A gentle introduction to Unqualified Reservations (part 4)

The trouble with Chapter 3’s examples is that, while they may convince you that some seriously foul residue has built up in the democratic feedback cycle of State, School, and People, they don’t really help us understand just what that gunk is, how it can be pumped back out of the pipes, or how much better the kitchen will smell without it.

The cases of AGW, KFM and HNU, assuming we’ve analyzed them correctly (if one or even two are wrong, it is not hard to come up with others), do not constitute anything like a real picture of the actual, real reality behind the official reality show. Counting the Loyalists, we have four little paint chips from the real picture. We know something is weird, because each of the chips is orange—and there is no orange on the official picture. But four chips are not a picture.

For example: the four positions, Loyalism and AGW, KFM and HNU denialism, all seem to appear—not in any precise sense, just as a matter of obvious perception, on one side of the political spectrum. That would be the right side.

Is this a coincidence? No, I don’t think it’s a coincidence. Does it offer an easy formula for correcting your television picture? By tuning it permanently, perhaps, to Fox News? By my count, Fox News and I agree on exactly one of the four.

Erik von Kuehnelt-Leddihn once put the formula as briefly as possible: “Right is right, and Left is wrong.” Which is perfectly accurate, if you define Right as right, and add the obvious caveat that Left puts its pants on one leg at a time. The first clause is thus a tautology, and we reduce to: “Left is sometimes wrong.” Anyone who doesn’t already agree is well past the reach of reason.

And if we define Right as the political position of some antileftist political movement or other—Fox News, the National Socialist German Workers’ Party, the Rotary Club, you name it—K-L’s formula can only be wrong. Because not all these groups agree with each other. We could say that, between factions of the Right, the rightmost is always the rightest, but (apart from the fact that the rightmost also tends to be the craziest) this brings us back to our original problem of defining “right.” Again—we are getting nowhere.

What we’re starting to notice is that it’s much more difficult to think outside the box than in it. When we were in the box, we had these authorities we trusted—the Times, Harvard, National Public Radio. If someone asked us about X, our answer was: what does Harvard say about X?

Of all easy formulas for obtaining the truth, this official formula is by far the most accurate. Which is perhaps the most compelling of the many safeguards that hold so many in the Matrix. Switch off the pumps, open the hatch, stick your head out—and inhale an infinite vista of raw, unfiltered garbage. This is the reality of the political Right in the democratic era. To the starved for truth, the Right offers a well-stirred cocktail of truth, secondhand leftism, and pure ordure.

Can I offer you an anti-Dreyfusard with that week-old turd? Do you prefer democracy, or more democracy? Would you like those stale coffee grounds with Dr. King on top? Which is tastier: anti-Semitism, or a used condom?

As a political faction, Right just means “not left.” There are many Rights and only one Left. The modern Left evolved from one 18th-century Anglo-American tradition (English Radicalism), which over the last two centuries captured almost every intellectual and political institution in the world. Any post-1945 perspective outside this movement (Updike’s, for instance) is not the product of any significant intellectual quality-control process, because the modern Right has no significant intellectual institutions (by the standards of the modern Left).

Worse, as a political movement, the democratic Right exists only to the extent that it can recruit voters. Its doctrine is not a red pill, because it was never designed to be a red pill. It was designed to persuade as many bipeds as possible to pull the right lever. Ideas prosper in the modern Right if, and only if, they increase this number rather than decreasing it. Thus the blend of reality, leftism and nonsense—each of which has its own way of attracting voters.

Our reconstructions all seem right-wing because “right” just means “heresy.” Where the truth is orthodox, there is no need to reconstruct. But we cannot reverse the process: just as not all orthodoxies are false, not all heresies are true.

Our basic problem in reconstructing reality is that there is only one way to tell the difference between a healthy neuron and a parasitic filament: know what the neuron should look like. Clearly, the State is sick; by definition, it is sick because it is not healthy; but what, exactly, is a healthy State?

For example: WTF is wrong with Washington? Why, for example, is it so grimly and joyously intent on crushing productive industries and rewarding inept ones? Such are the psychic mysteries that have baffled many a thinktank. Yet the royalist surgeon steps into the room, glances quickly into America’s open skull, and scribbles a diagnosis as obvious as it is concise: republicanism. (“As bad a case as I’ve ever seen. Very little hope, I’m afraid.”)

Is royalism the answer? It would surely be an improvement. But we must blame royalism for the faults of democracy, because the former decayed into the latter. It would be a bit of a waste to go to all the trouble of restoring the Stuarts, then see the same thing happen again.

