Laughter abounds in the halls of Id, as crypto capitalism flips its lid

News Corp’s announcement, some weeks ago, that it was dispensing with strip cartoons was a shock but not a surprise — it’s part of the group’s steady attempt to remove from its newspapers anything once recognised as lively, fun or entertaining, so as to give more room for joyless propaganda and celeb product placement.

Then it had me rushing for The Age. They couldn’t… no. Thank God. It was still there, below the crossword, the endless travails of a subdued medieval crowd, under the thumb of an erratic and capricious ruler. The decades come, the decades go, The Wizard of Id rolls on. It’s probably the only thing Gay Alcorn and Michael Bachelard are still allowed to edit.

Turns out I need not have worried in any case. The central proposition of the strip — that the worst part of tyranny is having to hear the king’s jokes — is now writ large on the world stage, with Elon Musk’s takeover of Twitter. That’s what it feels like, doesn’t it? What had been a site whose owners moved decorously behind a screen (with Jack emerging occasionally to tell us how he slept negative four hours and thus had a 28-hour day, or now pooped actual lettuce) has become some vast bastinado — you never know which corner the Idiot King is going to come around, entourage in tow, trying out his latest gag. 

This more than anything may kill the site: the sense it is no longer a place of equal exchange (always an illusion, but never a total one) but one where one capers and prances for the lord’s amusement. That sucks all joy out of it at once, something Musk, with his galumphing quasi-nerd’s subpar EQ, may never work actually work out. 

Twitter isn’t the half of it. With the slow and steady collapse of tech, of the confidence in it and the desperate hope that it might save us from the inevitable steady contraction of the Western economy, the whole place is starting to feel like one big stone madhouse. Mark Zuckerberg’s $10 billion bet on the “Metaverse” proceeded because he had sufficient share control of Meta/Facebook that no one was able to tell him that the only thing sadder than its initial cartoonish iteration was the creepy lifeless feeling of its better-executed beta version.  

Amid this was a twist in the tale, when a real economy entered the imaginary realm. Liz Truss’ and Kwasi Kwarteng’s ascension to the UK leadership was essentially an inner-party coup in which a small group of ideologues managed to get the support of a major power (the Johnson faction) to gain power, thus keeping Rishi Sunak out of power. This grouping claimed fealty to Thatcher, but they were less laissez-faire than magical-thinking growthist.

Formed by the giddy ’90s “up the down escalator” idea of bootstrapping eternal growth (a moderate version of which Gordon Brown subscribed to), Truss and co believed growth generated by money borrowed from the future would pay off in such high returns as to shrink the initial capital sum to a mere incidental cost. It was a child’s/wonk’s version of capitalism, capitalism for those unwilling to face questions of how value is extracted. 

Now there has been FTX, the exposure of which suggests a form of capital as potlatch, the Pacific Northwest ceremony in which tribes ritually destroy goods to keep social life in stasis, and release the life energy of possessions. On CEO Sam Bankman-Fried’s (fried bankman…) demented Prospero’s Island of the Bahamas, billions of dollars in his crypto exchange have vanished or been stolen. Vanished by the decline in cryptocurrency value, by FTX principals pulling it out en masse, and by “drainer” accounts operating in real-time as regulators watch, unable to stop the transfer of many millions of dollars, or even find out who owns them.

What is driving all this? Well, it’s the usual magical thinking of capital, but with an extra twist. All these huge burns are a product not merely of greed, but of a hope, tending to desperation, that we can avoid the big crunch that has been coming for years. That crunch is not simply a cyclical recession, but the end to the really let-er-rip quantitative easing (QE) period of 2010-20, which pumped vast amounts of money into capital markets, steered bullshit speculative investment in everything from crypto to a dozen different doughnut franchises on every high street, evaporated the value of savings and wages, while returning the profits back to capital and leaving us with the STI — stimulus-transmitted infection — of a global housing bubble and the vast misallocation of investment.

The full reckoning got delayed by the need to pause quantitative tightening for COVID. Now, even that can’t be continued. Most contemporary investment is a Ponzi scheme, and the essence of the Ponzi scheme is that new capital is used to pay out “returns” on old capital. What was distinctive about the QE period was that it embedded this in the global system. 

This was the essence of Web 2.0. In Web 1.0, around 2000 (and the “up the down escalator” roots of Liz Trussonomics), “old notions” of shareholder value, such as prices/earnings ratios, were suspended for a time, as a rush to establish and expand at any cost became the measure of success. But such suspensions were measured in quarters. The endless pump-out of new money in QE means that Web 2.0 could extend this by years.

This has reshaped our world — Uber instead of taxis, streaming instead of TV — but there is no guarantee this is sustainable. Is it imaginable that whole dimensions of this new world could disappear? There seems no reason why vast amounts of it will not be like all those doughnut franchises, the on-your-way-to-work colourfully painted dispenser of $7 frosted gloop, suddenly one morning shuttered. Now, we are all das Berliners.

What is especially interesting is that the more desperate the hope, the more playable the con. Con men have always known this, the old adage being that it is impossible to con someone honest. You’ve got to want something for nothing, and not care that it might be doing someone down on the other side. But that is at a system rather than individual level. FTX appears to have more than a million account holders, who are now creditors. These appear to include thousands of small pension funds, hospital groups, investors’ clubs, etc, anyone with a financial officer or entire board entranced by the magic. 

The principle at work seems to be that any process one level more “real-abstract” than people are used to will always create a form of magical thinking that overcomes scepticism. Thus “airplane”-style pyramid schemes once flourished best in societies where money was solely experienced as wage-cash. Ponzi schemes flared in the West in the 1920s and the Eastern bloc in the 1990s — the first time that cheap credit appeared in both. Crypto used the magic of both hi-tech and celebrity (Matt Damon and Larry David both advertised for FTX, and it sponsored major league sports) to communicate that it was everyday magic, real but miraculous.

So now we wait to see how far and how fast the contagion spreads. The total crypto market capitalisation was US$2.6 trillion in 2021, and even with asset shrinkage must have headed north of that. Will its resale value into cash suddenly crater and head towards zero? It seems very possible, as further investment was based on the idea that all crypto would appreciate from any given value, given sufficient time — HODL or “hold on for dear life”, as the mantra goes. If that craters towards zero — as parts of the NFT market now have — then, while major institutions may be secure, millions of small investors will be suddenly destitute. This will generate an entire wave of fresh anger and political turmoil. 

It will also serve as the amuse-bouche of a decade in which capitalism has absolutely nothing left to offer by way of a bribe to workers and citizens. The streaming platforms will be like a flyblown old video store full of Steven Seagal and Nollywood movies; the delivery apps will die away, the rent won’t go down, and wages won’t go up. Work will trend towards its role in an earlier period: that of the mere self-reproduction of the worker.

This will go on for years without an end in sight, save for an occasional money supply burst to ward off the worst stagnation. Or perhaps not. There are many permutations. But it is difficult not to believe that this is what happens first. We are all in the halls of King Id, the cartoon laughter echoing around the stones.