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Why The Periphery Is Crumbling: The Spoils System Is Cracking
Submitted by Charles Hugh Smith from Of Two Minds
Why the Periphery Is Crumbling: The Spoils System Is Cracking
Instability starts on the periphery and moves into the core.
While it is clear that the instability in periphery nations is arising from dynamics unique to each nation, there is one unifying causal factor: the spoils system in each nation is breaking down.
Every nation-state, from brutal dictatorships to nominal democracies, ultimately depends on a spoils system that provides the various factions, classes, etc., with sufficient material and status benefits to accept the Status Quo arrangement.
The more a regime relies on oppression for its legitimacy (for example, North Korea or Saddam's Iraq), the greater its vulnerability to erosion in the spoils system, which naturally favor the military and the regime's Elites.
In broad brush, the spoils available for distribution are the surplus generated by the national economy. In the case of North Korea, this surplus stems from extortion (of donations from other nations), satrapy (free oil from China) and illicit activities (arms sales and counterfeiting). A common source of surplus is oil (Venezuela, Iraq, Iran) or some other desirable commodity.
The vast majority of surpluses outside oil exporting nations have been generated by three factors: cheap energy, rising productivity and the expansion of credit. If we examine periods of rapid expansion and generalized prosperity, we find these three factors were active: cheap energy, rising productivity and ample credit.
Just look at Europe and the U.S. in the 1950s and 60s, Japan in the 1960s and 70s, and China in the 1980s and 90s for examples.
Any reversal in these factors reduces surplus and the spoils being distributed. Sharply higher energy costs crimp profits and cause recessions, stagnating productivity leads to near-zero growth and institutional/state sclerosis and credit contraction leads to recession and the destruction of malinvestments.
Since ruling Elites are by definition constantly picking winners and losers, any Status Quo operated by Elites is systematically malinvesting on a gargantuan scale. This is the ontological imperative of any Elite: skim as much of the national surplus as possible and funnel it to cronies and loyal toadies. The prudent Elites (and imprudent Elites don't last long--the spoils system is quite Darwinian) set aside enough surplus to distribute as spoils, effectively buying the complicity of key sectors, classes, factions, etc.
Thus the default policy of any ruling Elite is bread and circuses: supply the potentially disruptive masses with food and entertainment, and they'll continue their grudging support of whatever arrangement is supplying the bread and circuses.
Any mob that appears threatening can be dissipated with a "whiff of grapeshot."
In the U.S., the spoils system is almost unlimited: corporate welfare for capital, food stamps and SSI disability for the lumpenproletariat, big-bucks jobs as water-carriers for the Elites for technocrats in the State, finance, think tanks, elite universities and Corporate America sectors, a variety of quasi-secure lower-level positions as enforcers, lackeys, apparatchiks and factotums and a smattering of tax subsidies (mortgage interest deduction, etc.) to placate what's left of the non-state-dependent middle class.
The spoils system is not only the foundation of every Elites' political legitimacy, it is the thin layer of plaster that covers all the longstanding ethnic, regional, linguistic, religious and political fault lines that run beneath current nation-state arrangements.
As noted in yesterday's entry Ukraine: A Deep State Analysis, numerous national borders were drawn after World War II (1945) with little regard for historical divisions between various groups or preceding borders.
Entire nations were penciled into existence by Imperial diktat in complete disregard for existing historical groups--Iraq and Syria being just two examples of many.
As long as the stick of repression and the carrot of the spoils system were sufficiently persuasive, the tectonic plates beneath the regime were masked. But once the spoils system and the machinery of suppression crack, the old rivalries arise anew.
The spoils system can crack for two reasons: either the national surplus declines so there simply isn't enough spoils left to keep everyone placated, or the spoils diversion to the Elites and their cronies exceeds the tipping point of legitimacy.
Greece and Venezuela are examples of the first dynamic, and Ukraine is an example of the second dynamic. Greece essentially funded its vast spoils distribution system with borrowed money. When the regime's free-money machine finally broke, the spoils system crashed along with the legitimacy of the Status Quo.
Venezuela is suffering a similar crash, based not on a withdrawal of credit but on the current Elites' destruction of the nation's oil industry and what was left of its productive private economy.
