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Monday, October 17, 2011

The Business of Government

Government is a business like any other. It is the company that through the contract of the Constitution or the local contracts that cover the operations of states, municipalities and communities carries out certain functions on our behalf.

Officially government is a non-profit, and like most non-profits this status means there is no owner or  group of shareholders that reaps an overall profit, but that its board and employees find working for it to be very profitable. And so like most non-profits, it is run for the benefit of its board and employees... and the friends and associates of the board.

Not only don't its shareholders receive any profits from its operations, despite its vast resources, but they are also its customers and are billed annually at constantly increasing rates, even though the services they receive rarely equal the money they pay in. And the way the company is being run, it seems unlikely that they will even receive the pensions and health benefits they paid into.

Due to repeated unilateral modifications of the interpretations of the terms of the original contract, the economic relationship between the company and its shareholders/customers was drastically altered in these ways. For example the shareholders/customers were not to be individually billed as a means of providing revenue to the company. However this was altered as the company rolled out new product offerings and insisted on individual billing at a percentage of income. There is no option for declining the product offerings and paying a lower percentage.

While the business of government was originally the implementation and supervision of large scale projects such as national defense and roadworks, it expanded into the service industry through social welfare and came to absorb much of the functioning and management of the various smaller state and town companies. By centralizing billing through its own system, and then distributing that money to the smaller companies based on their influence, it created a monopoly that could not be challenged.

Like a warehouse club, what customers were buying through the business of government was access to its suite of services. Failing to pay the fee was not an option. Since the products and services being offered were not directly tied to fee payers and since fee payment was mandatory, there was no incentive for the company to improve its offerings or to deliver them efficiently. What mattered was that the warehouse was very impressively large, not that most of the food was stale, the products poorly made and most of the money was being stolen along the way.

The employees also felt free to be as rude to the customers as they liked, because the inability of the customer to opt out of the fee meant that he had no leverage over the company or its employees.

The company's chief strategy was to offer products that customers did not really need, but that made life seem orderly, and to offer other products that they might urgently need at some future date but not be able to pay for, and then drastically inflate the cost of both, while hiding 99 percent of the true cost in the annual total bill, and then lending out additional money at the cost of the customers\shareholders.

By making their products seem absolutely necessary while hiding their true cost, and blowing the difference on themselves and their friends, the company got itself deep into debt. Since its decision making process was so decentralized that as many as two hundred thousand people had input into how the money was to be spent, no real spending cutbacks could be made. Not that cuts would have been made. Spending cutbacks were against the corporate culture of the company which viewed numbers as a detail.

The company had never been forced to turn a profit and neither had most of its employees. Numbers were toys to them. Negative numbers were better than positive numbers because they represented an accomplishment. The only real accomplishment of the company which was spending money. It was unable to think of spending as a loss as loss had become its purpose. It considered spending a form of positive creativity. And much of that spending went to its friends and associates which found its way back to the board sooner or later.

In time the company became an economy, or rather a shadow economy falling over the actual economy. But its board had come to think of the real economy as a shadow on its economy.

As the company was always short of money, it had to draw on the real economy to feed its virtual economy. Its high debt ratio meant that it needed quick cash from the real economy, and to do that it used short term fixes, such as tampering with the currency or creating subsidized bubbles that would yield brief economic boosts. This policy worked but it also amassed even bigger levels of debt.

All the while the company kept finding new and more convoluted ways to hide its own spending until even the army of people running it were no longer sure how much money was being spent or where. The machine of government was out of control and the only thing it could do was spend more money. No one could stop it because there was too much debt, too much waste and too many people responsible for the whole thing.

When it couldn't manage to create a bubble this time, it panicked and began sending mobs into the streets to attack the bankers who had helped them create the bubbles. It was angry at everything and confused and desperate. Like everything else it had done before, it was trying to buy time and distract its customers\shareholders from how badly it had screwed up.

The business of government was built on providing vastly overpriced low quality services while making itself seem indispensable. But the only way it could keep on doing that was by creating a monopoly and compelling everyone into joining its warehouse club. To justify its higher fees it had to constantly keep offering new services, which were bound to be even more sub-par.

Since the company could not control its spending it had to keep raising the fees, which depressed the real economy and reduced the people who could pay the fees and increased the number of people in need of its services. This kept the company fixed in an economic death spiral that risked taking the economy down with it.

The worse and less sustainable its services became and the worse the fees got, the more the customers\shareholders questioned the benefits of this arrangement. And the more desperate the company became to keep them in line. Because the real bottleneck wasn't the cost of the services, it was the cost of the company.

Like most non-profits the real business of government was creating profits for its board, employees and their friends. This core business was funneled through constant busywork and massive projects and programs that existed to conceal the real business of government. Layered around it was chaos and incompetence that prevented even those on the inside from being able to fully evaluate the real cost of its operations.

The actual services and programs that the country needed fit in somewhere but they were a secondary matter and they were warped and distorted so badly that they were dysfunctional and wasteful. Most of the customers\shareholders innately understood this, but they thought it could be corrected by swapping out the members of the board, not realizing that the decision making process was so decentralized that this was no longer the significant corrective that it had once been. And each new board member adapted to his new responsibilities, not to the customers\shareholders, but to the way the company was run.

The company needed to change, but its corporate culture made any change away from more spending seem like a contradiction of its mission. The company could not keep on spending money and it could not stop spending money. Unable to resolve this contradiction, it opted for cosmetic spending cuts and went on spending money anyway.

Change could not come from within the company, only from outside it by its customers\shareholders who had to balance the value they received against the price they were paying and decide what reforms were necessary. The company's corporate culture stood in their way which meant that it was a struggle between its vast bureaucracy and its customers. The bureaucracy wanted more money and less work. The customers wanted to spend less money and get more value.

The monopolistic nature of the business of government had created a company immune to outside concerns. But that bubble was being challenged by the consequences of its mismanagement and the growing public dissatisfaction at the value of its services and their cost. The collision was as inevitable as its timing was unclear and it would change how the business of government was to be conducted.


  1. ... by Lewis Carroll

  2. What an excellent expose of western government mores.

  3. Anonymous20/10/11

    Brilliant essay. I have taken the liberty to link it.
    Government has become so huge that its longevity is sustained by its very size. In addition, advances in computers and processing information, has made it not only faceless, but almost impossible to question. Its a Kafkaesque nightmare.

    Government behaves as if it was a Perpetual machine, but actually runs on other people's energy(money). It therefore gives the impression that it is doing useful work. But all Perpetual machines collapse when they use more energy then is available.

    Available energy = Energy available from other sources + Potential energy


    TSM(Tax Spend money) = TME (Tax Money actually earned by others) + S(Savings of others) + BM (Borrowed money)

    The government has reached the limit on TME. Lenders are now refusing to lend it (Standard and Poor affect this), so borrowing, BM, is getting difficult. That leaves S - the savings of working people. The government is now busy raiding the savings of people by a policy that is euphemistically known as QE.

    We can now modify (2)

    TSM(Tax Spend money) = TME(Tax Money actually earned by others) + S(Savings of others) + BM (Borrowed money) + QE

    Bankruptcy occurs when TSM<0. It is worth noting that (3) violates the principle of conservation of energy, but TSM can be prolonged by continually increasing QE. We will see how long this violation can continue for.

  4. Another magnificent illustration of our problems. You really have a way of clarifying and explaining - which is exactly what the right , and this country is most in need of.



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