The Real Source of America’s Frustrations
It’s easy to lay America’s visible frustrations at the feet of Covid lockdowns or political polarization, but this conveniently ignores the real driver: systemic unfairness.
The status quo has been increasingly rigged to benefit insiders and elites as the powers of central banks and governments have picked the winners (cronies, insiders, cartels and monopolies) and shifted the losses and risks onto the losers (the rest of us).
We now live in the world the 19th-century French economist Frédéric Bastiat so aptly described:
“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
Ours is a two-tier society and economy with a broken ladder of social mobility for those trying to reach the security of the technocrat class.
As Bastiat observed, those rigging the system to benefit themselves always create a legal system that lets them off scot-free and a PR scheme that glorifies their predation as well-deserved rewards from their enormous appetite for hard work and innovation.
Embezzling a couple billion dollars also earns you a get out of jail free card: none of the perps in Wall Street’s skims, scams and frauds ever gets indicted, much less convicted, and none of Wall Street’s legalized looters ever goes to prison.
And this is a fair and just system? Uh, right.
The Roulette Wheel Is Rigged
Meanwhile, the reality is the roulette wheel is rigged, and only chumps believe it’s a fair game. Those who know it’s rigged have essentially zero agency (control/power) or capital to demand an unrigged game or finagle their way into the elite class doing the skimming.
The net result is soaring frustration with a patently unfair system that’s touted as the fairest in the entire world.
The key takeaway, in my view, is that the unfairness isn’t limited to the economy, society or politics — it’s manifesting in all three realms. It isn’t just frustration with domestic issues — the global economic order is also a source of unfairness and powerlessness.
These are the dynamics that are tearing apart our social cohesion and that will soon start destabilizing the economy — regardless of how much “money” the Federal Reserve prints.
How divided is America?
There is a map, courtesy of the Brookings Institute, showing the roughly 500 counties Biden won and the roughly 2,500 counties Trump won.
This might seem like a chart of political polarization, and superficially that’s clear, but the real polarization is economic-financial: there are two economies in America, and there’s very little commonality in the two economies.
70% of America’s economy is generated in fewer than 500 counties; the other 2,500 counties are left with the remaining 30%.
The nation’s productive capital is even more concentrated in a few hands and regions, and since income and political power flow to capital, the financial disparity/inequality far exceeds the 70/30 split depicted in the political map.
Ownership of capital is concentrated in the hands of the top 10%, but the concentration is actually much more limited: the top 0.1% control so much wealth/capital that they “own” virtually all the power.
I hope it’s not a big surprise that America is now a rigidly two-tier society and economy. If you’re an executive at a big Wall Street investment bank, you can rig markets or embezzle billions, and you’ll never face any personal legal consequences such as being indicted for fraud and being imprisoned.
But try being an employee at a local credit union and embezzle $5,000 — a prison sentence is very predictable.
If you’re one of the 500,000+ people busted for possessing cannabis in the U.S. every year, then you’re not rich and powerful, because when the spoiled-rotten child of the rich and powerful get busted, the charges are quietly dropped, or cut to a modest fine and a misdemeanor, etc.
“Justice” is for sale in the U.S., along with rigged markets, political power, healthcare and everything else. Why should we be surprised that the economy is also two-tiered?
The lower tier of the U.S. economy has been decapitalized: debt has been substituted for capital. Capital only flows into the increasingly centralized top-tier, which owns and profits from the rising tide of debt that’s been keeping the second tier afloat for the past 20 years.
The saying “follow the money” is only half-right — more importantly, follow the capital because income and power flow to capital. As a RAND report documents, $50 trillion has been siphoned from labor and the lower tier of the economy to the top-tier elites who own the vast majority of the capital.
What’s missing from the political map is the staggering percentage of residents in the wealthiest 500 counties who are precariously living paycheck to paycheck, the ALICE Americans: Asset Limited, Income Constrained, Employed.
Gand financialization has richly rewarded the top 0.1% and the top 5% technocrat class that serves the elites’ interests. These elites and their capital are concentrated in urban counties, and the feedback loops are self-reinforcing: the capital in the urban counties attracts more capital and talent (skilled labor), bleeding the other 2,500 counties of skilled labor and capital.
Where’s the Leadership?
America has no plan to reverse this destructive tide. Our leadership’s “plan” is benign neglect: just send a monthly stipend of bread and circuses to all the disempowered, decapitalized households, urban and rural, so they can stay out of trouble and not bother the elites’ continued pillaging.
There’s a lot of big talk about rebuilding infrastructure and the Green New Deal, but our first question must always be: cui bono, to whose benefit?
How much of the spending will actually be devoted to changing the rising imbalances between the haves and the have-nots, the ever-richer who profit from rising debt and the ever more decapitalized debt-serfs who are further impoverished by rising debt?
People don’t want to just get by, they want an opportunity to acquire capital in all its forms, an opportunity to contribute to their communities, to make a difference, to earn respect and pride.
That our “leadership” reckons bread and circuses is what the strip-mined bottom 90% want is beyond pathetic. How that plays out is anyone’s guess, but the pendulum swing to an extreme at the other end of the spectrum is already baked in.
I just hope it doesn’t end in disaster.
Charles Hugh Smith
for The Daily Reckoning