The 5th Place Winner of This Year's Daily Reckoning Dodo Derby

The state of the states is not good, Fellow Reckoner. Cracks are beginning to appear in their veneer. The illusion of vitality and control is coming into question. Even people with better things to do than pay attention to politics are beginning to sense that the charade may be up. They suspect their mayors and governors – and perhaps even their kings and queens – have no clothes on. Some have started pointing fingers and waving placards. They vow to stay and fight. Others are planning their exit…while they still can.

We are not gathered here today to offer tears and condolences for failing and flailing states. By any measure one cares to employ, the very idea of “The State” itself has had a pretty good run. Forged in the crucible of ancient Egypt some 6,000 years ago, the state has morphed through iterations as many and varied as the seasons between them. From the Pharaohs through to warlords, kings and queens, generalissimos, barbarians, emperors, chairmen, führers, shoguns, sheiks, tsars, presidents, prime ministers and the rest of the scoundrels, nobody could say we humans didn’t give The State a fair go. Quite the contrary. We gave it every opportunity to succeed. And more.

Our forefathers tried hereditary rule, divine rule, rule by majority, minority, by power, money and force of every stripe and style. They drafted manifestos, constitutions, bills of rights and Little Red Books. Every conceivable form of “The State” has been given its turn. We’ve tweaked it, tortured it and tinkered with it for long enough. And now, after six millennia in the political lab, after countless wars and untold lives surrendered to whatever the “cause” of the day happened to be, we see what we have for our troubles.

There are resources enough to feed every mouth in the world. Yet, most of one entire continent starves to death. People living in vast swathes of another are not much better off. Two more, at least, face imminent insolvency and surefire social upheavals, revolutions, even wars. Brutal, iron-fisted dictators rise in the poorest regions of our world, supported and installed by their democratically elected counterparts in far off lands, where people who call themselves good don’t care to read bad news. And in the most powerful nation the planet has ever seen, a mighty behemoth with military arsenal enough to lay waste to the entire human population many times over, more than 40 million of its own citizens live on food stamps, barely able to get by. That many again are supported directly by the state, that grand experiment we’ve devoted six thousand years to testing, but which we still don’t quite understand.

But again, we are not here today to wallow in commiserations and condolences. As Vancouver favorite and good friend Doug Casey likes to say, the situation may be helpless, but it’s not serious. Indeed.

It is said that nature abhors a vacuum. The same is true of political and economic eco-systems. Where one species, one gene, one dollar staggers toward extinction, another evolves, emerging to fill the void. Financial crises, revolutions, bankruptcies and currency crashes are all part of the process. Rather than be feared, these occurrences ought to be celebrated as a necessary part of the cycle. A renewal, of sorts. It is the unleashing of productive capital and the freeing of minds for new and better ways to trade, think and arrange ourselves politically and economically. Of course, this is by no means a new idea.

Charles Darwin, his focus more on the animal kingdom than the political thrones of man, called the process “evolution by natural selection.” The weak perish at the hands, and to the advantage, of the strong as nature selects for and promotes the most efficient, adaptive species. Cruel as the system sounds, we simply wouldn’t be here without it. Joseph Schumpeter, in his 1942 work, Capitalism, Socialism and Democracy, coined for the same economic process the term “creative destruction.” Innovative entrepreneurs are the driving force behind long-term economic growth and prosperity, Schumpeter argued, but they occasionally, necessarily, displace the “value” of established companies and business models in the process.

And in the political realm? What happens when a government spends too much of its citizens’ money, or grows too inefficient, or simply loses the support of those who, knowingly or not, spend their efforts creating the means and circumstances for its existence? What becomes of that king, that governor, that political philosophy when those who fuel it lose faith in their leaders’ power and the viability of the system in general? Communism, monarchism, fascism, feudalism…nothing lasts forever. Right now, across the Middle East and North Africa the sword is falling on some well-deserved necks. What started in the relatively minor economy of Tunisia has now spread to Kuwait and even threatens the House of Saud.

What will fill this Middle East-shaped political vacuum, then? We’ve tried statism in every manifestation conceived. After 6,000 years and counting, isn’t it about time for something new?

Back in the US, we’re keeping an eye on the states within The States. As you may have read, we’re down to the finalists in our Daily Reckoning Dodo Derby Awards: The State Edition. We announced the final ten in the weekend edition (in alphabetical order) – California, Connecticut, Illinois, Louisiana, Massachusetts, Mississippi, New Jersey, New York, Ohio and Wisconsin.

Each day this week we’ll count down from fifth place to the winning state, which we’ll announce on Friday.

Today’s State, coming in at fifth place, is rather small and not usually one to pop up on the radars. One reader, who has since relocated to warmer climes, described his former state of residence as a “financial basket case with a political class full of clowns.”

Ok…so we’ll need more specifics…

Although her projected budget shortfall for 2012 is “only” $3.7 billion, much less than some of the larger states, today’s feature state suffers a debt to GDP ratio of 12.5%…only marginally lower than that of Greece. And, like the shaky Club Med economies, individual states don’t have the option of printing/inflating their obligations away.

Writes another reader:

“No doubt you are well aware of the budget and jobs crisis circus in [this state]. Any intelligent person would think it should be right at the top of the priority list for our Senators and Representatives to act on. Not so!

“Recently, the two clowns representing my district have introduced legislation to have the Tibetan Language put on our licenses, in addition to English. Although hard to believe, this is the type of legislation our Legislators consistently deem to be important and appropriate.

“Needles to say, I believe our state is a prime contender for your [Dodo Derby] Awards.

“By the way, I’ll be proposing our State’s motto be changed from ‘The Constitution State’ to ‘The State of Denial.'”

In case you haven’t guessed it yet, with almost $5,000 in per capita state debt and unfunded pensions per capita weighing in closer to $18,000, our fifth place choice for this year’s Daily Reckoning Dodo Derby Awards is…


That still leaves 9 contenders for the final four places. Tune in tomorrow to see if your state makes the list.

Joel Bowman
for The Daily Reckoning