Structured Criticality: The Bigger Picture

Many are concerned that the US is well on it's way to take the road traveled by Germany in the 1930s, and Russia before it into totalitarianism.  Certainly actions taken in the last 10 years give evidence to that trajectory (NDAA, PATRIOT Act, Enemy Expatriation Act, etc).  These issues are grave certainly, and left unchecked could lead to a very bad scenario.  However I think many individuals analyzing these events and planning for potential countermeasures of these acts are missing pieces to the larger picture.  The US and many other modern nations are acceleratingly racing towards structured criticality.  The US government has become too large in it's current form to survive as a top-down hierarchical power where control remains in Washington DC.  The US federal government is approaching structural failure (but the US is not alone). 

(From Wikipedia):

Consider a pile of sand. If you drop one grain of sand on top of this pile every second, the pile will continue to grow in the shape of a cone. The general shape, size, and growth of this cone is fairly easy to model as a function of the rate at which new sand grains are added, the size and shape of the grains, and the number of grains in the pile.
The pile retains its shape because occasionally a new grain of sand will trigger an avalanche which causes some number of grains to slide down the side of the cone into new positions.
These avalanches are chaotic. It is nearly impossible to predict if the next grain of sand will cause an avalanche, where that avalanche will occur on the pile, how many grains of sand will be involved in the event, and so on.
However, the aggregate behavior of avalanches can be modeled statistically with some accuracy. For example, you can reasonably predict the frequency of avalanche events of different sizes.
The avalanches are caused when the impact of a new grain of sand is sufficient to dislodge some group of sand grains. If that group is dislodged then its motion may be sufficient to cause a cascade failure in some neighboring groups, while other groups that are nearby may be strong enough to absorb the energy of the event without being disturbed.
Each group of sand grains can be thought of as a sub-system with its own state, and each sub-system can be made up of other sub-systems, and so on. In this way you can imagine the sand pile as a complex system made up of sub-systems ultimately made up of individual grains of sand (yet another sub-system). Each of these sub-systems are more or less likely to suffer a cascade failure. Those that are likely to fail and reorganize can be said to be in a critical state.
Put another way, the likelihood that any particular sub-system will fail (or experience a particular event) can be called its criticality.

We arrive that the US and other connected powers are approaching this point through qualitative, historical and empirical data. The US has suffered unprecedented regulatory capture by the financial industry and others that historically has always led to a collapse (devaluation or hyperinflation) of the monetary system - This Time is Different - Reinhart and Rogoff.  Willful and systemic accounting control fraud has also become epidemic with essentially zero resistance by any branch of government (Bill Black -The Best Way to Rob a Bank is to Own One)  Also, as governments grow and engineer their environment, they become increasingly fragile and vulnerable to convexity effects (fat tails), all the while their erroneous actions become larger in amplitude.  Put differently, they self destruct (such as the ancient Egyptian empire).  Some of these ideas and more are discussed in Nassim Taleb's "The Black Swan of Cairo" (essential reading).  The US government gas grown to the scale in which it cannot effect control on it's environment; the sand pile is starting to slide.  The net effect is that the next stable state of the environment will be more local control of government (states and municipalities) in combination with more control and influence through self organizing systems (the Internet, real price systems and social media).  Self organizing systems are effectively scale-free. 

 What does structured criticality of western countries (and some eastern countries) have to do with the totalitarian direction of movement by governments?   Put simply, these forces will interact.  The trend towards totalitarianism may very likely increase the velocity towards structured criticality and cascade failure.  Similarly, the governments approaching criticality will become less effective totalitarian systems.  However, during the change state things become more fluid, increasing the danger of evil getting temporary control, and also offering powers of good to shape the end-state.  The goal should be to survive the cascade failure and use it to enact positive change.  The message of hope is that totalitarianism is not a stable state, and will be naturally repelled.  If resistance becomes necessary, those forces of resistance will have the wind and other forces of nature at their back.  Totalitarianism, if implemented as policy, will be ephemeral.

There is downside however.  Some governments could fail in a very dangerous way, e.g. starting a nuclear war thereby killing thousands or millions of innocents.  All efforts should be made to prevent this, however most of the people who understand are in no position to sway government policy.  There is an excellent paper discussing a more minor failure (not all failures are to the magnitude which we are facing) here: The Inherent Limits of Organizational Structure and the Unfulfilled Role of Hierarchy: Lessons from a Near-War. 

