Economics and the Nature of Political Crises

Ilargi: As we are witnessing our coasts, our economies, our societies and the world as we’ve ever known it crumble, shatter and evaporate, it’s high time to look beyond today, and towards the white swans we all know are out there approaching but prefer not to see.

Somewhat ironically, it may be the disaster called Deepwater Horizon, a name that will for future generations not just be mentioned in the same breath as Three Mile Island and Chernobyl, but many miles and way before them, that will tell the age old story of how an economical crisis driven too far inevitably must become a political one, once “our” politicians run out of excuses and, more importantly, other people’s money. Those of you who’re read me over the years are intimately familiar with the call, the prediction, the idea, the process, the cause and the effect.

Those who haven’t are welcome for the ride from here on in.

What we live today has long since ceased to be a financial crisis: it’s all political now. A political apparatus that is wholly owned by the financial and corporate interests it’s legislated to control is bound to provide for a roller coaster that goes up and down for a while but must eventually end up in a place so down and deep and dark none of us have ever seen it, been there, nor would wish to . Which is where and why politics as we’ve come to know it is hell-bent to self-destruct. And what then?

Stoneleigh provides a peak into the inner workings:

Stoneleigh: On the Nature of Political Crisis

Given that we are facing not just a financial crisis, but a major political crisis, as Ilargi has pointed out many times, I thought it might be appropriate to explore the nature of politics – the art of the possible in a little more depth . That will make the nature of political crisis much clearer.

To begin with, all human political structures, existing at all scales simultaneously, are essentially predatory. They exist to convey wealth and resources from the periphery to the centre, thereby enabling an enhanced level of socio-economic complexity. Each centre – whether municipal, regional, national or international – has its corresponding periphery – the region from which it can extract surpluses. (For more on this concept, see Entropy and Empire)

During expansionary times, larger and larger political structures -can- develop through accretion. Ancient imperiums would have done this mostly by physical force, integrating subjugated territories into the tax base by extracting surpluses of resources, wealth and labour. We have achieved much the same thing at a global level through economic means, binding additional polities into the larger structure through international monetary mechanisms such as the Bretton Woods institutions (IMF, World Bank and GATT, fore-runner of the WTO). The current economic imperium of the developed world is truly unprecedented in scale.

To simplify for a moment, one can build an analogy between layers of political control and levels of predation in a natural system. The number of levels of predation a natural system can support depends essentially on the amount of energy available at the level of primary production and the amount of energy required to harvest it. More richly endowed areas will be able to support -more- complex food webs with many levels of predation.

The ocean has been able to support more levels of predation than the land, as it requires less energy to cover large distances, and primary production has been plentiful. A predator such as the tuna fish is the equivalent, in food chain terms, of a hypothetical land predator that would have eaten primarily lions. On land, ecosystems cannot support that high a level predator, as much more energy is required to harvest less plentiful energy sources.

If one thinks of political structures in similar terms, one can see that the available energy, in many forms, is a key driver of how complex and wide-ranging spheres of political control can become. Ancient imperiums achieved a great deal with energy in the forms of wood, grain and slaves from their respective peripheries. Today, we have achieved a much more all-encompassing degree of global integration thanks to the energy subsidy inherent in fossil fuels.

Without this supply of energy (in fact without being able to constantly increase this supply to match population growth), the structures we have built cannot be maintained (see Joseph Tainter’s work for more on this).

However, while energy has been a key driver of global integration and complexity, the structures we have created do not depend only on energy. Because any structure with a fundamental dependence on the buy-in of new entrants, and therefore the constant need to expand, is grounded in Ponzi dynamics, these structures are inherently self-limiting (see From the Top of the Great Pyramid.

We have reached the limit beyond which we cannot continue to expand, there being no more virgin continents to exploit in our over-crowded world. The logic of Ponzi dynamics dictates that we will now experience a dramatic contraction, and that our financial structure, which is the most complex and most vulnerable part of our hypertrophic political system, will become the key driver to the downside during that period. Part of that contraction will be of our available energy supplies and ability to distribute energy to where it is needed, both of which will fall victim to many ‘above-ground factors’ in the years to come (see Energy, Finance and Hegemonic Power).

As a consequence, we will lose at least one level of political structure (predation), and likely more. We will simplify our ‘food chains’. Certainly we will not live in the globalized world we have come to know, and maintaining central control at a national level may also be difficult in many places, although this will depend on many factors, not the least of which is scale. This has crucial implications for the long and vulnerable supply chains we have constructed in a world built on comparative advantage (where we make everything in the cheapest possible place and transport the resulting products over very long distances).

Our horizons will have to shrink to match our reach. The inability of any individual or institution to prevent this, or even to mitigate it much through top-down action, will be a major component of political crisis. What mitigation is possible will have to come from the bottom-up. While expansions lead to political accretion -forming larger and more complex structures- contractions lead to the opposite – division into smaller polities at lower levels of complexity.

