Dead Pledges

Debt, Crisis, and Twenty-First-Century Culture

Annie McClanahan

• Publisher: Stanford University Press
• Year: 2018
• ISBN:
  9781503600690
• Edition: 1
• Topic: Literature
• Subtopic: North American Literary Criticism
• Index: Literature

Dead Pledges is the first book to explore the ways that U.S. culture—from novels and poems to photojournalism and horror movies—has responded to the collapse of the financialized consumer credit economy in 2008. Connecting debt theory to questions of cultural form, this book argues that artists, filmmakers, and writers have re-imagined what it means to owe and to own in a period when debt is what makes our economic lives possible. Encompassing both popular entertainment and avant-garde art, the post-crisis productions examined here help to map the landscape of contemporary debt: from foreclosure to credit scoring, student debt to securitized risk, microeconomic theory to anti-eviction activism. A searing critique of the ideology of debt, Dead Pledges dismantles the discourse of moral obligation so often invoked to make us repay. Debt is no longer a source of economic credibility, it contends, but a system of dispossession that threatens the basic fabric of social life.

Part One

Social Persons

1

Behavioral Economics and the Credit-Crisis Novel

Following the collapse of the dot-com economy in the early years of the twenty-first century, private investment in US assets began wane. Fearful of recession, the US Federal Reserve reduced interest rates, lowering the cost of borrowing to banks and, by extension, consumers. Credit became cheaper than ever. Spurred on by high demand, housing prices rose an astonishing 68 percent. By early 2007, however, investors were beginning to recognize the profoundly high risk inherent in securitized debt. As interest rates began to tick up and housing prices began to fall, a wave of bankruptcies hit the subprime mortgage-lending sector first, then highly leveraged investment banks like Bear Stearns. From July 2007 to March 2008, investment banks and brokerages lost $175 billion of capital. In the fall of 2008, global financial services firm Lehman Brothers filed for the largest bankruptcy in US history; American Insurance Group (AIG), which had insured high-risk MBSs, and wealth-management firm Merrill Lynch were “saved” by being sold for pennies on the dollar. Although the world’s central banks pumped immense amounts of liquidity into the global financial system—$150 billion in stimulus from the United States alone and $200 billion from international central banks—banks were unwilling to lend to one another, paralyzing credit markets across the United States and around the world. Between 2007 and 2008 nearly a hundred mortgage lenders failed. In October 2008, as the head of the IMF declared the global economy “on the brink” of total meltdown, many countries were forced to close markets or halt trading lest the wave of failures lead panicked depositors to run on their banks.¹

In the immediate aftermath of this crisis, it seemed a matter of great urgency to decide who was responsible for the crash. In early 2009, Time magazine ran a poll identifying the “Top 25 People to Blame for the Financial Crisis.” The list was noteworthy for its emphasis on individuals. There were no institutions on this list—no AIG, no Lehman Brothers, no Securities and Exchange Commission. The subtitle of the article (“The Good Intentions, Bad Managers, and Greed behind the Meltdown”) stressed personal moral failures and individual malfeasance. In a rhetorical move intended to delegitimize a handful of market players, the profiles themselves highlighted biographical details of the purported miscreants, even when such details seemed of little relevance. The profile for Countrywide CEO Angelo Mozilo, “King of the Subprime,” opens by describing him as “the son of a butcher,” while Bear Stearns’s CEO Jimmy Cayne, who presided over the company’s collapse, resulting in nearly twenty thousand layoffs, “reportedly smoked pot.”²

Why, at the same time we frequently described the global financial system as impossibly complex, massive, and impenetrable, did we also want to insist on the causal power of personal failings or individual folly?³ We can begin to answer this question, I believe, by reflecting on the relationship between two genres that each had a rather remarkable boom in the wake of the 2008 bust: the behavioral economic account of financial crisis and the credit-crisis realist novel.

