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Acknowledging the Arrival of Peak Government

Government will shrink whether it wants to or not
Monday, May 14, 2012, 12:38 PM

Most informed people are familiar with the concept of Peak Oil, but fewer are aware that we’re also entering the era of Peak Government. The central misconception of Peak Oil -- that it’s not about “running out of oil,” it’s about running out of cheap, easy-to-access oil -- can also be applied to Peak Government: It’s not about government disappearing, it’s about government shrinking.

Central government -- the Central State -- has been in the expansion mode for so long that the process of contracting government is completely alien to the nation, to those who work for the State, and to those who are dependent on the State. Thus we have little recent historical experience of Peak Government and few if any conceptual guideposts to help us understand this contraction.

Peak Government is not a reflection of government services or the millions of individuals who work in government; it is a reflection of four key systemic forces that drove State expansion are now either declining or reversing.

The Four Key Drivers of State Expansion

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.

The Failure of Separation of Powers

The predominant Western model of governance assumes, incorrectly, that a “separation of powers” within the State will limit the State’s appetite for control. But rather than limit the State’s expansion, the State’s subsystems -- the institutions of executive power, legislative power and judicial power -- are competing to gain as much control as possible over both the State itself and the nation’s social and financial systems.  

This competition doesn’t weaken or limit the State; rather, it lends the State a fearsome competitive advantage, as each institution gains power as the State expands. So even though the competition between the three may appear to limit the power of each, in aggregate this competition only increases the State’s expansion as each seeks to outdo the others in reach, influence, and power.

Regardless of which institution wins or loses a particular squabble, the State inexorably expands its control and power. And just as inexorably, elites within the State -- systemically protected from the risk created by their policies -- will experience a rising sense of omnipotence as their private power rises in tandem with the State’s expansion. 

These powers also offer State elites a way to radically lower their own risk and dramatically increase their private gain by leveraging the State’s vast powers to their own private benefit.

In other words, not only does each agency and branch of the State seek to expand its reach and power, so, too, does every individual within the State who can leverage the power of the State to protect his/her own individual gain.

The State as Protector of Private Gain

The Central State is granted unique powers of coercion by its membership (the citizenry) to protect them from the predation of foreign powers, individuals, and subgroups seeking monopoly. The citizens grant the State this extraordinary power to protect their freedom of faith, movement, expression, enterprise and association and to insure that no subgroup can dominate the nation for their private gain.

Granting this power to the State creates a risk that the State itself may become predatory. To counter this potential, the State has the self-limiting mechanisms of a separation of powers such that no one institution or agency can dominate the State and thus the nation.

But as we have seen, the separation of powers has failed to limit the expansion of the State; rather, it has become a competitive advantage, feeding the State’s expansion. There are no State-based limits on the State’s concentration of wealth and power.

There is a great irony in this concentration of power in the State: the power is concentrated to protect the citizenry from predation and exploitation, but that concentration becomes an irresistible attractor for all those seeking to increase their private gain via monopoly, cartels, collusion, fraud, and other forms of predation.

The wealth that can be concentrated in private hands is not limited or self-regulated, and so private concentrations of wealth inevitably exceed the ethical threshold of individuals within the State (i.e., their resistance to bribes and self-interest). This structural imbalance leaves the State intrinsically vulnerable to the influence of private wealth. Once this wealth has a foothold of influence within the State, it can then bypass the State’s internal controls and become the financial equivalent of cancer: a blindly self-interested organism bent solely on growth at the expense of the system as a whole.

Rather than protect the citizens from exploitation, the State’s primary role becomes protecting the private gains of elites who have taken effective control of the State’s vast powers.

The Death Spiral of an Expansive State

We can now see that the Central State faces an impossible contradiction: to pursue its primary purpose of protecting the citizenry from predation, it is granted powers that enable it to evade its own self-limiting mechanisms. Private concentrations of wealth gain control over the State’s machinery of governance, and the resulting partnership of private and State elites suppress the mechanisms that were intended to limit private influence over State power.

To enhance their own power, these elites increase the State’s reach until it dominates the entire political, social, and economic system. This sets up an inherently self-destructive feedback loop in which the State’s actions to protect its self-serving elites weaken both the State and the nation. The State’s inefficiencies pressure the nation’s output, even as the State increases its share of the national income to maintain its self-serving elites and quiet its potentially restive dependents. The more the State expropriates, the less surplus is left for productive investment, and so the nation’s output continues to decline.

