Why Our Status Quo Failed and Is Beyond Reform
By Charles Hugh Smith
In this book, I will explain why the status quo—the current pyramid of wealth and power dominated by the few at the top—has failed and why the system is beyond reform.
Though we’re assured our status quo offers equal opportunity to all, the reality is our status quo exists to protect the privileges of the few at the expense of the many.
Why can't our status quo be reformed? There are two primary reasons: 1) those benefiting from the current arrangement will resist any reforms that threaten their share of the pie—and 2) reforms that actually address the structural flaws will bring the system down.
This is unwelcome news to privileged insiders, but it is good news for the planet and everyone else.
Why has the status quo failed? Let’s begin by examining the six great problems facing humanity.
Entrenched poverty 2. An economic model of expanding consumption in a world of finite resources 3. An economic model that relies on wages to distribute the output of an economy 4. A political-economic model of centralized banks/states managing economies 5. An economic model that depends on ever-expanding credit, i.e. borrowing from the future, to fund today’s consumption 6. A crisis of purpose and meaning.
We can constructively view these six problems as facets of one central problem: sustainably managing the planet’s resources so the basics of prosperity are available to everyone in the global economy.
These six problems are generally viewed through the prism of ideologies that were formulated in past eras.
Regardless of the ideological starting point, Problems 2, 3, 4 and 5 are generally viewed as the solution to Problem 1, entrenched poverty.
The ideological differences boil down to debates over how best to spur growth of consumption and wages, and what role the state and its central bank play in boosting growth with easier credit.
How did models that have been widely viewed as solutions become problems? Let’s briefly explore each of the six problems.
We understand entrenched poverty intuitively: It’s a poverty born of systemic inequalities of capital, education and resources. We also intuitively understand that inequality generates poverty. If inequality is rising as a consequence of the way the status quo is structured, the only possible output of the status quo is poverty: not just a poverty of income, but of opportunity to own the sources of wealth, what is known as capital.
The stranglehold that elites have over national economies is a key cause of wide-spread poverty.
The ultimate sources of poverty are a lack of paid work and productive capital that is owned by the many rather than the few.
The conventional solution to poverty is economic growth:
That this idea is no longer working is not just a matter of bad luck or poor execution. Its core solutions—expanding consumption, credit and state power—actively increase poverty rather than alleviate it.
Even if the state and market boost credit and consumption, this will only speed the collapse of systems that no longer function.
An Economic Model of Expanding Consumption in a World of Finite Resources.
It seems painfully obvious that Planet Earth and its resources are finite. Yet it is only recently in human history that the scale of human consumption has reached the point where vast ecosystems such as the world’s oceans are in danger of collapse.
The dominant metaphor of industrial civilization is the machine, and we have applied this metaphor to the natural world:
But the natural world is an ecosystem, not a machine, and ecosystems operate by different rules than machines.
Conventional economics assume controlling inputs (interest rates, credit, etc.) will yield the desired output (permanent growth). But these mechanistic models have failed, for the reason that economies and societies are ecosystems, not simplistic machines.
Humans are designed to solve local depletion of resources by moving on.
For the first time in human history, moving to a new locale is no longer a solution. There is no place left to move to.
Fossil fuels have given humanity an immense pool of energy slaves that we use to do work that is beyond mere human muscle.
This has fostered the illusion that there are no limits on our consumption:
Cheap fossil fuels have enabled the expansion of inefficient and wasteful systems such as centralized bureaucracies and the ideology of consumerism.
Once energy is expensive/ in short supply, these foundations of the status quo no longer make financial sense.
The current era of low energy costs will end, as demand soars when prices are low and expanding production depletes what is left of the cheap-to-access oil.
Central banks can print limitless sums of money, but they can't print limitless amounts of energy, phosphate, lithium, wild fish, etc.
The status quo model that makes expanding consumption the foundation of prosperity is failing for profoundly systemic reasons.
It is failing because its assumptions—cheap substitutes are always available, cheap energy is limitless and machines can solve any shortage—have intrinsic limits. This reality deeply offends many people because it violates their core belief in no limits. There are no limits on the expansion of credit and money issued by central banks, but there are limits in the finite real world.
The number of new jobs created by the rise of digital software is dwarfed by the number of jobs being lost.
The prime directive of capitalism is the accumulation of capital: enterprises that fail to accumulate capital go bust.
In this environment, capital is no longer able to reap big profits, and companies will be under even more financial pressure to lower costs by replacing human labor with automation.
The structural decline of profits is not a temporary phenomenon—it is a permanent feature of the current version of global capitalism.
If both wages and profits are in permanent decline, so too are state revenues. This leads to a sobering conclusion: wages are no longer an adequate means for distributing a nation’s income.
Clearly, the status quo policies of deficit spending and monetary stimulus have failed.
