If you want to pinpoint the one dynamic pushing the global economy into not just a prolonged recession but a parallel period of massive social instability, look no farther than the social and financial stagnation that results from optimizing the system to benefit the Elites and the entrenched incumbents who protect them from competition and the dispossessed debt-serf classes below. The incestuous embrace of privilege and power by entrenched, socially isolated Elites characterizes failed states and brittle, doomed regimes throughout history.
The problem in representative democracy is that every instance of waste, graft, fraud and monopolistic racket is somebody's fat paycheck or government contract. Promising good governance guarantees a losing campaign for public office. To avoid the political pain that would result from trimming waste/fraud/ rackets, the state prints money to keep the swag flowing. Since the state can't create real wealth, it prints claims on wealth and passes off the paper as "money." The only thing that is infinite about the state is the hubris of those at the controls and the narrow self-interest of those at its capacious feeding trough.
The essence of the U.S. economy is make it look good: never mind quality or long-term consequences, just make it look good today, this week, this month, this quarter: make the pink slime look like meat, make the company look profitable, make the low-quality product look good enough to close the sale, make the unemployment rate low enough to justify re-electing the toadies currently in power, make the body count of bad guys look good, and on and on--just makes the numbers look good now, the future will take care of itself. When rigged numbers are the basis of our success, we have failed.
The destructive consequences of a parasitic Tyranny of the Wealthy and Majority have yet to play out, but they will, and sooner than most believe possible.
There are many ways to slice and dice America's power/wealth hierarchy. The conventional class structure is divided along the lines of income, i.e. the wealthy, upper middle class, middle class, lower middle class and the poor. We suggest that a more useful scheme is to view America through the lens not just of income but of political power and state dependency. Sadly, eight of the nine classes are hidebound by conventions, neofeudal and neocolonial arrangements and a variety of false choices.
This is how empires collapse: one complicit participant at a time.
Combine diminishing returns with the political dominance of vested interests and you get a system incapable of reforming itself and incapable of stopping the slide off the cliff. Vested interests have no concern for the unintended consequences of their self-aggrandizement; the entire poilitical structure is based on the faith that there is always more money to feed the insatiable hunger of entrenched interests for more funding, more protection and more power. And so the only possible "solution" left is collapse.
The ideal system for middlemen is the exact opposite of an open competitive market: low-risk fat profits flow to monopolies or cartels that obscure costs, and turn sellers and buyers into involuntary participants who have no other choice but to give money to the middlemen. The Internet is enabling sellers and buyers to bypass the predatory State and the parasitic middlemen the State enforces. Banks--no longer needed. Sickcare cartels--no longer needed. Higher education cartel--no longer needed.
The financial markets continue higher, and the excesses of the status quo continue expanding with little ill effect (so far). Why is it so difficult to predict the timing of crisis/collapse? The question is equally valid for both bears and bulls; how could all the boosters of housing be so wrong in 2008 when they asserted that "housing is not a bubble"? Here are ten possible factors in why it's so difficult to predict crisis/reset.
As the state borrows trillions of dollars to support its Aristocracy and dependents, its debt skyrockets. The political Aristocracy expects the tax donkeys will carry a heavier burden without revolting, and the 60% "tyranny of the majority" who pay little but collect enough to get by will be wary of risking their benefits by resisting the existing political-financial kleptocracy. In terms of democracy, the tax donkeys are trapped; they can't match the tens of millions in political contributions of the top .5%, and the 60% below them will support the status quo out of fear that the alternative could be even worse. Politically, the system is unbreakable. Financially, it is unsustainable.
Despite Mariano Rajoy's solemn promises that awarding the 2020 Olympics to Madrid would boost the Spanish GDP by 1.8% and lead to the creation of anywhere between 168,000 and a few hundred million new jobs (the latter number is a joke but since it comes from Rajoy, both are equally credible), the Olympic committee cut the Spanish contender before the final, which pitted Tokyo vs Istanbul. And when the final votes were tallied it was not even a contest: with 60 to 36 votes, the 2020 Olympics Games will be held in Tokyo: the city that was supposed to host the event in 1940 but due to the break out of World War II the event was delayed until 1964 (when it was almost cancelled again, permanently, following a modest escalation in nuclear deterrence between the US and USSR surrounding Cuba). Let's hope history does not rhyme.
The Social Contract is broken not by wealth inequality per se but by the illegitimate process of wealth acquisition, i.e. the state has tipped the scales in favor of the few behind closed doors and routinely ignores or bypasses the intent of the law even as the state claims to be following the narrower letter of the law. By this definition, the Social Contract in America has been completely smashed. The honest taxpayer is a chump, a mark who foolishly ponies up the swag that's looted by the smart operators. When scammers large and small live better than those creating value in the real economy, the Social Contract has ceased to exist. Once the chumps and marks realize there is no way they can ever escape their exploited banana-republic status as neofeudal debt-serfs, the scammers, cheats and grifters large and small will be at risk of losing their perquisites. As Voltaire observed, "No snowflake in an avalanche ever feels responsible": every claim, every game of the system, every political favor purchased is "fair and legal," of course. This is precisely how empires collapse.
We as a nation had an unparalleled, historic opportunity to set things right in the aftermath of the 2008 financial meltdown. Alas, we blew it. Instead of tearing down what had failed spectacularly, we chose to do more of what failed spectacularly: cartel-crony capitalism, centralized wealth and power and an expansion of our financialized debtocracy.
The Federal Reserve has had $1.2 million swiped from a flight somewhere between Switzerland, the land of secret banking, and New York City. Now, in the ranking of thefts that have taken place in history, this one seems like it is rather untimely! Has anybody seen Ben Bernanke lately?
When the global financial pie is expanding, there's plenty of swag for everyone, so competition is limited and cooperation is rewarded. If we step back, what is most striking about China's emergence in the global economy over the past 30 years is how little actual conflict between global players this generated. To fully understand why this period of cooperation is ending and competition is heating up, we need to understand two key dynamics of global capitalism. Either way, the game of depending on ever-expanding debt and exports for growth is over. This global competition is playing out on multiple interlocking levels.