June 22, 2010

How Kleptocracy Congealed (The New Feudal War 1 of 4)


Beyond the simplest town hall and tribal communities, all governments are to some extent corrupt, and all economies contain legalized racketeering. But this doesn’t mean every system is a kleptocracy. We can’t be so profligate with superlatives without rendering concepts useless, although that too is a common modern disease. I’d wager it’s part of the indoctrination plan to have the perception spread that “everything has always been like this”. It fits in with the Status Quo Lie, that today’s status quo is really the normal baseline, a law of the universe. If people believe the situation is not just superficially similar to e.g. the Gilded Age, but exactly the same, then they can believe the solution is the same – time and “reform”. But this is not in fact the case.
The fundamental difference between today’s situation and that of past corruptions is its basis in the physical limits of Peak Oil. To describe the process one way, throughout the ascent of the oil age, the overall economic pie was getting bigger, and the goal of the elite gangsters was to steal from this growing pie. Although the goal of capitalism is always to either exacerbate existing scarcities or artificially generate scarcity where the natural state is abundance, cheap oil afforded such a surplus that it was actually difficult enough to generate artificial scarcity that it was politically easier for the elites to let the workers keep a relatively high proportion. This people’s piece of the pie wasn’t remotely proportional to their rightful share (that would be 100%), but it was still high by historic standards. This was the basis of the West’s mid-20th century temporary mass middle class.The gangsters temporarily had greater leeway to both satiate their avarice (within the political limits they temporarily acknowledged, which were also imposed by the Cold War, as I’ll get to below) and allow a broad wealth distribution.
That’s one way to look at the effect of the oil surplus. A parallel process was how all economic sectors were temporarily able to use cheap oil to undergo exponential “growth”. This temporarily generated what we call capitalist profits. (The classical economists like Smith and Ricardo and the critics like Marx never understood how they were really discussing an economic system based on investment and distribution of surplus from the fossil fuel drawdown. A “special case” economics indeed.)
The first thing to give was this economic growth process. Even if the oil surplus had been infinite, the sectors of the economy do have limits to entrepreneurial innovation. At some point the major innovations are complete, what’s left is more or less pointless tinkering, and the sector is mature.
In a previous post I summarized what happens next, and rather than reinvent the wheel I’ll just present it again here, if it pleases the court.

1. As capitalism matured it should, according to reality and to its own textbooks, have seen profits fall to marginal levels. There should be very little profit left in the economy by now. Instead, the entire economy should have long since been functioning smoothly and efficiently, with sufficient goods and services in every sector, while government largely shrunk as it would have little role to play as economic arbiter. There would be rough equality of wealth and power distribution, little wealth and power concentration. Democracy would become steadily more healthy and strong.

This is how capitalism was supposed to function. This is what its promoters always promised. This is what would have happened, if every word hadn’t always been a lie.

2. In the reality of greed fundamentalism, elites were never textbook capitalists but always gangsters. No one ever wanted to be a capitalist. No one ever wanted to compete and innovate. They wanted to concentrate wealth and power, period.

As capitalism reached its terminal profit crisis in the latter 20th century, the power elites resolved to deploy an ever more aggressive command economy. They’d use the power of government to substitute extorted and stolen rents for their diminishing “capitalist” profits.

