This Will Be the Cause of the Next Economic Collapse
We are living in historic times. Never has the gap between the rich and poor, the elites and the common people been so great. Never has the very notion of democracy and self-determination been so fragile. Never have the core tenets of so-called capitalism been under such attack. And never has there been such unprecedented brute-force interference in markets that used to pride themselves on being “free.”
How did we get here? Is there a way back? Is economic collapse and reset the inevitable result of nationhood?
I want to focus on these four areas: people, government, capitalism, and nation-states.
1. People Invariably Imitate Their Betters, Not Their Peers
In my ongoing essays on the continuing trainwreck that the Western business sector has evolved into, I have time and again underscored that human beings, by their very nature, are copiers and mimics. This is in our DNA. (Source: “Born copycats! Why we just can’t fight the subconscious impulse to imitate others,” Daily Mail, July 20, 2011.)
This trait can be a blessing…or a curse.
If those we perceive to be our betters—our leaders—set the right example, humankind and society, in general, can soar.
On the other hand, if our leaders choose to demonstrate the traits of arrogance, greed, selfishness and a general lack of respect for those not of their social class, the ending will not be pretty.
I have just as frequently drawn attention to the horrific and disturbing fact that in 2007, completely unashamed and in full view of the world stage, the leaders of America “came out of the closet” and revealed where their real loyalties lay.
The banks and miscreants that deliberately created the mess we are in were—according to our elected leaders—“too big to fail.”
Now, since economics (and for that matter, life itself) is a “zero sum game,” the unspoken implication was that if they could not fail, then we, being society as a whole, would have to in their stead.
Against this backdrop, I was pleased to catch a recent interview with Rana Foroohar, TIME Magazine’s assistant managing editor and economic columnist. Her recent book, Makers and Takers: The Rise of Finance and the Fall of American Business, repeats several of the themes I have been putting forward for years, albeit more eloquently.
The following is from a podcast interviewing Rana Foroohar on the ideas put forth in her book—ideas I’ve also shared before in these pages and elsewhere:
“[…] if you are well off, you’re doing better than you ever have before in history. But the majority of Americans, the majority of workers in this country, haven’t gotten a raise in real terms since the early 1990’s. Many people in the working class, the minorities, haven’t gotten one since the late 1960’s.
“[…] only 15% of all the money sloshing around in American financial institutions ends up invested in Main Street business. So where is the rest of it going? Well, it’s being used to trade against existing assets, stocks, bonds, houses—it’s doing something entirely different than what the banking system was set up to do, which is to take our savings and funnel them through financial institutions into business investments. Those businesses then grow and create jobs. When you only have 15% of the money in the markets doing that, you’ve got a problem…the top 10% of the country which owns 80% of the asset base stocks, bonds, houses, that’s a bubble that is enriching just the wealthy while not actually creating real underlying growth.
“[…] what I think will be the biggest political tension point of the next 20, 30, 50 years…is this square off between the boomers and the Millennials for a shrinking economic pie. And the pie is shrinking because we have had a completely perverse system that has enriched the few, the financial markets, at the expense of the many.
“[…] Just look at the sort of movies of our day…they definitely glorify the financier to the exclusion of others. That is a real problem…our MBA education…is so financially oriented and kids come out and finance is still the number one area they want to go into. They don’t want to go into industry. And increasingly you have got even the smartest scientific minds, the mathematicians…a quarter of the class of MIT graduates will end up on Wall Street figuring out sort of complex, 14-dimensional algorithmic models for trading instead of inventing the next ‘green’ airplane engine over at Boeing. That is a real issue. So we have to look at education. We have to look at the way we even speak to each other. We use words from the financial lexicon. We talk about ‘human capital.’ We think of workers as being as expendable as assets themselves.
“[…] I think the deregulation of the derivatives market was big. I think [about] the way in which monetary policy was unleashed…and we started to rely on really low interest rates to create any growth at all was big. But it is this big process—this sort of slow process where as finance got bigger and bigger and everyone was pulled into its orbit, almost like planets orbiting the sun—[where] we just began to think of the markets differently and we all are oriented towards the markets. The point of my book really is to start a conversation about how, guess what, this is totally the wrong way to look at things. The markets need to be oriented towards us. The markets need to be focused on helping Main Street.” (Source: “Rana Foroohar: How Wall Street Is Strangling The Economy,” Peak Prosperity, June 12, 2016.)
2. Is Government the Solution…or the Problem?
I recall an Economics professor from my salad days who chose to present the final exam for his course by presenting us with one single essay question: “Is government an enabler or a parasite?”
I and my fellow students dutifully selected one side of the argument and then proceeded to spend two hours arguing the case.
I passed the course, but did not get the high grade I expected.
Months later, by coincidence, I met my professor at a local farmers’ market. After apologizing for “talking shop,” I begged him to tell me the answer he had been looking for.
“Simple,” he said, “governments are not enablers or parasites. They are both at the same time. Invariably each starts mainly as an enabler and over time becomes mainly an unstoppable parasite.”
