This piece by Eric Levitz about the GameStop story is the first I’ve read that makes any sense. This is the kind of thing that makes me a little bit crazy about the populist left. I’m never quite sure what they mean by populist. Half the time it sounds more like what I used to understand as libertarianism or some kind of market fundamentalism. I certainly didn’t think populism meant investors, small-time or otherwise.
Anyway, this piece gets to my niggling questions about what was going on last week:
Last week, a motley mass of shitposters, gambling enthusiasts, and disaffected Zoomers — united by hate for Wall Street and love of chicken tenders — beat a multibillion-dollar hedge fund at its own game. Through their collective intelligence and audacity, users of the Reddit forum WallStreetBets executed a sophisticated “short squeeze” that took money away from some billionaire speculators, gave it to some badly indebted workers, and made a mockery of neoliberal capitalism’s legitimizing myths. Unfortunately, right when these working-class retail investors had Wall Street’s titans on the run, the plutocracy’s visible hand appeared to reach down and thwart them: Robinhood, a trading app popular with young recreational investors, suddenly barred its users from buying GameStop shares, thereby relieving pressure on the hedge-fund shorts.
That is one way of recounting the GameStop rally, anyway.
Here is another: A group of small-time speculators — including some finance-industry professionals — orchestrated a pump-and-dump scheme that involved convincing a lot of financially inexpert (and/or politically disaffected) people that they could stick it to Wall Street’s largest money managers by … bidding up the price of an equity that is owned by Wall Street’s largest money managers. This generated enough momentum to trigger a “short squeeze,” and the price of GameStop shares shot to the moon. Wall-to-wall media coverage ensued. Inexperienced investors bought the hype, and began piling into what now resembled a Ponzi scheme: When the bubble finally burst, those who bought in early would have a chance to cash out before the stock fell beneath their break-even price; those who bought late would have little warning before the “dump” wiped them out. By late last week, so many people were buying GameStop shares over gamified phone apps that regulations aimed at ensuring the stability of financial markets kicked into gear. The stock market’s central clearing hub calculated that it faced a high risk in facilitating more GME buys, and demanded billions in collateral from brokerages ordering such trades. Lacking the funds necessary to meet this demand, Robinhood was compelled to restrict GameStop buying on its platform while it sought an infusion of liquidity. That pause hastened the inevitable end of the GameStop rally, which ultimately achieved little beyond popularizing participation in stock trading (a development that will enrich Wall Street at the expense of working-class people with gambling problems).
There is some truth to both these accounts. But to believe that the GameStop short squeeze was “an updated and superior version of Occupy Wall Street” — which is to say, a populist challenge to the tyranny of high finance that deserved the left’s avid support and attention — one had to accept the first summary as gospel, and dismiss all confounding details as apologetics for Big Hedge Fund.
Unfortunately, a number of influential progressives did precisely this. For a few days last week, amid mass hunger and unemployment, various left-wing Twitter influencers chose to focus their advocacy on the plight of small-time speculators who’d been barred from buying into a pump-and-dump scheme — while socialist congresswomen treated the right of amateur market manipulators to purchase whatever stocks they want, in whatever quantity they can afford, on the phone-based trading app of their choice, as a cause of national importance.
These actions weren’t cynical. At least, not typically. And in the context of the GameStop media firestorm, they may well have been reasonable. On one level, the GameStop story was an object lesson in the power of collective action and absurdity of market fundamentalism. By pooling their wits and capital, a large number of relatively low-wealth, low-clout individuals took money away from a hedge fund. What’s more, they did this in a manner that served to delegitimize financial markets as all-knowing arbiters of economic value: When the share price of a brick-and-mortar video-game retailer increases 20-fold in the course of a month, the notion that there is a tight correspondence between market prices and objective worth becomes difficult to sustain. And absent that premise, the case for entrusting our nation’s investment needs to unaccountable private actors becomes harder to make. The American left is in sore need of converts. When a story with this kind of radicalizing potential becomes national news, progressives may be well-advised to engage with it, so as to steer popular understanding of the event in an egalitarian direction.
