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.
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. Regardless of the need for reform, it isn't going to happen for these structural reasons.
We are living in the United States of Delusion. The delusion has four key sources. The irony is that clinging to delusion rather than face the necessity of deep cuts in borrow-and-squander budgets will lead to the involuntary reset of the entire system, depriving every vested interest of their share of the swag. Is delusion a sustainable state? No. Thus we can confidently predict that causality, factuality and karma will eventually sweep aside delusion and all those who cling to it.
Denial doesn't change reality. It only cripples our response to reality. Psychologists and behavioral economists have found that we deceive ourselves (conceal the truth) to serve our own interests. Perhaps this is why the mainstream ignores the Id Monsters in the shadows: shadow banking, shadow housing inventory and shadow liabilities.
The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex. The most implacable enemy of innovation is monopoly. If you're protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model. In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion. This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance. The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable.
If the citizenry cannot dislodge a parasitic, predatory financial Aristocracy via elections, then "democracy" is merely a public-relations facade, a simulacra designed to create the illusion that the citizenry "have a voice" when in fact they are debt-serfs in a neofeudal State. When the Status Quo remains the same no matter who gets elected, democracy is a sham. The U.S. Status Quo is also like an iceberg: the visible 10% is what we're reassured "we" control, but the 90% that is completely out of our control is what matters. There is another dynamic in a facsimile democracy: the Tyranny of the Majority. When the Central State issues enough promises to enough people, the majority concludes that supporting the Status Quo, no matter how corrupt, venal, parasitic, unsustainable and dysfunctional it might be, is in their personal interests. In this facsimile democracy, citizenship has devolved to advocacy for a larger share of Federal government swag. Is Democracy Possible in a Corrupt Society? No, it is not. Our democracy is a PR sham.