Acceleration and accident – understanding the underlying patterns of financial crisis
When listening to recent scientific and public debates about the current financial and economic crisis, one is normally confronted with this kind of explanations: global imbalances, saving glut, money glut, failing regulation, over-complex financial products, and human greed. On the fringes of debates, Marxist voices even have become louder to denounce the capitalist system itself. What is missing in these debates, however, is our relationship to modernity and societal acceleration. In fact, the financial crash is a direct result of a super-accelerating society.
Modernity and Acceleration
With the dawn of modernity, technological change, the pace of life, and social change have significantly speeded up. More commodities and services are traded per unit of time, more information is exchanged within seconds and appears to have totally decoupled from space. People’s become multitasking monsters, they do more things in less time. The pace of acceleration is still increasing. Capitalism, the utilitarian ideal of human life, and functional differentiation of society are the driving forces behind this trajectory (Rosa 2003, p.10). Paul Virilio, the famous founder of the so-called “dromology”, the sciences of speed, put forward the argument that every increase in speed and every high-speed technology imply the omnipresent potential for accident (Virilio 2006: p.3). An 800-passenger airplane simultaneously produces the potetential for 800 casualities (Le Monde 2008). What about finance?
Financial markets and Acceleration
Financial markets can be seen to be the accelerating core of the capitalist economy. They produce acceleration of economic processes through redistributing resources from security-issuers to buyers. In fact, financial markets turned into places where people hope to make as much money as possible in a very short period of time. To put this another way, they tried to “enforce the value of time above the value of space” (Le Monde 2008). The role of the present in financial markets is reduced to reacting to future expectations: buy or sell securities now if you believe that they will increase in value or devalue in the future. Telecommunication and computers have enabled the weaving of a global network of financial transactions that are transmitted within seconds (Wriston 1988: p. 71). Mechanisms such as “high-frequency trading” even enable market actors to trade security within nanoseconds! Stock exchanges run simultaneously at many places of the globe and often escape sovereignty, which appears to be an outdated model unable to accelerate to the same level of speed. International portfolio trade, on a steep upward climb since the 1980s, outstrips trade in goods and national currency reserves by far. Indeed, this kind of “turbo capitalism” (Luttwak 1999) created its own space, having decoupled from traditional understandings of the map.
The tragedy of finance
Now remember that Todd Gitlin pointed out that “speed brings relative sluggishness in its wake” (Gitlin 2002: p. 109). Financial markets themselves entail the potential for unanticipated de-acceleration, or, to be more specific, serious crash. In bull markets, unlimited financial verve accelerates growth even more and creates even more money by using leverage effects. Nevertheless, as some theorists have observed, more risky financial behavior during good times causes more serious manias and panics during recession. In essence, this is a bubble economy. The tragedy of acceleration then reveals in tumbling shares. A bubble of specific assets such as real estate emerges and generates a dynamic of accelerating prices. If acceleration is getting too fast, the economy is overheating and a sharp and painful period of forced de-acceleration follows (Kindleberger 2005: pp. 21). It appears as if there would be some underlying mechanism that produces a balance between acceleration and de-acceleration from time to time. But beside this supra-historical mechanism, the length of these cycles of acceleration and de-acceleration seems to shorten, so that the frequency of economic change and crises increase.
Acceleration and the current crisis
The current financial crisis is obviously a major accident resulting from over-acceleration in financial markets. Financial markets drew the fuel for their growth engine from the prospering real estate market and the blossoming use of subprime mortgages. In addition to technology, the so-called financial innovations such as Collateralized Debt Obligations and Credit Default Swaps, and the creation of Special Investment vehicles were created to hide risks of acceleration, thus enabling financial actors to accelerate even more – beyond “physical” limits. Over-the-counter transactions, which are not being carried out in stock exchanges, were nearly invisible in terms of traditional understandings of space and thus escaped government control. Mathematic models and the rating agencies being designed as automatic speed measuring devices failed to do their job with increasing speed. A spiral of competition drove up the willingness to speed up further. Ironically, financial acceleration mainly fed upon the acceleration dreams of those people that had been left out of the tremendous speeds so far, “poor” people; poor of speed and unable to accelerate. They had to “borrow” speed. The American society as a whole has been tempted by the promises of acceleration: realize dreams in short time at low costs - that is the mystery behind the external imbalances. Acceleration has become a normal situation – that is the American way of life; that is the guiding pattern for all those who call themselves “modern”.