This was happening in tandem with other political processes. Even during the time of the expanding pie, America was completing the sellout of its revolutionary birthright. As Hannah Arendt discusses in On Revolution, at the end of WWII it was clear that the colonial empires of Europe would be challenged everywhere by revolutionary movements. These would all necessarily be nationalist in part, but the rest of their ideological content was up for grabs. That many like the Vietminh would become communist was not a foregone conclusion. Among many anti-colonial insurgents, the American Revolutionary tradition was held in high esteem. America had total freedom to choose the path of encouraging these national revolutions along the lines of its own heritage.
Instead the US government chose the opposite path. It chose to trash its own revolutionary heritage, go rogue against its own best angels, and become the ultimate counter-revolutionary power. It chose everywhere to try to help sclerotic, decrepit Europe prop up its vapid imperialism. Although the propaganda lie was that this had to be done to counteract communist aggression, in fact communism instead was the beneficiary of America’s abandoning the field. Given the anti-colonial movements of the Global South, looking to the competing revolutionary heritage powers for assistance and inspiration, America simply punted and betrayed itself, and communism entered the vacuum left behind.
So to sum up, post-WWII, with the advent of the Cold War and the inevitable liquidation of the anachronistic colonial empires, America chose the path of counter-revolution rather than to compete as a revolutionary power. Meanwhile domestically it sought to co-opt the workers.
Vietnam was a milestone toward greater aggression and unsustainability for this reactionary agenda. It was an exercise in consolidating the military-industrial complex and in driving fiscal recklessness, which would culminate in Nixon closing the gold window in 1971. So the Vietnam-driven deficits were already unsustainable while the dollar could still be redeemed for gold, such that the system had to retrench even before the oil shocks set in starting in 1973, although this was foreshadowed by the American production Peak in 1970. (To get a little ahead of myself, we can compare this to the financial collapse of 2007-08 and say that in both cases the unsustainability of the finance structure in itself brought on the crisis before the energy fundamentals forced it. So in both cases the reckless financial “choice” preceded the structural change, but only as a preview.)    
As I said, this was bound to happen even without the looming end of the oil age. But in fact the US oil Peak was an alarm bell. Not that the system widely consciously registered it, but everyone sensed that oil supplies would be getting tighter in the future. Combining this with the end of “legitimate capitalist profits”, the system was clear in its mind that the temporary middle class would now have to be liquidated.
Here’s how I described how this was planned out, and how it’s been done:

Globalization and financialization comprised the campaign of oligopoly capitalism to prop itself up while stringing along the Western middle classes. They substituted debt for production while obscuring the assault on all public amenities and power. Real wages have steadily eroded since the 70s while wealth concentration has exponentially risen. (That juxtaposition right there is a basic metric of robbery.) The system attacked unions on every political and “legal” level. Social Security has been steadily undermined via ploys like the rigging of inflation metrics (to fraudulently depress COLA increases). Other entitlements have been similarly eroded. Globalization’s open border for unskilled labor provides the basic force of gravitation for all wages, while outsourcing and offshoring destroyed many mid-level jobs completely, forcing and ever greater number of workers into the undifferentiated unskilled mass. (The system did somewhat protect most kinds of professionals for a long time, but now that’s been eroding for many as well.) Walmartization provides a kind of linchpin, the direct conduit for addicting ex-citizens to cheap consumerism while directly destroying self-proprietors and middle class jobs in general, along with the communities anchored by the people who held such jobs.

In this way the temporary “middle class”, fueled by debt and cheap oil, had the carpet slowly pulled out from under it. Meanwhile the basic unproductivity of the Western system was covered up by bubbles, culminating in the housing bubble (itself fueled propagandistically by the Big Lie that you should rely on your house to provide for your retirement, not any other pension; this nicely provided cover while public entitlements and private pensions were gradually being subverted).

