Charles Hugh Smith on the Four Key Drivers of State Expansion, and why these are now reversing:
“The twin peaks of oil and government are causally linked: central government’s great era of expansion has been fueled by abundant, cheap liquid fuels. As economies powered by abundant cheap energy expanded, so did tax revenues.
Demographics also aided Central States’ expansion: as the population of working-age citizens grew, so did the work force and the taxes paid by workers and enterprises.
The third support of Central State expansion was debt, and more broadly, financialization, which includes debt, leverage, and institutionalized incentives for speculation and misallocation of capital. Not only have Central States benefited from the higher tax revenues generated by speculative bubbles, they now depend on debt to finance their annual spending. In the U.S., roughly one-third of Federal expenditures are borrowed every year. In Japan — which is further along on this timeline, relative to America — tax revenues barely cover social security payments and interest on central government debt; all other spending is funded with borrowed money.
The fourth dynamic of Central State expansion is the State’s ontological imperative to expand. The State has only one mode of being, expansion. It has no concept of, or mechanisms for, contraction.
In my book Resistance, Revolution, Liberation: A Model for Positive Change, I explain this ontological imperative in terms of risk and gain. From the Central State’s point of view, everything outside its control poses a risk. The best way to lower risk is to control everything that can be controlled. Once the potential sources of risk are controlled, then risk can be shifted to others.
Put another way, once the State controls the entire economy and society, it can transfer systemic risk to others: to other nations, to taxpayers, etc.
In effect, the State’s prime directive is to cut the causal connection between risk and gain so that the State can retain the gain and transfer the risk to others. The separation of risk from gain is called moral hazard, and the key characteristic of moral hazard can be stated very simply: People who are exposed to risk and consequence act very differently than those who are not exposed to risk and consequence.
Every time the Central State guarantees something, it disconnects risk from consequence and institutionalizes moral hazard.
To take but one example of many, when the Central State guarantees mortgages so lenders and originators cannot lose and the borrower can’t lose more than his modest 3% down payment, then everyone in the chain is encouraged to pursue risky speculations because the State has disconnected risk from the consequence of a potentially large loss. The risk hasn’t vanished; it has simply been transferred to the taxpayers, who absorb the inevitable losses that result when speculation is encouraged.
Separating risk from gain inevitably generates systemic instability. The entire credit-housing bubble can be seen as proof of this dynamic.
All four of the causal factors itemized above are turning against continued expansion:
* The key energy source of global transportation, liquid fuel, is no longer cheap and easy to access.
* The demographics have reversed as the population of State dependents is soaring.
* Debt has expanded to the point that servicing that debt now threatens the financial stability of the State and its currency.
* The State’s separation of risk and consequence is generating systemic instability.
There are plenty of models of State expansion — democracy, socialism, communism, theocracy, and so on — and none for State contraction. This suggests that the down slope of Peak Government will be disorderly and rife with unintended consequences.”
Socialism is not state expansion, it is about the working class getting control of the state machine and using it for its own benefit, defending its own interests. This means that the state would be progressively reduced in all areas as people themselves organize more and more their own lives, the state acting as a facilitator for this. That would lead to communism.
And in communism there is no state.
This viewpoint seems to follow from the assumption that government is somehow different from people. Ideally, government should be simply the representative body of everyone in a country. If democracy is functioning properly, people should be empowered by government, not feel threatened by it. Government is there to represent and balance the needs of us all.
There is nothing inherent in government that makes it the polar opposite of freedom, or dependant on huge tax revenues. Successful government, striving for the ideal of democracy, needs only cooperation. The governments we have today have their roots in systems of coercion, and have only stumbled a little way towards a cooperative model. Private corporations view the coercive properties of government as a useful tool in their arsenal, and their influence has almost entirely dominated government since the 1960s. This is why there has been a failure of financial markets – because markets and their regulation have been successfully gamed by private corporations – acting without the restraint or balance that a truly democratic environment might have provided.
We are today governed by something much more akin to the landed gentry of centuries ago, where property and money directly determine how much influence you have in the running of your country. This fact is openly celebrated by some who believe only those “with skin in the game” are capable of making smart decisions. If this is what government has become then I suspect we are experiencing “peak government”, but for quite different reasons to those explored in the article above. A government run by and for private corporations is no longer fit for purpose. It will steadily loose its grip, as people, by necessity, are forced to find other ways of managing, nurturing and protecting their communities. I would expect to see people increasingly cooperating outside of government, and becoming un-cooperative with government and private corporations. Perhaps we will experience the rise of tools and models which allow people to govern themselves directly without the need for today’s “government”. If that happens, we stand a chance of becoming the first civilisation to become “fully smart” – thinking with our whole collective brain, instead of just the tiny part of our collective brain which is made up of wealthy, white males.