Self-Interest and the Pathology of Power

Social Fractals and the Corruption of America

Social fractals and social control myths help explain the complete corruption of America.

By Charles Hugh Smith

Part I

Kathy K. recently elucidated a powerful concept: social fractals. We typically think of fractals--structures that are scale-invariant--as features of Nature or finance. For example, a coastline has the same characteristically ragged appearance from 100 feet, 1,000 feet and 10,000 feet in altitude. It is scale-invariant, i.e. its characteristics remain constant whether it is viewed on a small, medium or large scale.

This is how Kathy described social fractals: "This dishonest, self-serving individual behavior is a fractal of what is happening in our society at large: dishonest and self-serving people are extending and pretending, and their complicity keeps the system going." The concept of social fractals can be illustrated with a simple example. If the individuals in a family unit are all healthy, thrifty, honest, caring and responsible, then how could that family be dysfunctional, spendthrift, venal and dishonest? It is not possible to aggregate individuals into a family unit and not have that family manifest the self-same characteristics of the individuals. This is the essence of fractals.

If we aggregate healthy, thrifty, honest, caring and responsible families into a community, how can that community not share these same characteristics? And if we aggregate these communities into a nation, how can that nation not exhibit these same characteristics?

If this is so, then how do we explain the complete corruption of America's financial and political Elites? What else can you call a nation that passively accepts financial predation, looting, robosigning, etc. by protected cartels as the Status Quo but thoroughly corrupt?

There are three distinct but highly interactive dynamics in America's social and financial fractals that have led to the nation's corruption. We can think of these dynamics as feedback loops: positive feedback is self-reinforcing, negative feedback offers restraint and opposition. From Wikipedia:

Negative feedback is used to describe the act of reversing any discrepancy between desired and actual output. A simple and practical example is a thermostat. Biological examples include regulating body temperature and blood glucose levels.

Positive feedback is feedback in which the system responds so as to increase the magnitude of any particular perturbation, resulting in amplification of the original signal instead of stabilization. Any system where there is a net positive feedback will result in a runaway situation.

These dynamics also share certain characteristics of the dialectic method in philosophy, a system of reasoning through arguments and counter-arguments (thesis and antithesis) to reach a synthesis or new understanding. The Socratic method is to show that a given hypothesis leads to a contradiction that forces the withdrawal of the hypothesis as a candidate for truth.

The social fractal element is individual behavior: the actions we choose based on our internal values, emotions, worldview and goals, and our belief in social control myths. This is a powerful concept brought to my attention by correspondent Diemos, who cited these examples: The untouchables in India are told that they deserve to be treated as outcasts because of their karma from bad deeds done in a previous life. Of course, in reality, they are no more or less deserving than any other human being of a good life but as long as they believe that they deserve their station in life they are less likely to agitate for changes that will impact the wealth of the ruling class. In the US we're told that an all-powerful, all-seeing, perfectly impartial free market gives everyone the wealth they deserve due to their own efforts. So if you're poor it's because you deserve to be poor and if I'm rich it's because I deserve to be rich. So you're more likely to accept your place in the Status Quo than if you believed that the division of wealth was more a function of an individual's political power and ability to participate in various crony-capitalist schemes. In all cases a social control myth is an idea designed to affect the behavior of the people who believe it to the benefit of the people who are promulgating that idea. I had a devil of a time understanding economics until I understood that 95% of what gets said in the name of economics is a social control myth rather than science. Economics is actually pretty straightforward to understand once you strip out all the propaganda, self-serving rationalizations, wish-fulfillment and outright misinformation that passes for analysis these days. There are two key social control myths in America: one, that everyone is equal before the law, and two, that similar fundamental opportunities are available to all.

Using the Socratic method, let's see if these hypotheses are true or false.

When a select class of people are given unique opportunities unavailable to others of different ethnicities, religion or social class, then we recognize this as bias. Since there are laws against bias, then this violates both our belief that "everyone is equal before the law" and also our belief that opportunities in America are fundamentally open to all based on merit.

Now let's consider the U.S. tax code. The 70,000 pages of tax regulations are legal, and since they are in the public record then presumably they are open to all. America's tax codes seem to fulfill both hypotheses.

In other words, everyone should be able to find perfectly legal provisions in the tax code to match Mitt Romney's tax rates: Romney paid a 13.9% tax rate on $21.7 million in 2010, paying about $3 million. His 2011 estimates show an income of $20.9 million and a tax rate of 15.4%.

Since a self-employed person pays 15.3% Social Security tax on 92.35% of his/her income up to about $106,000, (and 15% income tax on the first $34,500, 25% on everything up to about $83,600, and so on up to 35% on everything over $379,150), then it seems Mitt Romney is in effect paying .1% Federal income tax in 2011, since the self-employed person has to pay 15.3% right off the bat, even before income taxes are levied.

According to our hypotheses, the tax code is equally open to all. Does the average citizen have the time and expertise to plow through 70,000 pages of tax codes? Clearly, the answer is no, so it's simply not true that the tax code is equally available to all.

Let's imagine a different set of values and governance. Let's suppose the tax law stated that the entire tax code must meet two requirements: it must be able to be read and understood by the overwhelming majority of citizens with a high school education in one hour or less.

The national labs (or equivalent impartial bodies) would be tasked with conducting a randomized sampling of 100,000 citizens to test each year's tax code. If 80% of the adult citizenry with a high school education (or GED) were unable to put the tax code into practice after an hour of study, then the code would be rejected and sent back to Congress for revision until it passed this simple, transparent standard for equality before the law.

Clearly, the tax code is both legal and completely skewed to the very wealthy and politically powerful. $100,000 is still a fairly significant contribution in politics, and if that contribution ends up yielding a tax break that gains the donor $1 million in lower taxes, then that donation earned a 10-fold "return on investment."