In Ukraine, the plundering of the national surplus by oligarchic Elites finally exceeded the populace's threshold of legitimacy, and once the armed forces and police refused to murder their cousins, brothers, nieces and nephews in the streets, the Status Quo arrangement collapsed.
Now that the spoils system has crumbled, all the historical tectonics and fault lines are emerging in full force. the same can be said of Iraq and many other inherently unstable nation-states/regimes.
Why is the periphery crumbling? It's simple: the conditions that enabled rising national surpluses and the distribution of spoils is breaking down for three reasons:
1. Energy is no longer cheap (compared to past prices)
2. The low-hanging fruit of higher productivity has all been plucked
3. The free-money flood of cheap, limitless credit is drying up
As regimes find surplus and credit are both contracting, their ability to placate every key group with spoils is also declining, and the conflicts between them can no longer be patched over with bribery or brutality.
Instability starts on the periphery and moves into the core. I have covered this in depth a number of times:
Instability Start on the Margins (October 31, 2013)
The Core-Periphery Model (June 11, 2013)
EU Leaders Throw Europe a Plutonium Life Preserver (October 27, 2011)
Everywhere, the instability from a failing spoils system is seeping from the periphery into the core: the E.U., the U.S., China and India. Two Powder Kegs Ready to Blow: China & India (January 23, 2014)
This erosion of the spoils system has a peculiar characteristic: once the old spoils system cracks and collapses, it cannot be put back together. A new arrangement arises, despite the best self-serving efforts of the current Elites.
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Quite right. The article's bold assertion the "low hanging fruit of productivity" is as witless as the statement made by the head of the US Patent Office in the 1890's that it should be closed "because everything possible has been invented".
New advances in computing, nanotech, 3D printing, graphene, etc. will make us so much more productive, our heads will be spinning.
our challenge is to distribute the profits more equitably instead of letting them flow to vampire squids.
Sorry, off topic, but what the Hell just happened to the ZH article "CNN Claims 'Americans Want Security Over Freedom' "? It just suddenly vanished from the homepage, with the message "Access Denied" when I tried to click on it. WTF?
Really, do you have to ask...
That's it. It's all over now. That might be your last post.
Maybe Tyler is just illustrating Ben Frank's point. Here the user is taught that the freedom to speak freely on ZH boards is no more since security is more important as per the ministry of information outlet CNN. Think about it.
I think you may be correct. If you are then nice observation. If you are not still nice observation for thinking outside the box.
I wasn't correct unfortunately but my ego will be fine. Apparently it was a re-post from back in December accidentally re-posted. Great Friday afternoon topic though.
Original: http://www.zerohedge.com/news/2013-12-22/cnn-claims-americans-want-secur...
I have it too. See ya at camp...should be a blast!!!!!!
This one time, at FEMA camp, they stuck a wooden flute up my ass.
Yeah well .gov has been playing a flute up my ass for years.
Buck up there cowboy, (you get used to it)
Tyler was just checkin' to see if you are still paying attention....
I wonder if they realize it's shows as access denied? Maybe they just forget to open it up for comments I got the same thing. I'm thinking that little post would draw some great comments..
Isn't that article several/many weeks old?
Perhaps it's transitioning to archives as you attempt to access it. I think the URL changes when they get archived so that could also cause you trouble if you continue to refresh, or re-enter the same 'old' address.
IDK, just a thought.
EDIT:
Akak, here it is...
http://www.zerohedge.com/news/2013-12-22/cnn-claims-americans-want-secur...
akak: I noticed the BitCoin bankruptcy article disappear only moments after having read it. I think the Security / Bitcoin articles were both from CNN. They probably bitched to ZH and had them taken down. If so, I guess that means CNN is actively monitoring ZH in real time?
The same game thats been played on planet earth since the beginning of time. The biggest baddest cat gets the spoils. Humans have just complicated the game to infinity thats all. Complicated systems fail easy, just watch.
The spirit is willing but the rationale is weak.
It's much simpler, the vulture capitalists have cashed out the US economy, sold it to China and pocketed their fees. Only stuff not worth selling is left, not a lot of spoils in that.
But it can be spoiled en mass by printing and debt, and it is, it is.
