The collapse of Western governments?

Note: I use a broad definition of collapse. It can mean various changes, such as the way people interact with their government, the form of the government, the policies of the government, the people in the government. The point is that for the ruling elite now in control and the people who benefit most from the system, the change will feel like a collapse.

Society is moving at an increasingly fast pace, where change comes rapidly, but the government is designed for the industrial society of the 19th and 20th Century. Kevin Depew picks up on several themes here, which, when put together, form a picture of a crisis for the elite and current structure of government institutions. He's not talking about government, but I'll draw the connection. I'm pulling out of order, but I suggest reading the whole article, it's solid as usual: Five Things You Need to Know: The Return of Risk Appetites

Studies have shown that the most efficient way to lose weight and develop body tone is not to set off on a five-mile jog every morning, but instead to walk, a lot, at different times, with those walks punctuated by random bursts of sprinting for as long as comfort allows.

I believe the structure to our daily life, and the problems created by the Internet and the increased flow and availability of information in non-linear bursts, is responsible for some of the unrest we feel; like a presence that seems to be lurking just behind us, turning in on itself; one we can't quite turn and catch before it escapes.

...Socionomics captures this sea-change, but it's not easy to describe to a mainstream audience. Put in friendlier terms, one of the main reasons people feel disconnected and ill-at-ease, even angry, is that we're chained, literally and figuratively, to structures that no longer help us create economic value. After all, that was the promise of the production line -- to help create efficiencies that would in turn help create economic value, both for the owner and the worker. But those promises have become antiquated and broken thanks to emerging networks and a host of new technologies that basically have unlocked time-dependence of the production line and the linear model of productivity.
It's something younger people have an easier time adapting to, but the way of life and business are flying apart because of new technology. Stop right here and think of telecommuting. The reality is that people can do many jobs from anywhere on the planet. A growing trend that is basically unnoticed is what I might call "life tourism", where people want to move overseas and do a job in their home country. If I can do my job from home, why can't I live in Germany, Thailand, Spain, Brazil or Mexico?

In a previous post, U.S. is very broke, I noted a story about IRS agents permanently stationed in Hong Kong and also going to Beijing. This is a thread worth covering in detail, but I'l leave off with a link to an article by Arnold Kling arguing for competitive government.

Getting back to Depew, or rather his link to a piece by Clay Shirky.
The Collapse of Complex Business Models. Consider the paragraphs below, but thinking of Western government (and this may include all nations with socialistic bureaucratic governments):
In 1988, Joseph Tainter wrote a chilling book called The Collapse of Complex Societies. Tainter looked at several societies that gradually arrived at a level of remarkable sophistication then suddenly collapsed: the Romans, the Lowlands Maya, the inhabitants of Chaco canyon. Every one of those groups had rich traditions, complex social structures, advanced technology, but despite their sophistication, they collapsed, impoverishing and scattering their citizens and leaving little but future archeological sites as evidence of previous greatness. Tainter asked himself whether there was some explanation common to these sudden dissolutions.

The answer he arrived at was that they hadn’t collapsed despite their cultural sophistication, they’d collapsed because of it. Subject to violent compression, Tainter’s story goes like this: a group of people, through a combination of social organization and environmental luck, finds itself with a surplus of resources. Managing this surplus makes society more complex—agriculture rewards mathematical skill, granaries require new forms of construction, and so on.

Early on, the marginal value of this complexity is positive—each additional bit of complexity more than pays for itself in improved output—but over time, the law of diminishing returns reduces the marginal value, until it disappears completely. At this point, any additional complexity is pure cost.

Tainter’s thesis is that when society’s elite members add one layer of bureaucracy or demand one tribute too many, they end up extracting all the value from their environment it is possible to extract and then some.

The ‘and them some’ is what causes the trouble. Complex societies collapse because, when some stress comes, those societies have become too inflexible to respond. In retrospect, this can seem mystifying. Why didn’t these societies just re-tool in less complex ways? The answer Tainter gives is the simplest one: When societies fail to respond to reduced circumstances through orderly downsizing, it isn’t because they don’t want to, it’s because they can’t.

In such systems, there is no way to make things a little bit simpler – the whole edifice becomes a huge, interlocking system not readily amenable to change. Tainter doesn’t regard the sudden decoherence of these societies as either a tragedy or a mistake—”[U]nder a situation of declining marginal returns collapse may be the most appropriate response”, to use his pitiless phrase. Furthermore, even when moderate adjustments could be made, they tend to be resisted, because any simplification discomfits elites.