So we had the basic structural change. Peak Oil meant an expanding pie would first stop expanding and then start shrinking. This would radically exacerbate the dropping of the profit rate. This was structurally challenging a system whose “normal” aggression and greed had already been stepped up in the post-war era.
Combining these three determinants, two structural and one political, the gangsters saw that the only way they could continue large-scale extractions at all would be to radically intensify them. Since stealing each dollar would get harder and harder, it followed that you no longer had the luxury of conceding any wealth to the people who actually produce it. Allowing the existence of a middle class in principle was a luxury of the mid-century. The gangster elite no longer saw itself as having that luxury. You now had to try to steal every cent, and you had to be as systematic and ruthless as possible in doing it.
History since the 1970s has been primarily the playing out of this endgame. I’ll just describe the strategy and tactics as they were conceived and played, though they’re mostly epiphenomena of the structural forces of Peak Oil and the transformation from alleged capitalism to confirmed corporatism.
The ideology and strategy for all this was neoliberalism.  This was accompanied by such strands as economic “libertarianism”, AKA anarcho-capitalism as its more honest adherents called it, and neoclassical economics, AKA monetarism (with its “liberal” variant, the “neoclassical synthesis”). Buckley conservatism gave it a culturally respectable sheen, while Goldwater and later Reagan added a nimbus of pseudo-heroism. At the more scurrilous level, the Big Lies included the “ownership society”, “trickle-down” supply-side economics, the Laffer curve, and later “third way” politics and “compassionate conservatism”. We were allegedly going to move from a manufacturing economy to a “service economy”, and later to an “information economy”.
Maybe the most concise expression of the battle plan written up in one place was Lewis Powell’s 1971 corporatist strategy memo. This is a classical example of totalitarian reversal – for every word of its accusations against the enemies of American business, it’s meant to be read, “this is what we should be doing”. (He stays in character throughout.) 
All of this was enlisted to justify the replacement of a human society with the exponential debt treadmill. The now targeted middle class was supposed to go into debt and look to its “investments”, while quietly social spending was diverted to gangster plunder, regulation of the corporate gangs was gutted, public property was everywhere given away to private looters at pennies on the dollar, public spaces everywhere were privatized, and democracy itself was completely pimped out.
Everything was wrapped up in a propaganda package which justified intensifying wealth concentration, skyrocketing executive extractions, a war of extermination against unions, and the offshoring/outsourcing/downsizing of all decent American jobs. Globalization shills like Mankiw and Krugman promised all of these were temporary growing pains on the road to paradise, but like all totalitarian flacks they were simply lying about this.
All of this was worked out in principle in the 70s. The oil shocks gave the project new urgency, as the global rape wouldn’t work without ready cheap oil. The Nixon administration worked out the deal with OPEC whereby its oil would be priced and purchased with dollars. This gave the now fiat reserve currency a de facto “real” basis to replace the gold-based Bretton Woods basis Nixon had just abrogated. In return the US promised to prop up the undemocratic plutocracies of the Middle East against all democratic pressures. This was formally enshrined in the Carter Doctrine, which declared that anything which could interfere with the flow of Mideast oil was aggression against the US. Although advertised against foreign troublemakers, the real target was clearly people’s activists among the Arabs. There was probably also an implied military threat if OPEC producers didn’t deal.
Meanwhile under the scheme of petrodollar recycling, the dollars the West paid for oil would be put right back in the Western banks, who would lend it at predatory rates to developing countries for their own oil purchases. Every time OPEC received the dollars they’d extract some and send the rest back to the banks, who would extract some and lend the rest to third world elites, who would extract some and send the rest back to OPEC while saddling their own hapless peoples, who received none of the benefits, with the debt.
The goal was for the banks and OPEC to profit, for the West and corrupt regimes around the undeveloped world to get their oil, while the poor of the world would be forced to pay for all of it. Since they could never actually pay these odious debts, neoliberalism in the guise of its thug organizations the IMF and World Bank would stand ready to swoop in with a “structural adjustment”, which basically meant the complete looting of the helpless country. All its natural resources, and what little public property the people may have managed to accumulate, and what little social safety net they may have managed to stitch together, would all be confiscated to pay the debts these people never incurred, but which were criminally inflicted upon them.
