Monday, August 01, 2011

The Emperor of Debt is Naked

When Benjamin Franklin was asked at the close of the Constitutional Convention, "What have we got—a Republic or a Monarchy?” His answer was, "A republic, if you can keep it." What has come out of the debt ceiling talks is not a republic, but tyranny on the installment plan.

The choice today is whether we will have a nation or a pile of debt created by the uncontrolled spending of the ruling elites and their political machines. And the outlook isn't sunny. The mishandled budget battle has ended in a predictable deal with cosmetic cuts. The issue isn't just about right vs left. It's about whether we'll have a functional nation or a bankrupt welfare state. A nation that has gone so deep into debt to fund social and corporate welfare that it has no chance of recovery.

We have Two Americas, to borrow John Edwards' stolen slogan. The America of the worker and the America of the government. These two Americas are on a collision course. The debt economy will destroy the America of the worker and leave only the America of the government.

The same thing already happened in Europe. The EU put the eggs of the state into one giant basket. The spending went on and now it's up to the stronger economies to pick up the tab. But the stronger economies have their limits too. Germany can bail out Portugal and Greece, but sooner or later someone will have to bail out Germany.

And who will bail out America? Forget China. The Chinese economy piggybacks on our own. The Peeps aren't funding our economic disaster out of the goodness of their hearts. We're their ladder up. And the prospect of that ladder being sawed off by irresponsible policies frightens them more than anything else. If we go down, then China goes down with us. If Europe goes down, then Russia goes down with it.

The global economy is integrated. The dollar is a global currency. And American companies are the bricks and beams of globalism. For the Third World, America is a major market. For Europe, it's big brother. Still an isolated American collapse might be survivable, but it won't be isolated. The trends bringing down America, are also taking down Europe and Japan. So when the house collapses, everything goes.

The problem began when social welfare was used to buy political support and domestic stability. Then foreign aid was employed to do the same thing internationally. Behind these two rivers was a water empire run by the vast apparatus of government tasked with dispensing the money. The men and women who could turn on the tap or turn it off. The more the money flowed, the more their influence grew.

Post WW2 the choices were easy. Widespread death and destruction in Europe made reconstruction inevitable. On both sides of the Atlantic, millions of men returned to work. A wartime economy went back into its domestic mode. Guns were traded in for butter. The war had goosed a worldwide economic depression into an artificial debt funded boom. And post-war, there were fewer men and more jobs. Booming industrial machines looking for something to do crank out.

A wounded Europe turned to more socialism for social stability. Free social services and American GI's to keep the enemy out. And global trade under the Pax Americana. And so long as profits kept growing, the whole thing could be paid for.

But while revenues fluctuate, spending rises. Once you tie social stability to social spending and international stability to international spending-- pulling the plug means taking responsibility for social unrest and global conflicts. Since the problems never really go away, and if they do are replaced with new ones by those who have an interest in perpetuating spending, more money has to be thrown at them.

It's bread and circuses in reverse. A scam pulled off by the insiders who benefit, using the outsiders as their fronts, and everyone else as their cash cows.

Let's filter this through the Wall Street model. The American people are investors in a government that promises to pay out more to them than it takes in, through various direct and indirect benefits. The money is invested in various funds, such as welfare, defense, Social Security and the environment. But what if most of that money isn't actually invested in those funds, but are instead being pocketed by the broker and about a million of his friends?

The governments acts as the broker in our policy investments. And it pockets most of the investment and then only a fraction of the money actually goes directly to the policy. It doesn't matter what the policy is. Defense, the environment or studying the habits of bats. Most of the money gets spread around to insiders, who spread it around to their friends and their allies. Maybe 10 percent of it goes to the meat of building an airplane or protecting a forest or studying bats. The rest vanishes in fees, grants, payments, union gouging, cost overruns, marketing costs, lobbying salaries and assorted other ways that the insiders get paid.

This is what the economy of the other America looks like. Government America. And this is the economy that is consuming most of our economy.

Every decade has added another layer of complexity to it. More special interest groups, more lobbyists, community organizations, unions, consultants and consultants of consultants (yes they exist). And that adds more to the bottom line. Everyone has to get paid. And everyone does at the expense of the national debt.

