The Next Boom Industry

Ever since seeing his comment here, I've been listening to a lot of Stefan Molyneux recently, including podcast "292: Freedom Through Debt".

It has me tinkering with a new meme: The federal government is balanced on the edge of collapse because of debt and a dollar rout. When it falls, what will go with it? How many State governments? Any foreign governments holding US debt? Will it be a relatively peaceful collapse as in South Africa and the former Soviet Union?

Which leads me to the title of this post. If the US federal government collapses, what consensual institutions will fill the vacuum? Is the fed's monopoly so tightly held that these institutions cannot begin to form today? Or are there some, like private schools, which can begin to operate in the current environment and be ready for growth once their government subsidized competitors fail?

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Edge of collapse? What's

Edge of collapse? What's your evidence for this?

Value of the dollar

As seen on the charts here (the gold price chart would be more dramatic if it included prices for the last 15 months).

But I'm not offering proof here or making a definite prediction of my own. I'm just exploring an idea that I hear more often recently: "the US federal government is in an exponentially growing cycle of debt; the political will does not now and may not ever exist to break this cycle."

This post is a thought experiment in our ability to construct non-coercive institutions. If they had to function within one year, or five years, or ten years, would we be ready?

No.

This post is a thought experiment in our ability to construct
non-coercive institutions. If they had to function within one year, or
five years, or ten years, would we be ready?

No. The collapse of a government rarely leads to such things. Chaos typically follows, or a worse regime than before. Warlords can pop up over night but institutions take time to evolve.

Alternative to Chaos

The collapse of a government rarely leads to [non-coercive institutions]. Chaos typically follows [...]

I believe that chaos follows to the extent that there are no better alternatives. Few people want chaos for the sake of it, since it is generally difficult to benefit in chaos. A local warlord could arise if there is no local security force to oppose him. But if each neighborhood has either for-profit or voluntary security guards to protect property, it would be difficult for a warlord to operate in that neighborhood.

I was in South Africa during the collapse of Apartheid. Private security firms and neighborhood watch organizations filled the gaps for an overwhelmed police force. There wasn't any recognition of "special police powers" when it came to arrest protocols--a landowner or security guard were held to the same legal standards as a civil-servant for making an arrest during an interrupted crime (I don't recall there being an option for anyone besides civil servants to serve warrants, however).

There was more chaos in the townships, where institutions had either never developed or had been actively undermined.

institutions take time to evolve

Exactly. I'm making a mental list of how many institutions already exist which can replace the federal government. I don't think that we have to invent so many new institutions as be ready to adapt what we have to non-coercive business models.

Protection against criminals - The majority of criminal law is handled by State governments, not the feds.

Pensions - If social security disappears in part or in full, there are near infinite investments and charities to support people in their retirement.

Health Care - If federal legislation on employers becomes unenforceable, insurance companies will have to start serving their customers. There will be some evolution to existing insurance companies, and competitors with new models will arise, but I doubt doctors will stop their practices overnight because they hear on CNN that Medicare is not paying its bills. They will look for other revenue streams.

Currency - I have trouble imagining that financial companies will simply give up if the currency is so effectively debased that their customers are reluctant to accept dollars. I expect that they will compete with each other to offer accounts denominated in foreign currencies or other inflation-proof instruments.

Transportation - The road, rail, and air network is worth incredible value to businesses and individuals. So much of this industry is already semi-private, that I don't imagine it being unable to deal with the loss of subsidies and controls from the government. And I am committing an error of collectivism calling it "an industry"--we are talking about a market of competing companies, some of which will be so dependent on old business models that they go bankrupt and some of which will survive and prosper with new models. "The transportation industry" already exhibits that inherent resiliency of anarcho-capitalism--there is no systempunkt.

FDA, USDA - As soon as these two regulatory bodies close their doors, we would be left with the reputation of the drug company (or even their specific product) or food supplier as an indication of quality. How long would it take before independent labs start offering certifications? Is there any way for them to get a slice of a similar market today and move into drug or food certification when the federal monopoly ends?

Et Cetera...

Mark, That answer is better

Mark,

That answer is better than your original question! Why don't you post that as a separate post and i'll frontpage it.

Meh

I don't see anything too alarming in those charts. If you look at the logarithmic plots (which are more informative than the linear ones), you'll see that the inflation rate has been about as bad as or worse than it is now for 70 years. And certainly things are much better than they were in the '70s, inflation-wise.