To understand what this means in practice, we need to look at the psychological factors inherent in expansion and contraction.

Expansionist periods are optimistic times where the emphasis is on building economic activity and social inclusion. Trust -the most critical component of stable societies- expands, and populations move in the direction of recognizing common humanity. Old animosities tend to recede from the public consciousness and relative political stability can be achieved.

Whether a party of the left or right is in control, one will tend to see its more benign face during the early phase of a great expansion. On the right this might include elements of a ‘can-do’ independent spirit, pride in self-reliance, thriftiness and frugality, tight-knit communities and effective self-regulation. On the left it could include an emphasis on the public interest, caring and sharing, public service to the collective, a concern to see no one left behind, a desire to protect through regulation, and preparedness to contribute time and resources to the common good.

Either of these constellations of characteristics is likely to deliver benefits and preside over a society whose institutions function relatively effectively. The structures which tend to be most stable are grounded in a form of social contract, where the process of wealth conveyance is muted to some extent, in order that the disparity between haves and have-nots is not too extreme, and the periphery gains something from the association despite their contribution of tithes.

The potential for social mobility is also important for acceptance by the less privileged. Under the favourable circumstances that accompany optimistic times, this combination delivers a political legitimacy which acts as a powerful stabilizing force.

Unfortunately, all human institutions tend to become progressively less functional as they age, and as periodic renewal, necessary to keep them healthy, ceases to occur. Transparency and accountability decrease, and the institutions become more and more bloated, sclerotic, self-serving and hostage to vested interests. By the end of a long expansion, socio-political institutions, including political parties, may retain their outward appearance and yet have largely ceased to function responsively in the way they once did.

At this point they go through the motions, but process becomes more important than substance. Many become corrupt and unreformable. This institutional decay constitutes a substantial component of political crisis in the latter days of imperium. As expansion morphs into contraction, in accordance with the very exact same Ponzi logic that underlies our present financial crisis, institutions may collapse along with other higher order structures. While they are eventually to be replaced by something much simpler from the grass roots, to serve their essential functions, this does not happen overnight. The psychology of contraction may well inhibit the formation of effective new institutions, even much simpler ones, for a long period of time.

The psychology of contraction is not constructive, and leads in the direction of division and exclusion as trust evaporates. Unfortunately, trust – the glue of a functional society – takes a long time to build, but relatively little time to destroy.

Elites (top predators) will have a smaller peripheral pool from which to extract the tithes they have come to expect. No longer able to pick the pockets of the whole world, they will very likely squeeze domestic populations much harder in a vain attempt to maintain the resources of the centre at their previous level. This will be very painful for those at the bottom of the pyramid, who will be asked, told and eventually forced to increase their contributions, at the very moment their ability to do so declines sharply.

Whether the left or the right presides over contraction, we are most likely to see a much more pathological face emerge, and this will aggravate political crisis considerably. On the right this could be xenophobia, strict enforcement of tight and arbitrary norms dictated by the few, loss of civil rights, extreme poverty for most while a few live like kings, and fascism, perhaps grounded in theocracy.

On the left it could be forced collectivization, the elimination of property rights, confiscations, and a desire to punish anyone who appears to be doing relatively well, whether or not they achieved this legitimately through foresight, hard work and fiscal responsibility. In either case, liberty is likely to be an early casualty, and intolerance of differences is virtually guaranteed to increase.

Central authority, which is set to increase even as its legitimacy decreases, is very much a double-edged sword. While increased centralization may confer the power to ration scarce goods, which would be a public good if undertaken in the spirit of good governance, that spirit is likely to be noticeably lacking in years to come. We are far more likely to see pervasive corruption and a resurgence of the politics of the personal, where connections are everything.

That will aggravate the crisis of political legitimacy. Besides, powers and liberties taken, whether by popular consent or not, are never voluntarily given back to the people. They would have to be fought for all over again. Perhaps we will see that happen at some point in the future, but for now people seem all too prepared to trade liberty for security, which Benjamin Franklin described as a recipe for enjoying neither.

We have yet to see a full-blown political crisis in the US and elsewhere, but it is clearly coming. Argentina went through five presidents in a matter of a few short months at the height of its upheaval. The countries of the first world will likely experience much the same thing, primarily because there is simply nothing any politician can do to prevent the pain of depression, and not even much they can do to mitigate it.

The inevitable process of living through that period, which could last for many years, will probably consume many political careers, and indeed political parties. Leaders elected now have accepted the poisoned chalice. They are likely to go down in history as abject failures, no matter what they do.

My concern is that traumatized people will seek charismatic populist leaders representing extremist positions. Politicians of that stripe are adept at manipulating the herd in the direction of inflicting punishment on any group they happen personally not to like. Hitler comes to mind here. There can be no greater political crisis than repeating the mistakes of the past on the scale that implies.