This dynamic creates a positive feedback loop (i.e., a death spiral) of higher taxes and lower investment in productive assets.

Post Peak-Government Living

In Part II: The End of the Free Lunch, we consider what citizens can do to limit their own risk as the Central State contracts.

We explain how the State has unfairly used taxpayer-funded subsidies to erode participation commerce and investment at the local level that in ages past provided transparency into the true value of labor.

Now that the artificial influence of these subsidies is waning as the State can longer longer afford them, reactivating the infrastructure and processes for enterprise at the community level will be critical to transitioning to a sustainable and more resilient economic model.

Click here to access Part II of this report (free executive summary; paid enrollment required for full access).

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10 Comments

leweke1's picture
leweke1
Status: Bronze Member (Offline)
Joined: Dec 18 2008
Posts: 99
Oblique View of The Matrix

My brain just expanded...ouch!

tricky rick's picture
tricky rick
Status: Bronze Member (Offline)
Joined: Dec 9 2011
Posts: 78
cold turkey

Imagine the DTs, the cold turkey shakes of our state dependent population when the provider becomes the worst nightmare.

I can't...

rodneyrimes's picture
rodneyrimes
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Posts: 4
Libertarian view

Nice article. I think you've clearly identified one of the problems of statism. One which most libertarians and anarcho-capitalist have been rating about for years.

Interesting how competition at the heart of western governments would actually make them more destructive.

The Central State is granted unique powers of coercion by its membership (the citizenry) to protect them from the predation of foreign powers, individuals, and subgroups seeking monopoly. The citizens grant the State this extraordinary power to protect their freedom of faith, movement, expression, enterprise and association and to insure that no subgroup can dominate the nation for their private gain.

For one, people do not have the right to initiate force in the first place therefore they cannot grant anyone else with that power. This is the basic assumption of statism and why it falls on its face right from the get go.

How can a group protect someone's property or safety by forceably taking away that person's property to fund itself. It's completly illogical and immoral - just the mafia's protection racket is.

I hope your book points this out, because every other failure of statism follows from this erroneous axiom.

charleshughsmith's picture
charleshughsmith
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Posts: 254
statism and complicity

Hi Rodney:

I try to make the point but perhaps in slightly different language.  I see all government as a "hedge" against private tyranny, but of course the State quickly gains enough power to impose tyranny itself.  No State can survive without the complicity of its citizens, and the Modern State has bought that complicity with Free Lunch promises. When those go away or are not met, then the current "arrangement" will also go away. Hopefully people will grasp the value of a small focused-on-civil-liberties government.... though that will require a new understanding of government's true role in life, i.e. the guarantor of civil liberties and protection of the Commons, not the provider of Free Lunches.

Thank you for adding to the discussion of this critically important topic.

rodneyrimes's picture
rodneyrimes
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Thank you for taking the

Thank you for taking the time to respond. 

On my part, I see all government as a "guarantee" of private tyranny... :-)  Once one accepts the morality and legitimacy of assigning a group of people the monopoly of force in a geographic area, then there's only one end result: tyranny. I would posit that a history book would back me up on this [Of course, ones definition of tyranny is not anothers]

Even arguably the "most small focused-on-civil-liberties government" the earth has ever seen, e.g. the USA, confirms this hypothesis. The USA started as the freest state ever devised and has resulted in one of the most murderous and largest military in world history.

In essence, it's the anarcho-capitalist view vs the minarchist view. I think you'll find value in the recent debate between minarchist Dave Nalle and anarcho-capitalist Stefan Molyneux 

 

In any case, I encourage your efforts and I believe your work is valuable, especially in waking up people who aren't yet ready to take the ancap jump.

russiaways's picture
russiaways
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Posts: 14
wishfull thinking

I will not hold my breath waiting for this dynamic to play out although I don't dispute it in the least.

I believe that it is a fucntion of human self organization to work well as a dictatorship within family sized units, as communism within groups as large as the voluntary participation allows (3 digits is pushing the limit) and as capitalism as large and long as it's unsubsidized/unprotected corporate culture can endure (many thousands of people and a century is pushing this limit).  Within these parameters the organized groups have a natural lifespan that results, over a generation or three, in the groups evolution into something unrecognizable/new or it's extinction. 

