Leaders face a no-win dilemma:
any change of course will crash the system, but maintaining the current course
will also crash the system.
The end-state of unsustainable
systems is collapse. Though collapse may appear to be sudden and chaotic, we
can discern key structures that guide the processes of collapse.
Though the subject is complex
enough to justify an entire shelf of books, these six dynamics are sufficient
to illuminate the inevitable collapse of the status quo.
1. Doing more of what has
failed spectacularly. The leaders of the status quo inevitably keep doing more
of what worked in the past, even when it no longer works. Indeed, the failure
only increases the leadership’s push to new extremes of what has failed
spectacularly. At some point, this single-minded pursuit of failed policies
speeds the system’s collapse.
2. Emergency measures become
permanent policies. The status quo’s leaders expect the system to right itself
once emergency measures stabilize a crisis. But broken systems cannot right
themselves, and so the leadership is forced to make temporary emergency
measures (such as lowering interest rates to zero) permanent policy. This
increases the fragility of the system, as any attempt to end the emergency
measures triggers a system-threatening crisis.
3. Diminishing returns on
status quo solutions. Back when the economic tree was loaded with low-hanging
fruit, solutions such as lowering interest rates had a large multiplier effect.
But as the tree is stripped of fruit, the returns on these solutions diminish
to zero.
4. Declining social mobility. As
the economic pie shrinks, the privileged maintain or increase their share, and
the slice left to the disenfranchised shrinks. As the privileged take care of
their own class, there are fewer slots open for talented outsiders. The status
quo is slowly starved of talent and the ranks of those opposed to the status
quo swell with those denied access to the top rungs of the social mobility
ladder.
5. The social order loses
cohesion and shared purpose as the social-economic classes pull
apart. The top of the wealth/power pyramid no longer serves in the armed
forces, and withdraws from contact with the lower classes. Lacking a unifying
social purpose, each class pursues its self-interests to the detriment of the
nation and society as a whole.
6. Strapped for cash as tax
revenues decline, the state borrows more moneyand
devalues its currency as a means of maintaining the illusion that it can
fulfill all its promises. As the purchasing power of the currency declines,
people lose faith in the state’s currency. Once faith is lost, the value of the
currency declines rapidly and the state’s insolvency is revealed.
Each of these dynamics is
easily visible in the global status quo.
As an example of doing more of what has failed
spectacularly, consider how financialization inevitably inflates speculative
bubbles, which eventually crash with devastating consequences. But since the
status quo is dependent on financialization for its income, the only possible
response is to increase debt and speculation—the causes of the bubble and its
collapse—to inflate another bubble. In other words, do more of what failed
spectacularly.
This process of doing more of what failed
spectacularly appears sustainable for a time, but this superficial success
masks the underlying dynamic of diminishing returns: each reflation of the
failed system requires greater commitments of capital and debt.
Financialization is pushed to new unprecedented extremes, as nothing less will
generate the desired bubble.
Rising costs narrow the
maneuvering room left to system managers. The central bank’s suppression of
interest rates is an example. As the economy falters, central banks lower
interest rates and increase the credit available to the financial system.
This stimulus works well in the
first downturn, but less well in the second and not at all in the third, for
the simple reason that interest rates have been dropped to zero and credit has
been increased to near-infinite.
The last desperate push to do more of what failed
spectacularly is for central banks to lower interest
rates to below-zero: it costs depositors money to leave their cash in the bank. This
last-ditch policy is now firmly entrenched in Europe, and many expect it to
spread around the world as central banks have exhausted less extreme policies.
The status quo’s primary
imperative is self-preservation, and this imperative drives the falsification
of data to sell the public on the idea that prosperity is still rising and the
elites are doing an excellent job of managing the economy.
Since real reform would threaten
those at the top of the wealth/power pyramid, fake reforms and fake economic
data become the order of the day.
Leaders face a no-win dilemma: any
change of course will crash the system, but maintaining the current course will
also crash the system.
Welcome to 2016-2019.
This essay was drawn from my
new book Why Our Status Quo Failed and Is Beyond Reform.