But if the left can benefit from engaging trending news stories, so as to remake them in its own image, there is also a risk that chronic immersion in such stories will have the opposite effect: Instead of imbuing social-media uproars with the values of the left, the left may find itself imbued with the values of social media.
Platforms like Twitter and YouTube have democratized participation in public discourse. The range of people and ideological factions that can make their voices heard in America’s political debates is exponentially larger today than it was two decades ago. This has had many salutary effects on our politics. Dubious economic orthodoxies are harder to sustain — and sound heresies, harder to suppress — in an environment of unceasing, unfiltered public debate. The mainstream media’s conventional wisdom is no longer primarily shaped by the social world of Beltway cocktail parties, but by the more diverse and cantankerous chatter of their Twitter feeds. The left has exploited this openness in myriad ways — from influencing the technocratic details of Democratic policy proposals to crowdfunding socialist primary challenges to organizing mutual aid campaigns to bankrolling a vast network of alternative media outlets.
Nevertheless, the republic of tweets is no popular democracy. Twitter users are much younger, more educated, and wealthier than the American public as a whole. And those who tweet about politics are, by definition, far more interested in consuming news media than ordinary Americans. These biases shape Twitter discourse and the viral causes that arise from it. Like social media itself, meme-fueled populist uproars are liable to privilege spectacle over substance, the concerns of college-educated young people over those of those less online constituencies, and the hasty embrace of (ideologically affirming) conclusions over the exercise of epistemic humility.
All these distortions were present in last week’s GameStop discourse. As a substantive matter, it was never easy to explain how thousands of people overpaying for GME shares was supposed to threaten the capitalist order. Whatever utility the GameStop rally theoretically had as a spectacle, its first-order consequence was to transfer wealth from ordinary Americans to Robinhood and Wall Street market makers. But patient, careful reasoning about the relative merits of various causes do not drive Twitter engagement; spectacle does. And while the showdown between WallStreetBets and Melvin Capital was not a class war, it did play one on CNBC.
In a social-media discourse that was demographically representative of the nation as a whole, it seems unlikely that the phrase “working-class retail investors” would be spoken unironically. But on a platform that drastically underrepresents the supermajority of Americans who have less than $1,000 in savings, it was possible for some progressives to mistake the cause of recreational investors for that of the proletariat.
When Robinhood abruptly revoked its users’ capacity to buy GameStop shares, the narratively intuitive conclusion was that the Wall Street Establishment was striking back against the hoi polloi. The idea that the trading app was willfully restricting trading in GameStop arose so naturally out of the preceding discourse, some irresponsible columnists published Q&As that all but asserted as much despite the absence of confirmation (by which I mean, I did that). By contrast, the more likely motivation behind Robinhood’s decision — that its hand was forced by the collateral requirements imposed by a clearinghouse — was difficult for laypeople to comprehend, let alone integrate into a satisfying narrative. So a conspiratorial interpretation of events rapidly proliferated.
Put all this together, and you get some balefully misguided progressive discourse. The left-wing activist and Twitter influencer Jordan Uhl appeared to argue on Friday (1) that it is outrageous for the president to suggest that the plight of the unemployed is worthy of his attention but the plight of GameStop bulls somehow isn’t, (2) that restrictions on fee-free day-trading are a leading cause of wealth concentration in the United States, and (3) that it is insulting for the White House to suggest that it is the SEC’s job to regulate Wall Street.
Can I just say that’s the kind of stupid crap that makes twitter, and all of social media, such a toxic pit? That person thinks he’s a brave leftist revolutionary. Please…
Around the same time, Elizabeth Warren tweeted, “Casino-like swings in stock prices of GameStop reflect wild levels of speculation that don’t help GameStop’s workers or customers and could lead to market instability,” and shared a letter she’d written to the SEC, calling on the regulator to investigate potential market manipulation by the hedge funds that had shorted GameStop, along with any (hypothetical) Reddit users who knowingly misled retail investors in order to pump up the stock.