In any case, we are not on original ground here. I’m asking more or less the same question that Carlyle posed in his Latter-Day Pamphlets (especially #3 and #4, Downing Street and New Downing Street), and I get more or less the same answer. This is UR for you—a late, decadent, second-rate imitation of Carlyle:

And secondly it is felt that “reform” in that Downing-Street department of affairs is precisely the reform which were worth all others; that those administrative establishments in Downing Street are really the Government of this huge ungoverned Empire; that to clean out the dead pedantries, unveracities, indolent somnolent impotences, and accumulated dung-mountains there, is the beginning of all practical good whatsoever. Yes, get down once again to the actual pavement of that; ascertain what the thing is, and was before dung accumulated in it; and what it should and may, and must, for the life’s sake of this Empire, henceforth become: here clearly lies the heart of the whole matter.

For “Downing Street,” of course, read “Beltway.” Which is longer, loopier, and has more lanes. Everything else is the same—including the bit about the live coal. (And I fear not a few of the Beltway’s dung-mountains were inherited intact, perhaps via Lend-Lease, from Downing Street.)

Here’s how we’ll explore Carlyle’s question: we’ll take Matthew Yglesias’ challenge, and solve the financial crisis.1 UR’s cure for the monetary blues, hereafter to be known as Plan Moldbug, is (a) instantaneously effective, (b) thoroughly fair, (c) certain to be wildly popular, and (d) results in a stable, free-market monetary system.

Don’t get your hopes up, though: Plan Moldbug will never happen. We’ll explain why, and show how this is just one example of the difference between a sick State and a healthy one.

Let’s start with a science-fiction scenario. Long ago, the Andromeda Cloud was ruled with an iron fist by the Fourth Empire, a basically Nazi-like operation based on a secret, now-lost, and thoroughly evil hyperdrive technology powered by burning kittens. For currency, the Fourth Empire used the sol, a swastika-stamped disk of moolium—an artificial element produced only in the kittendrive’s exhaust stream.

Deafened by their own fascist death disco, the Fourth Empire’s spaceführers fell long ago, and with them went the evil secret of the kittendrive. But moolium is nearly indestructible. Thus, Fourth Empire sols are scattered throughout the Cloud and form an ideal galactic currency, whose supply is fixed for ever and cannot be forged or counterfeited.

On the planet of Urf, which has recovered nicely from the collapse of interstellar trade and communication, archaeologists have recovered 2,047,822,917,502 Fourth Empire sols. We’ll make it a nice round number, and call it two trillion. Urf’s surface has been surveyed with moolium-detecting blimps, ensuring that no further sols will be discovered.

But one day, after 30,000 years of isolation, the automated, sail-driven trading ship Monx-138, sent from the distant planet of Gubble, reaches Urf. Gubble’s technology is vastly more advanced than Urf’s; its nanoassemblers can produce almost any product that Urfers desire.

This implies that Urfers cannot produce anything of value to Gubbleans—which is indeed the case. But Gubble too uses the Fourth Empire monetary system. Monx-138 has no use for Urf’s products. It only wants Urf’s sols. But this works, too.

The first thing about Urf that Monx-138 notices is a strange fact. There are only two trillion sols on Urf. However, the net market capitalization of all financial assets on Urf is about 100 trillion sols. How should Monx-138 interpret this fact?

“Financial asset” is a broad category. Let’s look at one category of Urf assets—corporate bonds. On a planet with 2T sols, Urf has 10T in corporate bonds, at the current market price. Obviously, bonds currently selling for 10T are expected to pay out over 10T if held to maturity—call it 15T.

This suggests a possibility for Monx-138. If Urf markets are right, we can exchange our Gubble products for all of Urf’s corporate bonds, wait around until they mature (solar sailing is slow, anyway), then leave Urf with all 15T sols. But wait: Urf markets cannot possibly be right, because there are only 2T sols on Urf. So how can the bonds be worth 10T, or pay out 15T? Perhaps Monx-138 should forget about its nanoreplicator—and just short Urf bonds.

Believe it or not, Earth has roughly the same financial structure as Urf—with dollars, of course, not sols. Despite recent frenzied printing, there are fewer than 2T dollars in the world, but the personal net worth of all Americans (alone) is roughly 50T dollars.

One may ask: does this make sense? It is surprisingly hard to show that it doesn’t. For example, since Monx-138 is not actually hoovering up all payments on all corporate bonds and sailing them back to Gubble, it is possible that these dollars go around in a circle. The bondholders spend them on corporate goods and services, etc., etc.

But, to make a long story short, no: it doesn’t make sense. If dollars were sols and could not be printed, this structure would collapse instantly. Even though dollars can be printed, it remains so unstable that it is collapsing anyway. Here is my analysis of what this crazy thing is and why it is falling apart. (Basically, the source of the instability is a loophole in bank accounting, which lets banks pretend to teleport money from the future into the present. This loophole has not been closed because it is (a) very lucrative and (b) very old.)

These details are irrelevant, though, to the points I want to observe here.

One: the net value of all financial assets must be in some way related to the amount of money available to buy them. It looks a little weird that Urf has 100T in financial assets but only 2T in cash. It would look even weirder if Urf had only 2B, 2M, or 2,000 sols.

