Schmayek's Shutdown

Frank Pasquale

If you asked Ted Cruz or Jim DeMint who was the guiding spirit of their government shutdown, they'd probably mention Friedrich von Hayek. The Nobel Prize winning economist warned the world that "socialism" would put citizens on a "road to serfdom." For the Tea Party, PPACA is a horror, perhaps even a new form of slavery, a threat to liberty even darker than the feudal past Hayek evoked.

But there is another figure just as important to current neoliberal thought as Hayek. Carl Schmitt provided jurisprudential theories of "the emergency" and "the exception" that highlighted the best opportunities for rapid redistribution of wealth upwards. In Never Let a Serious Crisis Go to Waste, Philip Mirowski explains how neoliberal thought, far from advocating a shrinking of the state, in fact sparks a redirection and intensification of its energies. As he puts it, "A primary function of the neoliberal project is to redefine the shape and the function of the state, not to destroy it" (56). Moreover, the "strong state was necessary to neutralize what [Hayek] considered to be the pathologies of democracy" (84). Even a temporary dictatorship can work in a pinch.

The shutdown is a brilliant strategy to meld Hayekian substance and Schmittian procedure. As Aaron Bady has observed,

A shutdown is a state of exception when the government gets to do things it normally can’t do, like close the Environmental Protection Agency, de-fund WIC, close the national parks, send a lot of government employees home [in what is in many ways a lock-out], and all sorts of other stuff. A shutdown is a moment in which a choice gets made about which laws to obey and which laws to ignore, when the government gets to decide that some people are essential and some people aren’t.

If the present impasse continues past Oct. 17, the president faces "a series of difficult and legally problematic options." He must break the law in some way. If he accepts the basic insights of MMT and mints a trillion dollar coin, some Republicans may impeach him. Other Republicans (and perhaps some Democrats) claim that allowing a default is the impeachable offense. Jack Lew's technocratic team at Treasury apparently has few options:

According to a report by its inspector general on the 2011 debt ceiling fight there are four options: asset sales, across-the-board payment reductions, prioritisation of payments and payment delays. The report says Treasury staff thought “the least harmful option . . . was to implement a delayed payment regime”. The idea would be to wait for enough cash to pay a full day’s outgoings and then process every payment due that day. Over time, all payments would gradually fall further into arrears.

The spectacle of the US Treasury juggling Social Security checks, "prompt payments" due to contractors, and other obligations warms the heart of many on the right. But how far are they willing to journey into a libertarian future?

The Balance of Power

A paradox haunts the thought of neoliberals. Wealth accumulation up to now has been, they assure us, distorted by various ill-considered or malicious state interventions. Reform is imperative. But the past maldistribution of wealth biases the present political playing field: tycoons who won crony capitalist favors in the past are going to use those gains to influence future elections. So the neoliberal doubles down publicly: as the contemporary political economist of public choice, he insists that legislative, regulatory, and cognitive capture just prove that the state needs to be shrunk. But privately, he relishes the asymmetric retreat of the state: the hollowing out of its more nurturing and egalitarian functions, and the hardening of its disciplinary force.

In the abstract, a shrunken state hurts rich and poor, hawk and dove, right and left alike. But in the concrete emergency of modern American shutdowns, certain winners and losers are emerging. The Pentagon isn't really hurting. While spying is defined as essential, accountability for it is not. Nine million moms and babies are casually put at risk, but God forbid the Congressional Gym closing down. The FTC, food inspectors, the CFTC, mine safety inspectors---all derided as harassers of business---are deemed nonessential. As they retreat from the field, they leave the wealthiest more room to exercise private power. Neoliberalism promotes neo-feudalism in the shutdown: the entrenchment of certain families and institutions as perpetually prime beneficiaries of the fruits of social cooperation. For example, no one believes the shutdown will do anything to harm our megabanks implicit TBTF subsidies. Meanwhile, the vast majority scramble to improvise some "System D" to fill the resulting vacuums.

The Schmayek angle on the shutdown also helps us understand the House GOP's seemingly disconnected demand for the Affordable Care Act to be repealed or suspended before they will fund the government. For supporters of health reform, tens of millions of persons' lacking insurance (and the thousands of preventable deaths that results in) was an emergency. But by fomenting a default crisis, the Tea Party has seized the spotlight. The millionaires calling the shots at broadcast networks are better mesmerized by "sad guys on trading floors" than pained guys waiting for volunteer medical care. For media moguls, a suddenly supine 401(k) may be far more affecting than the slow violence done to those who can't afford health care. Sufficiently refracted and concentrated in global financial markets' halls of mirrors, bond market vigilantism becomes the real emergency we must face, and austerity the obvious response. By contrast, the slow, scattered suffering of the uninsured fades into the background, a natural feature of the order of things.

Signs and Wonders

Milton Friedman characterized the Schmitt-Hayek synthesis in Chile as a "miracle" of spontaneous order imposed by fiat:

Chile was a case in which a military regime headed by Pinochet was willing to switch the organization of the economy from atop ... to a bottom-up performance and in that process a group of people who had been trained at the University of Chicago in the Department of Economics who came to be called the Chicago boys played a major role in designing and implementing the economic reforms...the real miracle in Chile was not that those economic reforms work so well...the real miracle is that a military junta was willing to let 'em do [the reforms] ....the military is from the top down [while the] the principle of the market is from the bottom up.

Here Friedman comes close to Tertullian's "Credo quia absurdum," marveling at the birth of economic freedom in the midst of political tyranny. Yet far from a "miracle" (or even "original sin"), the Pinochet dictatorship merely reflected tendencies inherent in the economic vision it underwrote. Chicago School capitalism generates enormous inequalities of wealth and power. When certain groups get powerful enough, they can extract enormous concessions from the rest of the populace. Eager to test the limits of their power, they are tempted to bring the entire apparatus of government to a halt if they don't get their way. We are now seeing how this plays out:

Should shutdowns, debt-ceiling fights and the radical political legislative gridlock they represent really become a fixture of American political life, it will be more tempting, more reasonable, to think that someone should “step in” to make the decisions. The chorus calling for action — for the president, for example, to go around the Congress — will only increase. . . . By unraveling the threads of our joint commitment to shared governance, it raises the chances those threads will be rewoven into something else: something deeply, and tragically, undemocratic.

In Crisis, Mirowski's great contribution is to illuminate neoliberalism's asymmetrical shrinkage of the state. What remains robust---the intelligence apparatus, (certain kinds of) law enforcement, drones, the Federal Reserve Board, armies---are entities already relatively well insulated from the rough and tumble of DC politics. They have pioneered governance patterns of unreviewable agency discretion, emergency intervention, and immunity after critical decisions are made. Accountability is seen as a luxury of more serene times, as shutdowns gradually rechannel the state's energies from welfare to warfare. We can only hope some plausible national security rationale can promote the incorporation of the former into the latter. Bismarck is preferable to al-Sisi or Xi.
Posted 9:17 AM by Frank Pasquale [link]