Monday, May 15, 2017

"Mao and the Middle Class: What's the Source of Political Power?"

"Mao and the Middle Class: What's the Source of Political Power?"
Force is not the same as power. If force fails to persuade, power evaporates.
by Charles Hugh Smith

"The decline of middle class wealth and income is not just an economic trend - it translates directly to a decline in political power. Chairman Mao famously noted that "Political power grows out of the barrel of gun,", but this is only true in specific circumstances, for reasons elucidated by author Edward Luttwak in his book "The Grand Strategy of the Roman Empire." Luttwak delineated the difference between force and power. Force is what grows out of a barrel of a gun: the ability to coerce people to obey commands.

Force is expensive and labor-intensive. If you want to prohibit people from using alternative currencies or making black market trades, for example, you have to literally follow every individual, as black market transactions can occur virtually anywhere by pre-arrangement. Forcing people not to horde scarce goods is another example.

Power manifests when people willingly obey or choose to comply. Although it's tempting to boil power down to threats of punishment/death, history offers many examples of intensive repression and threats failing to translate force into power. Filing tax returns is an example of low-cost compliance. The IRS audits and prosecutes relatively few taxpayers for non-compliance. The vast majority of people choose to comply without being forced to do so. This leverage is power.

Power ultimately flows from the populace's belief that the state or other authority could deploy overwhelming force if necessary. The subject populace makes a mental calculation of risk and return, and concludes that the high risks and modest gains of non-compliance make compliance the wiser, lower risk choice.

We are seeing force and power playing out in the Brexit drama. The European Union needs to punish Britain for leaving the EU, as the ability to enforce a painful punishment on any nation leaving the union will communicate (like nothing else can) that there will be a high cost to exiting the EU. If other nations believe they will share the same fate as Britain and thus decide to stay in the EU, the EU will be manifesting power. Power is persuading people to comply without having to invest any political capital or treasure in the application of force. If Britain exits the EU and avoids any severe financial penalty, the EU's power will be exposed as "all snarl and no bite." The inability to force severe punishment on Britain will reveal the limits of EU power. The realization that the EU can't force severe punishment may well free other member states to re-calculate the risk-return of exiting the EU.

The key to voluntary compliance is the stake being held in the status quo. Those holding a major stake in the status quo--for example, homeowners with significant equity/wealth in their homes - have a much different risk-return calculus than those with very little stake in the status quo. To quote Bob Dylan: "When you ain't got nothing, you got nothing to lose."

The middle class is losing its stake in the status quo, and this is loosening the state's power over the middle class and reducing the power of the middle class, which has less motivation to comply and less motivation to fight for political influence. The lower-income class that is dependent on state welfare benefits has a major stake in the status quo. So does the well-paid top-5% technocrat/professional class.

The middle class in between has less stake in the status quo than either the dependent bottom or the high-income top. Why bother fighting for a dwindling stake in a corrupt system? If you can't join the high-income top 5%, then the rational choice is to opt out or slide into the lower class that qualifies for full state benefits.

As the middle class's stake in the status quo diminishes, so does state power over the middle class. Those with less to lose will slowly stop complying or engaging in political battles (i.e. advocacy). A pox on all your houses expresses a disdain not just for the corrupt system but for the state's power to enforce its will by threat. This decline in the stake of the middle class is the source of profound political instability. Note how the top 1% have gained wealth, income and power, at the expense of the middle class:

Click image for larger size.

Rising federal debt will eventually impact taxpayers and state dependents alike,
 pitting various classes against each other.

Meanwhile, the entire status quo, public and private, is being crushed by unprecedented debt loads.
Click image for larger size.
Needless to say, stagnating income and soaring debt 
loads is not a story with a happy ending."

"Force is not the same as power. If force fails to persuade, power evaporates."

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