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Wednesday, April 17, 2024

Runaway Feedback Loops, Wealth Concentration and Gaming-The-System

Runaway Feedback Loops, Wealth Concentration and Gaming-The-System

Courtesy of Charles Hugh Smith, Of Two Minds

Canada, Newfoundland and Labrador, iceberg in ocean

Positive feedback loops soon reach the runaway/self-destruction stage. Concentrations of wealth and gaming-the-system are reaching just such levels.

Positive feedback loops lead to runaway scenarios. The classic example is global warming and the Arctic ice cap. As temperatures rise, the the ice melts, exposing more land or seawater. Ice reflects solar radiation, and so as it shrinks then more solar radiation is absorbed, raising temperatures more, which melts the ice faster, which then leads to more solar radiation being absorbed, and so on.

The runaway feedback loop leads to the disappearance of the Arctic ice and a much warmer planet.

Nature has multiple feedback loops, and so the solar radiation flux may be acting to reduce temperatures as the positive feedback of melting ice raises temperatures. But the point is that positive feedback is self-reinforcing and it speeds up processes as it gathers momentum.

We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.

As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.

The political process–once potentially a force resisting or moderating wealth–has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.

The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.

The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.

The other positive feedback loop approaching runaway levels is the Entitlement/Welfare State, both the Corporate Welfare and the bread-and-circuses welfare State. Both serve the Power Elites, of course, the first by diverting the national income to the Elites and the second by rendering the disenfranchised passively complicit in the status quo.

Correspondent Doug K. recently outlined how this co-option and complicity works:

The social safety net is not there to "catch you if you fall", it was put in place to prevent the Elites from getting trampled. The ostensible "excuse" for the "social safety net" is not valid. It doesn’t help those struggling, it uses them.

A fellow I know was a successful tradesman. With the downturn in construction he couldn’t make ends meet, so he asked for help (only available if you *can’t* work). To qualify he has to repeatedly *prove* he can’t work for "medical" reasons. No shortage of medical "professionals" anxious for a piece of the public pie! End result being to get $1500 a month of "assistance" he has to be constantly undergoing some "necessary" treatment or procedure. As soon as he’s "cured" of one "problem" another pops up. He was in better shape than I am before he got "help" and he’s now in worse shape than he was before.

The "social safety net" primarily benefits those who don’t need help by at least ten to one! Not just doctors and drug companies, there’s also a few lawyers "helping" with his "condition". I’ve pointed out how he’s being used, he says it’s OK because they’re paying him.

The importance of this system of buying complicity cannot be underestimated, as the Survival+ critique explains in greater detail.

The only way to divert ever-larger shares of the national income to Elite hands is by insuring that the majority of citizens are beholden to the Central State–the Power Elites’ mechanism for enforcing that collection of wealth.

The most direct way to gain that passive complicity is to buy it via welfare and entitlements. As I have documented here before, roughly half the populace draws some sort of government check or cash benefit, and half of households with earned income pay no Federal income tax.

Everyone drawing a government check or benefit is ultimately a supporter of the status quo, and their main gripe is about somebody else’s share of the spoils/ swag.

The sums of money being offered as welfare/entitlements are non-trivial.

Those who decry the "shredded safety net" apparently have no direct experience with what is available. (I also note they are almost uniformly drawing checks from some government agency or entity; few earn the median household income of around $50,000 a year and pay substantial taxes.)

I think one of our acquaintances might be gaming the welfare system. A year ago, he was constantly worried about running out of money and getting a job. He and his wife had sold a home at the top of the real estate bubble and had pocketed several hundred thousand dollars in gains as a result. They bought another home and lived off the rest of the proceeds for six years.

With two young children, even a nestegg of that size doesn’t last long if you have no income and aspire to a middle class lifestyle with healthcare insurance, homeownership, etc.

Magically, he no longer worries about money and stopped talking about getting a job. Instead, he only talks about his unpaid creative projects. Did he inherit a fortune? There is no mention of it, and polite inquiries about his magical ability to live a middle class life without either spouse working are rebuffed with cagey evasive non-answers.

Here’s how people with assets can game the welfare system: get a "convenience divorce" so the wife can throw herself and her two children on the mercy of the state. The father has no formal income and is thus off the hook in terms of child support. The state welfare system is a series of bureaucratic "silos," so agencies are either not empowered or don’t care to cross-reference real estate/asset ownership with entitlements issued solely on the basis of income.

No income, you qualify. Home ownership/assets are either not tracked or masked with omissions or lies.

In my area, the cash housing subsidy is over $1,400 a month. Medicaid and free healthcare for Mom and the kids is worth as much as $1,000 a month were you to buy it on the open market as individuals. Food stamps (SNAP) are worth at least $600 per month, and then there are all the other entitlements: free after-school child care, free school lunches and so on, plus the possibility of cash payments to moms with two kids and no income for a few years.

The private-economy value of these cash benefits is about $3,500 – $4,000 a month. Those of us who pay 15% self-employment taxes and 15% Federal and state income taxes must earn about $65,000 a year to take home the cash value of these entitlements.

So despite the popular image of the poor family scraping along in abject poverty, people drawing all the potential entitlement benefits for moms with two kids and no income and a no-income father are actually living much better than self-employed households earning $50,000 a year and paying taxes.

