Acknowledging The Arrival Of Peak Government

Tyler Durden's picture

Submitted by ChrisMartenson contributor Charles Hugh Smith

Acknowledging the Arrival of Peak Government

Most informed people are familiar with the concept of Peak Oil, but fewer are aware that we’re also entering the era of Peak Government. The central misconception of Peak Oil -- that it’s not about “running out of oil,” it’s about running out of cheap, easy-to-access oil -- can also be applied to Peak Government: It’s not about government disappearing, it’s about government shrinking.

Central government -- the Central State -- has been in the expansion mode for so long that the process of contracting government is completely alien to the nation, to those who work for the State, and to those who are dependent on the State. Thus we have little recent historical experience of Peak Government and few if any conceptual guideposts to help us understand this contraction.

Peak Government is not a reflection of government services or the millions of individuals who work in government; it is a reflection of four key systemic forces that drove State expansion are now either declining or reversing.

The Four Key Drivers of State Expansion

The twin peaks of oil and government are causally linked: central government's great era of expansion has been fueled by abundant, cheap liquid fuels. As economies powered by abundant cheap energy expanded, so did tax revenues.

Demographics also aided Central States’ expansion: as the population of working-age citizens grew, so did the work force and the taxes paid by workers and enterprises.

The third support of Central State expansion was debt, and more broadly, financialization, which includes debt, leverage, and institutionalized incentives for speculation and misallocation of capital. Not only have Central States benefited from the higher tax revenues generated by speculative bubbles, they now depend on debt to finance their annual spending. In the U.S., roughly one-third of Federal expenditures are borrowed every year. In Japan -- which is further along on this timeline, relative to America -- tax revenues barely cover social security payments and interest on central government debt; all other spending is funded with borrowed money.

The fourth dynamic of Central State expansion is the State’s ontological imperative to expand. The State has only one mode of being, expansion. It has no concept of, or mechanisms for, contraction.

In my book Resistance, Revolution, Liberation: A Model for Positive Change, I explain this ontological imperative in terms of risk and gain. From the Central State’s point of view, everything outside its control poses a risk. The best way to lower risk is to control everything that can be controlled. Once the potential sources of risk are controlled, then risk can be shifted to others.

Put another way, once the State controls the entire economy and society, it can transfer systemic risk to others: to other nations, to taxpayers, etc. 

In effect, the State’s prime directive is to cut the causal connection between risk and gain so that the State can retain the gain and transfer the risk to others. The separation of risk from gain is called moral hazard, and the key characteristic of moral hazard can be stated very simply: People who are exposed to risk and consequence act very differently than those who are not exposed to risk and consequence.

Every time the Central State guarantees something, it disconnects risk from consequence and institutionalizes moral hazard.

To take but one example of many, when the Central State guarantees mortgages so lenders and originators cannot lose and the borrower can’t lose more than his modest 3% down payment, then everyone in the chain is encouraged to pursue risky speculations because the State has disconnected risk from the consequence of a potentially large loss. The risk hasn’t vanished; it has simply been transferred to the taxpayers, who absorb the inevitable losses that result when speculation is encouraged.

Separating risk from gain inevitably generates systemic instability. The entire credit-housing bubble can be seen as proof of this dynamic. 

All four of the causal factors itemized above are turning against continued expansion: 

  • The key energy source of global transportation, liquid fuel, is no longer cheap and easy to access.
  • The demographics have reversed as the population of State dependents is soaring.
  • Debt has expanded to the point that servicing that debt now threatens the financial stability of the State and its currency.
  • The State’s separation of risk and consequence is generating systemic instability.

There are plenty of models of State expansion -- democracy, socialism, communism, theocracy, and so on -- and none for State contraction. This suggests that the down slope of Peak Government will be disorderly and rife with unintended consequences.

The Failure of Separation of Powers

The predominant Western model of governance assumes, incorrectly, that a “separation of powers” within the State will limit the State’s appetite for control. But rather than limit the State’s expansion, the State’s subsystems -- the institutions of executive power, legislative power and judicial power -- are competing to gain as much control as possible over both the State itself and the nation’s social and financial systems.  

This competition doesn’t weaken or limit the State; rather, it lends the State a fearsome competitive advantage, as each institution gains power as the State expands. So even though the competition between the three may appear to limit the power of each, in aggregate this competition only increases the State’s expansion as each seeks to outdo the others in reach, influence, and power.

Regardless of which institution wins or loses a particular squabble, the State inexorably expands its control and power. And just as inexorably, elites within the State -- systemically protected from the risk created by their policies -- will experience a rising sense of omnipotence as their private power rises in tandem with the State’s expansion. 

These powers also offer State elites a way to radically lower their own risk and dramatically increase their private gain by leveraging the State’s vast powers to their own private benefit.