This won the senator more than 7,000 vitriolic quote tweets and comments from leftists who’d apparently convinced themselves that defending speculators from regulatory scrutiny was a core socialist objective, so long as the speculators in question referred to chicken tenders as “tendies.”
The madness was not limited to Twitter personalities. In the fog of pseudo-class war, left-wing writers and lawmakers struggled to discern reactionaries from populists, and libertarian critiques of Wall Street from progressive ones. Chamath Palihapitiya is a venture capitalist who’s campaigning for governor of California on a platform of school vouchers and state income tax abolition. But he flustered a CNBC anchor by saying some populist-sounding things about GameStop. Which made him a Twitter folk hero for a day. Which got Alexandria Ocasio-Cortez to invite him onto a livestream (he ultimately did not appear).
God help the left if this guy is their new hero
Meanwhile, the leftist gadfly Matt Taibbi seems to have been too infatuated with the spectacle he saw playing out on CNBC to recognize that he was absorbing the network’s Hayekian economic assumptions. In a paean to WallStreetBets, Taibbi derided the Federal Reserve’s “zero-interest-rate policies” as “artificial stimulants” that are preventing “zombie companies” — which account for roughly 30 percent of all U.S. corporations — from going out of business. This argument implies that there is some “natural” benchmark interest rate that exists outside of politics and policy, and that the Fed is corruptly flouting this natural market law, just so it can prevent nearly one-third of America’s large employers from going bust. In other words: Taibbi is making a libertarian argument for central banks to tolerate deeper recessions and higher unemployment, so as to avoid corrupting natural market forces with “artificial stimulants.” It’s the kind of thing one might expect to find in a column by Taibbi’s archnemesis, Thomas Friedman; in fact, it is literally the argument of Friedman’s latest column.
These analytical errors matter. If the ethos of social media leads the left to prize populist sentiment over progressive substance, then its energies will be ripe for misdirection by reactionary forces. Condemnations of the Fed for bailing out corporate America with its easy money policies can sound populist. But their policy implications are brutally regressive. Rallying to the cause of Robinhood traders may feel righteous. But it also has led leftwing lawmakers to the precipice of endorsing deregulation to facilitate riskier recreational speculation.
In the hands of a well-organized progressive movement — one accountable to working-class constituencies, and tolerant of internal dissent — social media is a powerful weapon. In those of an agglomeration of progressive media addicts and creators — who are accountable primarily to their followers, employers’ traffic expectations, and Patreon subscribers — social media is a potent brain toxin that causes its victims to mistake spectacle for substance, anti-intellectualism for anti-elitism, conspiracy theorizing for critical thinking, and the interests of iconoclastic college graduates for those of working people writ large (in severe cases, it may even lead a supposed leftist to mistake Ted Cruz for an ally in the fight against high finance).
Extremely online progressives could have spent last week pressuring congressional Democrats to increase the value of the federal unemployment benefits in Joe Biden’s COVID-relief plan to $600; instead we successfully pressured them into demanding investigations into Robinhood’s treacherous abrogation of its users’ right to lose money to hedge funds.
New: The meme stock GameStop plunged 60% today. Absolute bloodbath. I talked to newbie Reddit traders who lost a fortune from their savings and college funds. One who lost $400k today (!) said, “Who wants to invest in some boomer ass SEARS or Macys stock?” https://t.co/OmsnWCzW2N— Drew Harwell (@drewharwell) February 2, 2021
The perverse incentives that produced this misallocation of memes and energy aren’t going away. And everyone who tries to effect change through posting is subject to them (the incentive to cater to Twitter’s appetites probably informed my decision to write a column on the incentive to cater to Twitter’s appetites rather than one on, say, the coup in Myanmar). But we all need to do our best to swim against the tide — because a left that is optimized for the production of social-media spectacles, instead of the passage of social democratic reforms, will be exactly as threatening to Wall Street’s rentiers as a brief spike in the price of GameStop shares.
Sometimes I think social media was the worst development in human history. It’s made all of us a whole lot dumber.