(In part 3 of this series I’ll describe how, under the new name “austerity”, this same structural adjustment is being brought home to the Western countries themselves.)
Another detail was the transformation of the finance sector. It was of course always a gang of thieves, but it didn’t fully rationalize itself until the 70s and 80s. This was the period of the switch from partnerships as the common organizational model to limited liability corporations, and later to public corporations. The trend here is clear – enabling first the owners, and eventually the officers, to unshoulder all responsibility and risk, first on society, and later on the “owners” themselves (shareholders).
At the behest of Wall Street this drive to send every corporation public added the feature that stock price became the most important measure of a firm’s “health”. Productivity, real innovation and profitability, meant nothing next to short-run goosing of the stock price. Needless to say the welfare of the workers meant nothing. The goal here was to transform the entire economy into a casino for the benefit of the gamblers of the finance sector. They figured, with the end of the oil age the real economy as we’ve known it is doomed anyway, so we might as well run the risk of blowing it up prematurely for the sake of our personal profit.
The also had the benefit of setting up the stock market as a combination of dictator and terrorist. Even politicians who might have wanted to act in the public interest against the banks were prone to be intimidated by the market’s threats and tantrums. Most pols, of course, were happy to use the market’s “expected” reactions as a pretext for the crimes they already wanted to commit. This is taking on especially chilling significance today in the runup to “austerity”, as I’ll describe in part 3. The stock market terrorist also holds hostage the middle class in the form of its promised pensions, which have all been inextricably linked with the fortunes of the market. The message has long been clear – don’t get uppity, worker bee, or your 401(k) gets it.
This was all part of financialization, whose structural basis was the previously mentioned impossibility of keeping “real” profits up. Turning the flow of capital itself, previously a mechanism of capitalism, into the very core and purpose of the machine, was a way to temporarily garner fabulous rents. Again, since the real economy was doomed anyway, there was no reason not to take the finance sector, previously a periodically troublesome epiphenomenon of capitalism’s normal boom-bust cycle, and turn it into a pure extortion racket and con ring to maximize profiteering off the ultimate bubble and the ultimate bust, both of which would be engineered by this very racket.
(The exponential surge of “innovation” in financial “products” was part of this as well, a primary mechanism of its functioning.)  
All of this was already progressing through the 1980s. But the Cold War still imposed some restraints upon it, both because of the direct threat of the Soviet bloc and also because as long as the USSR existed it offered a political alternative to Western neoliberalism. With the collapse of the Soviet Union and the end of the Cold War this last restraint was removed. Now Western corporate aggression could rage forth in its full fury. In spite of the Big Lie, no “peace dividend” ever materialized, nor was it ever intended to. Irving Kristol wrote a manifesto openly declaring that with the Soviet Union gone, the West must greatly increase its military spending and aggression. This is exactly what was done, as planned. Thus every allegation throughout the Cold War about the West’s fundamental aggression was fully confirmed. It was a textbook example of what Arendt called a core trait of totalitarianism, that it steps up its aggression and its terror after the war has been won. So it was with neoliberalism.
From here on there was no restraint on plundering expeditions, especially in the former Soviet bloc countries; on terrorism and war as the response to any resistance or dissent; on disaster capitalism as the response to any opportunity anywhere which left people damaged and weakened. There is never a moment where any consideration enters the minds of Western leaders other than power and plunder. Everything is gauged at every moment according to those vicious imperatives.
And so today we have the full-blown kleptocracy. It rose out of, first, the imperative of gangsterism to survive as long as possible in the face of Peak Oil and the stagnation of the capitalist profit rate, and second to profiteer as much as possible off the final big binge and bubble which oil and debt were going to afford before burning out. The goal for the elites was simply to loot as much as possible, amass as much power as possible, impoverish and disempower the people as much as possible, undermine or destroy democracy; and to position themselves to prevent any democratic adaptation to the post-oil world, but instead to reimpose feudalism, constituting themselves as a new version of the medieval elite.
In parts 2-4 I’ll describe how this is meant to play out. Part 2 will recap the Bailout and describe its status today.