Behavioral economics first emerged in the 1980s but had a surge in popularity in the wake of 2008. According to contemporary behavioralists George Akerlof and Robert Shiller, authors of the influential 2009 book Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism, economic events like the crash of 2008 are not “driven by inscrutable technical factors or erratic government action” but by “variations in individual feelings, impressions, and passions.” Emphasizing the decisive force of “individual thought patterns: changing confidence, temptations, envy, resentment, and illusions,” Akerlof and Shiller hew closely to the premises of Time’s list: economic crises are caused by greed and folly, and thus the way to prevent them is to change individual behavior.⁴ The influence of behavioralism affected more than just economists and journalists in the wake of the crisis: novelists, invested by virtue of their own trade in the relationship between individuals and sociohistorical forces, also wanted to explore the idea that “individual feelings” were the key to understanding economic collapse. In 2010 alone, a slew of US credit-crisis novels appeared to critical acclaim: Sam Lypsyte’s The Ask and Jonathan Dee’s The Privileges, both New York Times notable books of the year; Adam Haslett’s Union Atlantic, praised by the New Yorker’s famously hard-to-please reviewer James Wood; National Book Award winner Jess Walter’s The Financial Lives of the Poets; Eric Puchner’s Model Home, a PEN/Faulkner Award finalist and a New York Times Book Review “Editor’s Choice” selection; and National Book Award finalist Martha McPhee’s Dear Money.⁵ Like behavioral-economic scholarship and behavioralist economic journalism, these novels are all concerned with individual financial misconduct—everything from insider trading and money laundering to real estate disclosure fraud—and with the irrationality or greed, the false optimism or failures of will, that cause individuals to invest or manage money badly. Although no one on Time’s list was ever prosecuted for malfeasance (in fact, many either kept their jobs or left with tidy severance packages), the credit-crisis novel very much wanted to mount a fictional perp walk.

Neither the behavioralist op-eds nor the realist novels that appeared in the wake of 2008 put the blame exclusively on heavy hitters like Angelo Mozilo and Alan Greenspan. The idea that the crisis was also, even primarily, the fault of irresponsible American shoppers was equally ubiquitous: in journalism and op-eds, and by politicians across the political spectrum, we were told again and again that American homeowners had been all too willing to mortgage their futures to satisfy short-term desires. Indeed, the “American Consumer” appears as the single aggregate blame holder on Time’s list: “We’ve been borrowing, borrowing, borrowing,” the article announces, because “we enjoyed living beyond our means.” We see this same desire to blame profligate, overindebted consumers for the crisis in Walters’s Financial Lives, Lypsyte’s The Ask, and Puchner’s Model Home. All of these novels are about middle-class fathers who have made bad financial decisions, lost their jobs, and gone heavily into debt. All three track the moral education of these irresponsible consumers, and each one ends as its head-of-household protagonist comes to accept full responsibility for his fate. All three also feature an adultery plot and treat marital betrayal as an analogue to financial infidelity, suggesting that these adulterous debtors must atone for both sexual and economic trespasses.⁶ In turn, the language of pathological excess, promiscuity, and addiction—and subsequently the possibility of “recovery”—allows all three novels to propose that the causes of both domestic strife and burdensome debt lie in a fiscal irresponsibility that reflects a failure of moral character as much as an economic miscalculation. As Financial Lives puts it, “It’s all connected, these crises . . . they are interrelated, like . . . [our] own decline, like the housing market and the stock market and the credit market. We can try to separate them, but these are interrelated systems, reliant upon one another, broken, fucked up, ruined systems.”⁷ Taking two very different economic scales—the domestic economy of individual mortgage holders and complex economic processes like the global demand for particular investment vehicles—and treating them as identical, the novel here unselfconsciously echoes former Treasury Secretary (and Goldman Sachs CEO) Henry Paulson’s claim that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator.”⁸

In fact, of course, the economic and historical relationship between domestic debt and the speculative market in debt backed by that debt—and, by extension, the conceptual relationship between the individual and the whole, between the micro- and the macroeconomic—is vastly more complicated than either these credit-crisis novels, or the behavioral economics they adopt, allow. Such entanglements become clearer, however, in the other three novels named previously: Haslett’s Union Atlantic, McPhee’s Dear Money, and Dee’s The Privileges, which explore the personal lives and motivations of more powerful and institutionally situated economic actors. This chapter argues that although these works also appear to subscribe to a behavioralist account of individual economic action—suggesting that the economic crisis was brought on by the greed and hubris of individual bankers—they are ultimately ambivalent about both the narrative and political consequences of such an explanation. Although focused on the actions of individual protagonists, they also seek to capture the reality of a structural, even impersonal, economic and social whole. That is, these credit-crisis novels attempt to offer a historical rather than simply a psychological explanation for what happened in and to the early twenty-first-century economy. In this way, I argue, all three novels put pressure on the behavioralist explanation of economic volatility as the consequence of moral failure and excessive feeling. In their moments of hesitation, inconsistency, or contradiction, Haslett’s, McPhee’s, and Dee’s novels suggest an uncertainty about the behavioralist (and, more provocatively, the novelistic) belief that the way to understand systems is to look at individuals.