There are several potential policy choices remaining.  Just as cannon or charges are placed on a mountain to attempt steering or prematurely and more safely trigger avalanches, it is theoretically possible to trigger the cascade failure prematurely to steer away from a possibly catastrophic policy decision, or trigger the cascade now before it becomes bigger.  The blowback and unintended consequences could be tremendously bad however.  The media and pubic always blame the catalyst for the collapse, not the structural fragility of the system.  A second and potentially more important action is to encourage state and local communities to prepare for a cascade event.  By local communities planning and implementing redundancies, contingencies, monetary substitutes and preparing for a sudden failure at the federal level it will increase the robustness of that community.

Wargaming a hostile takeover of a Western Government: Part 1

And some things that should not have been forgotten were lost. History became legend. Legend became myth. And for two and a half thousand years, the ring passed out of all knowledge. Until, when chance came, the ring ensnared another bearer. The ring came to the creature Gollum, who took it deep into the tunnels under the Misty Mountains, and there it consumed him. The ring gave to Gollum unnatural long life. For five hundred years it poisoned his mind; and in the gloom of Gollum's cave, it waited. Darkness crept back into the forests of the world. Rumor grew of a shadow in the East, whispers of a nameless fear, and the Ring of Power perceived. Its time had now come. -Galadriel J.R.R Tolkien, The Lord of the Rings

I want to conduct a thought experiment: how could the US fall into dictatorship and / or totalitarian rule with the current sociopolitical background for the country?  What (friendly) forces are likely to slow, resist, or attenuate that movement.  Let's paint some scenarios.

Background: Extreme economic stress, perceived social injustice, inflation, war (Iraq, Afghanistan, etc.)
Watch the following video starting at 5:00:


Disclaimer: All of the information and ideas of "evil people" that follow are completely fictional and are not intended to apply to anyone currently serving in government office.  Any similarities are purely coincidental and unintended.

Assume a purely evil individual with aspirations for absolute power is elected into some position of government, to speed things up in this scenario, we'll assume they have been elected Speaker, Senate leader, Fed Chairman, President or PM.  How could they completely obliterate the remaining constitutional defenses of the people, and make themselves dictatorial ruler?  In the case of this evil individual being elected office, or appointed to a position other than President, they would have an additional step to marginalize, imprison, impeach and /or move out of the way the sitting executive.  That would be a difficult task, but not without historical precedent in world history. 

This scenario overlooks another important possibility.  What if a perfectly average politician is thrust into a scenario where the overall environment is severe social and economic stress, and in which the checks to his or her use of power are dismantled and removed, as is currently in process?  That individual imagines they can "engineer" a solution.  The only task remains to get rid of any obstacles to implementation of that "solution".  They rationalize and believe the ends justify the means.  Is the dictator evil, or does the absolute power make the dictator evil, or some combination?  Most importantly, does the dictator choose the nation, or does the nation choose a dictator? Both?

How would this individual get such popular support?  I highly recommend watching the whole movie that was linked above, "Die Welle".  Here is the trailer:

 In my next post I will discuss the resistance to such government takeovers, and strategies for a totalitarian ruler to attenuate those forces. 

Lessons Learned: The financial collapse of a modern nation

The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. - Ludwig Von Mises (Interest, Credit Expansion, and the Trade Cycle)

no more runway

I've been doing some deeper thinking on what may be in store for us in the West once the prevailing economic forces of gravity cannot be delayed, or further pushed any longer.  This led me to look back historically at other similar situations, beyond those I've analyzed to death (Weimar Germany, Ancient Rome, Argentina, and the US in the 1970s).  This led me to think on a conversation I had with a friend of mine from Poland about the Soviet collapse.  So I did some research and found an excellent paper on the topic which had elements eerily similar to present time.  

Lessons from the Russian Meltdown - The Economics of Soft Legal Constraints: by Enrico Perotti

Several themes of note that should be on the radar are cash stripping, and rational collective non-compliance of law.  I remember talking to my Polish friend about the hyperinflation in the 90s during which he described the asset stripping of everything of value from anything that wasn't nailed down (copper from houses, lead, aluminum, anything that could be turned into cash).  This cash stripping happened at the institutional level as well, executives stripped assets and cash from companies, dumped it in shell corporations, which vanished overnight.