Two: whatever the force that amplifies 2T in cash to 100T in assets is, it is not a force of nature. The factor of 25 amplification cannot be an immutable, eternal constant, such as π or e. We would be no more or less surprised if the latter number was 30, 60, or 120T.

Thus we can see deductively—without even understanding the Rube Goldberg machine that created it—that this system must be unstable. Whatever the amplifying force is, it is not constant; so it can vary. And indeed, that’s exactly what we see: long periods of expansion in financial asset prices (without any corresponding production of actual dollars), punctuated by sharp declines in asset prices (without any corresponding destruction of actual dollars).

What happens when financial asset prices fall? What we’re seeing now. But let’s explain it.

The principal factor in a person’s spending decisions is how much money she has to spend. Rich people splurge. Poor people scrimp. For each dollar you add to your wallet, your propensity to hold on to that dollar decreases, and your propensity to spend it increases.

By money, in this calculation, do we mean actual dollars? No, we mean financial assets. In general (with some exceptions, for hard-to-liquidate assets), your propensity to spend is not a function of the composition of your portfolio. It is only a function of the magnitude. If your net worth is ten million dollars, you are rich, whether your brokerage statement says you hold gold, dollars, or Intel shares; and you will spend like it.

Thus, we would expect an overall decline in financial-asset prices to result in a decline in spending, i.e., consumption. 20th-century economic planners generally manage economies in terms of national production aggregates, such as GDP. Since global consumption must equal global production, a fall in consumption implies a fall in production. And this is how a banking crisis becomes a “recession.”

What we call a “recession” is a gap between what consumers, with their 2009 brokerage statements, want to consume, and what producers, who did not expect the asset price collapse, planned to produce. These numbers must be equal. The obvious way for them to converge is for the productive economy to reduce capacity—close factories, lay off employees, etc. As Andrew Mellon put it: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”

And there is a real case to be made that liquidation is the right solution. It is the traditional solution of Austrian economists, for example, who had the right analysis of the banking problem to begin with. And it is the right-wing solution, although as we’ve seen this indicator is fallible.

Moreover, there is a logic to liquidation. When the Rube Goldberg machine of asset-price expansion was operating in its pleasant, forward gear, a substantial percentage of consumer spending can be directly attributed to its efforts. For example, direct mortgage-equity withdrawal alone tended to be about 3% of GDP—and this is only the visible fraction of the effect. Obviously, a healthy society is not dependent on the practice of printing money to purchase goods that would not otherwise be produced. Thus, even if we just turn the machine off, production must fall.

Nonetheless, I think liquidation is an error. Here’s why.

Imagine that, instead of holding securities, everyone held cash. We can then replicate the chain of events from portfolio decline to consumer-spending recession, by replacing a decline in asset prices with a simple destruction of money. Suppose, for example, that every dollar whose serial number is divisible by 2 was badly manufactured. One day, all these dollars disintegrate into green lint.

Thus, everyone’s net dollar worth falls by 50%; spending craters; so does production; and we get, in short, exactly what we’re seeing now, with our 50% decline in financial-asset prices.

Now, how should a healthy government—a New Downing Street—react to this event? Option one: it can do nothing, allow consumption to fall, and let production stabilize at its new equilibrium. This is the liquidationist solution.

If dollars were Fourth Empire sols (or gold), liquidation would be the only possible solution. However, they are not. In the famous words of Ben Bernanke, USG has “a technology, called a printing press” which can produce them at zero cost.

More traditionally, USG can raise an arbitrary number of dollars by borrowing them, i.e., exchanging them for risk-free government bonds (which are risk-free because of said printing press). This is a difference of degree: a bond of zero maturity is simply a dollar note, and a bond of nonzero maturity is equivalent to a dollar with a “not valid until” date. Thus borrowing, for a monetary authority, just means printing money that is not ripe yet. (The purpose of printing unripe money is to reduce its positive effect on present consumption and hence present prices; since our problem is the opposite, not “inflation” but “deflation,” there is no reason not to just print ripe money.)

If this confuses you, don’t worry. Just remember that the US cannot possibly run out of its own Monopoly money. Although fiat currency is what got us into this mess in the first place, it also gives us more than one angle for getting out of it.

Option two: the US can stimulate consumption by printing new dollars and lending them to banks, who will then in turn lend to consumers, who will spend. This is the monetarist (Fisher/Friedman) solution. It is not available to us at present, because economic actors are so deeply indebted that they cannot borrow even at zero interest rates.

Option three: the Keynesian “stimulus.” The US can stimulate consumption by printing new money and spending it. For reasons that are essentially cosmetic, this is generally done by hiring people to do useless jobs—Keynes himself, for example, once suggested burying stacks of bills in abandoned mineshafts, then filling up the mines, to produce an equivalent of gold mining for fiat currency. Most of your “green jobs,” inasmuch as they produce nothing of any practical use to anyone, are of just this sort.