Focusing on the formal modes of narrative perspective or voice that appear in each of these novels—first person, omniscient, and free-indirect style, respectively—I contend that McPhee, Haslett, and Dee confront an urgent and fundamental challenge: given the realist novel’s constitutive individualism, how does one narrate an economic crisis that even the behavioralist might admit was inconceivably complex, impenetrably global, and intractably structural? Centered on the actions of a few individuals, these novels nevertheless gesture toward larger social and economic forces, and the challenges to narrative form they confront mirror impasses to grasping the totality of the contemporary global economy. As a result, they not only provide a fleeting vision of the “whole” of the social totality but also limn the contours of what the individual subject, the “part,” really experiences in a post-crisis cultural landscape. Far from being the sovereign, autonomous agent of economic change—as either a full, rich, literary self or an all-powerful homo economicus—the individual in these credit-crisis novels epitomizes an empty and impoverished personhood, hollowed out by the material predations of unpayable debt and the conceptual vacuity of economic psychology.

Behaving Badly

To address the role of behavioralism in post-crisis discourse, we must first understand the economic theory from which it emerged. Although some behavioralists identify as macroeconomists (even as neo-Keynesians), the principles of behavioralism derive from microeconomics. As Regina Gagnier puts it, microeconomics substitutes “the social relations central to political economy” with “a theory of the individual consumer and his wants,” replacing the focus on production that had made economics a political and social science with a “depoliticized” interest in consumption.⁹ No longer interested in the social production of wealth but simply in individual consumer desires, microeconomics imagined the social order as, according to Daniel Rodgers, “a myriad of anonymous, disaggregated sellers and purchasers” and refused to distinguish between “aggregate, social economic behavior” and “individually modeled economic action.”¹⁰ Microeconomics, in short, presumes that the whole of society can be dissolved into its individual parts.¹¹ Even a large-scale and complex event like a financial crisis is understood as no more than the consequence of aggregated individual choices. This tendency to eschew structural or macroeconomic explanations in favor of arguments about poor decision making, weak cultural values, mistaken preferences, bad taste, or excessive optimism reached its apogee with the development of behavioral economics as a subfield of microeconomics.

Behavioral economics first emerged in the 1980s, as extreme market volatility began to cause economists to doubt the rationality of homo economicus. This volatility did not seem to threaten the foundational microeconomic belief that individual consumers were the drivers of the economy as a whole, but it did cause economists to question certain neoclassical assumptions about those individuals’ fundamental rationality. The behavioralists argued that although we should retain the neoclassical idea of homo economicus as an autonomous actor, we should abandon the supposition that individual economic choices were consistently rational. Confronted with what economic historian Philip Mirowski describes as the “cognitively thin and emotionally deprived” agent of neoclassical rationality, economic behavioralists, like good novelists, developed homo economicus into a slightly more interesting character, “introducing some amendments from narrow subsets of psychology” as an “‘enrichment’ of simpler concepts of rationality.”¹² The first such enrichment drew from decision and prospect theory, particularly the work of Amos Tversky and Daniel Kahneman, who brought psychological theories of choice into the economic mainstream.¹³ Economist Richard Thaler added to their work, arguing that Tversky and Kahneman’s insights necessitated a complete rethinking of rationality. Thaler contended that by assuming that economic actors behave rationally, economists themselves “make systematic, predictable errors in describing or forecasting consumer choices.”¹⁴ Thaler’s approach was based in cognitive psychology and heralded complementary work in neuropsychology. Later research in behavioral economics, such as that popularized by Dan Ariely, focused less on poor decision making and more on consumer affect. Economic decisions, Ariely claimed, are a result of the relative strength of immediate positive or negative responses—or, to cite the startlingly simplistic language of affect that characterizes such scholarship, “good or bad feelings.”¹⁵

As they turned their attention to the problem of collective “irrationality” that ostensibly led to market crises, behavioralists argued that the psychology of “human interactions” rather than structural, institutional, or historical factors is the “essential cause” both of bubbles (driven by overconfidence and irrational exuberance) and busts (driven by pessimism and crises of confidence).¹⁶ The behavioralist account of individual economic psychology is concerned with more than just obviously economic desires. Indeed, as Akerlof and Shiller insist, crises are triggered by all manner of personal feelings, including “temptations, envy, resentment, and illusions.”¹⁷ And yet because economics has long sought to distance itself from the discipline of psychology—preferring instead to align itself with more supposedly empirical research in the sciences—the behavioralists’ theory of individual behavior is psychologically thin: Mirowski argues that lay economic behavioralists rely on an “arbitrary set of fol...