Understanding the Economic Impact of Peak Government

Executive Summary

• The U.S. is less prepared for contraction than the U.S.S.R. was
• The pressure to print money and the spectre of runaway inflation
• What we must learn from the Japan example (the U.S. is unlikely to tread a similar path)
• Why you must expect and prepare for the rules to change

If you have not yet read Part I: Anticipating the Devolution of Big Government, available free to all readers, please click here to read it first.

In Part I, we surveyed the four critical dynamics that will lead to the devolution of Peak Government: massive borrowing, institutionalized mal-investment, erosion of trust in government, and diminishing returns on public debt.  In Part II, we consider how the devolution of Peak Government may play out in the real world.

We are indebted to author Dmitry Orlov for examining how apparently stable global empires can suddenly destabilize, much to the surprise of everyone involved.  Orlov experienced the collapse of the Soviet Union first hand, and in his book Reinventing Collapse, he contends that America is actually less prepared than the former U.S.S.R. to weather the collapse of Central State institutions.

As I noted in my first series on Peak Government, this does not mean government ceases to exist; what it does mean is that government shrinks and assumes a different role in society and the economy.

Though there are many obvious differences between the former U.S.S.R. and the U.S., Orlov’s primary point is that complex, apparently stable governments can destabilize rather quickly once invisible “tipping points” are reached.  This is the message of many other important books as well; for example, The Collapse of Complex Societies by Joseph A. Tainter, The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization by Thomas Homer-Dixon, and Overshoot: The Ecological Basis of Revolutionary Change by William Robert Catton.

Though the collapse of key U.S. government programs is currently considered “impossible,” we should keep in mind that the global financial meltdown of 2008 was equally dismissed as “impossible” until it was well underway.