The process can be short-circuited, however, with an even simpler approach. USG could simply print money to buy unwanted goods and services. (It already does this in agriculture.) For example, if demand for Hummers falls, there is nothing at all which prevents Congress from appropriating (printing) a billion dollars or two to buy Hummers. These can then be sunk in the ocean as an artificial reef, creating fish. (I have no joke—I just like saying “creating fish.”)

Perhaps this reductio ad absurdum brings home the fundamentally Soviet logic of Keynesianism. In the future, we will all do worthless work for worthless money. Change.

So: option one results in considerable personal suffering and destruction of industrial capacity. Option two does not work. This leaves us with option three, which has no historical record of working (at least, it neither cured the Great Depression nor ended Japan’s “lost decade”), and is obviously absurd. Nonetheless, logic must admit the possibility that it could work—for some values of the word “work.” So it seems like our best bet.

However, there is a fourth option. My example was specially crafted to make it obvious. Hopefully, you are already jumping up and down in your seat with your hand raised.

Option four is to simply replace the defective dollars. If you held dollars with serial numbers divisible by 2, you now have a wallet full of green lint. Send us the green lint. We’ll weigh it, figure out exactly how many dollars you used to have, and print new ones to replace them.

Note how much simpler and more elegant this approach is. We are actually fixing the actual problem: the destruction of money. We are curing the disease, not the symptoms. We are giving the feverish patient antibiotics, not immersing him in a bath of icewater.

Moreover, option 4 is also the fair solution. Whose fault is the crisis? USG’s. What did USG do wrong? It printed defective dollars. How can it make its wrong right? Replace the defective products. Not only does this restore the equilibrium of production and consumption, it also restores the contents of its citizens’ wallets.

Of course, the financial crisis was not actually caused by defective dollars. No: it was caused by a defective banking system. This system, while nominally “private,” was constructed and operated under the laws of USG, which claimed and exercised the right to regulate it down to the last crossed T—even if this regulation was in many cases inadequate or even counterproductive. Moreover, the Rube Goldberg machine that managed to amplify two trillion actual dollars into a $100 trillion securities market could not have operated without an incestuous connection between bank and state, in the form of both formal deposit insurance and informal “too big to fail” moral hazard. Again: the fault is clear.

Thus, Plan Moldbug: the real-life equivalent of mailing in your green lint. Replacing a defective financial system is harder than replacing a defective printing press. But still quite doable, as we’ll see.

Step zero: Call up Larry and Sergey, and get them to lend USG a few hundred of Google’s best coders. We’ll need them to write our new financial system. (We don’t have time to do it the Beltway way.)

Step one: Nationalize all market-priced financial assets at the present market price, exchanging them for new dollars. USG buys all publicly-traded American securities, and foreign securities held by Americans. It thus becomes the sole owner and operator of all public companies, and in doing so it also acquires all the banks (for the price of their common stock, which is not much these days). By acquiring all the banks, it acquires all their dodgy mortgages and other “bad” securities. Obviously, after this process, all debts USG owes to itself are cancelled.

Hedge funds, private equity, and other exotic assets held by individuals may require some appraisal. But these are held by rich people, who are patriotic and don’t mind taking a bit of a haircut. Also requiring appraisal are homes; if you are a homeowner, USG calculates your home equity (perhaps using an automated appraisal, such as Zillow’s), and buys it from you. You are now a renter; USG is your landlord. Your new rent is calculated as a percentage of your home appraisal.

The result of step one is that USG owns all financial assets, major corporations, and real estate. In return, each USG citizen has one number: how many dollars they have. Perhaps the most straightforward way to implement this is to give every American a direct account at the Federal Reserve (a privilege now held only by banks). Thus, all your portfolios are automatically sold at the current market price, and your statement is mailed from the Eccles Building. The little number at the bottom, however, is the number you care about. This number has not changed. If your portfolio was worth $250,000, you now have $250,000.

Step two: Triple each of these dollars. If your portfolio was worth $250,000, you now have $750,000. (I told you the plan would be popular.)

It is not practical to actually unwind all the financial transactions of 2008. Our goal is simply to (a) preserve some vestige of fairness, and (b) return the equilibrium of production and consumption to roughly where it was in 2007. In particular, we are tripling dollars, but not tripling debt. (Otherwise, this step would be meaningless.)

We triple the dollars rather than doubling them, because doubling them would roughly restore everyone’s net worth, and the old balance of production and consumption existed not in a world of stable asset prices but a world of rising asset prices. (Thus, for instance, the systemic mortgage equity withdrawal.) In the new financial system, prices will be stable and magic money will not be created out of nowhere. So, to roughly match the spending level, while preferring an overshoot (“inflation”) to an undershoot (“deflation”), we triple.

This may also annoy poor people, who have no assets to triple. Instead, poor people have debts. Thanks to our cleanup, these debts are now held by USG itself (which acquired them from the old financial institutions). There is no reason for USG, which can print dollars, to be squeezing them out of the hides of the poor. Forgive them all. Call it a Jubilee.

