This Is How the Status Quo Unravels

The politics of the past 70 years was all about horsetrading who got what share of the growing pie: the “pie” being cheap energy, government revenues and consumption, sales and profits.

Horsetrading over a growing pie is basically fun. There’s always a little increase left for the losers, so there is a reason for everyone to cooperate in a broad political consensus.

Horsetrading over a shrinking pie is not fun. Everybody is shrilly demanding their piece of the pie should either grow or be left untouched; any cuts must come out of someone else’s slice.

Everyone turns on their most compelling emotion-based defense: “we wuz promised” is a reliable standard, as is “we need more money to defend the nation from the rising threat of XYZ.” “Help those in need” plays the heartstrings effectively–as long as the “help” comes out of somebody else’s pocket.

Everyone sharpens their knives, the better to carve a slice off somebody else’s slice of the pie. A passive-aggressive free-for-all ensues as everyone reacts with aggrieved defensiveness to any attempt to diminish their slice, even as they launch shrill attacks on everyone else’s defense.

As the pie shrinks, the motivation to join a broad consensus vanishes like mist in Death Valley. Any cooperation is merely a brief tactical move designed to carve a big chunk off another player’s slice. Once that’s accomplished, the alliance quickly splinters as the survivors battle over the meager spoils.

Any victory is temporary, as a new alliance will arise to decimate the previous winner. Winners in the zero-sum game of divvying up a shrinking pie merely set themselves up as the juicy target for the next ferocious attack by the resentful losers.

Political survival boils down to masking the cuts behind illusory “victories” and bogus projections of solvency. Some modest policy tweak will be heralded as “saving Social Security,” meanwhile the end result is a reduction in the purchasing power of whatever benefits remain.

You may well get “what we wuz promised” but it will only buy 50% of what it did a few years ago, after taxes, inflation and “adjustments” are factored in.

Every compromise will be projected to restore solvency to imploding entitlement programs, but it will all be illusion. In two years, insolvency will rear its ugly head again.

The debts, unfunded liabilities, demographics and diminishing pools of income to tap are beyond policy tweaks and minor cuts. Take a look at these charts to grasp the unwelcome realities: sorry, we can’t “grow our way out of debt” because the debts and unfunded liabilities are simply too large and expanding at too fast a rate.

Here’s the current federal spending pie: 55% is entitlements and interest. Both of those are set to soar as the populace ages and interest rates rise.

Massive, ever-expanding deficits will push federal debt much higher, pushing interest rates up. Everybody wants to raise taxes on “the rich,” but a funny thing happens when tax revenues soar above a threshold–the economy spirals into recession, and employment, profits and tax revenues all plummet, forcing even higher deficits.

Entitlement program deficits are exploding higher, and all the conventional policy fixes are like building sand castles to stop a tsunami.

The problem is global: as we consume the cheap energy, what’s left to extract and refine is more expensive, so energy costs rise. As the population ages, entitlements soar. As the “growth fixes everything” model fails under the burden of skyrocketing debts, the harsh reality becomes unavoidable:

We haven’t “grown” at all. What we’ve done is borrow from future generations to create the illusion of growth.

Here’s another look at debt: the global bond market has soared from $10 trillion to $100 trillion.

Fragmentation, discord, discontent, class war: this is the inevitable result of a shrinking pie. Our political, social and economic systems have no history or memory of how to navigate this systemic Degrowth successfully. Everyone will blame someone else for the insolvency and failure, and that is not a recipe for successful adaptation.

Here’s a taste of what lies ahead:

Welcome to the new dark ages, where only the wealthy can retire

As I always say, don’t focus on retiring comfortably; focus on working comfortably.

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  • diogenes

    Another, more honest, term for state “debt” is parasitical plunder for the investor class. The Constitution delegates the creation of money to our government. Congress corruptly gave this power away to the Federal Reserve in 1913, and the “national debt” is the result. 325 million Americans do not need to borrow from 160,000 investors (the 0.1%) and then submit to their predatory dictatorship.

    • Scoot Wad

      Well said. At first glance this data looks like it was sourced from the shills of social security privatization.

      • diogenes

        Very likely. That’s the kind of people Smith appears to speak for. In any case, America is a rich country but its wealth is grossly maldistributed. Turkey and Cuba have much better rates of, for example, infant mortality, because their wealth is more fairly dispersed. Wilkinson & Pickett’s The Spirit Level demonstrates a DIRECT correlation between maldistribution of wealth and ALL social ills. Check it out and see for yourself.

        What could be filthier than trying to blame the results of the predatory absentee investor class that has been pillaging America for over 100 years on Medicare? Let’s wait and see. Smith is a good bet to turn it up, whatever it is.

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  • Jim G

    Nice article. People forget that debt and the banking collapse caused WW II. People think political is the cause of war; the elites (including Hillary) know that the banks are. Feels a lot like 1936 – not just with the Fascists, but also the Communists on the march worldwide. The Obama Islamic Revolution is turning over governments in the Mideast, and we’re headed for war with China. Is Trump really out to the get the Rothschild banks like Hitler? I see the collapse coming; every day things have gotten worse ever since 11 September 2001. I see no bottom.
    HEY, what about a new movement to build fall out shelters? That might freak some people back to reality. Everyone know about the Georgia Guide Stones and the target population of 500 million? That’s optimistically 10% of us. Good luck all.

  • Josh Stern

    It’s important to notice that humanity is growing continually richer and more capable. That is true for humanity as a collection, human wealth per living persons, and those same statistics for the people of the United States. Inequality of wealth and opportunity in the US has worsened in some ways. So we should focus on the positive idea that this can be turned around systemically. The concept of fighting over a shrinking pie is a wrongheaded thinking trap.

    • diogenes

      The grotesque maldistribution of wealth in America has been a fact of life since Wall Street took control of the American economy in the 1890s. Since then, consistently, 60% of all the wealth of “our” country has been in the hands of 2% of Americans, and under 2% of the wealth has been in the hands of over 60% of us — the reciprocal relation is obvious. The 2% couldn’t have 60% without taking it from somebody. For documentation of these assertions and discussion see my essay, posted elsewhere on this site, The Distribution of Wealth In America.

  • JerseyCynic

    Another Home Run for CHS. GOD I love his insight! Very helpful and timely in my study of Creative Destruction.

    “….Nietzsche represented the creative destruction of modernity through the mythical figure of Dionysus, a figure whom he saw as at one and the same time “destructively creative” and “creatively destructive”.[17] In the following passage from On the Genealogy of Morality (1887), Nietzsche argues for a universal principle of a cycle of creation and destruction, such that every creative act has its destructive consequence:

    But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much “God” sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law – let anyone who can show me a case in which it is not fulfilled! – Friedrich Nietzsche, On the Genealogy of Morality

    Other nineteenth-century formulations of this idea include Russian anarchist Mikhail Bakunin, who wrote in 1842, “The passion for destruction is a creative passion, too!”[18] Note, however, that this earlier formulation might more accurately be termed “destructive creation”,[original research?] and differs sharply from Marx’s and Schumpeter’s formulations in its focus on the active destruction of the existing social and political order by human agents (as opposed to systemic forces or contradictions in the case of both Marx and Schumpeter).”

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  • wehaveseenthisb4

    Increase FICA income current limit of $127,000 to $250,000. Every precious penny over $250,000 is FICA tax free. Ok?

  • Query what the rates and costs would be with a less extractive economy.

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