! ! Governing the Economy at the Limits of Neoliberalism: The Genealogy of Systemic Risk Regulation in the United States, 1922-2012 Onur Özgöde ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Graduate School of Arts and Sciences COLUMBIA UNIVERSITY 2015 ©2014 Onur Özgöde All rights reserved ABSTRACT Governing the Economy at the Limits of Neoliberalism: The Genealogy of Systemic Risk Regulation in the United States, 1922-2012 Onur Özgöde This dissertation traces the genealogy of systemic risk as a pathology of monetary government of the economy and systemic risk regulation as a regulatory regime to govern this governmental problem as instituted under the Dodd-Frank Wall Street Reform Act of 2010. Using resilience and vulnerability as diagnostic categories, it reconstructs the history of economic government since the New Deal as a recursive problem-solving process, plagued with negative feedback loops. It shows how different groups of experts, acting as policy entrepreneurs, problematized and framed the economy as a crisis-prone system and how they tried to reduce the catastrophe risk in the economy without restricting economic activity and growth. In doing this, the dissertation details the proposals as well as the actual governmental apparatuses set up to represent and format the economy. It argues that systemic risk regulation emerges at the intersection of two distinct, but historically interrelated genealogical threads, systemic risk and vulnerability reduction. It shows that while systemic risk has been articulated in different ways since the 1920s, its emergence in its contemporary form took place with the rise of the monetary government in the 1970s. Under monetary government, the financial system was reformatted as a vital credit-supply infrastructure that functioned as a monetary policy transmission mechanism. A critical aspect of this reformatting was the cultivation of an increasingly leveraged financial system that relied on short-term lending markets for operational liquidity. The outcome of this development, in turn, was the reframing of systemic risk as the catastrophe risk that the failure of a firm participating in these markets would result in a system-wide collapse and thereby a depression. Vulnerability reduction, in contrast, was conceived by a group of experts working in New Deal resource planning agencies between the early 1930s and the mid-1950s. This governmental technology was concerned with the resilience of the economic system to low probability but high impact macroeconomic shocks. Within this governmental strategy, the primary objective was to reduce the vulnerability of certain points of interdependence that were considered to be critical and strategic nodes within the economic system. The dissertation argues that the rise of systemic risk regulation signifies the convergence of systemic risk and vulnerability reduction for the first time since these two genealogical threads were separated in the post-Truman period. In this respect, this development points to the remapping of vulnerability reduction onto financial ontology of substantive credit flows and thus the rearticulation of monetary government with systemic tools such as network and catastrophe modeling in a substantive form. Table of Contents List of Charts, Graphs, Illustrations!.................................................................................................!iv! Acknowledgements!..............................................................................................................................!v! Dedication!................................................................................................................................................!x! Introduction:!Systemic!Risk!as!a!Limit!of!Advanced!Liberal!Government!.......................!1! Argument!...........................................................................................................................................................!8! Approach!.........................................................................................................................................................!13! Significance!.....................................................................................................................................................!27! Constitution!of!the!Economy!as!a!Vulnerable!Object!...................................................................................!28! Toward!a!Sociological!Study!of!Systemic!Risk!.................................................................................................!31! Policymaking!in!the!Wild!..........................................................................................................................................!42! A!Note!on!Method!&!Data!...........................................................................................................................!46! Scope!and!Limitations!................................................................................................................................................!52! Organization!of!the!Chapters!....................................................................................................................!53! Chapter!1:!Nominal!(Im)Balances!of!the!National!Economy!...............................................!61! Introduction!...................................................................................................................................................!61! The!Birth!of!the!Economy!as!a!Balance!of!Flows!................................................................................!68! In!Search!of!a!Statistical!Representation!of!Balance!........................................................................!86! Reframing!the!Problem!of!Imbalance!..................................................................................................................!87! Estimating!National!Income!..................................................................................................................................!103! Intervening!in!Nominal!Flows:!Objects!of!Balance!.........................................................................!111! Targeting!Income!&!Consumption!......................................................................................................................!112! Inventing!Gross!National!Product!.......................................................................................................................!118! i Balancing!the!Economy!for!War:!Feasibility!Dispute!....................................................................!123! The!NIPA!System!as!an!Information!Infrastructure:!A!Matrix!of!Balance!..............................!144! Concluding!Remarks!.................................................................................................................................!148! Chapter!2:!TechnoYPolitical!Ontology!of!Governing!Economic!Emergencies!.............!153! Introduction!................................................................................................................................................!153! Charles!Merriam:!From!Economic!Balance!to!Governmental!Adjustment!............................!160! The!Committee!on!Social!Trends!........................................................................................................................!162! Point!of!Inflection:!"A!Plan!for!Planning"!at!the!National!Planning!Board!........................................!168! The!Brownlow!Committee:!Reconstituting!the!Presidency!as!a!Governmental!Space!................!172! The!Executive!Office!of!the!President!.................................................................................................!177! National!Resources!Planning!Board!..................................................................................................................!182! The!Bureau!of!the!Budget!.......................................................................................................................................!217! Concluding!Remarks!.................................................................................................................................!225! Chapter!3:!Emergence!of!Fiscal!Nominalism!&!Economic!Resilience!............................!229! Introduction!................................................................................................................................................!229! The!First!Council!of!Economic!Advisors!.............................................................................................!235! Gerhard!Colm:!The!Technician!of!Nominal!Balance!......................................................................!239! Colm’s!Theory!of!Fiscal!Adjustment!..................................................................................................................!246! Colm!and!The!Full!Employment!Bill!of!1945!.................................................................................................!252! Techniques!of!Balance!.............................................................................................................................................!260! Adjusting!Nominal!Imbalances:!The!Resilience!Problematization!..........................................!272! Reframing!Economic!Imbalance!as!Vulnerability!........................................................................................!272!