Guest Post: Why Reforms Won't Work

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Regardless of the need for reform, it isn't going to happen for these structural reasons.

The list of public/private institutions that desperately need structural reform is long: the Pentagon, healthcare (a.k.a. sickcare), Social Security, the complex mish-mash of programs that make up the Welfare State, the 73,000 page tax code, public pensions and the financial sector, to name just the top few.

Every reasonably informed person knows that all these institutions need deep, systemic reforms, not another layer of bureaucratic oversight or a few policy tweaks. As evidence that the Status Quo is finally confessing to the obvious, please read Can America Be Fixed? The New Crisis of Democracy by Fareed Zakaria (Foreign Affairs).

The article lays out the unsustainability of current public/private institutions and policies in irrefutable detail.

Regardless of the need for reform, it isn't going to happen for these structural reasons. In a nutshell, the public-relations America presented by the mainstream media and the State bears little resemblance to the actual machinery of finance and governance.

1. Elections have become the means to control the redistribution of national wealth to politically powerful cartels and constituencies rather than the pathway to good governance. Good governance gets abundant lip-service (propaganda supporting the flimsy facade of PR America), but American government has by and large lost the institutional memory of actual (as opposed to PR) good governance.

We might use the career of Paul Volcker as a window into what has been lost. As Austan Goolsbee writes in his review of Volcker: The Triumph of Persistence by William L. Silber: "Volcker still believes that public service is the most important thing someone can do, but he fears that this attitude may be a relic of a bygone era."

Why be coy? In a nation of revolving doors between public service and fat-cat corporate lobbying positions, it is decidedly a relic of a bygone era.

As Mr. Zakaria observes, "The system works better as a mechanism for campaign fundraising than it does as an instrument for financial oversight."

This institutional corruption and loss of good governance cannot be repaired in a single election, and it renders real reform impossible.

2. In a bought-and-paid for democracy like America's, vested interests protect their perquisites, power and share of the swag/national income regardless of the costs to the economy and society at large. This perversion of "national interest" to serve provincial, neofeudal fiefdoms necessarily leads to the real national interest being subverted and sacrificed on the altar of expediency and protection of the Status Quo at all costs.

In a bought-and-paid for democracy like America's, it is impossible for a government whose first priority is serving and maintaining vested interests to assert the national interest if that requires dismantling the vested interests' power and share of the swag.

3. This feeds a self-reinforcing feedback loop of political expediency. Since real reform requires cutting the perquisites and swag of self-serving fiefdoms and crony-capitalist cartels, phony "reforms" are passed in a purposefully obscure flurry of complex legislation that leaves all the real work to regulators who are politically in thrall to the very interests they are supposed to regulate.

These simulacra reforms feed the PR need to "do something to fix the problems" while doing nothing but extending the Status Quo and making the problem's next crisis that much worse.

Here is the perverse feedback loop: when the next crisis hits, the cuts to the Aristocracy's fiefdoms and constituencies would need to be even deeper and are therefore even more repellent, so real reform is even more impossible than in the initial crisis. Another round of toothless, hyper-complex regulation is hurriedly enacted, erecting a Complexity Fortess around the parasitic fiefdoms and cartels.

4. The political, corporate/financial and National Security State Elites represent a vanishingly thin layer of the American economy and society. America today is the nightmare scenario feared by James Madison and other Federalists: a covertly created monarchical (what I term neofeudal) empire much like the Roman Empire--a republic in name but in reality a highly centralized Empire operated for the benefit of tiny Elites who buy complicity of the masses with free bread and circuses.

The "Monarchical Federalists" Madison and Jefferson feared have indeed established a neofeudal, neocolonialist Empire.

In this context, it is interesting to note that fully 20% of all entitlements (tax credits, Medicare, Social Security, etc.) flows to the top 10%, 58% goes to middle-income households and 32% goes to the bottom 20%. The swag of bread and circuses is remarkably well-distributed, buying off every sector of the populace.

5. Behind the PR facade of democracy and free-market capitalism, a parasitic Aristocracy extracts income and wealth from a financially indentured class of serfs. This Aristocracy is composed of several Elites which are served by what I term the Upper Caste of technocrats (prep-school/Ivy League graduates who enter technical/managerial service in key institutions, plus a handful of officers brought up through the service academies and war colleges).

These Elites and the Upper Caste serve each others interests, a social heirarchy that Hilton Root characterized as a "society divided into closed, self-regarding groups." The slow trickle of the "best and brightest" into the Upper Caste via Ivy League university admission is also a propaganda facade, as Ron Unz ably and exhaustively proves in The Myth of American Meritocracy How corrupt are Ivy League admissions?

The trick is enable just enough meritocracy to support the PR facade. The Ivy League has mastered that balancing act.

These Elites have few if any links to the social layers below. Charles Murray spoke to some aspects of this trend of financial/social Elitist isolation from the debt-serfs and middle managerial class below in Coming Apart: The State of White America, 1960-2010, but the key dynamic that is outside Murray's sociological purview is the stark reality that the Elite class is devoid of any real feeling for or interest in the common good or public weal.