Looking back, I understand what he was getting it. When the hit TV show Deadwood first debuted, the critics could not say enough nice things about the acting and the writing. Among those critics, there were a scant few who understood what the show was really about—government, how it forms, the purpose it serves, and how, invariably, it goes awry. (Source: “The Real Men of Deadwood,” HistoryNet.com, July 25, 2006.)
My professor was correct: governments start off serving a vital purpose, bringing order out of chaos. Over time, however, the power to tax, the power to impose the government’s will on the governed, and the government’s power to enforce that will ultimately supercedes everything else.
Democracy is equally flawed. Something about human nature makes the temptation to get “something for nothing” just too great to resist. Deep down, each one of has deep within ourselves something of both the “ant” and the “grasshopper” from the timeless children’s story. Part of us wants to work to make things better and part of us wants to benefit from someone else’s work, without having to do the work ourselves.
History tells us that all governments ultimately fail, drowning in their own incompetence and lust for control.
Recent studies, for example, have shown that the current recession (which some are calling a full-fledged depression) has completely circumnavigated government itself. In other words, good times or bad, for better or for worse, government just keeps taxing and growing and making new laws to help it tax and grow.
You might expect that because many experts blame government incompetence for the mess we are in, government itself would show some remorse and attempt to reign in its worst impulses…? You would be wrong. Rain or shine, boom or bust, government only knows one thing: consolidation of power and increase in size. (Source: “The Swelling Parasite: How The Federal Government Rewards Itself For The Recession,” Political Outcast, February 5, 2014.)
3. Are We Still in a “Capitalistic” System…or Merely Delusional?
In 2011, Forbes did a now-infamous piece explaining how we in the West like to pretend we have a capitalistic system but, in fact, over time, our system has lost touch with the core notions of “capital” and “enterprise,” and instead become a bizarre amalgam of cronyism and corporatism (sometimes the F-word—“fascism”—is also used).
The article was not welcome but it struck a chord nonetheless. It turns out what governments and corporations have in common is a core belief that the rest of humankind exists merely to assist them to grow and needs constant stewardship and control. This is why the relationship between these two worlds gets tighter and tighter each year—while Main Street, small business, and entrepreneurship all go the way of the dodo bird. (Sources: “It’s Not Capitalism, It’s Corporatism,” The Caleb Jones Blog, February 22, 2016; “Capitalism Isn’t Corporatism or Cronyism,” Forbes, December 7, 2011.)
4. Do Nation-States Sow the Seeds of Their Own Destruction?
Yet another way of looking at the very same problem is to conclude that the very process of nation-building, once successful, starts an invisible “clock” that ultimately, in the fullness of time, will cause all experiments in self-determination to implode. This notion was recently explored in ZeroHedge:
“[…] In every case, when a nanny state increases the weight of its boot on the neck of the economy, the economy becomes less vibrant, to the detriment of all citizens except those connected directly to the government. Keynesian theory has it that major changes can be made to the economy in isolation, with little or no effect on the economy as a whole. This flawed assumption is a major contributor to the failure of Keynesianism. In truth, any variable affects the whole in some way.
“[…] each nation has a shelf life. It begins its rise as a result of determination and a strong work ethic. It then rises to a level of productivity, which in turn creates prosperity. This abundance leads the population to become easy prey to empty political claims that largesse from the state can enrich all. Largesse results in complacency, which then turns into apathy.
“After a nation has peaked and a majority of the people have traded in their work ethic for the undeliverable promise of ever-increasing governmental largesse, the decline is set in stone. When this has taken place, it’s not only the work ethic that’s in a terminal decline. The nation heads inexorably downward in other ways.
“[… ] Historically, when a nation goes into a terminal decline, it is not just one aspect of its existence that declines. Moral values, sound economic principles, productivity, an independent media, and basic freedoms all tend to decline with it.” (Source: “Burning Down The House,” ZeroHedge, June 21, 2016.)
OK…So How Will This All End?
It is not an attractive picture. It is, in fact, a vicious cycle.
In prior essays, I have made the point that in 2007, forced to choose between supporting a banking system that had knowingly and deliberately taken us to the brink of collapse and possibly bringing justice to the people even at the expense of a temporary period of chaos and realignment, our governments did not hesitate to choose.
They chose to favor the banks instead! They declared the banks “too big to fail” and threw the rest of us under the bus. Our governments did not do this because they believed it was the right decision. They did this because it was the only option that protected the existing system of executive privilege and the accompanying power structures.
Nine out of 10 times, this is what governments do. They protect themselves!
(The 10th time? Iceland is an example. This wonderful and strange little country allowed its economy to work through the excesses and actually jailed 29 bankers, all of whom were mysteriously released just recently when the political leader behind the initiative was conveniently found to have been mentioned in the “leaked” Panama Papers, a leak now generally acknowledged to have been both managed and edited. [Source: “This Is Where Bad Bankers Go To Prison,” Bloomberg, March 31, 2016.])
The solution? There really is none. As the TV show Deadwood illustrated, we initially create government to bring order out of chaos. Over time, government itself becomes the chaos and ultimately destroys the fabric of the very society to which it gave birth.
On a roadmap of possibilities, that is where we are now. Governments in the West are imploding under the weight of protecting themselves and the elites from the very problems they themselves wrought. The results will not be pretty.