With a modest application of lies, fudging, misrepresentation and omission (gosh, that sounds like the mortgage/banking industry, doesn’t it?) then people with some assets or unreported income who prefer gaming the system to working can still have a comfortable lifestyle.

Yes, I know Medicaid doesn’t offer all the choices of private insurance, and not all housing qualifies for the Federal housing subsidy, but the point is that these entitlements for the no-formal-income Mom and kids are, when bundled together, non-trivial–especially when they’re gamed by people with assets/unreported income.

I am not suggesting everyone on welfare/entitlements is drawing all these benefits, or that life is easy for assetless families on welfare, or that welfare fraud and gaming is common; nor am I opening a debate on what entitlements the nation should offer or who should qualify. I think it is clear that in an era of "the end of work," the nation would be well-served by trying to feed its children and citizenry healthy food regardless of their financial circumstances.

What I am saying is the system appears to be wide-open to gaming and fraud by those who do not qualify for the programs, i.e. they have assets/income which can be hidden or excluded from view, and those who are willing to "qualify" for benefits regardless of the truth (rig up a bogus divorce, for example).

I am also suggesting that the culture of fraud, embezzlement, misrepresentation, omissions, obfuscation and criminal negligence which has permeated both the Financial Elites and the top rungs of the Central State’s inexcusably ineffectual oversight agencies has "trickled down," in a famous phrase, to the entire culture.

It is crystal-clear to all Americans that this culture of fraud, crony capitalism, looting the Central State’s coffers, backstopping of private losses with public funds, etc., is intrinsically lacking in accountability: there are seemingly no penalties exacted for high financial crimes or criminal negligence.

In the Entitlement State, there may be fierce-sounding penalties for fraud and misrepresentation, but in practice very few seem to run afoul of the system for gaming it. The consequences of being held accountable for financial fraud have essentially disappeared for anyone lower on the food chain than Bernie Madoff, who made the fatal mistake of defrauding rich, politically powerful people.

Playing by the rules is thus punished and gaming/scamming/lying/defrauding is rewarded. The incentives for behaviors and rules of conduct which are the bedrock of civil society have been perversely reversed: gaming-the-system is now incentivized at every level.

This gaming/scamming poisons the entire system, of course, as those who are working hard and paying taxes become embittered by the benefits/rewards showered on those who scam/game the system.

The same can be said of students who cheat and those who don’t, loan applicants who lie and those who don’t, and so on. Evenetualy, the entire culture is poisoned, and it enters a positive feedback loop of runaway cheating, lying and gaming and a parallel rise in resentment, distrust and anger.

Michael Lewis documents this runaway feedback loop of cultural self-destruction in a Vanity Fair article on Greece: Beware of Greeks Bearing Bonds.

From the point of view of the Power Elites, the anger of those still working to support a corrupt, venal status quo is best channeled against the scammers and hypocrites who suck off the Central State while complaining about their share of the swag.

That takes the heat off the Power Elites, who are busy diverting most of the national income to their own coffers. Compare the annual cost of food stamps, for instance, which is $60 billion, with the trillions diverted to bailing out the banking Elites, or the $1-$2 trillion spent on waging war in the Mideast, or the $1.6 trillion being borrowed every year to prop up the Central State’s fiefdoms and Elites.

But as I noted yesterday in Imagining A Middle Class Does Not Create One, the open hatred of the productive private-sector class for their State/Elite Overlords may be reaching positive-feedback status, and thus diverting or distracting this rancorous understanding of how things really work is becoming more difficult.

Yes, it is easy to slam the Tea Party attendent wheeling up in a cart paid for by the Central State/Medicare as a hypocrite; hypocrisy abounds when dependency, complicity and an innate desire for autonomy and liberty start colliding.

It is easy to resent the scammers, liars and cheats at all levels, and even easier to scapegoat one class of scammers, liars and cheats while conveniently ignoring whatever class of scammers, liars and cheats one feels is politically acceptable.

As Michael Lewis documents in his exacting coverage of the Greek debacle, it doesn’t work that way. Complicity is complicity, and the relative size of the individual’s scam, lie, game or payoff doesn’t matter: it’s the explosive rise in the positive-feedback corrosion of civic trust and common good that matters.

In that sense, the welfare scammers are equally as guilty as the investment banker who knowingly defrauded investors in a mortgage-backed security deal. Complicity is complicity. Making distinctions is just rationalizing one’s own entanglement in fraud, embezzlement, misrepresentation, lies and gaming the system for one’s own benefit. "Everyone’s doing it." No, they are not. Your soul, autonomy and independence either have a price or they do not.

These two runaway feedback loops–the self-reinforcing concentration of wealth/power and the erosion of trust, honesty and accountability in a culture of entitlement and gaming-the-system–are also reinforcing each other. The more that citizens see the Power Elites getting away with financial thievery, the greater their own temptation to sell their own soul for a piece of the swag.

That’s how you get stories like this: Gonzalo Lira On The Coming Middle-Class Anarchy (Zero Hedge)

Runaway feedback loops do not end well. As they gather momentum, then the unpredictability of the system also rises quickly. Those claiming that it will all pan out just fine cannot know that; their confidence/faith is itself a higher-order deception/delusion.

We have a living example of what happens when these runaway feedback loops finally smack into reality: Greece.  

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