In other words, not only does each agency and branch of the State seek to expand its reach and power, so, too, does every individual within the State who can leverage the power of the State to protect his/her own individual gain.

The State as Protector of Private Gain

The Central State is granted unique powers of coercion by its membership (the citizenry) to protect them from the predation of foreign powers, individuals, and subgroups seeking monopoly. The citizens grant the State this extraordinary power to protect their freedom of faith, movement, expression, enterprise and association and to insure that no subgroup can dominate the nation for their private gain.

Granting this power to the State creates a risk that the State itself may become predatory. To counter this potential, the State has the self-limiting mechanisms of a separation of powers such that no one institution or agency can dominate the State and thus the nation.

But as we have seen, the separation of powers has failed to limit the expansion of the State; rather, it has become a competitive advantage, feeding the State’s expansion. There are no State-based limits on the State’s concentration of wealth and power.

There is a great irony in this concentration of power in the State: the power is concentrated to protect the citizenry from predation and exploitation, but that concentration becomes an irresistible attractor for all those seeking to increase their private gain via monopoly, cartels, collusion, fraud, and other forms of predation.

The wealth that can be concentrated in private hands is not limited or self-regulated, and so private concentrations of wealth inevitably exceed the ethical threshold of individuals within the State (i.e., their resistance to bribes and self-interest). This structural imbalance leaves the State intrinsically vulnerable to the influence of private wealth. Once this wealth has a foothold of influence within the State, it can then bypass the State’s internal controls and become the financial equivalent of cancer: a blindly self-interested organism bent solely on growth at the expense of the system as a whole.

Rather than protect the citizens from exploitation, the State’s primary role becomes protecting the private gains of elites who have taken effective control of the State’s vast powers.

The Death Spiral of an Expansive State

We can now see that the Central State faces an impossible contradiction: to pursue its primary purpose of protecting the citizenry from predation, it is granted powers that enable it to evade its own self-limiting mechanisms. Private concentrations of wealth gain control over the State’s machinery of governance, and the resulting partnership of private and State elites suppress the mechanisms that were intended to limit private influence over State power.

To enhance their own power, these elites increase the State’s reach until it dominates the entire political, social, and economic system. This sets up an inherently self-destructive feedback loop in which the State’s actions to protect its self-serving elites weaken both the State and the nation. The State’s inefficiencies pressure the nation’s output, even as the State increases its share of the national income to maintain its self-serving elites and quiet its potentially restive dependents. The more the State expropriates, the less surplus is left for productive investment, and so the nation’s output continues to decline.

This dynamic creates a positive feedback loop (i.e., a death spiral) of higher taxes and lower investment in productive assets.

Post Peak-Government Living

In Part II: The End of the Free Lunch, we consider what citizens can do to limit their own risk as the Central State contracts.

We explain how the State has unfairly used taxpayer-funded subsidies to erode participation commerce and investment at the local level that in ages past provided transparency into the true value of labor.

Now that the artificial influence of these subsidies is waning as the State can longer longer afford them, reactivating the infrastructure and processes for enterprise at the community level will be critical to transitioning to a sustainable and more resilient economic model.

Click here to access Part II of this report (free executive summary; paid enrollment required for full access).

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TheSilverJournal's picture

Less power? The politicians aren't going to like this news.

sunaJ's picture

Don't discount a false flag.  They aren't going to just give it up.  Remember, the leaked power point presentation to NBC top executives.  It may have been postponed, but Israel offers plausible deniability.

Oh regional Indian's picture

Actually the equation is really really simple.

Peak Government = Peak Cruelty

That's really it.

ori

are-we-all-so-fast-asleep???

NotApplicable's picture

Wasn't this the peak?

Lightning hits French president's plane, none hurt

http://apnews.myway.com//article/20120515/D9UP9IC80.html

Ident 7777 economy's picture

 

 

 

Correction to last paragraph of article as noted below:

 

"In Part II: The End of the Free Lunch, we consider what citizens can do to limit their own risk as the Central State STRIKE: contracts REPLACE WITH: expands."

 

.

 

 

Harlequin001's picture

Not long now before America becomes well, fifty different countries...

greyghost's picture

omg...chucky is on a role today....first peak pensions...now peak goverment!!!! well at least he has dropped the peak oil mantra. "peak oil--that it is not about "running out of oil" it's about running out of CHEAP easy to access oil." nobody was buying the peak "running out of" oil scam so change it to "cheap oil"....lol. well at least i agree with the "peak goverment" story. i wonder if he read about the oil and gas find off of greece that is supposed to have enough for europa for 50 years???

question? is chucky boy paid by the word?

blunderdog's picture

There's a coded system used to identify the specific individuals who write stuff.  If you crack it, you might learn something interesting.

blunderdog's picture

I don't think he's really "paid" at all, tho.

agent default's picture

It is when they feel that they will lose their power that they will become tho most dangerous.  The worse it gets for them the worse they will try to make it for you.

lemonobrien's picture

just like a wounded animal.

