The Limits of Government

 

Elections are the opportunity to transfer the powers of government to a new set of leaders. As fascinating as this process may be, I'm more interested in the shadow cast by elections, the limits of government's powers. Elections focus our attention on the powers of government to change society, the economy, foreign policy and the cultural zeitgeist. The limits of government receive little attention, for obvious reasons: elections are the sizzle, and state power is the steak.

Much of what passes for government's power to transform society and the economy boils down to the power to print or borrow money on a truly immense scale. Yes, there are all kinds of legal powers: Congress can pass new statutes, the President can issue Executive Orders and the judiciary can change society with a new interpretation of the Constitution. But beyond changing the laws, the real power of government is to collect taxes, print money and borrow money.

Since paying taxes is painful, leaders prefer to print or borrow money, as the pain - the interest that must be paid in perpetuity - falls on future taxpayers, while the benefits of spending the new cash are felt immediately.

Printing and borrowing lots of money is the solution to all problems, until the Printing and borrowing become the problem. At that point, the government's power to solve problems by printing and borrowing lots of money vanishes, as the problems are now caused by printing and borrowing lots of money.

This is a limit of government's power that has been dodged for decades, but is now rumbling over the horizon. When the "solution" to every problem - throw money at it - becomes the problem, then what's the solution? Should the government stop printing and borrowing money in nearly limitless quantities, the pain felt by those no longer receiving the tax breaks, subsidies, entitlements, state contracts, paychecks, etc., quickly ramp up to somewhere between excruciating and unbearable.

Put another way, the government's power to maintain the purchasing power of its currency is not infinite. Printing and borrowing lots of money erodes the purchasing power of all that money if the real-world economy isn't generating equivalent increases in goods and services. We call this inflation, and history offers a variety of examples of this destruction of the purchasing power of money bringing down the state and nation.

If the government's ability to print and borrow vast sums to distribute is severely limited, what happens to its power? Its power is also severely limited, because changing regulations is not the same as passing around money. And without enough funding, all those legal requirements cannot be uniformly enforced.
So when the government orders everyone to wear their underwear on the outside of their clothing, where's the money to enforce this new statute going to come from?

Another limit emerges when the government's solution to every problem is to expand its reach and control. This innate drive to expand its powers is embedded in the very nature of the government, regardless of its form or ideology. But the "solution" - expand the powers of the government - become the problem. And if the "solution" is to expand the powers of the government, then what happens when the solution is the devolution / reduction of state power? The idea of reducing the reach and power of the state doesn't compute to the leadership and functionaries, whose mindset is locked on increasing the powers of the government to solve every problem.

The centralization of state power and the expansion of state power is now the problem that government cannot possibly solve. Nobody in the governance structure ever thinks that shrinking government's reach, control, budget and power could possibly be the solution to the nation's most pressing challenges. Yet that reality is also rumbling over the horizon.

The limits of governmental power to solve the problems created by expanding governmental power are rising globally. Governments don't relinquish power voluntarily. If history is any guide, their power erodes as the forces they cannot control consume their power in an inverse power law: the more government tries to increase its power, the faster the entire system unravels. Some insist that central planning / expansion of state power funded by debt works splendidly. Let's see how things play out globally over the next four years.

from the blog of Charles Hugh Smith on November 6, 2024