Saturday, August 18, 2012

The Prisoner's Dilemmas

Fiction has its limits, and economics seems to lie at the outer frontiers. The Shylocks, the Roarks, the critters in Animal Farm, in as much as they are meant to represent in literature the infrastructures and underlying principles of economics, fail horribly at doing that. It isn't their fault; it is impossible. A single character can only represent a small corner of the tableau of a particular economic scheme, and so each descends into his own allegory without ever capturing the real picture. Pip inheriting his money is as much a representation of a "literature of capitalism" as Tess going from dairy maid to reaper; a banker, a merchant, an aristocrat are just these and nothing more.

Why? Because capitalism is a system. It's made up of something called "rational actors". "Rational actors" are not the same thing as people, and fictional people, especially, are in general not "rational actors". They go about, each the protagonists of their own stories. But capitalism is the great aggregator of everyone's interactions with everyone else's; it does not allow for a protagonist. Capitalism has no center and "equilibrium" has no stories. Equilibrium is rather boring, and so are "rational actors"—no one wants to read about those (unless you like reading economics papers I suppose, which one might argue are an interesting sort of fiction themselves).

Yet there remain enough places where these problems might be avoided. Whence the Literary Bankers, you ask: they are all in Russia. In the contemporary Russia of fiction there’s all the middle-class existential ennui that in the West gets rather trite, but next to it you find also a particularly hellish breed of nastiness. Russian capitalism is far from equilibrium. Add to all this the strange romance of snowscapes and onion domes, and the surrealism that comes out of it all certainly lends itself to revealing some interesting things. A place as grotesque as alluring: isn’t that the basis of fascination?

The actors in A.D. Miller's novel Snowdrops, a Man-Booker Prize finalist from last year, are the closest thing to rational actors as seen in recent fiction (don't worry, they're interesting characters, too). Barrister Nick is engaged to be married, and Snowdrops is a confessional to his bride-to-be about the years he spent working in Moscow. "You're always saying that I never talk about my time in Moscow or about why I left. You're right, I've always made excuses, and soon you'll understand why."

We understand, because we can sense the squalor lurking beneath the glamour. We know from the beginning that the "snowdrop" of the title is not the early-blooming white flower, but its alternative definition: "Moscow slang. A corpse that lies buried or hidden in the winter snows, emerging only in the thaw." We can sense from the beginning that Nick's client, "the Cossack" is hardly an honest merchant. Nick knows it too—"lipstick on a pig," he tells us—but what can you do with suspicion? Can you predict what actually will go right or wrong? Something is clearly troubling about the Cossack's pipeline deal, but you can only do your job, fill out the right paperwork, and hope you have taken the right precautions.

It is a bit obvious to say that love is the absence of precautions—but that's the point, isn't it? To fall in love is to expose all one's vulnerability, and Nick, vulnerable Nick, quickly falls into love with beautiful, seemingly vulnerable Masha, whom he meets along with her sister Katya, extricating from a mugger in the subway. 

"She loves me too, I think," Nick says to a journalist friend. But like Nick, we cannot be sure. Are we to trust, as Nick does, or are we to be on our guard? "Listen," Nick's friend replies, "if she [tells you she loves you], she'll meant it. She'll mean it at the moment she says it. But twenty minutes later she'll mean it when she nicks your credit card. They mean everything." 

The cynicism does not seem entirely out of place. "Has she got you to buy her anything yet? Diamonds? Car? Tit job, maybe?" No: but soon enough Masha and Katya are introducing Nick to their aunt, Tatiana Vladimirovna, and have a favor to ask. Tatiana needs help acquiring an apartment on the outskirts of town, closer to the country; would Nick help with the legal process for it? "It's not a lot of work," Nick reasons. "It won't cost me anything."

But what is the cost of anything? Nick can’t answer that question—no single person can, because it depends on the actor at the other end of the equation. In a working marketplace, those on each end of the bargain come together, and determine an acceptable price; they each know the cost of the exchange relative to each. The Putin-era Russia of Snowdrops, however, doesn't work like that. 