Aziz's picture

I don't expect a gradual contraction. I expect a sudden one. 

Dr. Acula's picture

Rome and the USSR ended up fracturing. EU is headed that way too, it seems.

 

GeneMarchbanks's picture

Maybe the EZ not the EU... at least so far.

Strangely enough, this article isn't really representative of Europe where the trend is nationalism.

Obviously the US is going through some kind of existential crisis which cannot entirely be projected onto Europe. If the slashing of 'The State' begins(it won't) and it's done in public spending it'll get chaotic quickly.

Harbanger's picture

The end of Socialism and Central Planning is nigh.

TheGardener's picture

But Chris talks abstractly about a nation as the US.

He is right in his analysis. Curtains off for full global game, let`s play real manipulation...

Quisat_Sadarak's picture

(On how he went bankrupt:) "At first, very slowly, and then, very quickly." -- Mark Twain

Same applies here with government.

Demonoid's picture

Good quote, but it's from Hemingway, not Twain.

“It occurs at first very slowly, then all at once.”

Harbanger's picture

No.  He's correct.  It's a quote from Mark Twain when asked how he went bankrupt.

Demonoid's picture

The goog says variously that it's Hemingway, Twain, and Oscar Wilde.

I stand corrected, or validated, or obfuscated, depending on the source.

Which, upon reflection, makes this much like a pronouncement on economics.

Harbanger's picture

Your response about goog says you don't think for yourself and don't know how to research.  Your response also tells me that you've never been told how wrong you are.  I'm not your daddy, I'm here to ream you.  Pray the system never crashes.

Harbanger's picture

"It occurs at first very slowly, then all at once.” -is a quote from Hemingway.

"At first, very slowly, and then, very quickly." -is a quote from Mark Twain.

“Stir slowly at first, then very quickly” -is a quote from Julia Child

Similar but different.  Get it!

WillyGroper's picture

"At first, very slowly, and then, very quickly."

 

ur sure it wasn't Linda Lovelace?

Coldfire's picture

“How did I go broke?” the once-rich F. Scott Fitzgerald said to Ernest Hemingway. “Two ways – slowly then quickly.”

redpill's picture

Another nice, albeit somewhat repetitive, piece from Charles Hugh Buymybook.  Thanks Chuck!

Calmyourself's picture

We all in our heart of hearts hope for a sudden stop, it will not happen.  Think about the masses totally invested in the lies, no friends, a slow painful grind awaits us..

Henry Chinaski's picture

Government is the latest bubble.  Then what?

Quisat_Sadarak's picture

I am betting on the next bubble being seeds for prepper's crisis garden? But that bubble may not pop.... ;-)

wisefool's picture

Water.  http://www.huffingtonpost.com/matt-damon/water-crisis-women_b_1511057.html

Housing ( Shelter) was the point of no return. We are currently in the Agriculture (Food/Obesity) bubble. Water is next. Then Al Gore will attempt to financialize/tax air again. Then we all get our matrix pods. Full employment. 100% price stability.

Harbanger's picture

Al Gore will be outed as a fraud along with the rest of the neo-libs.

falak pema's picture

What you call government in USA in its current form is CRONY SURROGATE government of a privately controlled Oiligarchy, TRANSATIONAL global CORPOCRACY. The Key issue missing in this analysis is the  notion of general good and public service, eternal defining framework in all civilizations, which helps to create the value systems, then to legislate, execute and protect in due process its objectives in court of LAW, aka amongst the three forms of government. That WHOLE process has got debunked, morphed; in current US power structure; to service PRIVATE interest. All discussion on this thread is therefore subservient to THIS current imperial minded, non democratic reality that towers over the US power structure since REAGANOMICS days and Thatcherist mantra in twin surrogate UK. We are effectively no longer in a functional republic, that protects general interest of publc.

Reset the framework of governance to defend true public interest, SOMETHING WE KNOW EXISTS AT IT HAS BEEN DEFINED IN RECURRENT PROCESS OF western civilization GOVERNMENT OVER 3000 YEARS, of which the US experience is just the tail end process, as conceived in an empty resource rich continent; aka in very specific and benign natural conditions; which no longer exist. 

Peak government under these terms in a inexistent/meaningless concept; like peak solar/renewable energy. It is never going to peak as long as human civilization exists, as its NEED is intangible and will forever be there for civilization to SURVIVE.

Calmyourself's picture

Yeah what he said..  Back away from the thesaurus falak.  "It's NEED is tangible", never mind the thesaurus back away from the crack pipe..