Step three: Calculate the expected shortfall in future entitlements (Medicare and Social Security), and print new dollars to fill the gap. (About 50 trillion of them, to be exact.) For extra credit, print unripe dollars (bonds) and issue them directly to the actual entitlement recipients, as per the actuarial value of their policies. Otherwise, just hold the dollars until they are needed.

Why all this printing? Basically, the problem is that (as, presumably, on Urf) our money supply has become inextricably confused with our financial-asset market. We could have $100T financial assets and $2T dollars only because a significant percentage of the value of all these assets was a consequence of Professor Bernanke’s printing press. The same can be said even for entitlement payments—USG will never default on your Social Security, because it can always print money and mail it to you.

We are going to break this printing press. But before we break it, we have to use it—or we may well end up with $2T dollars, and $2T in financial assets. If you haven’t been skimming, you know what effect that would have on GDP. Basically, we are finding all the fuzzy, virtual, implicit, green-lint dollars in the world, and replacing them with actual dollars.

Step four: Auction all the financial assets previously nationalized—corporations, real estate, etc. There is certainly plenty of cash around to buy them with. Destroy the dollars received in the auction.

Why are we selling the assets we just bought? We bought them to close out a broken financial system, in which the relationship between asset prices and dollars was unstable and unhealthy. We are selling them to establish their free-market price in a stable, healthy financial system. We do not know what the right relationship between the number of dollars in the world and the net price of its financial assets should be. So we ask the market, and the market tells us.

If you were a homeowner before step one, you sold your house to the government and now rent. We don’t want to evict anyone unnecessarily, so we’ll offer you the opportunity to buy back your house for 10% less than the winning bidder—presumably some faceless conglomerate. If you reject this opportunity, your rent to the conglomerate is a function of the price it paid.

Step five: Renumber the currency. Every dollar in the world (perhaps about 200T) has a new serial number—from 0 to 200T. This limit will never change. Write it into the Constitution. As long as we can hold the line on this number, our new financial system is built on a fiat currency that will be harder than gold (since new gold can be mined).

Or, for extra credit, redenominate the currency (including debts and contracts, this time) so that rather than a random decimal number of dollars, there is a round binary number—such as \( 2^{64} \). This has two advantages: (1) micropayments, and (2) a round binary limit will rapidly get baked into all sorts of financial software, and become almost impossible to change.2

And that’s Plan Moldbug. If this isn’t a full reboot of the financial system, what is? If the financial system doesn’t need a full reboot, what does? Now, let’s review the advantages, as previously claimed, of this plan.

Is it instantaneously effective? Only inasmuch as the Googlers can implement all five steps instantaneously, perhaps; but only steps one and two are needed to reverse deflation, and these are easy. Is it effective? Yes, because tripling everyone’s net worth should restore consumer spending quite handily. Is it fair? Perhaps not perfectly, but at least your new net worth is a function of your old net worth, and the government picks no winners or losers. Is it popular? Does a bear…

And does it restore a stable, free-market financial system? USG sells all the assets it nationalized, and its new dollar is the hardest currency in human history. We are increasing total dollar net worth over its pre-crash level, to make up for the termination of credit expansion, so the new dollar may have a slightly lower purchasing power. But the new dollar is watertight and does not leak, so there will be no persistent inflation.

And none of this matters at all, because Plan Moldbug will never, ever happen. At least, not as long as we have anything like the government we have now.

The problem with Plan Moldbug is that it can only be executed by a strong government. The election of Barack Obama has considerably strengthened USG, by removing the fraudulent Outer Party and returning Washington to its natural “apolitical” condition as a one-party state. Nonetheless, not all one-party states are created equal, and ours is weak and getting weaker. You may think this is a good thing. Please allow me to disabuse you of this notion.

What do we want in a government, anyway? What makes government good or bad?

First, there are two models of preference in government. You can prefer government X to government Y because either (a) X provides better government to its subjects, or (b) you, personally, have more power in the administration of X. Better, as Milton put it, to reign in Hell. We can call (a) the Popean model, (b) the Luciferian model.

Whether or not to worship the Devil is always a matter of taste. For me it is Taste 101, however, and I will go with Pope:

For Forms of Government let fools contest;Whate’er is best administer’d is best.

Of all Luciferian motivations, democracy is the lowest. It is one thing to rule in Hell. It is quite another to have one hundred-millionth of a say in the selection of an official whose role in Hell is primarily ceremonial.

Most fans of democracy do not, I think, support it for Luciferian reasons. They support it for Popean reasons. They think that deposing Lucifer and holding elections in Hell stands at least some chance of turning Hell into Heaven. While this is definitely not an opinion that anyone was ever reasoned into, it beats pathetic grasping at homeopathic fractions of power. Note, however, that many believe others support democracy for Luciferian reasons.

So we focus on the question: what is quality of government, and what design for government is most likely to provide it? And when we say “quality,” we mean quality from the perspective of the government’s subjects, not its rulers, ministers, employees, etc. From the Popean perspective, government is a product, and we are its consumers—whether we like it or not.

