Money didn't just trickle up, it Hoovered up.

csjlong's picture

A skeptic might wonder if asking a group of influential contemporary economists to explain what went wrong in the financial crisis is akin to asking a group of MTV programming execs why pop music started to suck so badly in the 90s.  The dismal science is populated by competing theories that share a minor flaw: they can't be tested in real-world chaotic systems.  They can only be retrofitted to explain history or, too often, to justify personal ideologies.

This is not “The Flaw” that director David Sington is talking about, though it's one that he touches on all too briefly.  It would be misguided to lay blame for the Great Recession at the feet of Milton Friedman or John Maynard Keynes (pick your poison based on how fortunate er, I mean, what a hard working job creator you are), but there's no doubt that prevailing and ever-shifting theories about this amorphous social construct we call “money” have shaped public policy, always with the illusion of being based on logic and empirical evidence, but with little proof that it's any more real than the so-called “alpha” skill that earns hedge fund managers billions of dollars as compensation for performing as well as dart-throwing monkeys.

But I digress.  Sington has certainly assembled an all-star panel of economists (including Joseph Stiglitz and Robert Frank, among others) for his wide-ranging if loosely-focused analysis of “the flaw” in modern capitalism.  He takes his title from a bit of Congressional testimony by the gnostically evasive Alan Greenspan in 2008, but pretty much everyone gets to chime in with their ideas about where the fault lines in America's state religion can be found and just how deep they run.

Though Sington says he was motivated by the financial collapse of 2008, the film focuses on the period just before Lehman and friends shuffled off their mortal coils, the time dominated by the inflation and inevitable popping of the housing bubble.  Economic theory doesn't really deal with bubbles all that well – they're messy data sets that don't fit into a neat calculation, but as the film explains, there's a fundamental difference between goods and assets.  Goods (like furniture and appliances) are controlled by what we traditionally think of as supply and demand; as prices go up, demand drops.  Assets are a very different beast – as they go up, they attract more hot money and then still more as investors don't want to miss out on the opportunity to buy at today's price to sell to someone else tomorrow.

After the financial and psychological ruin of the dot com bubble, the asset of choice became the real-estate market, and as prices rose so did demand in a vicious feedback loop.  According to Yale professor Robert Shiller, this was an unprecedented occurrence in the American housing market; for the better part of a century, housing prices had stayed fairly stable when adjusted for inflation.  But when easy credit flowed, flippers started flipping, and a series of exotic and highly leveraged derivatives enabled relatively small amounts of capital to dramatically inflate the asset bubble, prices went off the charts and, eventually, so did the economy.

But that's only one flaw in the system, one more endemic to the peculiarities of modern “creative” finance.  A flaw more fundamental to capitalism in the 21st century (the film does a fine job of arguing that there is no single definition of capitalism – it is constantly in flux and can go from “good” to “bad”) is the now hot-button issue of unequal income distribution.  In 1929, the top 1% earned 22% of all income.  By 1970 this figure was “only” 9%.  This, kids, is during a time when there was once a thing called “the middle class.”  Said class would soon be wiped out as finance came to consume more and more of the nation's capital (relative to industry) in the 80s and onward.  Money didn't just trickle up, it Hoovered up, or Reagened up if you prefer, though we could say it Clintoned up too.  By the Bush-league year of 2007, the top 1% had now accumulated 24% of the income, an unwelcome return to the robber baron era, and the end result of forty years of stagnant wages for most alongside dramatic increases in capital gains for a few.  And, as one talking head notes with a tone of awe, this massive upward shift in wealth happened right in front of our faces, in a democracy that re-elected the people that were doing it to us over and over again.

Perhaps that's an oversimplification (Sington says as much in his Q&A).  We don't need to attribute nefarious intentions or conspiracy theories to explain the lack of equity in income today.  It is the logical result of a new, unintentionally created economy in which there is more money to be earned chasing assets (especially debt) than in funding industry.  Investing in a factory or in infrastructure is a mug's game when you can just create your own CDO and strip it into pieces to best suit your needs.  Until we change that (don't hold your breath since it would probably take a New New Deal that doesn't stand a chance in the age of so-called austerity) then we're stuck with the nastiest of all flaws: Profits no longer create jobs, they only create wealth for the wealthy, just like productivity gains only beef up corporate balance sheets with lucky workers getting a nice Thank You card on their downsizing day.

All or most of these ideas are raised in this rather hectic documentary, though they aren't necessarily integrated into a single investigative through-line.  “The Flaw” makes a series of points rather than an argument, but for simply raising questions that viewers might not have asked before, it's a valuable work.  Think of it as a Festivus-style airing of grievances.  You've probably got a long list of your own to share.

The film is presented in a 1.78:1 aspect ratio.  The interlaced transfer is solid enough for a fairly straightforward film featuring a lot of interviews, animation and some archival footage.

The Dolby Digital 2.0 soundtrack is likewise a solid affair that doesn't have to do much heavy lifting.  The dialogue is all clearly mixed.  No subtitles are offered.

The DVD includes a 48-minute Q&A with the director.

Film Value:
“The Flaw” covers a flurry of subjects in a fairly brisk manner.  If you're an economics neophyte, you shouldn't be put off by the subject matter – it's perfectly accessible for anyone.  This Docurama release might fly under the radar, but it's definitely worth checking out.


Film Value