Harbanger's picture

You're deleting a ton of history.  Please read the 5000 yr leap.

falak pema's picture

no kidding, from where to where? From Socrates/Themistocles/Solon to current day its been a clear road down the path I have mentioned. Show me where that path deviated from what we know about right and wrong; in terms of governance and its values. Even the Rubicon taught us a vital lesson. Unless you believe in social darwinism which I don't as its negates civilization itself.

Ident 7777 economy's picture

"What you call government in USA in its current form is CRONY SURROGATE government "

 

Solyndra (solar)? No!

GE (wind)? No!

 

Wind power and solar - say it isn't true!

 

 

falak pema's picture

don't look at the energy prism on a short time frame of a decade; understand what peak fossil entails over the century ahead and you will realize that we have no choice and the utility experience curve will make alternative energies INTANGIBLE element for our future survival, as they will be way of life in resource constrained tangible asset world. You guys are SOOOOOO hooked on short term manipulated oligarchy market fed logic you can't tell today from tomorrow and yesterday from day before.

Snakeeyes's picture

It gets even worse. Health and Human Services has a plan to bypass the Surpreme Court's ruling on Obamacare and create institutions to crowd out the private market and leave government healthcare as the last man standing (or last woman standing in the case of Sebelius).

HHS is creating a Fannie Mae for healthcare!!!!!!!!!!!!!

http://confoundedinterest.wordpress.com/2012/05/15/hhs-funding-fannie-mae-for-healthcare-the-backdoor-approach-to-socialized-medicine-dont-we-ever-learn/

arnaldo's picture

Peak oill to me is more a reflection of peak credit..... Price of oil only reflects credit inflation and now it seems to be an asset that is chased for investment. If Deflation truly arrives everything will tumble down quickly.

Mad Max's picture

Stupid hurts, and you're going to need a morphine drip.

Apparently you didn't get the irony in the statement: "if you think education is expensive, try ignorance."

CrashisOptimistic's picture

There is entirely too much of this silliness going around.

Peak Oil has a very specific, narrow and properly targetted definition and it doesn't offer itself to interpretation or "what it means to me".

It means the graph of oil (real actual crude oil . . . OIL . . . not liquids) extraction rate from the ground (misnamed "production", as if something was "produced" rather than an amount of something already existant extracted) rises over time, reaches a maximum, and descends.  That's what it means.  That's exactly what it means.  And it means nothing other than that.

This is not about easy to extract.  It's not about price.  It's not about anything other than that very clear, specific, mathematical definition.

The primary reason for the avalanches of incorrect definitions is so that article writers can say "peak oil means XXXXXXXX and we can see from YYYYY that XXXXX is not correct and so peak oil is bunk".  That's just silly.

It means very specifically what it means.

 

Jim in MN's picture

Yes, but....

 

There are several aggregation/timing issues associated with the 'simple' concept.  A well can reach a peak and then decline.  So can a formation, or a basin.  However, there are wells, formations and basins not yet discovered or tapped.  In addition, both technology and economics can result in a well or other unit of analysis being 'revisited' and 'reborn'.

So, OK, but......the implications many draw from the simple peak oil idea are, in fact, bunk.  Or at least only true on a long and probabilistic/risky time frame.

Mad Max's picture

You seem to misunderstand the concept.  Peak Oil is the extension of the standard depletion curve, which applies to any well, field, or basin, to the earth as a whole.  It therefore encompasses all the issues you raise of formations/basins not yet discovered or not yet tapped.  It is a theory, but it fits the observations very, very well.

Jim in MN's picture

It doesn't fit well if the idea is to have a PEAK.  That isn't in the observations and probably won't be. 

'Long, undulating plateau oil' just isn't as scary.  Hmm, now why would that be....maybe I misunderstand the concept :*) or maybe I don't.

Mad Max's picture

The curve has a point at which it is asymptotically flat.  It doesn't stay that way.  Global oil production peaked somewhere between 2005 and 2008, and seems to now be on the downward slope.  Consider that many cheery reports factor in natural gas liquids and refinery gain when claiming that total liquids isn't falling, which is correct in a sort of n=n way but very misleading since NGLs are inferior to oil and refinery gain is simply a measure of volume and not of useful energy content.

Oh, and polished mirrors look like jagged canyons with enough magnification.  On a human civilization chart the oil age is a short spike.  On a geologic chart it isn't even visible, except as a sudden drop in oil in the ground.

Spastica Rex's picture

So OK, but: what if there are pools of liquid petroleum on a Jovian moon, or something? When the price is right, we can build space tankers to ferry it back to Earth. Peak oil debunked. QED.

CrashisOptimistic's picture

Suppose civilization disintegrates from oil scarcity before a technology to achieve that occurs.

Rebunked.

Money 4 Nothing's picture

The human body rendered down hold up to 5 quarts of oil.. Debunked peak civilization.

Spastica Rex's picture

But.. WAIT... what if... never mind, I got nuthin'.