My view is that one of the greatest failings of our species is the thwarting of this natural process by concepts such as government, nation and religion, whose organization seems to require exemption from natural time limits, endure through the use of force and coersion, and strive to for immortality by refusing to evolve or die but only grow.  In this respect they have become all too successful and prosperous, at the expense of the participants in their folly, and, as a good parasite, persist by not draining enough lifeblood of the host to kill it until it's own survival is at stake.

I think your writing seeks to descibe this state as imminent but I'm afraid it has much longer to go and unless we find a way to disarm the concept of government, rather enjoy its demise we will only suffer through its death and rebirth.

I'll continue to hope and wish that eventually we all can make, as rodneyrimes puts it, the "ancap" jump.

ezlxq1949's picture
ezlxq1949
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Joined: Apr 29 2009
Posts: 52
Natural time limits

russiaways wrote:

... whose organization seems to require exemption from natural time limits ...

This is a good and subtle point.

All organisms, animal, vegetable and even mineral, have in-built limits to the time of their existence. In this regard we can view death as a kind of rationing mechanism. It limits the amount of harm that anyone can do — I am pleased that Josef Stalin was unable to escape his limits — but it limits also the amount of good that one can do. It limits the amount of resources that one can amass and/or squander. It limits one's political and social influences by restricting the number of children one may have.

Attempts to get around these limits include the creation of artificial persons — the corporation and governmental structures — which are potentially immortal. For example, Messrs Ford and Goodyear died long ago but their corporations continue.

All that said, the physicist Geoffrey West seems to have discovered more in-built limits to growth than we suspected. if his analysis is correct, even Walmart's growth has peaked and has almost reached its maximum size. The growth/decay curves are logistical in shape: they trundle along, rise rapidly to some higher or lower level, and stay there.
See http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and...

So maybe it's arguable that our entire civilisation has reached a growth limit which the fiat money / debt system cannot lift, and will start to wither.

niphtrique's picture
niphtrique
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Posts: 1
Talking about solutions that can work

Peak everything

It is not only peak government but peak everything. You can go to the countryside and buy guns to defend yourself but if hungry masses leave the cities they will also get their hands on guns. You will be overrun so this is not a solution. There is a solution that can work fast and a disaster can be averted. First of all you have to see the underlying cause of the peak everything problem, which is interest on money or usury. It is a powerful centralising force, for the following reasons:

Concentration of wealth

First, interest causes wealth to concentrate as the poor pay interest to the rich. Interest can therefore be seen as a tax on poverty to the benefit of the rich. The following example demonstrates this and also that interest on money is unsustainable and leads to crisis:

If someone brought a 1/10 oz gold coin to the bank in the year 1 AD, and the money remained there until the year 2000 AD, collecting a yearly interest of 4%, the amount of gold in the account would have been 3.6 * 10^31 kilogrammes of gold weighing 6,000,000 times the complete mass of the Earth.

If interest is charged on a limited scale or over a short timeframe then those problems do not surface. Interest is an insidious process. Over time it is unescapable that it reduces large numbers of people to a state of servitude to the money lenders. This is a long term development that transcends the life span of a human. Interest is the main reason why a number of civilisations have failed and why Western civilisation is about to fail. Therefore all interest is usury and the current financial system is a usury financial system.

Usury economic cycle

Second, the usury economic system favours large scale operations. The mechanic behind the usury economic system favouring large scale operations is:
- If businesses make use of debt on which interest is paid, they need larger scale operations to achieve the same income level for the business owners because a part of the business income is going to the usurers. In good times businesses can borrow money to expand their operations. There is a reward for taking risk in the form of interest so there is a tendency to over invest.
- When a recession sets in many businesses fail because demand falters and there is no credit available. If a larger scale operation fails then it is often not liquidated but taken over at a lower price which makes it more cost effective for the new owners than smaller operations that are more conservatively financed.
- When the economy recovers a smaller number of larger scale businesses have survived. They start to increase their capacity again and become even larger than they were before.

This cycle is repeated again and again so with usury large scale operations have the advantage. The usury economic cycle caused the division of labour to go further than it otherwise would have done. The effect of the usury economic cycle favouring large scale operations is amplified by the free flow of capital and free trade as this created a competition of everybody against everybody on a world wide scale. As a consequence dependencies have escalated and people have become less self sufficient. In this way "the system" has been created. Before the middle of the twentieth century most people lived in villages that were largely self dependent. Henceforth more and more people live in cities and societies have become more complex than they would have been without usury. The story of the Tower of Babel reflects on the dangers of this development.

