Monday, November 2, 2009

Only A Divided House Will Stand

Mish's Global Economic Trend Analysis has a good discussion of Marc Faber's prediction of economic collapse in 2012. I don't think you can pinpoint it, and don't underestimate the United States. But the current American system is unsustainable and collapse is ahead. Whether the government counterfeiters can continue to make things work for another 20 or 30 years or maybe even longer, no one knows. It took the Roman Empire nearly three centuries following the death of the last of the five good emperors, Marcus Aurelius, to finally collapse. There was lots of corruption, inflation and coin clipping in the ensuing three centuries. However, the Roman system was somewhat more stable in that it did not depend on market coordination to the degree that the United States does. As the Federal Reserve Bank and the government have increasingly distorted market signals, ever worsening misallocation leads to more extreme abuses, which will in turn lead to shortages and crises. Information and resources move much more quickly now than 1500 years ago so comparisons are difficult to draw.

Americans a century from now will be much poorer than we were, not because of any resource shortage but because of the Federal Reserve Bank and the US government. In the nineteenth century Abraham Lincoln fought to preserve the union. He is remembered for abolishing slavery, but that was not his purpose. Rather, he aimed to prevent the southern states from exercising sovereignty. The Civil War was the beginning of Progressivism. The side-effects of the Civil War concerning slavery and race relations usually get the attention, but the Civil War's longer term effects are now being seen. For the manipulation of the federal government by organized special interests, the so-called military-industrial complex, which is first and foremost a financial complex, is a direct outcome of the assertion of centralized power that began in 1860.

The problem is how to save the United States. A centralized federal power facilitates special interest brokerage. If you review the ideas of Mancur Olson in "Rise and Decline of Nations", there are specific criteria for the effectiveness of economic lobbies. A centralized government reduces lobbying costs. Fifty states require fifty times the lobbying costs, likely more. Moreover, opposition interests can concentrate in a few states.

To save the United States, there will need to be radical decentralization. A framing of radical decentralization needs to begin with pragmatism and choice. In a nation that is failing, new ideas become imperative. The popular imagination can awakened by the hope that a renewed, smaller scale America can offer. The big-state liberalism of the twentieth century has devolved into a government-enforced wealth transfer to the incompetent rich. The system has failed and needs to be reinvented.

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