When the value of complexity turns negative, a society plagued by an inability to react remains as complex as ever, right up to the moment where it becomes suddenly and dramatically simpler, which is to say right up to the moment of collapse. Collapse is simply the last remaining method of simplification.
Think of social welfare systems such as Social Security and Medicare, but including all welfare. The millions of broken families supported by welfare (that would not exist without it in the first place), healthcare systems funded by the government, school systems, university systems, massive government pensions.

On the one hand, all of these systems, right down to the way children are taught in the classrooms of government schools, are out of date and increasingly so. On the other, this system is unsustainable because it is based on ever increasing debts that cannot be repaid today, let alone in a few years when the debt is even larger.

Now turn back to the economy and the massive debt economy that supports this archaic government system that has as much place in the 21st Century as one from the 5th Century. Depew again:
Meanwhile, credit bears are correct in pointing to the same mistakes being made as were made between 2003 and 2007. Leverage is again increasing. The reversal of the "sell it all" trade where corporate debt was dumped willy-nilly in a panic has now led to a different type of panic, one where credit buyers are finding it difficult to find enough "risk inventory" to satiate demand for increased returns. The result is almost identical to the early stages of past credit recoveries where credit buyers, once they run out of things to buy intelligently, start buying whatever they can find, wherever they can find it.

Make no mistake: The financial system remains fragile, far worse than it was in 2002. But the important point to understand is that the debt crisis was never about the economy; it was about credit, leverage, and debt. The weak economy is the result of that crisis, not the cause of it. It's an important point to understand, but one that's easy to miss now that the focus in the media has turned away from credit markets, which are difficult for reporters to see and understand, and back toward more transparent economic issues such as jobs and manufacturing reports.

Similarities to the last credit cycle remain, despite the fact we're in a more fragile ecosystem and damaged economy. As was the case last time, stock market participants refuse to believe the credit bull market story, instead focusing on everything that can possibly go wrong, from Greece to Portugal to sovereign defaults, municipal bond market implosions, and basically everything but what should be the current focus -- namely, the transition from corporate balance sheet repair back to share buybacks, mergers and acquisitions and other pursuits that actually benefit shareholders longer-term.

Again, this is a credit cycle, unique in the strength of its reversal from near-death a year ago, but hardly different in how it will ultimately unfold. A bad end is coming, but that bad end will come later, possibly much later than many believe.
And then there's:
2. The Coming Municipal Bond Market Collapse

I'm not saying we're going to get competitive governments. A declining social mood, at least in the short run, would imply that governments will become more hostile and increase control over national borders, take a hard the line on sovereignty issues, etc. However, it is clear that the elites in the West refuse to acknowledge that the system that peaked with the 20th Century must move on because their own power and status requires the system. It is clear as well, that major corporations have a difficult time with shifting technology. The RIAA and movie industry's battle with piracy is nothing compared to the coming market where their competitors have all the advantages of the pirates, yet supply their own content. Here's Shirky talking about a user created show that the TV industry crushed:
Or it might not. Once the show moved to television, the Writers Guild of America got involved. They were OK with For and About Moms, but By Moms violated Guild rules. The producers tried to negotiate, to no avail, so the idea of audience engagement was canned (as was In the Motherhood itself some months later, after failing to engage viewers as the web version had).

The critical fact about this negotiation wasn’t about the mothers, or their stories, or how those stories might be used. The critical fact was that the negotiation took place in the grid of the television industry, between entities incorporated around a 20th century business logic, and entirely within invented constraints. At no point did the negotiation about audience involvement hinge on the question “Would this be an interesting thing to try?”
Every single union industry has gone down in flames. Airlines, autos, steel, etc. What is the largest union employer left? Government.

Government itself is like a union is to a company, in that in it able to capture surplus because of its position in the economy. Economic and technological change lay waste to every industry with a complex and rigid structure. These industries were crushed by debt and pension obligations. They borrowed and papered over their losses until they could borrow no more, and then died. How is government going to escape this fate?

Anyway, I was thinking about government today after reading Karl Denniger's Come To Jesus Part Deux, which has a graph that shows the private economy in the U.S. has declined below 1995 levels, with the gap in GDP made up by government spending, specifically deficit spending. There's plenty more consequences to consider though, so read Five Things You Need to Know: The Return of Risk Appetites for yourself and draw your own conclusions.

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