This was able to happen because of the sheer volume of illegal activity that was going on:

Fiscal authorities are forced to tolerate arrears, thus validating non-payment. Similarly, regulatory and legal reform cannot be enforced and diffuse criminality cannot be policed. (Perotti 11)

• Stabilization measures enacted which effectively delayed the problem served to increase the severity of the resulting crisis once it couldn't be delayed any further
• The structure of incentives, crony capitalism, and regulatory capture were pervasive and fundamental to the buildup and crash
• State and regulatory capture increased until the collapse
• Many financial institutions were effectively insolvent before the crisis and increased their leverage until the final collapse to gain short term revenue while the management cash stripped the institutions
• Cash-stripping took precedence over productive activity and was pervasive at the institutional down to individual levels
• Individuals taking party to the cash stripping increasingly shipped cash offshore up-to and after the collapse
• Many bankers and white collar thieves were allowed to escape with no legal consequence
• Businesses increasingly switched en masse to barter between firms (demonetization) - as a protection to cash stripping and delayed payment in a high inflationary environment
• The rule of law and tax compliance decreased geometrically as the crisis approached (especially at the institutional level.  The low level of enforcement caused more firms to ignore the law, which made it ever decreasingly the likely that the company would be held criminally or otherwise legally liable to enforcement. 
• Bailouts increase the future expectation of more bailouts - moral hazard

A really good discussion of collective non-compliance to rule of law follows below:

The main conclusion of this simple model with a 'compliance externality' is that the
degree of compliance depends on the beliefs held by the population about other
agents' behaviour as well as on the credibility of enforcement authorities. If
individuals hold pessimistic beliefs about either, they will all choose to ignore rules
and financial obligations, however low is their individual cost of compliance. The
result is a lack of contractual reliability and the inability of the authorities to enforce
any legal and fiscal obligation.
If government credibility or the legal punishment are high, or the compliance cost is
low, other things being equal compliance will be higher. But note that a
deterioration in any of the parameters has a further effect, as it reduces compliance
indirectly through a reduced probability of punishment.

State capture, of course, reduces the credibility of authorities, as they are expected to
bend rules themselves to accommodate special interests. This may reinforce cynical
expectations of the behaviour of other agents. Coupled with high average
adjustment costs, this creates an expectation of a critical mass of non-compliance,
which will overwhelm the enforcement ability of policy-makers and justify noncompliance. (Perotti 11)

His formal model of rational collective non-compliance is also very interesting reading.  I would be of interest if this qualitatively spilled over into other criminal activity (murder, theft, ets) as well.

Other countries of interest to me that are on my research list include the former Yugoslavia, which surpassed Wiemar Germany's inflation rate by a significant factor.

Storm Clouds Gathering

There's a site I found today that I'm pretty impressed with, this video in particular:

Every human being should be shaken to the core by what happened in Germany during the 1930s.  However it must also be mulled over as to why Hitler was able to rise to power.  All that have read When Money Dies, Dying of Money, or What I saw will know that during times of crisis, of which we are just beginning to experience, extreme individuals are able to garner support and more importantly attain absolute power.  I am concerned with the debasement of money, and the possible hyper-inflationary situation the Fed has put us in, but what concerns me more are the consequences.  The USA, Europe, China, the UK and every other region under abnormal stress is vulnerable to such monstrosities.  We're already seeing the knee-jerk reactions setting the stage already in the US.  The McCain bill to allow detention without trial of any individual in the world (including mainstreet, USA) by the US military, setting the stage for special units to pick up an American dissenter from his front porch in Kansas has passed the Senate!  I don't think I've ever agreed with Sen. Feinstein, but on this I agree, as she is wholeheartedly against it.  So is, by all indications at the moment, Pres. Obama.  We should all urge our support against this bill.  Please send a message to Obama to veto this dangerous legislation. 