That is, not only have the key institutions of American governance and power lost the memory and mechanics of good governance, the Elites running the institutions have become an inbred neofeudal Aristocracy characterized by an unexamined (and thus deeply adolescent) sense of entitlement to the reins of power and control of the national income.

It's not just the institutions that have lost any conception of good governance-- the Aristocracy ruling the nation has lost all interest or recognition of the common good. This is of course not unique to America; the same disregard for the common good is at the root of Greece's status as a failed state.

The incestuous embrace of privilege and power by protected, socially isolated Elites characterizes failed states and brittle, doomed regimes throughout history. It is painful to recognize that this is precisely what America has become: a failed state that refuses to admit to its institutional failure because that would require the recognition of a neofeudal, neocolonial Empire ruled by a small, self-serving, parasitic political and financial Elite.

There is one last dynamic that has yet to unfold: the disconnected, protected and politically incestuous Elites at the top of the monarchical Empire recognize the need for real reform at the last minute, when it is too late to effect repairs on a rotten-to-the-core and bankrupt State.

America may be as long as a decade away from this final recognition and frenzied rush to reform what has already been destroyed by self-serving Elites and parasitic, parochial fiefdoms.

One key element in this dissolution of the corrupt regime is the wholesale abandonment of the Elites by the managerial class which belated grasps its role as enforcers of the parasitic class and accepts that its naive aspirational ties to the Elites were illusory: When Belief in the System Fades (March 12, 2008).

RIP: Our Expansionist Central State (23 Minutes, 25 Slides) CHS with Gordon T. Long:

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ParkAveFlasher's picture

We're totally heading into war.  Command and control economy.

Bad Attitude's picture

As Dear Leader says: "Forward!"

smiler03's picture

What has the Hoover Dam bypass bridge got to to with this article, a leap of faith?

mightycluck's picture

Watch the reform sessions in Congress. There will be no reform, just gov't control!!!!!!!!!!!!!!!!!!!!!!!!!!!

BLOTTO's picture

And then, 'out of the chaos', comes 'order'...


Sound great eh?


Until one realizes its 'their' verision of 'order.'


Mike in GA's picture

In sum, Collapse is the only workable "reform".

Long pitchforks.

Joe Davola's picture

Pitchforks will be limited to the blunt 3 tine variety in pending legislation.

willwork4food's picture

Then they better have their brownshirt henchmen guarding trees since a sharpend stick would look very good jammed up their elite-entitled asses.

Long wood products.

mightycluck's picture

Sorry. I was trying to post the story on Elizbeth Warren and her struggles to control lending.

Rick Blaine's picture

even longer long rifles with short barrels

Vashta Nerada's picture

Exactly.  What cannot be paid will not be paid.

LawsofPhysics's picture

Obviousman is back.  No shit the "elites" have no interest in those below them... maybe.

I'd argue those who worked from nothing providing new tech or a real fucking service may have some interest (although typically too busy actually working- the "birthright" elite certainly don't give a shit).  In any case, most fascists do not, at least until the guillotines roll that is...


Some things never change, hedge accordingly.

Spastica Rex's picture

Case in point: Bill Gates is a kind and goodly king who asks nothing but goodness from those who would curry his favour.

Azannoth's picture

Those who actually make it in this System become automatically "feudal lords" and have little to no interest in fighting the Status Quo and even if they tried their Empires are too dependent on the system and would instantly collapse (or get taken out by competitors) if they tried.

Even guys like the Google founders with their "Do no Evil" mantra cannot totally oversee a company this size and are constantly circled by lobbyists who put wool on their eyes, and the really good guys never make it anyway. No man or small group no matter the resources or commitment can make a difference they opposing forces are too strong and too entrenched, nothing short of a full blown reset.

Spastica Rex's picture

Dude, I've come to the conclusion that most people want kings.

Azannoth's picture

Yes they only bitch about "The King(s) bad manners" but never about the very existence of kings, Sheeple will be Sheeple can't help it

francis_sawyer's picture

I agree 100%... The only people who don't want kings are 'other' kings...

CH1's picture

Two up arows for a dot.

That's interesting.

francis_sawyer's picture

What's your opinion on this?


_ . . .       . _ . .       _ _ _       . _ _                     _ _       .

francis_sawyer's picture

I agree 100%... The only people who don't want kings are 'other' kings...

francis_sawyer's picture

Damn ~ the Hedge is sticky today

Dr. Engali's picture

Unfortunately you are right. Having to make your own decisions is hard for most people.

Joe Davola's picture

Holding up Volcker's belief that public service is the most important thing one can do is closer to the real problem.

kridkrid's picture

Deep down, people don't really buy that BS. It's a card that sociopaths play to gain trust. It works for most, has the opposite effect on people who can see and think.

otto skorzeny's picture

volcker is a conservative keynesian-pay no mind to him

dbTX's picture

It's not going to happen because we are dead ass broke.

eclectic syncretist's picture

Bullshit.  We are our most valuable asset no matter what.  What Charles Hugh-Jass of Obtuse Minds and too many other people don't realize is that we have all the power we believe we have, and if we want to take BS Bernanke and all the other Central Banksters and Criminals and get rid of them we can.


