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One Nation Under Debt

Ever since the United States Federal government assumed state debts back in 1790, the creation of a permanent national debt has been a key feature of federalization. The current national debt crisis may lead to a reversal of federalization or to the elimination of the last vestiges of the rights of states.

The situation in the European Union is much the same, where the collapse of weaker state economies may bring it down altogether, or may usher in the end of nationhood in Europe.

Then as now much depends on convincing three groups of the inevitability of the process. Those three groups, in the order of most influential to least influential,  are the political leadership, the financial and trade barons, and the general public. This order is also incidentally the order of those most willing to believe to those least willing to believe-- which explains why we have the current system that we do today.

The first two groups favor a permanent national debt for obvious reasons, the politicians get a money till and the financial services industry gets a bond business. The public is usually skeptical, but not very influential. But the problem with the current system is that is it reaching the limits of both debt and federalization.

The European Union is bulging at the seams and any North American Union would be even more unworkable. The United Nations is a corrupt bureaucratic disaster that isn't good for anything except generating acronyms and logos.

The United States Government is barely competent when it comes to governing the territory under its control. Its most competent elements are also its oldest, and its newest elements are usually the least competent. The more it grows, the more useless it becomes, and the more those new elements are likely to wreck everything through sheer incompetence alone.

It is no coincidence that the major source of economic instability at the government level are programs and agencies that date back less than seventy years. HUD is a prime example. Aside from the politics, the New Deal era began a wave of new agencies that were marginally competent, and had unclear missions or overlapped with other agencies. The end result of that is an administration where responsibility for national security rests in the hands of so many people that no one is really accountable for anything.

Those worried about an American Empire need not bother, even now the empire is barely capable of scratching its own back without three departments, four hundred experts and a mile of feasibility studies. If the United States were to join with Canada and Mexico in a single entity, the result would make North Korea and Venezuela look like triumphs.

The European Union is no better, while the Eurocrats excel at throwing money down at a hole and coming up with new slogans and departments- they're no better at actually running anything. Their self-congratulatory way forward rhetoric echoes all the ignorant stupidity of the Soviet 5 Year Plan with none of the cheap Vodka.

The problem is the same-- bureaucracies don't govern, they mandate. The bureaucratic state combines the worst elements of tyranny and democracy in that those in power are detached from ordinary realities and no one in power is actually responsible for anything. What that leaves nations with is impotent edifices of government that do nothing but issue orders, while not having a clue what goes on outside their windows unless it's throwing rocks at their heads.Meanwhile the actual officials who have street level responsibilities go rotten, the public makes its own laws and the whole thing decays and eventually falls apart.

You can see this same ridiculous phenomenon in many American or European urban centers, and they are a more competent version of the Federal state, which is inevitably more out of touch and less capable of handling an actual crisis.

If the corrupted democracy at least brings populists to power, the Eurocracy is an oligarchy that like the old Soviet Union is always convinced that it's moving forward, when it's barely hobbling along. The Peter Principle operating on the national level can create monstrosities like the EU, but the more power and authority is fed into it, the less sustainable it becomes.

The current economic crises are a testament to the overextension of American and European federal economic programs, caught up to by their own ambient corruption and exploited by the same people responsible to push for greater federalization. Whether it's the Eurocrats or the Washingtoncrats, the system leaps over the cliff, hangs over it and tries to push on further even though it's walking on air.

Expanding debt serves their purpose of centralizing the economy and turning their own spending into a commodity. This illusion of infinite wealth builds up into bubbles which burst when something happens to break the spell. Unstable economies with large amounts of excess wealth have to put it somewhere. The Chinese and the Arabs invest in America, and America invests in Wall Street and Wall Street invests in bubbles. It's Madoff writ large until everyone realizes they're walking on air.

Too big to fail is a myth. Centralization makes things bigger, but that only slows down the rate at which failure penetrates from the inner core to the outer shell. A more complicated system can play more shell games, bailing itself out and lending itself money, but like every magic trick or street con, it demands that the audience accept the illusion. When enough people question it, the bottom falls out and a new illusion is needed.

But an unreal economy is no substitute for a real economy, and debt is no substitute for productivity. The expansion of government creates more debt, at the cost of productivity, feeding the unreal economy at the expense of the real economy. But it's still the real economy that pays for its unreal doppelganger's bills. And the space between the real economy and the unreal economy is the air that the system walks on. The space where nothing is.

But debt remains seductive, its seduction is that of the genie's lamp, the golden apple and the magic fish that grants three wishes, offering freedom from the hard and fast rules. For governments, the permanent debt becomes an easy trillion bucks with no questions asked. The consumer's overdrawn credit card extrapolates to an overdrawn nation and an overdrawn world.

For all that the national debt clicks on in the United States, its politicians don't see the national debt as a problem, but as a solution to their problems. Generations of wealth mean that unlike the PIIG's they have never even seriously contemplated what happens when the system crashes. The wealth that surrounds them leads them to think that it can never crash.

Centralization transfers responsibility up the line, but the actual responsibility remains in the hands of those who have to pay for the disasters. When the entire oligarchy has finished bailing out its banks and pocketing the profits, it will still be the taxpayers who pay for it one way or another. The politicians may lose elections, but it is still the taxpayers who are responsible for what they do. The centralizers may create their monoliths of government that span thousands of miles, but they are not the ones who bear the burden.

The Federal assumption of state debt helped centralize America, but as the spending became more reckless, it's the country as a whole that is forced to assume the debts of the Federal government. The motto of American government becomes One Nation Under Debt, but that's not too different than the motto of a united Europe where German workers assume the debts of Greece and Ireland, so that the Eurocrats may reign.