  1. Now that’s a post! I’m going to have read it again before making a comment – one that I hope will be at least semi-coherent. I feel like I just got schooled on economic and political theory (and action) of the last several decades.

    Comment by Bloodgroove — June 22, 2010 @ 9:29 am

  2. See! It’s working, Russ. You’ve even gotten to PCR!


    Comment by Bloodgroove — June 23, 2010 @ 1:13 pm

    • That’s a good piece, JD. Yup, more and more people are thinking these things.

      I’ll have another post on a similar theme tomorrow. (It’s almost done; I just have to type out a longish quote from a book because it’s not online.)

      Comment by Russ — June 23, 2010 @ 3:49 pm

  3. I used to think human progress since 1800 was due to the Enlightenment. I’ve changed my mind. Our exponential population growth since 1800 was due to fossil fuels. Without oil in the ground we’d be like the ancient Greeks who built steam engine toys while serfs toiled in the fields. Fossil fuels gave us the ability to vastly increase acres tilled, rivers dammed, goods transported. Surplus labor led to more engineers led to more discoveries. There were also side benefits like a marked decrease in violence — like Russ says, coercion is hardly needed in a world of plenty. No, the scientific method is great but it only tells you how the world works. To change the world, to do actual stuff, you need energy.

    Real progress was due to coal and oil, not some magical leap in human wisdom and insight. Humans are just as irrational as they were two thousand years ago. Most people are barely capable of logic and hardly ever think if they can help it. This makes me suspect that most of the technological discoveries humans have made are the equivalent of low hanging fruit. Our brains are too irrational to be capable of anything very complex. We’re trapped by habit, superstition, tribalism and limited hardware. 8 bits per second. That’s what we have to work with.

    We cannot think our way out of peak oil. Many people believe science will solve all our problems. God, er, technology — will provide. But entropy happens. Things fall apart. Another concentrated source of energy with the ERoEI of oil will likely never be found.

    Please forgive me for indulging in wild speculation. As I see it the sheer amount of energy our species requires will never be provided by wind or algae, even if we come up with a diabolically clever algae-wind-geo-hydrothermal combo. I believe huge amounts of energy can only come from two places. It can come from the sun, or it can come from the subatomic level.

    To start with the latter — The last big brain we had came up with a way to release a lot of energy by splitting an atom. This turned out to have a lot of messy side effects, was used as a horrifying weapon, and its inputs are resource constrained on a finite planet. Since the advent of an Einstein or a Newton only comes every 200 years or so and can hardly be predicted I doubt we can safely expect the timely arrival of another “energy genius”. Also, we seem to be at the point where slamming various particles together to see how they tick has made some scientists wonder if we could accidentally trigger some sort of Doom-like apocalypse. Since those scientists aren’t immediately laughed out of the hall one wonders about the wisdom of such experiments. We are, at this point, confined to just the one planet.

    [Which leaves aside the entire issue of being way, way, way resource constrained when it comes to many raw materials. Phosphorus, lithium, uranium. We could look for useful asteroids, but that takes energy in itself. (Hey! There’s an ocean of methane on Titan! Yes, let’s tow that back to our planet and burn it in our atmosphere. What fools we mortals be!)]

    And that leaves the sun. A lot of solar energy is lost in the atmosphere so some sort of space-based collector would be ideal. It would be prone to sabotage or destruction by various political entities, so you’d need a lot of them. Which we don’t have the technology for anyway. And as peak oil intensifies things like the space program will be the first to be jettisoned in favor of things that help with day-to-day survival.

    No, the best we can hope for is a gradual decline. If we somehow keep the scientific flame alive maybe some future Greek will toy with cold fusion while his serfs toil in the field, but overall I think the climate’s had it and so have we. Life on Earth will certainly continue without us. But since intelligent life seems rare there will likely be no one to ponder our fate. Cheers!

    Comment by reslez — June 24, 2010 @ 4:49 am

    • Sorry for the wall of text.

      tl;dr: Science is great but energy is responsible for most progress. Energy is hard. Humans are screwed.

      Comment by reslez — June 24, 2010 @ 4:50 am

    • Your speculation’s not unusually wild, reslez. 🙂

      I was going to point out that nukes can be sustained only upon the fossil fuel platform, but you mentioned it yourself. (And so far even that hasn’t been sufficient; it’s also required astronomical corporate welfare in the form of loan guarantees, publicly funded insurance, etc. Private money has never been willing to invest a cent in nukes.)

      The same is true of large-scale solar generation. A dirty little secret is that solar electrical generation looks like it could never deliver on its promises even under favorable economic circumstances. It’s just not very productive compared to coal. (I’m speaking of course of feeding the monstrous level of consumption we have today. For sure, society would never undertake a “Manhattan” or “Apollo” project for the sake of bridging to a much lower-consumption steady state economy, the way greens keep dreaming. At best, they might make the investment if they thought it could keep feeding the monster.)

      Solar heating, on the other hand, for climate and cooking, has great off-grid potential.

      Even though I think it’s a moot point, just for the sake of discussion I’ll say that I don’t agree on the rare genius idea where it comes to science. It seems that the discoveries are made when experimentation renders it possible to make them. This capacity for the work seems to engender the cadre intellectually capable of undertaking it. (Which probably means the potential is always latent, and merely faces better or worse environments for its flourishing. The old nature vs. nurture.)

      (If the creative ideas outrun the experimental capacity, that’s just the difference between philosophy and physics. Almost every great finding of physics was prefigured by the philosophers, often thousands of years earlier.