There is no other possible result of elite-dominated economies other than rising inequality and poverty.
In these economies, the mechanics of democracy may be acted out for public-relations purposes.
Any group that attempts to wrest power away from the elites is ruthlessly suppressed or marginalized.
Centralization is the leverage elites need to establish and maintain control of the nation’s income and wealth.
Unfortunately, centralized, hierarchical institutions fail.
Higher education has eroded to the point that there is no accountability for its failure.
This is total systemic failure.
Student loans have created a vast class of student debt-serfs who must pay interest on their loans for much of their productive lives by a political system that serves financial elites.
This is a thoroughly corrupt system in which institutions have lost their way but retain expertise in enriching insiders.
The state and central bank have institutionalized the speculative excesses of financialization to further their own power at the expense of the majority whose wealth and income have been strip-mined by financialization.
There is no possible outcome of this system other than collapse.
The way the status quo creates and distributes money insures that wealth becomes concentrated in the hands of the few
Once this arrangement takes hold, democracy dies. This is the status quo in a nutshell.
The loss of purpose, meaning, positive social roles and community are not unique to any one nation or culture; they are manifesting across the globe, despite rising wealth and material well-being.
The status quo is not only failing to solve humanity’s six critical problems—the status quo is itself the problem.
The only way to solve these problems is to create an alternative system with entirely different foundations, values and processes.
In the status quo, all money is created and distributed at the top of the power/wealth pyramid—by central banks, the Treasury and private banks. The only way anyone in the bottom 99.5% of the pyramid can get any of this new money is to borrow it from a bank at a high rate of interest. Only the wealthy and powerful have access to the nearly free money issued by central banks. The financial Aristocracy can borrow essentially limitless amounts of money at 1% and use it to:
Buy assets elsewhere in the world yielding 5% or more.
Buy back corporate stocks, pushing stock prices higher and reaping billions of dollars in profits
Outbid everyone without access to the central bank’s nearly free money for income-producing assets such as rental housing
Loan money to students, people buying auto and homes or charging purchases on credit cards, etc. at rates that that are as high as 10% or even 20%.
No one in the bottom 99.5% of the wealth/power pyramid can borrow money for 1% and then use the money to lock in immense profits.
If money is created and distributed at the top of the wealth/power pyramid, the only possible result is the rich get richer and everyone else gets poorer
This is why the only possible result of the status quo is rising wealth inequality and poverty.
Central banks and Treasuries are political institutions, and as a result the flow of new money is ultimately a political process.
Though central banks claim to be above the political fray, private interests can influence the distribution of the central bank-issued credit money with relatively modest sums of lobbying.
The wealthy buy political influence. They have a monopoly on all new money, which flows only to private banks and financiers.
All the income-producing assets end up in the hands of the wealthy.
If we don't change the way we create and distribute money, we change nothing.
None of the existing money systems address the root causes of inequality and poverty. This is because money is considered to be apolitical.
But as I have shown, money is always and everywhere intrinsically political
What is needed is a mechanism that ties the creation of money to the one thing people mired in poverty have, which is their time and labor.
In the carefully choreographed universe of the status quo, poverty has nothing to do with how money is created and distributed.
The fact that every conventional money system generates poverty is attributed not to the money system but to external factors.
The only way to wrest control from elites is to take the power to create and distribute money away from them.
The status quo has two solutions for every problem: the market and the state. Whatever the market can't fix, the state can fix. These are the only recognized systems and the only recognized solutions.
Attempting to solve every problem with the market and the state destroys the planet and the economy.
Since the status quo doesn't measure life-cycle costs, the future value of what’s been destroyed to reap short-term profits, well-being or sustainability, the result is a destructive tyranny of maximizing profit today.
There is nothing in the structure of markets that incentivizes sustainable prosperity for all. The belief that the invisible hand of self-interest will inevitably foster a sustainable economy is magical thinking.
Neither the market nor the state has any solution for the systemic replacement of human labor by automation and commoditization’s relentless downward pressure on profits.
The state, firmly in the grasp of self-serving elites and vested interests, serves those interests, not the common good.
The will spend just enough bread and circuses to keep the populace politically passive. The rest of state revenues are devoted to paying interest on the state’s ballooning debt and rewarding the elites and vested interests that control the state.
The status quo is based on the faith that profits and employment will always expand, and as a direct result so will state revenues. As we have seen, these dynamics have reversed, and both profits and employment are in structural decline.
The status quo (neoliberal) fantasy is that every good and service can become a profitable market of transactions and wages which generate tax revenues for the state.
The problem with the neoliberal/state fantasy is that only the top 5% of households can afford the lifestyle without going deeply into debt.
The idea that the market and state can transform every aspect of human activity into a profitable venture that generates tax revenues for the state is not just detached from reality—it ignores what’s actually important: sustainable well-being.