The Tower of Babel

Division of labour empowers humans to create great works at the risk of people becoming too specialised. People working on the same project or working in the same organisation often do not understand each other. In many cases nobody oversees the complete picture. This undermines the effectiveness of the organisation as a whole. Many organisations rely on advisors and specialists, such as lawyers, IT specialists and market analysts, while managers often do not understand the work they do and the advice they give. Humans have a limit to what they are capable of managing but common sense does not always prevail, especially when complex solutions are chosen where simple solutions suffice.

The biblical story of the Tower of Babel warns us for the division of labour gone too far. After becoming specialised, people are very dependent on each other, while they do not understand each other any more. In this way a society disintegrates and therefore the story of the Tower of Babel is reflecting the situation we live in today. After the collapse of the city civilisation, the people became scattered from there over the surrounding countryside (Gen. 11:8). An important theme in The Bible is Eden versus Babylon or rural living versus city life. The story on the Tower of Babel is part of this theme.

The building of the Tower of Babel may also reflect the effect of usury and credit in the financial system. Usury is the principle cause of the division of labour and the concentration of people in cities. Credit amplifies the booms and busts spurred by usury. Most sky scrapers have been built in the years just before financial crises. Historically, skyscraper construction has been characterised by bursts of sporadic, but intense activity that coincide with easy credit, rising land prices and excessive optimism.

Solutions

There are solutions for this problem and I have worked on them but I am tired of spamming other websites. It often antagonises people and that is not helpful. I am only interested in making it work. It will work as soon as it is tried. An example may demonstrate that.

On July 5th 1932, in the middle of the Great Depression, the Austrian town of Wörgl introduced a complementary currency. Wörgl was in trouble and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job and 200 families were penniless. The mayor Michael Unterguggenberger had a long list of projects he wanted to accomplish, but there was hardly any money to carry them out. These projects included paving roads, streetlights, extending water distribution across the whole town, and planting trees along the streets.

Rather than spending the 40,000 Austrian schillings in the town’s coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as scrip money. The Wörgl currency required a monthly stamp to be stuck on all the circulating notes for them to remain valid, amounting 1% of the each note’s value. The money raised was used to run a soup kitchen that fed 220 families.

Because nobody wanted to pay the holding tax, everyone receiving the notes would spend them as fast as possible. The 40,000 schilling deposit allowed anyone to exchange scrip for 98 per cent of its value in schillings but this offer was rarely taken up. Of all the business in town, only the railway station and the post office refused to accept the local money. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump and a bridge.

The key to its success was the fast circulation of the scrip money within the local economy, 14 times higher than the Schilling. This in turn increased trade, creating extra employment. At the time of the project, unemployment in Wörgl dropped while it rose in the rest of Austria. Six neighbouring villages copied the system successfully. The French Prime Minister, Eduoard Dalladier, made a special visit to see the 'miracle of Wörgl'. In January 1933, the project was replicated in the neighbouring city of Kirchbuhl, and in June 1933, Unterguggenburger addressed a meeting with representatives from 170 different towns and villages. Two hundred Austrian townships were interested in adopting the idea. At this point the central bank panicked and decided to assert its monopoly rights by banning complementary currencies.

If the experiment had not been banned, everybody would be using scrip money today. The example shows that scrip money can end the grip of banks, large corporations and centralised governments over the destiny of ordinary people. This money combined with a ban on charging interest creates a more efficient financial system and can help to solve many problems the world is facing today. It can work without a large organisation. One small but committed community like Wörgl can be enough to change the world completely and forever.

Start proposal

I have a start proposal that can get things going posted on Occupywallst.org:

http://occupywallst.org/forum/natural-money-bomb-the-way-to-finish-off-t...

russiaways's picture
russiaways
Status: Member (Offline)
Joined: Nov 4 2008
Posts: 14
geoffrey west

thanks for the link, Mr. West has been a treat to discover, illuminating some bigger picture perspectives than our little travails of the day.

See http://www.ted.com/talks/geoffrey_west_t...

dustinasebmem's picture
dustinasebmem
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Joined: Jun 24 2012
Posts: 1
Hi everyone

Informative article. It must be important to have article like this in order that the people know if what are the new update in our government. Thanks for sharing.

A webmaster of photo book

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