The relationship between finance and the political system
The pity is that the nature of the relationship between politics and finance proves the political system unable to accelerate to the same level as other societal systems do. The main task for the government to tackle is to govern the increasing de-synchronisation of different societal groups, between accelerating sectors and those that are left behind. And, democratic decision-making requires a lot of time (Rosa 2003: pp. 22). As the financial system is one of the highest accelerating systems, the regulatory agencies had difficulties to keep pace with supervising the huge number of financial transactions and financial innovations. It would have been the government’s task to control acceleration processes. But even if the government agencies had succeeded to regulate some of the new financial products and tried to de-accelerate to a certain degree, financial actors would have created new ones and discovered new loopholes.
An Agenda for Reform
It does not have to be this way. Why not de-accelerating? Obviously, as financial markets were forced to slam on the brake now, governments would be able to impose certain restrictions and to devise new rules of how to drive on the highway of finance and set a speed limit. But it appears as if governments try to nurture a new cycle of acceleration. They are pumping liquidity into the market to revitalize the institutions and processes of acceleration. Instead, from the view of acceleration theory, governments should devise stronger rules to restrain financial activity. On a national level, government should tax financial transactions with higher amounts, increase the requirements of equity capital for banks, check new technology for potential acceleration effects, and avoid financial flows from by-passing the temporal dam of government. On an international level, governments should overcome the neoliberal ideal and return back to some kind of capital controls.
Three related issues
Three issues are linked to these propositions. Firstly, acceleration is not necessarily negative. If it is not a mean in itself and is not overly intensive, temporary acceleration may have positive impacts on human life. The speed in financial markets is not necessarily bad if it does not set itself apart from reality. But so far financial markets proved unable to de-accelerate by themselves. At the moment, the task of governments is to decide how strong the measures of de-acceleration must be. How much capital controls are necessary to avoid future accidents but maintain the necessary speed to keep the flows of economy alive?
Second, acceleration is a comprehensive phenomenon that simultaneously is related to many societal systems such as the judiciary, science, sports, etc. Do we need a central authority of de-acceleration and does the government need a ministry of de-acceleration in order to integrate existing approaches in a comprehensive institution and to improve coordination and efficiency of de-acceleration measures? What competences would such an institution have compared to other departments?
Finally, is de-acceleration a task of the state? Though the proposition made here favor a strong state intervening into society, acceleration theory not necessarily is based on a traditional understanding of state. Do we need advocacy networks of societal actors or public-private partnerships that are able to operate in the new spaces that financial markets created? How should they look like? Would it be effective if financial actors sign a code-of-conduct to de-accelerate? Finally and most importantly, what kind of de-acceleration ethics do we need?
Conclusion
Here, I can not provide satisfying answers to these very important questions. But as I have shown, acceleration theory focuses on a certain aspect of reality that has received only moderate attendance so far. The example of the financial crisis indicates that acceleration theory, although being a rather abstract and sophisticated philosophical category, is able to make concrete assumptions, explanations and provide solutions for specific policy problems. I have given only a rough idea of how to apply the approach to the financial crisis, but a deeper systematic research is promising. Though the propositions made here are quite radical and would meet with fierce opposition from acceleration elites such as financial actors, its ideas can be quite inspiring. We should think about how the political and economic system must change to better deal with acceleration. It should be a dynamic approach which is able to detect when acceleration is necessary and when a certain threshold is surpassed and de-acceleration becomes necessary.
---------------------------------------------------------------
Gitlin, Todd (2002): Media Unlimited: How the Torrent of Images and Sounds overwhelms our lives, New York: Holt Paperbacks.
Kindlerberger, Charles (2005): Manias, Panics, and Crashes: A History of Financial Crises, 5. Ed., New Jersey: Wiley.
Le Monde (2008): Paul Virilio: “Le krach actuel représente l’accident intégral par excellence“, 2008/10/18.
Luttwak, Edward (1999): Turbo-Capitalism, .New York: HarperCollins.
Rosa, Harmut (2003): Social Acceleration: Ethical and Political Consequences of a Desynchronized High-Speed Society, in: Constellations, Vol. 10, No. 1: pp. 3-33.
