Pulling Back the Curtains

"Woman at her Window"

Initially, I feel I must offer some explanation to certain readers. I know that a lot of people interested in survival, disaster preparation, or self-defense/security, don't want to read a political screed. I understand. If I'm looking for information on how to build a fire, or a firearm review, etc., I don't want to read rantings and ravings about politician X or political party Y. But in order to understand the hows and whys of an economic collapse, you also have to dig into politics and figure out who are the real players and factions. And not just the dumbed-down version for mass consumption of "left versus right" or "Democrats and Republicans", but try to figure out what is going on behind the scenes. So, I'm going to venture a little more deeply into the politics today and, likely, in future posts.

In my recent discussion of Tainter's The Collapse of Complex Societies (Part 1 is here), much of the discussion revolved around declining marginal returns as the complexity of a society increased. As the example of Rome provides, there is a strong correlation between "complexity" and the taxing/spending to support it. And when the money starts to run out, so does social cohesion. To counteract that, the government must invest more in legitimacy. In Rome, this meant building public works, and "bread and circuses." It also means cracking down on dissension.

In Part 6 of the series, I gave some examples of what I deemed to be negative marginal return of government spending. Now, let us look at what is happening to the pool of people that pay for the spending. Charles Hugh Smith has been exploring the decline of the "middle-class." In this regard, he recently commented on why the middle-class lifestyle has become unaffordable. He observes, in part:

The State has two core mandates: enforce quasi-monopolies and cartels for private capital, and satisfy enough of the citizenry's demands for more benefits to maintain social stability.

If the State fails to maintain monopolistic cartels, profit margins plummet and capital is unable to maintain its spending on investment and labor. Simply put, the economy tanks as profits, investment and growth all stagnate.

If the State fails to satisfy enough of the citizenry's demands, it risks social instability.

That is the nation-state's quandary everywhere. With growth slowing and parasitic cartels increasingly difficult to maintain and justify, the State has less tax income to fund its ever-expanding social spending.

In response, the State raises taxes and borrows the difference between its spending and its revenues. This further squeezes spending as the cost of servicing debt rises along with the debt. The rising cost of debt service is an ever-tightening noose that cannot be escaped.

So far, this is an accurate description of Tainter's thesis that once a culture gets stuck in the cycle of declining marginal return on complexity, more and more must be spent on legitimizing the government--whether through force or welfare.

But Smith focuses on some of the consequences. He goes on to note that although productivity has steadily increased, rather than workers/employees receiving an increased portion of that productivity through increased wages, wages have stagnated, with the difference going to support benefits (e.g., healthcare and pensions) and corporate profits. This introduces its own problems for a government:

And this leads us straight to financialization, the parasitic extraction of profits from the real economy by finance and the state. Remember Wallerstein's key insight: the state depends on cartel pricing to sustain high labor costs, investment and the taxes that flow from high wages and profits. As the real economy stagnated, the state (which includes the Federal Reserve) incentivized financialization and speculative credit bubbles to keep the money flowing to feed its own spending.

In other words, the state isn't just a passive patsy in financialization--it is a willing partner, because financialization funds the state. Just look at the enormous expansion of property taxes and income taxes that flowed from the housing and stock market bubbles.

... If the state stops financialization, the state's enormously expensive programs and its debt machine all die, too.

In essence, the state has no choice: to save itself, the middle class must be sacrificed. 

From the point of view of global capital, the ideal partner is a powerful central state that imposes cartel pricing on the economy: $200 million a piece F-35 fighter jets, $100,000 college diplomas, $200,000 medical procedures, $1,000 a pill medications, etc.

From the point of view of the state, it's more important to protect corporate profits and preserve the ability to borrow another trillion dollars at near-zero interest rates than it is to restore a vibrant middle class.

Debt-serfdom works just fine for the financial sector and the central state that enforces the serfdom. Food stamps (bread) and distracting entertainment (circuses) are cheap. What's not to like about debt-serfdom to those in power? Not only is it an ideal arrangement, it's the only one left to the state and its partner, global capital.

In other words, when the middle-class is mostly bled dry, the state must rely on borrowing and/or printing money.

But there is more than just bread and circuses to keeping the population complacent. The state must also prevent the formation of any organized resistance--one of the reasons why the Tea Party is so feared right now. It is an irony of the current situation that, to counteract dissension against the state, the state must foster dissension within the pool of potential dissenters. In other words, to prevent social breakdown, the state must strengthen social fault lines.

One method is to emphasize tribalism--that is, identity politics and "othering." Luke Ford recently interviewed Paul Gottfried about tribalism in America. I'll warn you that it is not an easy read because it is a frank and open discussion about race in America and, for that reason, not safe for reading at work. But because they are both Jewish, they have an outsider view which may be helpful. There are a couple specific points that I want to bring out of the interview.

First, Gottfried notes that for most minorities, ethnicity outweighs all other political considerations. He gives, as an example: "I’ve known black people who were devout Christians, who were against abortion, who prayed over food when they ate it, and they loved Obama and they thought George W. Bush wanted to re-enslave every black in America because being a Democrat was black ethnic identity." The basic point being the lack of loyalty to the greater society.

Second, he predicts what is going to happen to America:

It will muddle through for a while because it is so rich. I think the whites will become so decadent that they will allow the minorities to do whatever they want. There will be no core loyalty except to social programs. The government will give out victimological credits. Tribal divisions will become so severe that it will convulse the country. At some point, the saints [presumably, he means Christians] will rise up and try to preserve what there is left of white society.

Again, this is consistent with Tainter's analysis. Social breakdown follows once people realize that the costs of maintaining social complexity substantially outweigh the benefits of splitting from the central authority.

It is not apparent from the limited quotes I have above, but when you read the whole interview, you realize that when Ford or Gottfried speak of "whites" or "white Christians" or "WASPs," actually they are describing the group that largely comprises the American middle-class--the very group that Smith describes as failing economically under current policies.

(H/t The Woodpile Report)