Secondly, the SOPA act, (read more here) and the Protect IP act also set the stage for unprecedented Internet filtering and censorship.  It's very much like the great wall of China (the new digital one, which "protects" it's citizens from libelous, defamatory, or immoral content).   After truly understanding all of the above, and understanding how the level of stress in the US and elsewhere is likely to increase, we should all be very vigilant.  Our rights are hanging by a thread, or are under a sword of Damocles, choose your own analogy.  There is precious little time left to defend these rights before they are permanently are removed from us, except by unconventional means...  We tread on very dangerous ground.  Please act now, while we have peaceful means to act.

It is of primary importance for everyone to educate as many people as possible to the truth, to understand the real problems, not the mainstream bullshit narrative, to help them rely on principles, the constitution, and support liberty for every human soul (no exceptions).  That is what truly matters and is of primary importance now.  By the time the excrement really hits the rotating device and all we have are rule followers, a mass of obedient fools, we are likely to end up in disastrous armed conflict, and a new civil war.  That is a truly horrible and grueling scenario.  We must make every possible attempt to prevent that eventuality from ever occurring, our children and friends may depend on it.

Wost case scenario, financial collapse, government revolution; could a hitler/stalin rise in the America?

Many are discussing as a "worst case scenario" an emergence of a dictatorial power that could grow in the US.  It's entirely possible, however I think its important and enlightening to look back at history to understand how these dictators develop grow and become established.  In our current time, it's most important to ponder the results, ex-ante, for a post U.S. and global sovereign financial stress and/or collapse.  This financial stress and consequential unmeasured aftermath has left the tube already and is in-flight: we are awaiting the imminent effect.  What the effects will be, and the intensity are still fungible. Will it be a center-of-mass hit, or to an extremity?

We have very good historical examples in Rome, France, Russia, Germany, and in a micro scale underway now in Afghanistan of the dynamics of emergent governments and how government power develops.  In each of these cases a physically and socially violent blow-off top occurred.  It's most interesting to focus on Russia, Germany and France, in which a dictatorial type rule emerged fairly quickly.  At each time, when the existing government toppled, a existing force was standing ready to take over the roles of the previous government, and garnered support from the military.  This shadow government, in each of those cases, began establishing core support before the collapse (Lenin in exile, Robespierre in the assembly, and Hitler in the beer gardens). 

When we look back at the historical reference, and extrapolate for our own situation, many are compelled to make comparisons of those in power now, to these ruthless men of the past.  That comparison is shortsighted and poorly though out.  If the stress to the current system approaches the level necessary to cause a collapse, or tumult, everyone currently responsible in government will be blamed, and by default become ineligible to the public for the next act.  It is far more likely that the next  actor will come from a shadow government as the historical trend suggests.

So, if a collapse occurs, must it be violent, and inherently evil?  I say no.  However, this demands that a force-for-good shadow government begin to be developed and nurtured in order to sterilize any evil shadow organizations that seek to take power.  I think a Shadow government can be staged and set up peacefully and fully in accordance with the law (as it is today), in the form of an organized and prepared  Libertarian, constitutional party, then be vigilant for a possible vacuum to occur.  If the status quo begins to falter, the party must seek maximum publicity, public support and momentum in order to stop the fall.  I think this is actually imperative for free minded Americans to do, because as we saw in Russia, opportunists are waiting. 

During the Russian revolution, an emergent government developed in the form of pseudo direct democracy called "Soviets".  Every factory, and apartment block had their own committee (soviet), from which decisions were made for the constituents.  However tzarist Russians had no knowledge, history or experience with constitutions or optimizing and implementing just rule of law; it was all new to them.  To compound matters, many were illiterate. Then came Lenin from Switzerland, he had a plan, was charismatic, and was willing to achieve it at any end.  Then he got support from the military, which was crucial.  Once he had gotten the support of the Navy, and elements of the military, things happened quickly.  He forced the Bolsheviks (a relative minority) into positions of power, then brutally put down any resistance. 

The military in the United States is unique, a built-in fail-safe from the founders.  Enlisted and Officers are not divided by deep class gaps.  Secondly the military in the US is binded to the constitutional oath, not the leader, or status quo.   Americans have a much different cultural and historical background, and much of the military is in support of the constitution.  The founding fathers were amazingly clever and in building it, imbedded multiple safeties to the structure of the country.  It would be extremely difficult to co-opt the military into a blatantly fascist, or bolshevik revolution.  I just don't forsee any support by the military for such a leader.  In fact, it's quite the opposite, since 70% of military donations go to Ron Paul, more than all Republican and Democratic candidates combined.  So there is much reason for optimism, but we must be vigilant.   