A. D. Miller (not to be confused with another British author also named Andrew Miller) himself was The Economist's Russia correspondent during the time Snowdrops is set, and the setting of his novel is written to be "both accurate and distorted," but one imagines cannot be far from the mark. Here, no one can be certain what exchange entails.

In its way, the Russia of Miller's Snowdrops is a society swallowed up in a game of the prisoner's dilemma. "Most [Russians] had a sort of automatic national pride, I'd discovered, even if they all wanted for themselves was to get the hell out of there and head for Los Angeles or the Cote d'Azur." Mother Russia is the prison, Russians its prisoners, and money the figurative policeman, holding the key to each man's escape. 

In a classic arrangement of the prisoner's dilemma game, each prisoner has a choice—either to betray his fellow prisoner by placing blame squarely with the other, or to play "trust" and accept the blame himself. If both prisoners play "trust," they both face a light sentence (i.e. are marginally rewarded); if one plays "betray" and the other plays "trust", the latter is heavily punished while the betrayer goes free; if both play "betray", both are punished. Neither prisoner knows what the other is choosing. 

In Snowdrops, Nick plays both. His seedy pipeline deal with the Cossack is an unapologetic pursuit for profit, betrayal against the public faith and the rules of fair economics; he plays trust in offer his services to do the paperwork, and arrange the payment for Tatiana Vladimirovna's apartment venture. But what are the other players playing?

The novel's denouement reveals, hauntingly, a place where playing "trust" leads only to punishment, for so much of society seems to be playing "betray", and playing it better—i.e. dealing out harsher punishments for those who trust, and greater rewards for the betrayer—than even the during the days of siege at Leningrad. "That particular Russian everyday war, the war of everyone against everyone else," Nick tells us. And yet, when the last man betrays, the punishment for all of society will be meted out with the greatest severity.

Though the story is told by Nick, in first person, we realize that this is not his story. It is the story of all the players of the game. It is the expression of an economic system through fiction. Yet it remains human; amidst all this are the things that make the system possible— an undeniable attraction, an unfatalistic attitude of hope the characters exude. "As long as we are alive, it is possible that one day we will be happy," Nick's Russian neighbor tells him, even as he frets about the disappearance of a friend, and the doleful state of his city. "Life is dangerous," says Masha, "no one [has] survived it yet."

The possibility of happiness, of danger, of the extremes of trust and betrayal—these are the siren song of Miller's Moscow. In such an environment it is impossible to hold steady to what we like to call morality. But it is impossible to betray everyone, all the time, and live still in any semblance of society. So in such a place, we become by turns vulnerable and duplicitous. We become, as Nick says of Masha’s sister Katya, "sort of innocent and grown-up at the same time.”

"You know what you need, Nick?" his journalist friend tells him. "You need to lose your moral bearings. Otherwise you're done for"; because "Russia... is like Lariam. You know, that malaria medicine that can make you have wild dreams and jump out of the window. You shouldn't do it if you are the kind of person who gets anxious or guilty, Nick. You shouldn't do Russia. Because you'll crack."

There is the grotesqueness, too: the topsy-turvy mixing of such an unpredictable world, an unknowable order of things, and the shock of revelation when the snow melts away. The Russia of Snowdrops—however colored by fiction, however close to the real thing—is undoubtedly as grotesque as it is alluring; where there is both, is that not also what allows the possibility of evil?