CH1's picture

We are our most valuable asset no matter what.

No argument, but so long as you keep treating the elite as though they are the center of the universe, they'll keep doing exactly what they're doing.

The answer is not to "get rid of them," but to walk away from their circus.

CrashisOptimistic's picture

Verbal gobbledygook.

It's about numbers and nothing but numbers.

The Sequester is $85B (and more to come in upcoming years).  They want to replace it with other cuts or tax increases?

Go ahead.  Go ahead and have your taxes.

Just make DAMN SURE it's more than $85B IN 2013.  No bullshit delays.  Cut cut cut . . . NOW.  DO IT NOW.

They can't.  GDP will implode.  They know it.  This is what tipping point meant.  We're past it.  People are going to die by the billions.

Spastica Rex's picture

People are going to die by the billions.

Of course, everyone will.

Vashta Nerada's picture

So, essentially, if the sequester was increased by 15X, we would be close to matching spending to tax revenue.

Thisson's picture

It's a myth that GDP will "implode" when gov't stops spending.  GDP represents the distribution of production.  For example: assume GDP is, initially, 100 units of resources.  Of these units, 25 are allocated to Consumption, 25 to Investment, 25 to Government Spending, and 25 are Exported.  Suddenly government decides not to consume any resources, and uses 0 units instead of 25.  Those 25 units are now available to be used for Consumption, Investment, or Exported.  Most importantly, only units allocated to investment increase productivity so that there will be more units available for distribution in the future.  This is fucking common sense.  Yet professional economists continually argue that the economy can possibly grow by increasing the allocation of resources to Government and Consumption.  It's complete idiocy!

DR's picture

"Those 25 units are now available to be used for Consumption, Investment, or Exported"


If there is a demand for these 25 units, otherwise GDP implodes. Private sector investment is at record post WWII recovery lows. No one wants to invest in real production-everybody wants to inflate paper. 

Matt's picture

Government is increasingly funded by debt. If government spending drops, no one else is going to be willing or able to borrow to spend equal to what the government spends. Therefore, not only will the government spending become a smaller portion of the pie, but the pie itself becomes smaller.

Normally, this is considered a normal thing after a massive credit boom. Under Keynesian systems with debt beyond sustainable limits, a shrinking pie (total GDP) is a calamity. Tax reciepts shrink while the debt grows, leading to more and more printing to try to keep the system from collapsing.

I guess it also helps if you distinguish nominal GDP from real productivity.

Floodmaster's picture
Defense-related expenditure 2012 Budget request & Mandatory spending[22][23] Calculation[24][25] DOD spending $707.5 billion Base budget + "Overseas Contingency Operations" FBI counter-terrorism $2.9 billion At least one-third FBI budget. International Affairs $5.6–$63.0 billion At minimum, foreign arms sales. At most, entire State budget Energy Department, defense-related $21.8 billion   Veterans Affairs $70.0 billion   Homeland Security $46.9 billion   NASA, satellites $3.5–$8.7 billion Between 20% and 50% of NASA's total budget Veterans pensions $54.6 billion   Other defense-related mandatory spending $8.2 billion   Interest on debt incurred in past wars $109.1–$431.5 billion Between 23% and 91% of total interest Total Spending $1.030–$1.415 trillion
LawsofPhysics's picture

none of which is even remotely on any sort of chopping block.

CrashisOptimistic's picture

Not sure what that's all supposed to mean.  That there is money spent to defend 15.6Trillion in GDP?  So go ahead and cut it.  Go ahead.  Cut it big.

GDP will implode.  It doesn't matter what you cut.  GDP will implode.

BTW you left out the portion of Social Security paid to military retirees, since they pay in.  So be sure you include some SS cuts too.  You also left out the tax deduction for home mortgages for houses owned by active duty military stationed at a base.  You also left out that portion of Dept of Education that could be apportioned to children of active or retired military.

You must be a right winger.

RSBriggs's picture

-1 for being a fucking leftist idiot troll...

Vashta Nerada's picture

National defense is actually in the constitution, unlike all of the other 'mandatory' spending.

Thisson's picture

Defense yes.  Offense, no!  Almost all of that spending is for offense!

Vashta Nerada's picture

I had always heard that a good offense was the best defense, or was it the other way around?

LawsofPhysics's picture

Pssstt.  Bill of Rights > Constitution.  

CH1's picture

First of all, I never agreed to be bound by the constitution.

Secondly, "national defense" and "bases in 120+ countries" are a LONG way from synonymous.

Vashta Nerada's picture

I certainly agree that defense can be cut, my point being that of all of the supposedly sacrosanct items we spend on, somehow the 60% of total spending on various welfare programs is ignored, while the 20% of spending on defense which is actually constitutional is focused upon.