On Thursday, the Dow was off about 500 points in the first hour, presumably based on fears of European bank and sovereign failures.
The talking heads on CNBC were beside themselves, rationalizing what was happening and what should be done -- the Federal Reserve should initiate QE3, more fiscal stimulus should be used, etc. etc. All spoke of the need for government solutions and quick actions.
By 10:30 I could take no more of "the government must do something." Governments cannot solve this problem. They caused it! Intervening will only make the problem worse.
There is an inherent problem in government, all governments. It leads to situations like the current one and then progresses to much worse. This problem, discussed below, eventually leads to the collapse of economies if not civilizations.
Politics As A Form of Parisitism
The definition of a parasite is "an organism that spends a significant portion of its life in or on the living tissue of a host organism and which causes harm to the host without immediately killing it." Parisitology is the study of parasites.
The definition of a parasite sounds like a perfect description of what government has become. The political class, its cronies and its dependents are parasites. The host is the productive sector of the economy. One lives at the expense of the other. One is "taking," the other "making."
Parisitology appears to be a subject that should be an added requirement for Political Science (one of my favorite oxymorons). The notion of government preying on the productive is hardly a new concept. Cautions are easily found:
Thomas Jefferson observed:
If we can prevent the government from wasting the labors of the people, under the pretence of taking care of them, they must become happy. ... I think we have more machinery of government than is necessary, too many parasites living on the labor of the industrious.
More than 150 years ago, Frederic Bastiat commented on what he saw happening in France:
It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.
Even the fall of Rome, widely attributed to "bread and circuses," attracted Will Rogers' attention:
Ancient Rome declined because it had a Senate, now what's going to happen to us with both a House and a Senate?"
The parasite-host analogy would seem to be a reasonable basis for a general theory explaining the rise and fall of civilizations. Assuming someone has not already milked it, it could make an interesting dissertation topic. However, in most academic settings implicating the State in the failure of civilizations could jeopardize your career.
The State of the US
In the US, as in Europe, parasites have increasingly drained vitality from the productive class. This process began virtually from inception of the country. Initially the efforts and effects were imperceptible. Over time the boldness and number of parasites increased. Today, under the guise of social welfare and military adventurism, the productive host's survival is in jeopardy. Economic death is looming unless current trends are reversed soon and dramatically.
The recent debt ceiling debacle was an opportunity to address the problem. The effort, instead, became a political charade. Ultimately it strengthened the parasites, again, by further weakening the host. Zerohedge pointed out:
This debate is not about saving our economy or our global credit standing. This debate is about choosing our method of poison, and nothing more. That is to say, the outcome of the current "political clash" is irrelevant. Our economy was set on the final leg of total destabilization back in 2008, and no amount of spending reform, higher taxes, or austerity measures, are going to change that eventuality.
Rejuvenation of the host is possible, but it will not happen. The reasons are not economic but political. Even if control of Congress and the Presidency shifts to the Republicans, it will not matter. Both political parties are parasitic. Only their genus differs, and that is more marketing rather than substantive differences.
One may reasonably infer from the outcome of the debt charade that an implicit decision was made to kill the host. There were no spending cuts. There was hardly a slowdown in the planned rate of spending. Nor was any mechanism put in place to ensure that real cuts, if agreed upon, would be implemented by future Congresses.
Politics and Motivations
Politicians, unlike actual parasites, generally understand the ramifications of decisions. Other than those with IQs below room temperature (make your own estimate of how many that be), politicians know the precarious condition of the host.
Is it rational for an understanding parasite to destroy the host upon which it feeds? After all, if the host dies, so do the parasites.
Public Choice theory argues that politicians behave no differently than ordinary people. Motivations are not suddenly changed upon entering government. Self-interest is still the driver whether in or out of government.
Self-interest in government is especially troublesome because constraints imposed by markets are absent in government. Those in power are constrained only by the laws they impose upon themselves and periodic ballot box judgments. The power of incumbency suggests the latter is of limited effect. If self-interest conflicts with public service and laws are ineffective, self-interest is served.
Non-economist David Brin suggests politicians have less character than the average citizen. He attributes this to a perverse self-selection process:
It is said that power corrupts, but actually it's more true that power attracts the corruptible. The sane are usually attracted by other things than power.
Albert J. Nock preceded David Brin and was even more damning in his assessment of the political class:
Taking the State wherever found, striking into its history at any point, one sees no way to differentiate the activities of its founders, administrators and beneficiaries from those of a professional-criminal class
Public Choice theory does not depend upon the political class being evil. The argument rests on self-interest, regardless of the character of the person.
If Public Choice theory is valid (and it is), how does one explain the unwillingness of the political class to save the host? When the host dies, so do the parasites. Do we have an instance here where politicians are not acting in their own self-interest?
The answer is that political parasites are acting rationally by allowing the host to perish. The key to understanding this anomaly is that curing the host would require radical medicine in the form of massive spending cuts. These cuts would require dismantling of various entitlements and much of the welfare state. Even with this medicine, it might be too little, too late to succeed.
The reason that the cure will not even be tried is that any attempt to do so would be politically fatal for whoever proposed it. Voters believe that government is the source of free goodies. Too many believe they are entitled to be supported by government. Anyone proposing meaningful spending cuts would likely be subjected to political execution at the earliest election.
Nothing is more valued to the political mind than attaining and retaining office. That is why the debt ceiling deal was such a fraud. Neither party pushed for meaningful spending cuts. Both postured for voters. Both wanted a new credit card and got the largest one ever issued.
Political parasites rationally chose to continue the plunder and exploitation knowing that it ensured long-term death of the host. In classic Keynesian short-termism ("in the long-run we are all dead"), politicians chose to remain in the trough to continue feeding on the host.
The decision to destroy the host may not seem rational to the rest of us, but it is clearly in the best interest of the current parasites. Death for them at some future uncertain date is a better than death at the next election. They chose what was in their best interest but not the country's.
Until the host dies, the current parasites will exploit for as long as they can. They have chosen a form of Kevorkian economics, managed suicide for the host economy. Unlike Kevorkian, they intend to keep the host alive as long as possible enabling them to maximize their time in the trough.
The rest of us will be left to pick up the pieces when the collapse occurs. The parasites will be dead in a political sense but likely living in a different country.
Government is the problem, everywhere.
Monty Pelerin blogs at at www.economicnoise.com.