      It’s another version of Clarke’s dictum that magic is just technology you fail to understand.)

      As for Einstein and Newton, each was just the leading light among a constellation of illustrious contemporaries. So as far as their most important accomplishments, I think if they hadn’t done it someone else would have, at roughly the same time.

      Indeed, Newton’s invention of calculus was nearly simultaneous with Leibniz’s independent invention of it. And since it was Leibniz’s notation which came to be universally accepted, we can say he “won”. 🙂

      Comment by Russ — June 24, 2010 @ 7:09 am

      • Solar heating is only a partial answer in many latitudes. In Mykonos it’s great, in Minnesota not so much. (There the best you get for water heating is 50-75%. Space heating requires a significantly larger installation, and of course you most need heat during the winter when there’s… less sunlight.)

        As for “great scientists”, I actually agree with you 100%. I normally pose the argument in that way because it’s easier for most people to understand. There tends to be a background level of radiation/knowledge when discoveries are made, but the timespan for a significant leap is more on the order of centuries than “hey let’s do this by the end of the decade Manhattan project style!”. One doesn’t simply pull fission out of a hat, which a lot of people prefer not to recognize.

        Comment by reslez — June 24, 2010 @ 6:03 pm

      • I was thinking mostly of passive solar and non-electrical solar cookers and other low-tech, low-consumption applications.

        On account of both energy descent itself and the economic assault we face well before the descent plays out, I’m always thinking in terms of far less consumption as such, and accepting a lifestyle more spartan by today’s consumer standards.

        So I certainly don’t claim that a place Minnesota can be rendered absolutely “warm” by solar heating, just livable in conjunction with radical technologies like layered sweaters. 🙂

        Comment by Russ — June 25, 2010 @ 3:19 am

  4. […] — Russ @ 6:07 am   In tracing the nightmare of the neoliberal development (parts one, two, and three, as well as many other posts), I’ve wondered, How do they plan to wrao this […]

    Pingback by Part 4: The Full Fury of the New Feudal War, The Intended End State « Volatility — July 5, 2010 @ 6:07 am

  5. Hi this is amazing site! 🙂 it is very well put together and the information that you have shown here is also top notch and a powerful read for me. Please keep creating such super material to learn finance. Thanks alot..This the best article I have never seen before….I like this post.

    Comment by learn-finance — July 24, 2010 @ 12:32 pm

  6. […] “great recession” is their term for the GDP hiccup as the Bailout took over from the “normal”, “Great Moderation” version of neoliberal kleptocracy; kleptocracy …. So at least when it comes from Obama hacks we can range that term alongside “jobless […]

    Pingback by How A “Great Recession” Is Lied to an End (Zandi and Blinder) « Volatility — July 29, 2010 @ 4:44 pm

  7. […] I’ve written about that several times before. Here’s a few summary examples:   The New Feudal War – Part 1: Kleptocracy.   Part 2: The Bailout   Part 3: ”Austerity”   Part 4: The Intended End State   […]

    Pingback by The Prize of the Venture « Volatility — September 1, 2010 @ 5:15 am

  8. I think it’s pretty clear: this civ. is suicidal and it will suffer an enormous die-off as resource shortages and wars kick in more and more. Modernism, industrialism, and the rest of it is an aberration. Men are supposed to be like the sages and saints of old, and not like the quasi-humans of science-ficton fantasy that undergirds the notions of eternal “progress.” The kingdom of Heaven is within, as the good books says.

    Comment by Jim — February 21, 2011 @ 8:30 pm

    • Amen to that, and I think we do need to look deep into ourselves to recover the primeval sagacity and capacity for saintliness.

      I think today’s saints of the streets are to be found in Tunisia, Egypt, Bahrain, Libya, and anywhere people are finally fighting.

      Comment by Russ — February 22, 2011 @ 5:19 am

  9. […] on my Neoliberalism page in the above right-hand corner, especially the four-part series starting here.   When you put all that together, it’s clear that reformism within this system is […]

    Pingback by The Impossibility and Undesirability of Reformism « Volatility — April 18, 2011 @ 8:27 am

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