Virilio, Paul (2006): The Original Accident. Cambridge: Polity Press.
Wriston, Walter B., Technology and Sovereignty, in: Foreign Affairs, Vol. 67, No. 2: pp. 63-75.
Modernity and Acceleration
With the dawn of modernity, technological change, the pace of life, and social change have significantly speeded up. More commodities and services are traded per unit of time, more information is exchanged within seconds and appears to have totally decoupled from space. People’s become multitasking monsters, they do more things in less time. The pace of acceleration is still increasing. Capitalism, the utilitarian ideal of human life, and functional differentiation of society are the driving forces behind this trajectory (Rosa 2003, p.10). Paul Virilio, the famous founder of the so-called “dromology”, the sciences of speed, put forward the argument that every increase in speed and every high-speed technology imply the omnipresent potential for accident (Virilio 2006: p.3). An 800-passenger airplane simultaneously produces the potetential for 800 casualities (Le Monde 2008). What about finance?
Financial markets and Acceleration
Financial markets can be seen to be the accelerating core of the capitalist economy. They produce acceleration of economic processes through redistributing resources from security-issuers to buyers. In fact, financial markets turned into places where people hope to make as much money as possible in a very short period of time. To put this another way, they tried to “enforce the value of time above the value of space” (Le Monde 2008). The role of the present in financial markets is reduced to reacting to future expectations: buy or sell securities now if you believe that they will increase in value or devalue in the future. Telecommunication and computers have enabled the weaving of a global network of financial transactions that are transmitted within seconds (Wriston 1988: p. 71). Mechanisms such as “high-frequency trading” even enable market actors to trade security within nanoseconds! Stock exchanges run simultaneously at many places of the globe and often escape sovereignty, which appears to be an outdated model unable to accelerate to the same level of speed. International portfolio trade, on a steep upward climb since the 1980s, outstrips trade in goods and national currency reserves by far. Indeed, this kind of “turbo capitalism” (Luttwak 1999) created its own space, having decoupled from traditional understandings of the map.
The tragedy of finance
Now remember that Todd Gitlin pointed out that “speed brings relative sluggishness in its wake” (Gitlin 2002: p. 109). Financial markets themselves entail the potential for unanticipated de-acceleration, or, to be more specific, serious crash. In bull markets, unlimited financial verve accelerates growth even more and creates even more money by using leverage effects. Nevertheless, as some theorists have observed, more risky financial behavior during good times causes more serious manias and panics during recession. In essence, this is a bubble economy. The tragedy of acceleration then reveals in tumbling shares. A bubble of specific assets such as real estate emerges and generates a dynamic of accelerating prices. If acceleration is getting too fast, the economy is overheating and a sharp and painful period of forced de-acceleration follows (Kindleberger 2005: pp. 21). It appears as if there would be some underlying mechanism that produces a balance between acceleration and de-acceleration from time to time. But beside this supra-historical mechanism, the length of these cycles of acceleration and de-acceleration seems to shorten, so that the frequency of economic change and crises increase.
Acceleration and the current crisis
The current financial crisis is obviously a major accident resulting from over-acceleration in financial markets. Financial markets drew the fuel for their growth engine from the prospering real estate market and the blossoming use of subprime mortgages. In addition to technology, the so-called financial innovations such as Collateralized Debt Obligations and Credit Default Swaps, and the creation of Special Investment vehicles were created to hide risks of acceleration, thus enabling financial actors to accelerate even more – beyond “physical” limits. Over-the-counter transactions, which are not being carried out in stock exchanges, were nearly invisible in terms of traditional understandings of space and thus escaped government control. Mathematic models and the rating agencies being designed as automatic speed measuring devices failed to do their job with increasing speed. A spiral of competition drove up the willingness to speed up further. Ironically, financial acceleration mainly fed upon the acceleration dreams of those people that had been left out of the tremendous speeds so far, “poor” people; poor of speed and unable to accelerate. They had to “borrow” speed. The American society as a whole has been tempted by the promises of acceleration: realize dreams in short time at low costs - that is the mystery behind the external imbalances. Acceleration has become a normal situation – that is the American way of life; that is the guiding pattern for all those who call themselves “modern”.