But debt assumption is of the illusory economy-- and just as the limits of bureaucratic governments reach their illusory limits on the street, so does the illusory economy when it completely leaves behind the real economy. One Nation Under Debt cannot survive for very long without either allowing a productive economy to resume or turning to slave labor. Communist states did the latter (with occasional doses of the former) but Western democracies that lean socialist tend to the former.

Bringing conservatives to power on a wave of reaction can help tidy up the house a little, without changing the blueprint very much. And the loss of benefits helps spur a left of center reaction against the heartless conservatives. This seesaw dynamic has wobbled America to the unsteady place where it stands now. But a slight tidying up won't fix the system, not when the system has become the very problem.

The bureaucratic state suffers from a loss of competence, it is still merit oriented in places, but an abstract brand of merit, akin to ancient Chinese civil service tests (of which the liberal arts college is not an unfair modern approximation), rather than results based merit. It excels at manipulating words and ideas, but not at recognizing their real world consequences. It is the general who always wins at chess, and always loses on the battlefield.

Like the Communists, we suffer from economic theories that are detached from economic realities, and like all ideologically based theories, ours assumes that political determinism shapes reality, and that if our leaders follow the right path and mouth the right slogans, we will win the future. But the more we keep trying to win the future, the more we lose the past and the present. And eventually the future.

Americans and Europeans are worse off than they were, but their worsening circumstances are kept from them by a cocoon of cheaply manufactured consumer goods in other countries and daily doses of propaganda. It is a slower, gentler version of the Soviet experience, yet essentially the same. National pride makes it difficult for most people to understand or believe just how bad the situation is-- just as the average Russian was unwilling to believe that his country was hopelessly behind America and Europe in everything but the number of ICBM's.

One Nation Under Debt is what happens when the permanent national debt becomes the model for an entire economy from the micro to the macro, where the ideal is to get as many people into debt as possible by getting as many people, organizations and governments to spent as much money as they can. The current economic troubles are only a bump in the road, they are not the end of the road. One of the wheels has come off, the muffler is dragging in a trail of sparks along the road and there's smoke rising from under the hood-- but for now we're moving forward. Ahead on debt highway.


  1. Yes, we are breaking apart under the weight of debt.

  2. one nation under debt. that describes the situation perfectly.

  3. One world under debt could also be the headline, although I have not much insight how South American economies are doing, Asia of course is interlinked with Eu & USA with their local markets having no real economic impact.
    Those countries not under debt but holding the American and European I.O.U.'s soon shall not be able to exchange them with anybody for anything of value and can not ever expect to see any of their lent money back.

  4. "But it's still the real economy that pays for its unreal doppelganger's bills."
    This is so true. And also:
    "One Nation Under Debt cannot survive for very long without either allowing a productive economy to resume or turning to slave labor."
    Friedrich Hayek, in his post-WWII writings, most notably The Road to Serfdom,argued that (paraphrasing)the Federal tinkerers who believe their tweaks and spurts are actually running the economy are in reality postponing and magnifying the corrections that will ultimately be imposed by inevitable market forces of supply and demand.

  5. Andy Texan5/9/11

    What I want to know is who/what is most to blame for this Progressive mess? I place before the table the 19th amendment of 1920 giving women the vote. Women's voting patterns shifted the electorate towards the mirage of economic security provided by government.

  6. The effects of government's actions in any field are unknown, even if the particular action corrected the circumstance the executive, legislature or court found troubling to begin with. While this assertion is an assumption, it is logical. A dynamic complex system cannot be fixed ever-ever-ever (a vase can be fixed), but will just require the allocation of more energy later on to keep it going, like a spinning top. Stability is an illusion and our addition of "requirements" or laws or regulations simply means that MORE energy will be necessary to bring about a righting or correction. It is like adding friction to a rotating wheel. It consumes more energy, if it maintains the same speed. When enough friction is added, the wheel stops turning. The system decays into chaos and equilibrium is lost to the point that is it is not recoverable. This analysis is true whether it is well understood by the actors or not, whether the actors are Liberal or Conservative, whether the actors are well-meaning or criminal in their intents. In short, it is easy to destroy even if we do not know that we are doing it. Indeed, it is the insight of those who deal with complex systems that governments are designed (not consciously) to sop up the extra energy that exists in a system. It is one way of maintaining a dynamic equilibrium. As energy in a national system declines, central governments will fade away (as in places like Afghanistan and Somalia).

  7. Halycon6/9/11

    Oh great, more articles precluding to anything but Islam.

    This is the fault of bankers who have knowingly traded in toxic loans and used powerful lobbies for deregulation and access to easy low interest money.

    It's curious how the Chinese averted this because they have restrictions on their banks such as on international trading.

    Yes the politicians are too blame but at least have the holistic sense to give blame where it's due which includes the bankers and their lemon socialism.

    The EU mostly is the result of bad politicians because they tried to shoehorn a single currency for countries that weren't suited to it, like Greece.

    At least have the honesty to admit the Communist party running China were smart enough to advert this catastrophe because they didn't believe in super-nationalism and they believed in the real economy rather than trust in the financial services who create bubbles to make massive profits.

  8. There was an article up on Islam even while you were commenting.

  9. Halycon7/9/11

    And I really love your articles on Islam Mr Knish. I sincerely do.

    I love how you intertwine politics, civilization, culture and history all so poetically.

  10. That's good and the rest we can agree to disagree on.

  11. 2 Sept 2011 http://www.washingtonpost.com/local/the-new-alchemists-blank-paper-to-greenbacks/2011/08/31/gIQAoizSwJ_story.html
    Lydia Washington, a spokeswoman for the bureau, says there are 1,892 employees between the D.C. and Texas facilities who in a day might produce $974 million. “We set a global standard in currency production,” she says. “Our currency has never been recalled or devalued.” In other words, an old dollar is worth as much as a new dollar.


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