Pick a perceived problem to which a government has intervened. There’s a stupidity cycle: the intervention makes the problem worse, which leads to more intervention, which makes the problem even worse, and so on. Statism, rinse, repeat. You may wonder: how long can a stupidity cycle persist before the problem that government has exacerbated gets so bad that there is a reckoning, or just plain collapse? Pull up a chair and make yourself comfortable—2015 is offering the opportunity to view cyclical stupidity exhaustion on multiple screens. There’s also a feature you won’t see in conventional AV rooms: the screens are interrelated; what happens on one screen affects what’s happening on the others.
Start with the Middle East. The US government went to war in Afghanistan to capture Osama bin Laden, purported mastermind of the 9/11 attacks in 2001. As with most government programs, that mission soon expanded, to regime change for despots the Bush administration found odious. The U.S military was instrumental in deposing Afghanistan’s Taliban, Iraq’s Saddam Hussein, and later, Libya’s Murammar Gaddafi. Syria’s Bashar al-Assad and Iran’s fundamentalist Shiite government were, and still are, on the neoconservative hit list. However, a not-so-funny thing happened on the way to reordering the Middle East. It grew more chaotic and deadly than when we started, each intervention amplifying the chaos and violence.
As part of this phenomenon, blowback has been amplified. Nobody would argue that the global war on terrorism has reduced terrorism. Al-Qaeda has been a growth stock. From humble origins in Afghanistan, it has gone multinational across the Middle East and Northern Africa, with various subsidiaries and spin-offs. One of the spin-offs, the Islamic State, governs large swaths of Syria and Iraq, and may be making inroads in Libya. Like any large enterprise, Al-Qaeda also has its competitors, who wreak their own havoc. More blowback: expanding terror, destruction, and death have created a flood of refugees who are rapidly overwhelming Europe’s capacity and willingness to aid them.
That flood shows no signs of ebbing because there are no signs the conflict that is causing it will abate any time soon. In the time-honored fashion of government stupidity cycles, conflict is escalating. Turkey, Saudi Arabia, the Gulf States, Egypt, Russia, Iran, and the US all claim to be fighting the Islamic State in Syria. However, the first five all want to depose Assad, Russia and Iran are trying to protect him, and who knows what the hell the US is trying to do. The important point here is that the next escalation may be world war, which will collapse the escalation cycle, but not before countries are destroyed and millions die.
Regular readers of SLL are well aware of debt dynamics. In a fiat money world, debt expands ceaselessly until the dead weight of debt service outweighs the gains from production, consumption, and speculative activities. Private and public debt around the world have expanded at growth rates greater than underlying economic growth rates for decades.
With global gluts of natural resources and manufactured goods, debt for productive investment now produces negative returns, even though interest rates on most classes of debt are still at generational lows. The greatest percentage of debt has funded consumption, which generates no economic return to repay it. And as the margin-call month of August demonstrated, debt fueled speculation can only go so far. Sooner or later financial markets recognize the increasingly bleak economic realities generated by an increasingly debt-encumbered economy.
That’s even if central banks promise free money forever. In 1987, Alan Greenspan quelled a stock market crash by pouring Federal Reserve liquidity into the financial system, thus lowering short term rates. Since then, every significant financial disturbance has been met with liquidity injections—debt and financial asset monetization—and lower interest rates, not just in the US but across the developed world. Each cycle has required escalation: the injections have grown progressively larger, their real world effects progressively smaller, and interest rates have hit the zero rate floor.
The latest escalation was from the 2007-2009 financial crisis, but the recovery has been anemic, and many economic magnitudes have not regained levels attained before the financial crisis. The world is either on the cusp of or actually in economic contraction. The return from additional debt is negative and interest rates cannot go lower. In other words, governments and central banks no longer have even the smoke-and-mirrors tricks of expanding debt, debt monetization, and interest rate suppression to prop up economies and financial markets. Which means this next downturn will not be a downturn at all; it will be a vertiginous plunge orders of magnitude more severe than anything that has preceded it. Making up for lost time, so to speak.
Debt, rising taxes, and ever-expanding government have fueled an explosion in entitlement spending. Such spending, by reducing both the urgency of recipients to better their situations and the incentive of producers to produce and thus provide funding, actually increases the poverty and “unmet social needs” it was ostensibly meant to address. Debt, taxes, and expanding government retard economies. Properly measured, economic growth in Europe, the cradle of he welfare state, is almost nonexistent, even during so-called expansions, and the US is not far behind. Demands for public services and the sense of entitlement escalate even as public balance sheets and economies deteriorate.
Obamacare will almost certainly mark the apex of the entitlements stupidity cycle in the US, preceding fiscal collapse. When it comes, large swaths of the US population will be unable to provide for themselves and will clamor in vain for assistance from insolvent local, state, and federal governments. What will these unfortunates do? Quiet resignation and acceptance of their fate are not the odds on favorite, rather, we’re looking at unprecedented civil disorder, lawlessness, and widespread chaos.
Nothing happens in isolation; everything is interrelated. Imagine, if you have the intestinal fortitude, the interrelationships in a world embroiled in global war, economic depression, and the death of the welfare state. Those who invoke such visions are called apocalyptic. Is it apocalyptic, or does a straight line, logical analysis of ever escalating stupidity cycles yield the conclusion that we’re at the brink of collapse? Is this a mere pothole, or are we at the edge of an abyss the bottom of which we cannot see? Hope for the former, if you wish to delude yourself. Prepare for the latter if you don’t.
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