Capital has no loyalty to anything but its own expansion, and the damage it leaves in its wake is of no concern to the owners of capital.
Measuring inflation and deflation locally is meaningless in a globalized economy.
Globalization creates imbalances that fuel a perpetual instability that gradually impoverishes every sector other than global capital, which being mobile, can exploit the imbalances for its own profit.
We identified four global models that the status quo holds up as solutions but which have become our most destructive systemic problems.
An economic model of expanding consumption in a world of finite resources
An economic model that relies on wages to distribute the output of an economy.
A political-economic model of centralized states managing economies An economic model that depends on ever-expanding credit
Each of these models is breaking down for structural reasons.
We are now in a position to see that the source of inequality and poverty is the centralization of wealth and power in finance and the state--specifically, the institutionalization of centralized control of money and credit and the leverage this centralization of power and wealth offers self-serving elites.
To understand why this is so, we turn to the ontological imperative of a system or institution. The ontological imperative of the state is to expand its control.
Once the State has expanded beyond the control of the citizenry, it becomes the target of those seeking to leverage its power to their own personal advantage.
The ontological imperative of capital is to secure profits by limiting competition and gaining access to the central bank’s money spigot. The cheapest way to secure profits is to influence the state to limit competition and be first in line to the central bank’s money spigot.
The ontological imperative of privileged elites is to skim as much of the national income as possible. This is how nations fail: centralized power attracts elites who then steer the state and its central bank to serve their interests, at the expense of everyone below the apex of power.
How economies function is based on a simple theoretical binary: there are only two analytic camps to choose from, capitalism or Marxism. Both systems have failed in the real world.
In effect, both economic orthodoxies are blind to the two key realities governing our future: automation and the limits on consumption imposed by a finite planet.
Markets have no incentives or mechanisms for creating social orders to replace those that have been dismantled, other than the market itself.
Whatever yields more profit and expands capital by any means is superior and thus inevitable.
This dismantling of existing orders is not even understood as destruction; the market reduces the process of destruction to a cost of doing business.
Not only do markets not recognize any value in the social orders being destroyed; they are viewed as hindrances to more profitable modes of production.
Democracy and political legitimacy do not register as having value in the market.
Given the imperative of the market, democracy and political legitimacy are hindrances rather than treasures, and this is the source of the status quo’s teleological imperative to maintain facades of democracy and political legitimacy in the public sphere.
The pathologies generated by the market are internalized within each individual as a loss of purpose, meaning, self-worth and selfhood.
The failure to create value in the market is perceived as a personal failure rather than the failure of the system.
Stripped of the financial rewards of work, the unemployed are also deprived of purpose, meaning and a positive role in society.
This ceaseless disruption of the social order generates an deep-seated insecurity that the status quo can never erase.
That this artificial, unsustainable and deeply impoverished system is incapable of constructing a healthy, productive social order is of no concern to those profiting from the ascendency of the market.
The language of neoliberalism takes pieces of classical capitalism and transforms them into a moral system that is presented as the solution to every social or economic problem.
These concepts act as a sort of linguistic poison that reduces everything in human existence to a speculative drive for private gain.
No sense can be made of anything except as the workings of a speculative market that places a premium on maximizing private gain.
Neoliberalism doesn't simply make room for markets; the end-point of this system is concentrated wealth and power that rigs the market to benefit the few at the expense of the many.
This is feudalism but without the stability and relative security of feudalism. The debt-serfs cannot depend on lifelong employment or shelter.
The implicit moral imperative of neoliberalism is very simple: maximizing profit is the highest good. Amarket in which participants seek to maximize their private gain is the ideal solution to all problems.
Affirming one’s value and identity are difficult in an institutional setting, but they become nearly impossible for those who have no paid position in the workforce.
It is assumed to be not just the way the world works, but the only way it could possibly work.
The system offers one source of selfhood, identity and self-worth: what we consume, buy, wear and present to the world. Consumerism is held out as the one source of self that is accessible and that we can control.
The end-state of unsustainable systems is collapse.
Leaders face a no-win dilemma: any change of course will crash the system, but maintaining the current course will also crash the system.
The initial stage of collapse is decay: services become unreliable; shortages appear, households react defensively by hoarding essentials and cash, and the state increases its repression of dissent.
When the privileged class locks up all the top rungs for its cronies, the status quo crumbles under the weight of incompetence, while the best and the brightest drop out of the economy or seek outlets for their ambition elsewhere.
The status quo can decay for quite some time before systems break down. The key takeaway here is the process of collapse is inevitable.
In conclusion: the belief that the status quo is sustainable is a fantasy.
I hope after reading this book you now realize the collapse of the status quo is necessary to save what’s left of the planet and clear the way for more sustainable systems to arise.
Solutions abound. We just need to reach for them.