain the huge nominal value of financial markets. He believes that the financial system is a set of ordered economic relations comprising of markets and institutions which profit-making motives contribute to capitalist accumulation. In other words, there is no distinction between productive and fictitious capital.

This book brings up another flaw of the monopoly school’ theorisation of the financial markets: that this school denies the materiality of finance capital and financial information. I assert that financial information are material goods because they are embodied in and through technologies through production, distribution, and consumption. For example, ‘real-time’ financial information is only possible because of the trading screen; stock price updates were only possible in analogue trading because of the telegraph. Therefore, financial markets are as materially constituted as consumer goods, even though they do not produce tangible goods.

The Digital Capitalism School

Political economists from the digital capitalism school are not entirely convinced by the ‘monopoly capital’ argument. As mentioned earlier, this school argues that digital information constitutes a ‘real’ economy because information is crucial to the production sector; agricultural production and manufacturing rely heavily on information to create surplus value. Furthermore, the digital capitalism school points out that information is a commodity in a capitalist society. Political economists such as Mosco and Wasko (1988), and Schiller (2007) highlight the commodification process of information by showing how large corporations privatise public information. Once information is commodified, it is a fetish with an exchange value. For example, advertisers pay a lot to buy information about their targeted customers. However, this information about a specific demographic has little value outside an advertising campaign; it does not help to combat global warming or to build better schools. Information as resources differs from information as commodities. The former is a non-economic good, the latter economic. Political economists desire more information to be public goods because it helps decision-making for the greater goods.

Mosco (1988, 2004, 2014) adds to the ‘digital capitalism’ argument by showing the power that the information and telecommunication sectors have over national governments. With the help of neo-liberal states, the largest information and technology companies can set a price on information, making an erstwhile public resource into a privatised good. For example, local towns and cities have the capability to build their own broadband network and offer lowcost or free Wi-Fi to residents, but big telecommunications corporations lobby government to prohibit cities from doing so. As a result, residents have to pay for unreliable, expensive broadband services.