Snow Black and the 17 Dwarfs, by Robert Gore

Debt and the lure of power induce dementia. The positions of the presidential candidates, Snow Black and the 17 Dwarfs, are so removed from reality that they can only be attributed to those hallucinogens. As the world confronts the gathering force of the bust from history’s most gargantuan and longest running debt bubble, the candidates propose more costly foreign intervention; new domestic programs, spending, and regulation; reforms to burgeoning, out-of-control entitlements carefully designed not to offend their beneficiaries…or reduce entitlements; and budgets that balance at some point in the distant future.

It is a safe bet that none of the candidates’ economic analysts make debt the focus of their analyses. Yet debt is the centerpiece of the modern global economy. Politicians take credit for artificial, debt-fueled booms, but they panic, albeit opportunistically, during the inevitable busts. Not letting good crises go to waste, politicians and bureaucrats have used busts as an excuse to increase the size and powers of the government since the panic of 1907, which led to the creation of the Federal Reserve and imposition of the income tax. Since the Great Depression, they’ve done so under cover of Keynesianism, a political ideology disguised as economics designed to justify expanding government.

The other mainstream branch of economics, monetarism, gives money pride of place in its analysis when there is little money left in the world, a trivial amount relative to debt. Debt often serves the functions of money, however it is a different animal. It is someone’s liability with an obligation to pay back interest and principle. Money, properly understood, is not a liability or is 100 percent backed by something, generally a precious metal, that is not a liability. Even the green pieces of paper marked “Federal Reserve Notes” can arguably be considered debt: a “Note” from the central bank that pays no interest, with an infinite maturity, that can only be redeemed for another Federal Reserve Note. If current proposals to outlaw cash force people to conduct all transactions through the banking system, there will be no money left, only banking system liabilities.

Not understanding debt, none of the candidates understands that the collapse in raw materials’ prices and unravelling of associated debt signals the transition from global debt expansion to global debt contraction, and what that contraction means for the US population and its government. As SLL noted in “Crisis Progress Report (9): Landfall”: “The overwhelming force and destructive power of the crashing debt deflation tsunami will render the inane preoccupations of much of the US populace—and the preening, posturing idiocy of their elites—irrelevant, dangerous distractions.”

The US’s interventionist foreign policy and its associated domestic surveillance state are expensive endeavors. If their measure of success is progress in the war on terror, the former has been counterproductive while the latter has been, at best, ineffectual, and has shrunk citizens’ civil liberties alarmingly. Both receive the full support of Snow Black and the 17 Dwarfs. Dwarf Paul initially criticized the consensus, but is now hewing to the line necessary to curry favor with wealthy Republican campaign donors. Unfortunately for him, his early ambivalence and his libertarian father have fed suspicion about his “true” commitment to failed foreign policies and the destruction of civil liberties, so he’s not getting much money. Dwarf Rubio is a believer, even promising to expand the national security state to protect the entire global economy, on the land or seas, in the air, outer space, or cyberspace. Where will the money come from to pay for this fantasy, when we’re already deep in debt, in part due to the failed efforts of the past?

Dwarf Trump has garnered headlines and a lead in the polls by not hewing to the standard line on immigration. He’s pointed out that illegal immigrants cost US taxpayers money and some of them commit crimes beyond their illegal entry into the country. However, no dwarf, including Trump, wants to completely analyze immigration and deduce the contradiction at the heart of the issue: open borders, the welfare state, and solvency are incompatible. A store that gives its wares away will attract those who wait in long lines for free stuff, be packed as long as the free stuff lasts, and eventually go broke.

At root, the immigration “problem” is a welfare state problem, and Republicans have not challenged the welfare state for decades. They will not do so even as it goes broke. Much of its base, elderly, white Americans, are now beneficiaries, and nobody wins elections by proposing benefit cuts. Dwarf Christie has proposed raising the Social Security retirement age by 2 years, phased in over 25 years, and that’s considered a bold proposal!

Snow Black’s only solution to impending insolvency will be more taxes to feed the increasingly desperate and rapacious government, the Democrats’ base. They reflexively embrace higher taxes; lower taxes would decrease their and the government’s resources and power. Government grows; the private economy shrinks. Europe is proof that enough taxes, regulation, deficits, and debt can suffocate economic activity. Greece is the canary in the coal mine. With an economy that is less than 2 percent of the European economy, it threatens to bring the whole faltering EU enterprise down (see “Doomed Dinosaurs”).

Greece demonstrates the two most important facets of debt. The marginal return from debt in Europe—not just Greece—has gone negative. Both public and private debt have expanded massively since the financial crisis, but growth is virtually nonexistent. Secondly, debt is linked. Most of Europe’s debts are assets on European balance sheets. When one class of debt goes, it can force creditors to sell other assets to maintain the expected cash flows necessary to pay their own obligations, which is how unsustainable debt unravels. (Unraveling, connoting as it does systemic linkage, is a better analogy than the oft-used “contagion,” which implies random infection, as in an epidemic.) The US now has its own canary in the coal mine—Puerto Rico—but US politicians don’t pay attention to dead songbirds.

While every candidate makes obligatory noises about regulatory reform, and the 17 Dwarfs are especially incensed about Obama’s war on coal, institutional constraints will prevent them from jackhammering the regulatory and bureaucratic concrete encrusting the US economy, and they know it. Under the best case for any of them, they would have eight years to address the situation; the bureaucrats will be around long after they’re gone and will wait them out. The government has become so big and complex, the rules so voluminous and detailed, that any reform effort would demand tremendous time and attention from teams of reformers, and even then would only scratch the surface. Politically, it is an unattractive proposition, taking on entrenched bureaucracies and their cronies and clients for marginal improvements that may not win any public notice or praise. There are greener political pastures.

Snow Black and the 17 Dwarfs are oblivious to the crashing debt tsunami, embrace unaffordable and counterproductive security policies, and trumpet tepid reforms that will—perhaps—put a barely perceptible dent in the growth rates of entitlements, regulations, and debt, but will certainly not send those rates into negative territory. There is no reason for anyone seeking to reverse the long-running expansion of government and its power, and the consequent diminution of individual liberty, to vote in the next election. Fans of voting can make lesser-of-evils arguments, but it’s like drinking half a glass of poison rather than a full one. The heavy lifting of reducing the government to its proper size and scope will not be performed at the ballot box, but rather by the coming debt deflation and depression. They will leave the US and other governments bereft, with the ever-flowing milk and honey conjured by politicians exposed as a fairy tale.

A TIME WHEN NOBODY EXPECTED SOMETHING FOR NOTHING

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