The Failed State-Back-Ground

Historical government spending in the United S...

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Economic indicators;

Uneven economic development along group lines: determined by group-based inequality, or perceived inequality, in education, jobs, and economic status. Also measured by group-based poverty levels, infant mortality rates, education levels.[

Sharp and/or severe economic decline: measured by a progressive economic decline of the society as a whole (using: per capita income, GNP, debt, child mortality rates, poverty levels, business failures.) A sudden drop in commodity prices, trade revenue, foreign investment or debt payments. Collapse or devaluation of the national currency and a growth of hidden economies, including the drug trade, smuggling, and capital flight. Failure of the state to pay salaries of government employees and armed forces or to meet other financial obligations to its citizens, such as pension payments.

Democratic governments are not incentivized to take decisions that have short-term costs but produce long-term gains, the typical pattern for any investment. Indeed, in order to make such investments, democracies require either brave leadership or an electorate that understands the costs of postponing hard choices. Brave leadership is rare. So, too, is an informed and engaged electorate, because the expert advice offered to voters is itself so confusing.

Economists find it difficult to reach a consensus about the necessity of any policy. Consider, for example, the arguments about government spending: is it the only thing keeping depression at bay, or is it moving us steadily down the road to Failure? The debate does not lead to agreement, moderate voters do not know what to believe, and policy choices ultimately follow the path of least resistance .

The build-up of public debt in industrial countries (which was rising briskly well before the Great Recession pushed it to near-unsustainable levels) reflects this kind of calculus. The public rewards democratic governments for dealing with the downside risk caused by competitive markets – whether by spending to create jobs or by rescuing banks that have dodgy securities on their balance sheets. Even if inaction (or action oriented towards the longer term) is the best policy, it is not an option for democratically elected politicians, whom voters expect to govern, which inevitably means action with the potential for quick results.

Democracies are necessarily softhearted, whereas markets are not; government action has expanded to fill the gap. With governments in many developed countries now reaching the limits of their gap-filling capacity, three undesirable possibilities loom large (in addition to the desirable possibility that they will have no choice but to undertake long-postponed reforms that will create sustainable growth with less need for government buffers).

One is that they intervene directly in markets, both domestic and across borders, to reduce competition and volatility while they rebuild their buffering capacity. Another is that they muzzle democracy to suppress public anger. A third is that they find scapegoats. All three were tried during the Great Depression of the 1930s. The results were not encouraging. One factor diminishing the likelihood of governments intervening more directly in markets is that the recent crisis seems to have discredited government as much as it discredited the financial sector.

Today, by contrast, broad segments of the public see the big banks and big government as being run by the same elites who created the crisis, and then spent public money under one guise or another bailing the banks out. Even as bankers are back to reaping enormous bonuses, taxpayers have been left to foot the bill for the economic collapse. Many workers are unemployed and in danger of being evicted from their homes, while no important banker has been put in jail. The biggest banks now account for an even larger share of the financial sector after benefiting from a government rescue, while efforts like the Dodd-Frank Act to legislate more constraints on banks have been lobbied into shadows of their original selves. The elite, whether in government or big business, seems to look after itself and no one else.

The US is not alone in having a discredited government. In the Euro zone, in addition to the perceived nexus between banks and governments, the governing elite’s willingness to embrace European integration, and taxpayer-financed cross-border financial support, without broad public consultation has generated a similar sentiment. In Japan, two decades of relentless economic malaise has decimated the public’s faith in politicians and the government bureaucracy.

When we study the situation, happening in the United States, we wonder; will we be able to recover, and if so who will lead us to that point?