FAIR diagnosis of what ails democratic startcraft in post modern times (and before if we are truthful). And, the outcome seems not be in question, The overgrown "gift state" just does not work when the democratic leadership becomes unable to "buy and pay" its way into the hearts of its citizens by treating each citizen as a deserving member of the state who is owed something for his participation in the democracy. Rome was in such a quandary prior to its fall. It became difficult to find leaders who could both rule and provide defense for the state against the barbarians. Soon the hunt will start for a new American ruler. Hail, fellow citizens, I think it can go on for a time if we can find the right group to man the Senate and a new Caesar to pass out the largess.
Everyone's fucked..........but some will go before others. AKA the periphery.
"we can't afford unemployment benefits!!!! We can't afford food stamps anymore!!!!!! You people need to pull yourselves up by your bootstraps!!!!!!! Here Ukraine.........please except this $1billion digital zero bailout!!!!!"
Instability starts at the core. Or perhaps the more precise way to state this is to say "instability is caused by the core" (which also means it starts at the core).
Of course what passes as "the core" finances itself by massive theft and creating endless fiat for itself, so the cause/start is in the core, but the effects/consequences are usually first visible in the periphery.
When you think about it, instability is the most inherent consequence of the existence of a "core". In any just, ethical, rational set of actors/causes, no core exists. Every individual element has its own goals, values, capabilities and resources, and they are inherently limited in scope and magnitude (except for extremely rare instances of over-the-top revolutionary breakthroughs that individuals can make).
To give an analogy, if every individual plans and executes actions based upon his own goals, values, capabilities and resources, different individuals are always taking different actions. The consequence of this diversity (call it chaos if you wish) is inherently stable.
In contrast, when some individual or small group of individuals functions as a "core", they cause the large to overwhelming majorities of individuals to take identical or similar actions. While in theory it is possible for a "wise, insightful, benevolent core" to cause large-scale wise, prudent, effective behavior that has more benefits than downsides, this is vanishingly rare in practice.
Hence, instability is a natural feature of the core, and the core is the cause of instability... and most especially destructive instability.
Time to renew my free Obamaphone contract.
Well said! The crux of our economic woes lay in the fact that over the last several decades we have created entitlement societies on the back of the industrial revolution, technological advantages, capital accumulated from the colonial era, and the domination of global finances. Promises were make on the assumption that those advantages would continue in both Europe and US.
The thought was that ever greater prosperity and entitlements would be sustained through debt financed consumption growth. In that eerie fantasy world, debt fueled consumption was to be the catalyst to bring about ever more growth. Now reality has begun to come into focus and it is becoming apparent that this is unsustainable.More on this subject below,
http://brucewilds.blogspot.com/2013/11/the-crux-of-our-economic-woes.html
Charles,
Thank you so much for taking the time to put down in words this important concept. I make it a point to visit WalMart at least once a month to study the people and goods there. WalMart is now selling goods here in the U.S. that were designed exclusively for the third world market a mere decade ago. Your theory is alive and well sir,,,
Let me also add, that the ascent of man through time takes the form of a driven oscillation. We have dark ages and we have renaissances. The driven part of the oscillation is by the forces of population and technology. It's interesting, you can overlay the exponential growth curves of A) a virus, B) human population, and C) technology development, and they all fit quite nicely. They all look like an asymptote and on B and C, we are on the vertical part of the asymptote.
How much longer is this going to last? Back in the mid 90s I predicted 2013. Thanks to Uncle Ben and fiat money, that deadline has passed. We might even make it through 2014, but I'm willing to bet we don't make it through 2015 without a global conflagration.
Any takers here in ZH land?
It's a good prediction and the timing while possibly right may be just slightly short to have recognizable results.
hedgemastermb.blogspot.com
I have several lengthly historic economic articles that predict the same.
Toss me a link and I will take a look at it.
It's a given that predicting the spark that will set off WWIII is impossible. i would very much like to hear any legitimate arguments that show my predicted dates are early.
;-D
Life is good ;-) I don't live in some 3rd world country. TEXAS
Sorry Deer Hunter, I'm in Texas too, and the Walmarts I spoke of in my posting earlier are about Texas stores. I had a placque on my boat: "Where we go one, we go all." Sure, Texas is doing somewhat better than most of the rest of the U.S., but when the U.S. ship of state sinks, Texas will be left treading water too.
Probably the place to be least impacted by the coming storm is Tierra del Fuego. Anybody up for a long trip? ;-D
I am impressed!! A really good way to describe events and their results. Congratulations hedgemastermb.blogspot.com