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Two Links on Political Economy

That are complementary:

Fabius MaximusOur 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).

11 Responses to “Two Links on Political Economy”

  1. Duncan Kinder Says:

    Precisely because the oligarchy / bow tie elite’s situation has become so egregious their situation has become more vulnerable.

    In terms of OODA loops, they are becoming increasingly observed while people are better able to orient toward their role.  ( E.g., Goldman Sachs is now a household word; while a decade ago no one had heard of it. )  Of course, deciding how to act in response is now difficult, but there are a lot of very bright people who are now thinking very hard about what to do.

    And, unlike the Renaissance magnates, such as the Medici, there is no institution such as the papacy which could legitimize the oligarch / bow tie folks status.   So the number of bright people who view them as a problem is likely to increase, not decrease, with time.

  2. joey Says:

    I read a book on the emergence of Feudal society in the Frankish Empire about a year back.
    Interestingly enough, while the empire was strong the peasantry had a wide range freedoms, and were considered free holders with there own land.  As the central authority began to collapse, there emerged a class of robber barons.  Those guys had little more than a suit of mail and a horse, through constant raiding they would force peasants in there catchment area to pay protection money.  With there new found wealth, they would build Moat and Bailey Castles on major trade routes.  They began to tax trade, and launch punitive strikes on the peasants with there armored horsemen.  The collapse of Empire excellerated.  With no effective Empire to protect there interests, the Peasantry turned to the Church.   In the end the Church called together the newly emergent "noble" class and cut a deal with them,  the nobles demanded that the peasants give up the ancient freedoms, the freedom the move, carry arms, equality before the law, the right to hold land,  the Church agreed, in return the nobles would pledge to cease raiding them, and work to restore order in there lands.The punch drunk peasentry didn’t have a choice,  the deal was struck,  the power of the church and nobility was legitimized in law,  and on the back of the peasants a new feudal society emerged.

  3. onparkstreet Says:

     "….coordinated political attack on public education and university education."
    This probably wouldn’t be so easy to do if large numbers of people weren’t genuinely unhappy with the public education and university education system as it currently exists.
    A few years ago, a colleague of mine who is a medical residency program director, told me all about a conference dealing with the poor quality instruction of entering medical students and residents. Basically, the complaints were so widespread from so many faculty across the country, that they did an entire course at a conference on how to teach this particular generation.
    I tried in my own small way to improve the system and then decided I didn’t really care to work in that environment anymore. It’s a system run by administrators and bureaucrats for the benefit of said administrators and bureaucrats. Doctors, nurses, student? Pffft. Immaterial. The new marketing catelogue is more important.
    Sorry about the rant 🙂
    By the way, my new speculative fiction novel will be about a sea platform that hosts a gonzo medical school beamed through the internet to people frustrated with wait times back home.
    Just kidding on the speculative fiction thing. But I’m thinking, youtube plus khan academy plus former assoc. prof. who is bored with the current state of medical education = you deserve your marginalization, American physicians.
    – Madhu 

  4. Lexington Green Says:

    "… my new speculative fiction novel will be about a sea platform that hosts a gonzo medical school beamed through the internet to people frustrated with wait times back home."
    Why a novel?  Sounds like a genuine business proposition to me.  

  5. J.ScottShipman Says:

    Hi Joey,
    I’m reading about the collapse of the Hungarians in face of the Tartars.
    What’s the book title you reference? I’d like to add to the list…
    Many thanks in advance!

  6. Larry Dunbar Says:

    The OODA loop itself is somewhat a bow tie, only both sides are not symmetrical. You can run an OODA loop backwards to increase the potential of the circuit, or forward and decrease the potential, but the circuit itself is not structured equally through out the circuit. It is not the parallel circuit that runs vertically through orientation, but on the other side of the knot in the bow tie (I am calling orientation the knot) there is a gap between Decision and Act. There are many gaps in Observation, but the sum of the forces between these gaps equals zero. In other words, the sum of all the forces in the environment we observe equal out as we orient ourselves towards an advantage.  There is only one potential across the gap between Decision and Action, and, because of the advantage we gain, in the environment we observe, that potential has a greater magnitude than all the forces inside the loop separately. However, there is a cost in the leverage we seek, and that cost is extracted in the movement across the gap. The movement across the gap is a judgment. The problem is not that the elite financiers " … relentlessly use the bow-tie’s knot to for selfish ends (rapid growth). ", although it is probably true, the problem, as I see it, the elite financiers use no judgement when crossing the gap. The reason they are so confident in the system: the elite financiers use bots to cross the gap , eliminating the need for humans to make judgement calls. They let bots Act, because bots are helpless when attacked by human viruses. To the elite financiers this helplessness is called a bubble. The elite financiers are not afraid of bubbles, because they only have to kill off the virus, which is sometimes easier said than done.

  7. onparkstreet Says:

    Why a novel?  Sounds like a genuine business proposition to me.  – Lex
    I know, right? Hey, if there are any venture capitalists reading, can I have some money plz?
    – Madhu

  8. joey Says:

    It was called Millennium, by a guy called Tom Holland Your welcome

  9. Bill Frank Says:

    I will only ask you to do some research on your underlying assumptions as follows:
    What were the actual Federal Government tax receipts in the years subsequent to the Bush tax cuts (2004 through 2007)?
    What happened in the late 80’s as result of the Reagan tax reform (tax cuts and closed loopholes)?
    Do tax rates equal tax revenue?
    If there is an increase in tax rates, who is in the best position to avoid the impact?
    What do you think would happen to the interest the Federal Government pays on it’s $14.5T ($16T by the end of 2012) debts if interest rates rise from their current level of near zero to its historical norm of 4% or 6%?
    The GDP of the US in 2009 was $14.1 Trillion and $14.7 Trillion in 2010. Our debt is now over 100% of GDP and increasing at a much faster rate than GDP.
    Are you buying Italian Bank securities now?

  10. Y Says:

    And a network centric counter-hegemonic strategy: http://yannickrumpala.wordpress.com/2009/10/21/tracing-and-reconfiguring-networks-to-build-a-political-alternative/

  11. tdaxp, Ph.D. » Blog Archive » Organizing my Thoughts on Platforms Says:

    […] reading more about education reform, I came across this post by my friend Mark — “Two Links on Political Economy” — that in term referenced to articles by John Robb, “BOW-TIE CONTROL […]

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