Posted by Boer 

Wednesday, August 8, 2012

Capital Strike

I used to think that the notion of a "capital strike" was a right wing fantasy, grist for Ayn Rand novels but not to be taken seriously. Lately, I'm not so sure. Since 2009, instead of buying risky assets (stocks, for instance), which would help grow the U.S. economy, large institutional investors like pension funds and endowments have taken their ball and gone home. Or to be precise, locked it up in US government bonds which, unlike stocks, do not directly boost economic growth. You would have expected risk-averse investment behavior in the immediate aftermath of the Great Recession; in 2008, with demand weak and growth prospects low, the stock market was a particularly inhospitable climate. But it's gone on too long; today, three years later, investors are still buying up government bonds in droves; and in the meantime these bonds have become extremely unattractive investments. The key thing to know about bond buying is that you accept a relatively low return on your investment (yield) in exchange for the virtual guarantee that you will get your money back at the end of term (maturity). But in part because the federal reserve has driven its short term rate down to just above zero (to spur investment by reducing the cost of financing), the yield on 10 year U.S. treasuries is currently 1.68%. Assuming annual inflation of roughly 2%, buying a U.S. T-bill is now simply a guaranteed way to lose money.

And yet they keep buying them. Perhaps all of this so-called "risk off" behavior has less to do with rational pessimism about growth prospects than with simple petulance. Here is the context: free market fundamentalists have just seen the incineration of a key pillar of their worldview. The myth of the "bond vigilante" is busted: despite obscene debt ratios, U.S. and UK government debt pays negative real yields. At the same time, central banks are undertaking large scale intervention in the markets in an attempt to boost stock prices and discourage bond buying. The investors I talk to whine constantly about this, which they call "market distortion" and "financial repression". They make me think of a child's temper when a favorite toy is taken away.

For an example of an investor tantrum, read this Financial Times op-ed from Bill Gross, head of the world's largest bond fund, PIMCO:

Psst! Investors – do you wanna know a secret? Do you wanna know what Angela Merkel, Fran├žois Hollande, Christine Lagarde and Mario Draghi all share in common? They want your money!
They’ve wanted it for years now but you are resisting by holding on to it or investing it at negative interest rates in Switzerland, Germany and a growing number of other countries considered to be European Union havens. They want you to be less frugal and more risk-seeking. They want your money as a substitute for theirs in Spain, Italy and, of course, Greece, but they don’t mention that any more. The example would be too off-putting. “Investors,” they plead, “show us your money!”

It's hard to imagine anything Gross could have written that would have more thoroughly validated the charge of financier petulance.

Friday, August 3, 2012

Language Problems

I wonder if Shakespeare is so feted in the English-speaking world because he might be the first to think about English in particular (and language in general, by extension) in philosophical ways, as per your Caliban and Miranda. The way that semantic understanding of language co-opts and precludes all other understandings is so interesting isn't it? That language, for each of us, takes on differently voice, and character, and most especially, meaning. That it is both the medium of thought and the enabler of thinking. I doubt that there can be devised a scale in which the degrees of truth of the Sapir-Whorf hypothesis can be measured, but impact of this truth seems to me like it must always be felt. 

It strikes me, for example, that I am incapable of thinking these thoughts in my mother tongue, a language left behind at a much younger age, and so my command of it remains forever arrested in development. I imagine the same thing happens for any speaker of a second language, when that language has not lived and breathed next to you, when you have not co-existed and evolved with it. As time passes, it leaves you behind, and you cannot develop the faculties to manipulate it and to extract from it its humor, its little ironies and subtleties and furtive meanings even as you pronounce its syllables. 

A German linguist name Schleicher observed three "typological classifications" for languages: isolating language, like Chinese, in which words exist independently of each other, and are strung together in almost infinite possible permutations to form new words with new meanings; agglutinating language, like Turkish, in which this is done with a fixed root varied by identifiable affixations; and inflecting languages, of the Indo-European kind, in which roots are modified by conjugation.

It strikes me, too, then, that we speakers of a second language are rather bounded by the rules of category—to inflect when the language commands us to inflect, to affix when it is correct to affix. But the mastery of language is the mastery of rule breaking. Take English and make it isolating—that is wordsmithing, and how you get Shakespeare and "Spitzenfreude" and "creovation" and cryptic crossword clues (our British cousins, it seems, have quite a knack for it). Take Chinese and make it non-inflecting, and that adds to it irony.

I am no good at either, in either language. I wonder if that makes me not entirely in command of my own thoughts.

Posted by Boer