Financial magazines gasp at Russia's culture of corruption, goggle in disbelief at officials openly asking for fur coats or the cost of a meeting with Putin. But we have a tamer version of the same system. We no longer have the grotesque 19th century corruption where everything was for sale, and government service was synonymous with bribes. What we have in its place is honest graft. A system that's far more expensive, but looks much cleaner.

We don't slip money to someone under the table for a government job. Instead we pay union dues. And the unions pay out money to friendly politicians. Who recommend people they know for government jobs. See isn't that clean?

You don't bring a briefcase with cash to a meeting with your congressman (unless he's the trashy sort). No, you hold a fundraiser in your house with some of your friends, who happen to be in your industry, and then you raise that same amount of money. Do it enough times and he might just be grateful enough to give your industry a grant, bail it out or just straight up make buying your product mandatory.

Rig elections? Why bother, when you can just rig entire districts, fill them up with a minority, keep that minority on the economic ropes, and make it clear that if they wander off the plantation, the aid gets cut off.

Raise taxes? Goodness no. People hate that. Instead you create environmental subsidies and regulations that companies have to pay to environmental consultants and green tech firms, who just happen to be your buddies and donors. And the companies grin and pass on the taxes to consumers.

This is what the economy of Government America looks like. It's an insider's economy. A parasite whose pile of debt is eating up everything in sight. The end result of this isn't Mao, it's south of the border. Economic and political instability, high crime and left wing and right wing dictators warring with each other. Gated communities for the rich, slums for the poor and a middle class barely hanging on.

The insiders don't have a problem with this. It's how they already see things. Their Two Americas is already here.

Their children go to private schools. Yours go to public schools. They live in segregated neighborhoods. They live off the inside track in big government. They know who to pass money to or get money from at the right time. If they need something done, they don't go through the system, they call in a favor. The law applies to them, but more erratically than it does to you. Every now and then one of them goes down in a big way. But there are countless more to take his place.

They are in their own way a meritocracy. Their ranks are drawn from the best and the brightest. The graduates of the best universities. The smartest people out there who are either dumb enough to believe or smart enough not to let on that they don't.

The scientists and engineers of yesterday, are the consultants and bureaucrats of today, The writers of yesterday are writing slogans. The artists are directing public information commercials. And it's only a matter of time until the doctors realize the real money isn't in medicine, it's in death panels and diet diagrams.

Like every corrputocracy, Government America is incompetent and deep in debt. It's also turning to the usual tactics, squeezing some of the rich, manipulating the currency and distracting the public. But the problem is just too big. The global economy runs through America. It can't afford this irresponsibility.

The insiders don't care how much they spend. They no longer think of the private economy as anything but a drain on the public economy. An obstacle that prevents them from maximizing public sector revenues. They don't care about debt either. They are clever enough to know that the global economy is unreal. And stupid enough to think that it means nothing they do matters. That it's just numbers being moved around.

The emperor is deep in debt and the crisis is approaching. The democrats think that the solution to the crisis is to increase revenues. Their only focus is to harvest more money, whether it's by borrowing or by taxing. They have no concern for the larger economic picture. If everything implodes, then they get a chance at creating a socialist republic. If it doesn't, they can keep on spending.


Lemon said...

I agree to increasing revenue, but by bringing back business and ending idiot trade treaties and ending 4 useless wars, cutting pay for Congress and the President and rich religious organizations.

Use incentives to bring back business and manufacturing. Put people to work, increase production and become a powerhouse once again.
Cut the pork from Congressional spending like the nonsense of the shrimp on treadmills.
Stop giving bail outs to foreigners etc.

Anonymous said...

Once again another excellent article,thankyou. The collapse is not an "If" but "When" and how soon? The Tea Party looks to have been rolled by the Washington DC elite Ruling class in both parties over the debt ceiling. No matter how loud one shouts, no one is hearing you in DC.

sofa said...

lemon- Asking for a gov't program to fix things? Really?

Rhodes said...

As I sit here listening to the talking heads congratulating themselves for completing the coup of coups, I take heart in the certainty that some day they will be the first to culled by whatever anointed one is in power at the time.

Ive a feeling they will go to that fate weeping and begging but go they will for it is their nature to submit. Most of us on the other hand will have already departed, natural or not, but I do hope we are able to enjoy the show.

Anonymous said...

Another devastating article...