This unsurprising, but strangely uncommon, perspective also allows us to distinguish between quality and price. The price of a government is simply the level of taxation it imposes. Of course, as consumers we are prepared to balance quality and price, but our key goal at the moment is an engineering problem: how do we even create a high-quality government? Once we know how to build it, we can focus on getting the price down.

It so happens that, until I read Carlyle, I thought of myself as a libertarian. For me, a better government was a smaller government—case closed. Carlyle is often thought of as a prototype of fascism, a direction easy to see in even an early bit of late Carlyle such as the Pamphlets, and of course the absolute nemesis of any libertarian is the fascist. So how was I won over?

For me, quality of government comes in two dimensions: responsibility and authority. Both qualities are monotonically positive. There is no Goldilocks about them. A government cannot be too responsible or too authoritative—any more than food can be too tasty, bass too funky, or sex too hot. A serviceable Saxon synonym for the latter is strong, and responsibility is no more than common sense. So all we’re saying is that strong, sensible states govern the best.

Let’s take them in order. First, we will make the state sensible; then we will make it strong.

The common incidence of irresponsible kings, for purely biological reasons, is one of the main reasons cited for the demise of the European monarchical system, which of course created the great Continental nation-states now plainly going to the dogs. I think this problem may be slightly overstated (the main reason I would cite starts with “E” and ends with “land”), but it is nonetheless a problem.

An easy way to see this is to see the royal family as a family business, that business being the State. A sovereign state has no law above it to govern its affairs, and exists solely as a function of its own ability to defend itself. In all other respects it is exactly the same as any other corporate enterprise. For example, states and private corporations can, should, and usually do use the same accounting conventions, HR procedures, management structures, etc., etc. If sovereignty were not boolean, the difference between a real-estate developer and a state would be a difference of degree.

Unfortunately, the monarchies of Europe were already in decline when the most important organizational invention of the last millennium, the joint-stock corporation, was born. (And, of course, it was born in England, which had already done in its own rightful king and was soon to do away with everyone else’s.) Therefore, no royalist intellectuals that I am aware of ever proposed converting the old family businesses into what might be called joint-stock republics.

The joint-stock republic is a very different entity from your ordinary, democratic republic. Its shares are negotiable and freely traded. Owning a share is not a “right,” except in the sense that if you own a share of Intel you have a right to receive Intel dividends. And, most importantly, the republic is operated for the exclusive benefit of its shareholders. All corporate governance mechanisms are otherwise the same, although without a superior sovereign to enforce them they must enforce themselves. How? Briefly: combine secret sharing with permissive action links. (Those Google engineers will be busy.)

If the republic is operated for the exclusive benefit of its shareholders, who of course are likely to resemble the corporate shareholders of the present day (pension funds, fat cats, Saudi sheikhs, etc.), how on earth does it provide high-quality government? Shouldn’t it be operated for the benefit of its customers?

This is the miracle of capitalism, so familiar and yet still so strange. The capitalist restaurant is operated for the benefit of its owners. The Communist restaurant is operated for the benefit of its customers. But which has better food?

We must agree that a restaurant operated effectively for the benefit of the customers will be a better restaurant than any operated for the benefit of the owners. But it is not possible to design a management structure that will reliably achieve this result. The problem is fundamental: we cannot state a precise and unambiguous definition of “good food” that we know all customers will agree on. We cannot characterize the results objectively or quantitatively.

We can, however, operate a restaurant effectively for the benefit of the owners, because we can describe what the owners want objectively and quantitatively: money. The more, the better. Thus the restaurant can be accountable to its owners, as it never can to its customers. And it is this accountability, this quality of tautness, which causes it to serve its customers well. A string can be loose in many ways, but tight in only one.

In a joint-stock republic, the mapping from profitable ownership to high-quality government is straightforward. The return on each share is a function of the value of the capital. The capital is the country, i.e., its real estate. The value of real estate is its price. How does a government maximize the price of its real estate? By making the country as pleasant a place to live as possible, i.e., by providing high-quality government.

CEOs of private corporations today may be effective or ineffective. There is no escaping the bell curve. On the right end, you have Steve Jobs;3 on the left, Gil Amelio.4 However, one quality shared by almost all corporate CEOs is sanity. One generally does not hear of them going crazy and murdering the entire board of directors with a fire-exit axe, or the like. I realize that this is a low standard—but consider the record of heads of state in the democratic era.

Thus, responsibility. Let’s look at the more interesting question of authority—or strength.

Authority is the state’s ability to act decisively, cohesively, proactively and intelligently. From our experience in the private sector (not to mention the military sector), the formula for authority is clear: unity of command. A single extremely capable individual can manage an organization of any size, and our society has no shortage of such individuals. From this apex descends the familiar hierarchical pyramid. As an old Prussian Army saying went: who wishes to command, must first learn to obey.

