Hypernormalisation
By Tyler Durden
Submitted by Bryce McBride via Mises Canada,
This past November, the filmmaker Adam Curtis released the documentary Hypernormalisation.
The term comes from Alexei Yurchak’s 2006 book Everything was Forever, Until it was No More: The Last Soviet Generation. The book argues that over the last 20 years of the Soviet Union, everyone knew the system wasn’t working, but as no one could imagine any alternative, politicians and citizens were resigned to pretending that it was. Eventually this pretending was accepted as normal and the fake reality thus created was accepted as real, an effect which Yurchak termed “hypernormalisation.”
Looking at events over the past few years, one wonders if our own society is experiencing the same phenomenon. A contrast with what economic policy-makers term “normalisation” is instructive.
Normalisation is what has historically happened in the wake of financial crises. During the booms that precede busts, low interest rates encourage people to make investments with borrowed money. However, even after all of the prudent investment opportunities have been taken, people continue borrowing to invest in projects and ideas that are unlikely to ever generate profits.
Eventually, the precariousness of some of these later investments becomes apparent. Those that arrive at this realization early sell up, settle their debts and pocket profits, but their selling often triggers a rush for the exits that bankrupts companies and individuals and, in many cases, the banks which lent to them.
In the normalisation which follows (usually held during ‘special’ bank holidays) auditors and accountants go through financial records and decide which companies and individuals are insolvent (and should therefore go bankrupt) and which are merely illiquid (and therefore eligible for additional loans, pledged against good collateral). In a similar fashion, central bank officials decide which banks are to close and which are to remain open. Lenders made freshly aware of bankruptcy risk raise (or normalise) interest rates and in so doing complete the process of clearing bad debt out of the system. Overall, reality replaces wishful thinking.
While this process is by no means pleasant for the people involved, from a societal standpoint bankruptcy and higher interest rates are necessary to keep businesses focused on profitable investment, banks focused on prudent lending and overall debt levels manageable.
By contrast, the responses of policy-makers to 2008’s financial crisis suggest the psychology of hypernormalisation. Quantitative easing (also known as money printing) and interest rate suppression (to zero percent and, in Europe, negative interest rates) are not working and will never result in sustained increases in productivity, income and employment. However, as our leaders are unable to consider alternative policy solutions, they have to pretend that they are working.
To understand why our leaders are unable to consider alternative policy solutions such as interest rate normalization and banking reform one only needs to understand that while such policies would lay the groundwork for a sustained recovery, they would also expose many of the world’s biggest banks as insolvent. As the financial sector is a powerful constituency (and a generous donor to political campaigns) the banks get …read more
Source: Hypernormalisation