I wonder how delusional the American people can be, so as to allow a bunch of psychopatic politicians turn their country into a private party where they serve themselves whatever they wish.

For an external observer, it looks as if the whole USA population had been hypnotized or given some strange drug (main ingredient being the "democracy" myth, mixed with some "change, yes we can") which makes everything look rosy.

I only wish the USA will wake up before it's too late...

R. Halevy
Mech. Engineer
Rio de Janeiro, Brazil.

Lemon said...

Sofa: Then come up with another idea.
I stated what has to happen and that's how it's done as per how things work today.

but pygmies said...

Sultan -- you wrote: "And who will bail out America? Forget China. The Chinese economy piggybacks on our own. The Peeps aren't funding our economic disaster out of the goodness of their hearts. We're their ladder up. And the prospect of that ladder being sawed off by irresponsible policies frightens them more than anything else. If we go down, then China goes down with us. If Europe goes down, then Russia goes down with it."

So, doesn't this imply that China will do whatever it has to to see to it that America does not fail? (and Russia vis a vis Europe?) In other words, might it be a fruitful policy to milk the Chinese for $$$?

Daniel Greenfield @ the Sultan Knish blog said...

milking is a finite strategy

China needs us to bootstrap them up, but they're not going to hang on once we go Greece. And even if they did, it's still finite. China's economy heavily draws from ours, using them to subsidize us, is like pouring water from one cup into the other, when the first cup as a hole.

but pygmies said...

Dear Daniel,

Thank you for responding.

Yes -- "milking is a finite strategy"

But unless societies become more productive or there be many fewer people, EVERY strategy is finite. Because it is all a shell game, and there will always be more people in need than who can contribute.

There are only two ways I can see for economies to become perpetually vibrant: 1. Create something new that is inherently valuable (Land, water, food, weapons, narcotics, oil, coal, gas, etc. are inherently valuable. More recently information became inherently valuable.); or 2. Discover an alternative, much less expensive energy source (which I have faith the Jews of Israel are working on and, if given enough time, will figure out.)

And, I must say, being 63 years old myself, "finite" sounds pretty good to me!

Daniel Greenfield @ the Sultan Knish blog said...

Technological progression and exploitation can keep an economy moving forward, but not when expenditures increase at such a rate as to swallow revenues faster than they can be produced.

That's the real problem here.

The American economy is still an engine, but it's a gummed up poorly maintained engine.

Lev Tannen said...

Completely agree except for one thing: it is not fair to blame Republican in the Congress for the bad deal. They did what they could. Notice how quickly the public opinion were turned against them at the very sign of possible default. While excessive spending is very bad by itself it is not a disease, it is a symptom of the disease. The big government philosophy is the disease. And this is not a government or only government disease. This a society disease. Too many people became dependent on government for living and expect that government will give them. Politicians only plays to that sentiments but the root are people. And if republican press too hard they will be ousted in 2012 and all hope will be lost.
And there is another side of the story. To be in a prison is bad, but if you are jailed and locked, you, probably will not want your jailers just diasappear and leave you to die of hunger. It is not enough to starve government with money, Republicans have to offer a specific plan of substituting a big government economy with a free market economy. So far I only heard something in that direction from Newt and Ryan. The rest only use slogans. What do you expect from peoples then? To believe that just shrinking the size of the government will magically free them from dependency from government and create free market?

Daniel Greenfield @ the Sultan Knish blog said...

Those are valid points Lev, and the Republicans did not have a great hand, but they also played it rather poorly.

sofa said...

Lemon: "that's how it's done as per how things work today".

No, that's how your mind works. And it's also what's wrong with how the world is NOT working today. Government is not the solution: Government is the problem.

Liberty and Individual rights and Property provide a foundation for an enduring civilization. Statism and central planning NEVER work. Statism is the problem- that's what I'm saying. The best the state can do is get out of the way, get back to it's limited enumerated powers, and let capitalists re-invent business and industry and agriculture and technology. What the government has been doing is Orwellian and counter to American principles (back when we had those).

Asking for a government program to provide a solution to this crisis is of course endorsed by all the progressive Keynesian statists. How has that approach working so far? Killing the country to save the country?

vdavisson said...

Daniel, we have a kleptocracy. John Kerry's comments today (8/5) about why the Tea Party should not have equal time is a good example of the arrogance and enmity of the ruling class.

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