Two Links on Political Economy
Friday, August 19th, 2011That are complementary:
Fabius Maximus –Our fears are unwarranted. America is in fact well-governed.
….America is in better shape than Europe and Japan. We have good demographics, sound fundamentals, relatively easily solved problems, and no powerful enemies. Why the constant sense of crisis? QE2, hyperinflation, climate armageddon, Obama the socialist, AIDS, alar on apples, jihadists, debt, swine flu – a constant drumroll of doom, explained by Peter Moore in “The Crisis Crisis” (Playboy, March 1987). Answer: elites govern a weak people by exploiting their fears. For example, look at the “government is broke” panic.
- The Federal government’s net debt is only 2/3 of GDP, well below the 100% of GDP “red line” (that Italy reached many years ago).
- The short-term deficit is mostly the result of the recession. The medium-term deficit results from the Bush tax cuts.
- Social security’s funding gap is small vs. GDP and easily fixed.
- The massive funding gap is mostly Medicare, easily fixed by adopting features from the mixed public-private systems in Europe.
Panic pushes Americans to allow cuts to popular social services plus increased and highly regressive taxes. No matter who wins, after the 2012 election our representatives will implement the necessary policy changes: raising taxes, cutting expenditures, rebuilding our infrastructure, and beginning the long process of reforming health care. It will be another morning in America. There is no crippling polarization, just distracting noise masking a consensus between both parties about the key points of economic and foreign policy.
We do not see this long-standing pattern (see the previous post for details) because our collective OODA loop is broken (see section 6 here). That makes us easier to lead. Relying on wealth-based elites to run the country has a cost. They take a large share of the pie; we take a small slice….
Global Guerrillas –JOURNAL: Global Financial Cancer
….A couple of years ago, I wrote that the underlying structure of the global financial system was a “bow-tie.” Here’s what I said (it’s worth going back and reading the entire article and this paper on bow-ties from John Doyle at Caltech):
If we look at this new global system from a distance, its architecture is something called a bow-tie. This is a universal control system architecture that underlies complex systems from the Internet to cell metabolism.
What is a Bow Tie?
The bow-tie is a very powerful approach to organizing a complex system (it’s a system design that is used by controls engineers.) Visually, it starts with complex inputs (the left side of the bow-tie), boils them down into simple build blocks (the knot), which then allows the construction of complex outputs (the right side of the bow-tie….
….Unfortunately, as I mentioned in the earlier article, bow-ties are vulnerable to organisms that attach themselves to the knot at their center (like the way cancer uses the body’s metabolism system). These organisms relentlessly use the bow-tie’s knot to for selfish ends (rapid growth). The end result is typically death for the system. My suggestion was that the instability we were seeing in the financial system was an indication that it had been co-opted by a malicious, self-serving organism.
Of course, at the time there wasn’t much data to support this systemic analysis. That has been rectified with a new paper, The Network of Global Corporate Control by Vitali et. al. from ETH in Zurich. This paper finds, through extensive network analysis, that a small group of tightly intertwined financial institutions control the bow of the global financial system. It is in effect, the world’s first super-organism….
They are both right. Probably not perfectly, the American economy, even more the world’s, is too complex a subject, but right enough.
FM is right that the emerging class of people I have been calling “the Oligarchy” the past couple of years do not intend to deliberately implode the system that is working outrageously to their benefit. They are currently in the stage of trying to come up with an arsenal of tax-farming schemes that will pass political muster (i.e. – not provoke uncontrollable, “Arab Spring” street demonstrations or a successful populist electoral revolt that would eject their sycophants from government en masse in a single election) and are quietly, methodically and strategically neutering the capacity of the populace to resist their rule over the long term. It is there that we see seemingly unrelated measures as the coordinated political attack on public education and university education, restrictions on the ability of citizens to get courts to review arbitrary actions of Federal agencies, imposition of laws to permit total surveillance of US citizens and acquisition of their personal information and so on.
The elite, who are not completely cohesive or formally organized, are supremely confident in their ability to manage the technocratic economy they are putting into place, or if bumps in the road appear, to squeeze sufficient new leverage from the populace through inflation, devaluation and other forms of expropriation. Unfortunately, I am not confident that these folks are nearly as competent as they imagine themselves to be. Nor am I sure that the global system that they have built, a high-performance, deeply complex, ultra-leveraged, financial sector dominant political economy isn’t as fragile and dangerously unstable as people like John Robb and Nassim Nicholas Taleb have maintained it is. The system might not just crash, it could crash to extreme depths with unprecedented speed with unforseen consequences (financial systems also ensure the reliable and continuous logistical flow of *food* and *power* to population centers).