SRT, SWAT, Scary...

You may have read about the recent Department of Education's new tactic for collecting past due payments.  If you haven't, read this: http://www.news10.net/news/article/141108/2/Questions-surround-feds-raid-of-Stockton-home.  Apparently, The Department of Education has a SWAT team and they are busting down doors to apprehend individuals who haven't paid their loans.  This is scary stuff.  I've long been concerned by the trend of militarizing of police departments across the US.  I know quite a few cops, and having served in the military myself, I know the difference.

Police departments in general are trending more towards a militarized mindset.  This is concerning because it demonstrates a difference in tactics from balanced, and evenhandedly reactive, to a more aggressive and offensive mindset.  One only needs to look around at the changes in uniforms from the old style striped slacks to a tactical BDU style uniform baggy pants with cargo pockets.  The military and police have completely different missions and do not mix well.  Even if we had the closest to perfect, mindful and careful SWAT officers, the outcomes will be bloodier and with more innocent casualties.  The recent paranoia of terrorism and every other threat or shadow of a threat that crosses the border continues to make the problem worse, and increase the body count.

Just last week a former marine was killed in his home in Pima County, AZ by firing 71 rounds at his chest, hitting him 22 times. Militarized police units encourage the mindset of shoot first, eliminate anything that resembles a threat, law enforcement, that has no precedent in the United States, and the trend is on the rise.  The sheriffs are even calling other SRT, or SWAT members "Operators" as David Rittgers writes in Politico, and Cato here:

I had reservations about the term "operator" during the years I served in special operations. Most of the time, the label was interchangeable with "soldier." But sometimes it became a tool for diminishing the need for planning — and relying on brawn and talent instead. "Don't worry; we're operators," was the overall attitude. "We can handle it."

 There is a place for this boutique kind of unit, but the frequency of deployment and tools being acquired by some units is disturbing (50 APCs with a 50 caliber Ma-Duce on top, and a department in Louisiana  buying full auto Thompsons to use in the field - Anyone who has fired them can attest to them being uncontrollable when on full auto). Other than the Dept of Education having a SWAT team, did you know of some other strange cases of agencies: National Park Service (Yellowstone SRT), US Mint SRT, Amtrak, The Federal Reserve Bank, etc. 

David Rittgers goes on to say:

But securing evidence in suburban America is the antithesis of operator status. It's a basic law enforcement function, not an international manhunt or the targeted killing of a terrorist leader.

To that I say, Roger That.

Debt of Nations

Internationally, the American inflation was the transmitter and the rest of the world the receiver.  The United States was the actor, and the rest of the world the audience.  Other nations were forced to participate only because the action spilled out of the stage and into the orchestra.  The United States was the author and the cast, and it held the power of control of the worldwide problem for better or worse.
Inflation's courier to the rest of the world from the United States was money.  Just as inflation is a disease of money, the bearer of contagion outward from it's source is an outflow of money.  The constant outflow of dollars from the United States implicated the rest of the world in the American inflation, as an outflow of Reichsmarks had implicated the rest of the world in the German inflation.   (Dying of Money, By Jens O. Parsson)

In all reality, Europe, the United States, Japan, China, and effectively the entire world is interconnected.  Inflationary pressure is being pumped by the Federal Reserve and is spewing out at the weak points.  It's just a matter of velocity (in literal and figurative terms).  China and other economies are experiencing terribly high levels of inflation.  Once begun, it is very hard to stop.  Even in the USA, monetary velocity is picking up despite an economy that appears to be in the beginning stages of a slowdown. 

The point is, It doesn't matter the trigger point.  The world is connected, and Bernanke knows it, Greenspan knows it.  Greece cannot be allowed to fail, neither Japan, Portugal, Italy, Ireland, Spain, etc.  If one does, it will bring everyone down with them.  I expect QE3 will happen, and it may take the form of bond purchases between all the above parties.  It is the logical thing to do, and it might be sneaky enough to keep people from noticing for a while, unless Ben's figured out a sneakier way...