Note your reaction to this. You are well aware that any large corporation which adopted any management structure besides a simple hierarchy would be halfway already to bankruptcy court, and that simple hierarchical command is the difference between an army and a mob. In both these cases, there is a single individual at the apex of command, which is completely normal.

However, in the terminology of government, this system would be described as an absolute dictatorship, or (once) an Oriental despotism, and you consider it the most dangerous possible design—one certain to practice sadistic, Kafkaesque mass murder. The salient examples, of course, are Stalin and Hitler.

There are quite a few mistakes in this perception, but one of the main ones is to take examples from outside one’s own tradition of government. In the post-WWII era, everyone’s tradition of government is the Anglo-American tradition, and when we think of absolute personal rule we should be thinking of Elizabeth I. (If you’re going to argue that Elizabeth and Hitler were truly comparable, I’d like you to start by showing me the Nazi Shakespeare.)

Hitler and Stalin are abortions of the democratic era—cases of what Jacob Talmon called totalitarian democracy. This is easily seen in their unprecedented efforts to control public opinion, through both propaganda and violence. Elizabeth’s legitimacy was a function of her identity—it could be removed only by killing her. Her regime was certainly not the stablest government in history, and nor was it entirely free from propaganda, but she had no need to terrorize her subjects into supporting her. Not so the dictators of the democratic era, each of whom could have been removed by a combination of their subordinates, and depended absolutely on personal mass popularity to avert this fate. And killing or incarcerating opponents is a pretty obvious way to maintain one’s popularity.

(And, of course, none of the three had anything like an accountability mechanism. It is not purely a coincidence that Elizabeth was sane whereas Hitler and Stalin were demented, but the process that produced the former at least did not select in favor of insanity.)

My favorite analogy for official authority is the stellar cycle. If the authority of government is the temperature of the star, and the size of government is the size of the star, Washington is easily identifiable as a red giant, like Betelgeuse—enormous and cool.

For former libertarians, such as myself, this inverse relationship is critical. The paradox is that weakening government makes it larger. At least, to a libertarian, this seems like a paradox. Once it seems quite natural, you may no longer be a libertarian.

Perhaps the most significant fallacious principle in the Anglo-American democratic mind is the principle of division of authority—immortalized by Montesquieu as the separation of powers. Montesquieu, of course, was an Anglophile, and he was head-over-heels in love with the supposed balance of powers created by the “Glorious” Revolution of 1688. To refute this principle, it should be sufficient to note that in the Britain of 2009, only one—at most—of Montesquieu’s three powers still has any power at all.5

The division of authority is simply the destruction of order. The Romans knew it as the political solecism of imperium in imperio, and Harvard Business School dreads it no less. There is no conceivable balance between competing authorities; they will fight until one kills the others, and even when they collaborate it is in the fashion of partners in crime.

Of course, divided authority tends to be quite popular among those who divide the authority. Power is fun, and power shared three ways creates more total fun than power held by one. Note also the entropic quality of division: it is much easier to divide than to reunify. The stellar cycle is entropic, of course, as well.

Democracy is a classic case of division of authority. It purports to dole out microscopic slivers of power equally to all subjects of the government. In fact this power is simply transferred to those who form, instruct, and organize large bodies of voters, whose average thoughts are unsophisticated by definition. Carlyle and others of his ilk called these men wire-pullers, and did not regard their growing importance as a good omen for the British polity. Surely the disaster of Great Britain in the democratic era evinces of some prescience in this regard.

We must not be too harsh on the advocates of divided authority, however. The principle is easily recognizable as what it is: a bad, but not completely ineffective, attempt to produce accountability. Lacking anything like the shareholder structure of the joint-stock republic—which is categorically distinct from democracy, most notably because the interests of all shareholders are identical, whereas the interests of democratic voters differ and conflict—division of authority seems like a decent compromise. That it weakens the State is obvious, but the more people you have in a room the more likely they are to agree on something sane.

The great error of libertarians, as well as many liberals, progressives, etc., is to suppose that the weaker the State is, the freer its subjects are. The opposite is very nearly true. A weak government is a large government—and the smaller the State, the freer its subjects are. Every time you weaken your government, you give it another excuse to become larger.

Essentially, big government is big because it is constantly competing with itself. Restore unified authority, clean the Augean stables, and the great dungheaps which exist only for the sake of themselves are washed out with the Orontes.6 Ideally, the dungheaps exist only for themselves, but in order to justify their existence they often put quite a bit of energy into molesting the poor customer.

We can see this easily by looking at a level of weakness the US has not quite achieved: personal corruption. In a country where government officials take bribes, the principle of divided authority has reached the individual level. The bribetaker is personally sovereign, in a sense. His actions are not in the interest of the State as a whole, but the State as a whole did not just pull you over for driving 50 in a 55 zone. He did, and he wants a 500-peso note along with your driver’s license.