The relationship between finance and the political system
The pity is that the nature of the relationship between politics and finance proves the political system unable to accelerate to the same level as other societal systems do. The main task for the government to tackle is to govern the increasing de-synchronisation of different societal groups, between accelerating sectors and those that are left behind. And, democratic decision-making requires a lot of time (Rosa 2003: pp. 22). As the financial system is one of the highest accelerating systems, the regulatory agencies had difficulties to keep pace with supervising the huge number of financial transactions and financial innovations. It would have been the government’s task to control acceleration processes. But even if the government agencies had succeeded to regulate some of the new financial products and tried to de-accelerate to a certain degree, financial actors would have created new ones and discovered new loopholes.
An Agenda for Reform
It does not have to be this way. Why not de-accelerating? Obviously, as financial markets were forced to slam on the brake now, governments would be able to impose certain restrictions and to devise new rules of how to drive on the highway of finance and set a speed limit. But it appears as if governments try to nurture a new cycle of acceleration. They are pumping liquidity into the market to revitalize the institutions and processes of acceleration. Instead, from the view of acceleration theory, governments should devise stronger rules to restrain financial activity. On a national level, government should tax financial transactions with higher amounts, increase the requirements of equity capital for banks, check new technology for potential acceleration effects, and avoid financial flows from by-passing the temporal dam of government. On an international level, governments should overcome the neoliberal ideal and return back to some kind of capital controls.
Three related issues
Three issues are linked to these propositions. Firstly, acceleration is not necessarily negative. If it is not a mean in itself and is not overly intensive, temporary acceleration may have positive impacts on human life. The speed in financial markets is not necessarily bad if it does not set itself apart from reality. But so far financial markets proved unable to de-accelerate by themselves. At the moment, the task of governments is to decide how strong the measures of de-acceleration must be. How much capital controls are necessary to avoid future accidents but maintain the necessary speed to keep the flows of economy alive?
Second, acceleration is a comprehensive phenomenon that simultaneously is related to many societal systems such as the judiciary, science, sports, etc. Do we need a central authority of de-acceleration and does the government need a ministry of de-acceleration in order to integrate existing approaches in a comprehensive institution and to improve coordination and efficiency of de-acceleration measures? What competences would such an institution have compared to other departments?
Finally, is de-acceleration a task of the state? Though the proposition made here favor a strong state intervening into society, acceleration theory not necessarily is based on a traditional understanding of state. Do we need advocacy networks of societal actors or public-private partnerships that are able to operate in the new spaces that financial markets created? How should they look like? Would it be effective if financial actors sign a code-of-conduct to de-accelerate? Finally and most importantly, what kind of de-acceleration ethics do we need?
Conclusion
Here, I can not provide satisfying answers to these very important questions. But as I have shown, acceleration theory focuses on a certain aspect of reality that has received only moderate attendance so far. The example of the financial crisis indicates that acceleration theory, although being a rather abstract and sophisticated philosophical category, is able to make concrete assumptions, explanations and provide solutions for specific policy problems. I have given only a rough idea of how to apply the approach to the financial crisis, but a deeper systematic research is promising. Though the propositions made here are quite radical and would meet with fierce opposition from acceleration elites such as financial actors, its ideas can be quite inspiring. We should think about how the political and economic system must change to better deal with acceleration. It should be a dynamic approach which is able to detect when acceleration is necessary and when a certain threshold is surpassed and de-acceleration becomes necessary.
---------------------------------------------------------------
Gitlin, Todd (2002): Media Unlimited: How the Torrent of Images and Sounds overwhelms our lives, New York: Holt Paperbacks.
Kindlerberger, Charles (2005): Manias, Panics, and Crashes: A History of Financial Crises, 5. Ed., New Jersey: Wiley.
Le Monde (2008): Paul Virilio: “Le krach actuel représente l’accident intégral par excellence“, 2008/10/18.
Luttwak, Edward (1999): Turbo-Capitalism, .New York: HarperCollins.
Rosa, Harmut (2003): Social Acceleration: Ethical and Political Consequences of a Desynchronized High-Speed Society, in: Constellations, Vol. 10, No. 1: pp. 3-33.
Virilio, Paul (2006): The Original Accident. Cambridge: Polity Press.
Wriston, Walter B., Technology and Sovereignty, in: Foreign Affairs, Vol. 67, No. 2: pp. 63-75.
JostW - 3. Dez, 12:43
