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Smith’s Invisible Hand as a collateral casualty of 9/11

A file photo of the twin towers of World Trade Centre. Smoke pours from the twin towers after they were hit by two hijacked airliners in a terrorist attack 11 September 2001.   (Photo: AFP)Premium
A file photo of the twin towers of World Trade Centre. Smoke pours from the twin towers after they were hit by two hijacked airliners in a terrorist attack 11 September 2001.   (Photo: AFP)

In a fog of war-dust, the horrific strikes at US symbols of power on 11 September 2001 by global terrorists have not yet fully been analysed as markers of history from an ideological perspective

Narratives aren’t set in stone. As anyone who has heard the same tale of an uncle’s bravado over the span of decades may testify, they can and do shift with our consent. But when it’s about the whole world, and history itself is under watch for the impact of a shock, such as the horrific terror attacks of 9/11 nearly 20 years ago, all shifts must be held to scrutiny. This thought led—nay, misled—me to invest five hours of my weekend in Turning Point: 9/11 and the War on Terror (on Netflix). Don’t get me wrong. Brian Knappenberger’s five-part documentary is watchable alright. Alas, apart from an amplified Afghan context and unedifying look at lawless aspects of the US response, it has little new to offer.

The effect of Al-Qaeda’s brand of jihadist ideology on the course of history has duly been put to analysis, both in academia and beyond. America’s Cold War triumph, it seems, failed to win a consensus on an ideal model for human advancement. Liberty itself was seen at stake, once again, and the irony of flouting freedoms for freedom’s sake seemed all but lost on the US. In all this, what arguably escaped close analysis—for a wider view—was 9/11’s fallout on America’s economic system. As noted in Turning Point by Bruce Hoffman, a senior fellow at the US Council on Foreign Relations, Al-Qaeda’s targets were “symbols of American power". The World Trade Center, in particular, was a symbol of capitalism. It was first attacked in 1993. Its twin towers had been portrayed by an ad campaign for a US brand of jeans as Uncle Sam’s legs, all draped in denim for this 20th century icon of might to dwarf New York, shortly before suicide-hijackers turned planes into missiles aimed at them. Al-Qaeda boss Osama bin Laden’s post-9/11 speeches invoked the tyranny of pharaohs. While this seemed to endorse a grand but faulty ‘clash of civilizations’ thesis, Islamist portrayals of capitalism as “money made off money" were shortly forgotten in the shock and awe of war. Yet, two decades on, regardless of Al-Qaeda’s stated intent, how free-market ideals have fared deserve a look-in.

Adam Smith’s ‘Invisible Hand’ of the free market, as it were, can be argued to have taken collateral blows on two counts, one in practice and the other in theory, possibly.

Consider the cost of capital. It’s the most elementary price of all, far too vital to be thrown to wild forces of demand and supply, with central banks kept in command of it. But what we have today is a wonky world with sub-zero rates of real interest, with lenders of last resort visibly handing out credit—and paying for this privilege—in open defiance of market rationality; zero or negative returns mean no incentive to lend.

The US Federal Reserve had started dropping its policy rate a few quarters before 9/11, actually, as America found its output could expand faster without setting off inflation. But its liquidity boost to calm post-9/11 market seizures was soon backed by a bold tryst with free money, a stimulus that was not really up for debate (like much else back then). By 2003, this risk-twist was dogma.

As easy money is a punter’s delight, a glut of it could well have set the stage for rapid asset inflation and vastly amplified cycles of boom and bust, with rising stakes forcing the Fed’s reflex of a credit splurge to surge by trillions of dollars in each new crisis. If investors now watch policy action more closely than stuff like market innovation, it signals more than just economic centralization. It suggests an Impaired Hand, one whose free space for using price swings to adjust and optimize the flow of resources has shrunk. It’s subtle, but palpable. Pre-9/11, a policy quite so distortive would have been scandalous, I reckon, at least to Chicago-schoolers.

If one side-blow was inflicted by excessive market intervention, the other was by laissez faire itself. Corporate centralization of data has not just yielded private power of a sort unseen since the East India Company, it has shown us how networks with tiny variable costs can spread furiously and achieve exponential returns to scale. Willy-nilly, this winner-takes-all formula for monopoly has thrown the self-corrective ability of markets in doubt.

Since imperfect information was always a caveat for market efficiency, failures caused by gaps in what two ends of a bargain knew (think lemons) were minor let-downs. But the gross asymmetry that we are staring at now, after market forces failed to restrain a major data heist by social media, evokes the image of an Info-Baffled Hand, frankly.

What might plausibly have kept vital online spaces open to rivalry and secured our data rights was a timely tilt in favour of privacy over surveillance. But then, amid all the post-9/11 war rhetoric, ‘central intelligence’ was no longer held as oxymoronic, the US was ready to trample on civil rights to ‘smoke out’ threats, and empowering folks simply wasn’t on its radar. Spying was heroic, crying foul wimpy. And, yes, it was 9/11 that warped an order of priorities that exposed this market failure, as I see it.

None of this means India should retreat from liberal market reforms. We still need to decentralize much. But, as Mahatma Gandhi urged us, let’s stay open to multiple narratives and avoid false turns as we work out our best path to peace and prosperity

Aresh Shirali is editor, Mint Views


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