In the US, not individuals but agencies of the State compete for power and importance. Each seeks to expand its own impact, budget, and personnel. If USG, tomorrow, were to find itself operated as a single authority, it would set quite a number of live coals under quite a number of superfluous agencies.

There are many reasons that Plan Moldbug cannot happen, but this is perhaps the most salient. Our financial system cannot be rebooted, because there is no one in Washington with anywhere near the authority required to make any such decision. Even in FDR’s day it would have been a stretch, and the Beltway hasn’t spent the last 75 years turning into Betelgeuse for nothing.

This is especially the case because the logic behind the plan is not pseudoscience, but common sense. Common sense smacks of personal authority, and all bureaucracies have an intense jealousy of personal authority. One major goal of a bureaucracy is to distribute as much importance (i.e., power, or at least apparent power) as possible to its employees, which argues for maximizing the number of individuals involved in every decision. Impact means power means status, and it’s not for the money that bright young people flock to Dupont Circle.

In this environment, anything that smacks of proactive management or personal decisionmaking becomes almost offensive. To the extent that decisions must be taken at all, they should be taken on the basis of (a) science; (b) if not science, law; (c) if not law, at least some regular process. As we’ve seen, science has expanded wonderfully to fill this vacuum (congratulations to the climate modelers, by the way; our “stimulus” gives them another $140 million), and law and process are not far behind.

The ultimate power in the US system, the summum imperium, which of course belongs to the Supreme Court, reflects this paralysis perfectly. There is no question but that sovereignty resides in the nine bodies of the Court. If they order Barack Obama to deliver his next press conference standing on his head, he has to do it.

But not even the united Supreme Court, voting 9–0, can execute Plan Moldbug, because in exchange for the power of ultimate appeal, their authority is quintessentially reactive. The matter would have to reach them in a lawsuit, and the policy of rebooting the financial system would have to emerge in some way from that suit. The Court can decide whatever it wants, but it only gets to make a small number of decisions on a certain class of problems, and those problems have to come to it. Once again, authority has been driven out of the system.

Betelgeuse, of course, will end in a supernova. The fate of the red-giant state is similar. First, a phenomenon Carlyle would no doubt see everywhere in modern America and Europe, since he saw it even in the England of 1850: anarchy. The breakdown of a single general order, the emergence of transient local centers of power—gangs, terrorists, “activists,” and the like.

With its invention of that wondrous dream, the Third World, America has inflicted the horrors of anarchy on almost every corner of the planet outside itself. Even Europe is not immune, and nor are certain corners of most American cities. But I live in one of the least well-governed American cities, and I hardly get a glimpse of it. This, slowly—very slowly, I hope—will change.

So the conclusion we’ve come to about democratic government as a whole is oddly similar to our conclusion about the financial system. The conclusion is that it’s fatally broken, and needs to be replaced by something completely different. Even in Carlyle’s day, repair did not seem like an option. How less it is today! And still the dungheaps grow, the bats flit in and out, the stacks of paper molder. And we notice, with a chill: the whole damned thing is a colossal firetrap.

And I have no solution at all to this problem. I am hardly the first to notice that Washington is broken beyond repair—at least according to this spurious poll, 71% of Americans agree with me. Perhaps this is the simple beginning of wisdom: yes, this thing is broken; no, it is not going to fix itself; no, we cannot fix it, either; and yes, it is getting slowly but surely worse.

Honestly, I am happy just to stop believing in my government. The idea that, just because you are right and the State is wrong, you should be able to do something about it, is a nematode rather than a neuron. It is unique to the democratic era. We are lucky simply that I’m allowed to post these posts, that you’re allowed to read them, that we can both go to Google Books and scroll through politically unacceptable tomes from the 19th century until our eyes glaze over.

If you by some chance agree with what I’ve written here, please avoid the impulse to act on it. Surrender completely to the impulse to think on it. Remember that the inexorable slope of the line is slow, slow, slow. There is no shortage of time for thinking, none at all.

1. I.e., the financial crisis of 2007–2008.
2. This proposal anticipates the controlled supply monetary policy used by Bitcoin, which was first released just around the time that A Gentle Introduction was published.
3. This was written before Jobs’ untimely death in 2011.
4. Amelio was Jobs’ largely ineffective predecessor at Apple.
5. I.e., the House of Commons—the Crown and the House of Lords having faded to mere symbolic significance. The “at most” caveat refers to the transfer of power (familiar to readers of the Crossman diaries or viewers of Yes Minister) from Commons to the Civil Service.

6. From the article on Orontes at Livius.org:

At the end of the first century CE, the Roman poet Juvenal described a xenophobe who feared “that the Orontes was emptying itself into the Tiber”, meaning that too many Asians had come to live in Rome. There was no need to explain where this river was—any Roman reader knew it, and it could be used as pars pro toto for Asia.

A Gentle Introduction to Unqualified Reservations

Support Mencius Moldbug by purchasing the Kindle eBook.

A Gentle Introduction to Unqualified Reservations