And of course rising nominal labor costs are only a problem insofar as they're a proxy for inflation--rising real labor costs generally indicate a rise in standards of living. The price of gold is a noisy indicator--to some extent it's driven by inflation and expectations of future inflation, but it's also driven by the mood of speculators, which is not always indicative of anything meaningful.

What's on the chart is less troubling than what's lurking just beyond the right edge of the chart, but it's not yet clear how worried we should be about that.

Dueling Libertarian Futures

I don't see anything too alarming in those charts.

I have trouble resolving these two charts from the same site. The historic "Consumer Price Index" (or any other measure of inflation you prefer) shows an exponential growth starting, as you point out, 70 years ago. This supports the libertarian meme, "the federal government is going to destroy the economy!" Chaos or the Apocalypse follows and libertarians get to say, "I told you so!" Everyone sees the error of statist ways and commits to a golden future of enlightened self interest without coercion.

The "Real GDP per capita" chart supports the meme, "freedom leads to a more and more prosperous future." It shows exponential growth since the numbers begin at 1790 (though there may be a slight increase in the exponent around 1840). The largest deviations from the trend are during the Great Depression, when about 20 years of growth per person was wiped out, and WWII, when growth seemed to overcompensate until around 1948.

The only real conclusions I can come to are the easy ones:

  1. Dollar inflation is tightly correlated with the existence of a Central Bank.
  2. Long term improvements in the human condition pre-date Keynesian economics.
  3. A government SNAFU the size of the Great Depression can interrupt growth temporarily, but can't stop it.

Can you help me resolve these two trends any better, Brandon?

What's on the chart is less troubling than what's lurking just beyond the right edge of the chart, but it's not yet clear how worried we should be about that.

I think that the fact that economic problems are occurring during an election year are signs that the Federal Reserve is running out of options. I've always assumed that the Fed had incentives to provide as rosy a future as possible during the election cycle while incumbents were campaigning.

Mark, I don't think there's

Mark,
I don't think there's any way the federal govt is collapsing anytime soon. If anything, there might be secessions defended by nukes, but that's probably far off into the future.
If the financial system collapses, I think the infrastructure is probably there for private banking to take over. Moreover, it'll be anonymous, digital, and untraceable - a net win for everyone.

I agree

If anything the latest economic mess they are causing is going to make them grow. They're talking about using the Norway model of governmental takeovers of banks. This is a standard model pointed out by libertarians. Government interferes in the market causing problem leading to additional calls for government to intercede.

Anonymous banking

I agree with Jonathan regarding the possibility of collapse. I also think his last statement is very appropriate for a website titled "The Distributed Republic". If I recall correctly Stephenson's The Diamond Age, that's basically what happened, although the causality was different: Traditional governments lost the power of taxation as anonymous, untraceable financial networks proliferated. It doesn't strike me as impossible.

Anatomy of Collapse

Jonathan, Brian, and Curunir,

I guess part of my interest in the meme is trying to figure out the anatomy of the collapse. I agree with you that I don't see it being total and simultaneous.

But if the currency collapses, will the ability of the federal government to use deficit funding collapse with it?

If the government can't use deficit funding, is there any chance of them buying favor from State and foreign governments to the extent they have?

Will people lose faith in the ability of the federal government to eventually collect taxes to pay off the deficit, and if so, will it cause a rout of all taxpayers?

What will happen to other organizations in the world if the market loses faith in the sovereign debt of the US federal government?

And finally, I agree that private banking will be a win for everyone except the proponents of the federal government. But those proponents must think it doesn't benefit them or they wouldn't try to undermine it. Are they correct? How much do they stand to lose if they lose control of the currency? And how much armed coercion of US citizens are they willing to risk to keep it? How much will their legitimacy be damaged if there is a face off? Win or lose, I can't see their reputation as debt collectors being improved if there is a confrontation.

You guys should really check

You guys should really check out the podcasts and board at www.freedomainradio.com, Stefan has laid out his case for the collapse of the US economy being very soon, and he makes a fantastic case. Remember, the soviet empire appeared, from the outside, to collapse rapidly, but in reality it had already been hollowed out from the inside. This is whats happening in the US at the moment.

One of my favorite points

of Stefan's is that if we try anarchy and it fails miserably, we'll basically be left with the government we have now.