Only the wealthy can afford to hire Panzer divisions of tax attorneys to pore over the 70,00 pages and game the system to pay less than self-employed citizens pay in Social Security and Medicare tax, never mind income tax.

The first hypothesis is still vaild--the tax code is legal--but the second--that fundamental opportunities are open to all--is demonstrably false. Equal opportunity is revealed as a social control myth promoted by those benefitting from opportunities that are not available to the citizenry at large.

This is the definition of an oligarchy.

Now consider the vast quantity of fraud and embezzlement that took place in the upper reaches of American finance in the past decade and then ask how many people have been indicted, tried and punished for these crimes. Just as in a totalitarian society, only a few unlucky fall-guys have been scapegoated in show trials. The vast majority of those who committed fraud or acted as accomplices or co-conspirators have not even been investigated, much less indicted and convicted.

Thus the first hypothesis is also demonstrably false: it is simply not true that everyone is equal before the law in America.

We can propose two new hypotheses to replace the false ones.

1. When the system enables fraud, collusion, misrepresentation of risk, moral hazard (the separation of risk and gain) and embezzlement, then it also rewards them. When breaking the rules in a systematic fashion garners huge rewards in wealth and power while playing by the rules dooms one to lower returns on the same investment of labor and capital, then the system itself is thoroughly, totally, completely, hopelessly corrupt.

Since America has enabled financial fraud, embezzlement etc. on a systemic basis, America itself is thoroughly, totally, completely, hopelessly corrupt. There is no other logical conclusion.

2. When the rule of law is routinely bypassed, flouted, negated or simply ignored without triggering uniformly applied consequences, then the system is thoroughly, totally, completely, hopelessly corrupt. Since America's financial and political Elites have routinely bypassed, flouted, negated or simply ignored the laws governing mortgages, finance, insider trading, etc., actions that would lead to an average citzen's arrest, indictment and routine conviction, then we must conclude that America itself is thoroughly, totally, completely, hopelessly corrupt. There is no other logical conclusion.

There are thus two distinct problems. The system, though nominally legal, is corrupt. The financial and political Elites (the Power Elites, or the Plutocracy) as a matter of course are not bound by the same laws that control the non-Elite citizenry.

Is it any wonder than the average citizen has surrendered their autonomy, independence and will to resist in such a pervasively corrupt society and economy? No wonder the average American is busy extending and pretending, remaining passive, quiet and complicit in the corruption. Why put my slice of the swag at risk when everyone else is getting away with perfectly legal looting, illegal but "enabled" predation and unparalleled financial parasitism enforced by the Central State?

But hey, there's going to be quite a battle of gladiators in the Coliseum tomorrow, and free bread will be distributed before the entertainment extravaganza.

Part II

The self-interest of the alcoholic is to keep drinking. Is this truly in his best interests? The answer illuminates the pathology of power in America.

If we ignore the lip-service showered on "reform," we find that there is really only one strategy in America: extend and pretend. Individuals, households, communities, cities, states, enterprises and the vast sprawling Empire of the Federal government and its many proxies--all are engaged in extend and pretend.

The closest analog is a seriously ill alcoholic who tells himself he just has a hang-over when it's abundantly clear he is suffering from potentially terminal cancer.With a hang-over, extend and pretend is the only strategy that works: you can try various "magic potions" to relieve the symptoms, but the only real cure is to give the body enough time to cleanse itself of the toxins you've created and pretend to be functioning in the meantime.

In the case of aggressive cancer, then extend and pretend is the worst possible strategy: ignoring the rapid progression of the disease only makes eventual treatment more difficult and uncertain.

The only way to treat cancer is to face it straight-on, learn as much as you can about the disease and the spectrum of treatments, consider the side-effects and consequences of various treatment strategies, and then get to work radically transforming your entire life, mind, body and spirit to effect the cure.

Why do we perpetrate the delusion of a hang-over when it's painfully clear we have cancer? We're afraid, of course; we fear the unknown and find comfort in the belief that nothing has to really change. We call this denial, but it arises from fear and risk aversion.

In the moment, amidst all the swirling chaos of fear and uncertainty, we choose extend and pretend because it seems to be in our self-interest.

This is the ontology of extend and pretend: a delusional view of our self-interest.The drunk is terrified of not being able to drink himself into a stupor; in that dysfunctional state of being, then he perceives his self-interest as denying he has cancer because he knows that treatment will require him to stop drinking.

In effect, what he perceives as acting in his self-interest is actually an act of self-destruction. Political and social revolutions occur when the productive classes realize the Status Quo no longer serves their self-interests. In other words, the revolution is first and foremost an internal process of recognition and enlightenment: all the propaganda issued by the Status Quo, i.e. that it serves the best interests of the productive classes, is finally recognized as false.

As this awakening begins, a divergence between the definitions of self-interest by the Power Elites (financial and political) and the productive classes begins to open. This is extremely dangerous to the Power Elites, who are fundamentally parasitical and predatory: their wealth and power all flow from the labor, taxes, debt service and passivity/complicity of the productive classes.

The Power Elites' time-honored strategy to protect their own wealth and grip on power has three components: one is to pursue a strategy of pervasive, ceaseless propaganda to persuade the productive classes that the system is sound, fair and working for them; the second is to fund diversionary "bread and circuses" for the potentially troublesome lower classes, and the third is to harden the fiefdoms of power and wealth into an aristocracy that is impervious to the protests of debt-serfs and laborers below.

In addition to "the system is working for you" social control myth, the wealth/power aristocracy also invokes various fear-based social control myths: external enemies are threatening us all, so ignore your debt-serfdom and powerlessness, etc.

In the ideal Power Elite scenario, a theocracy combines faith and State: not only is it illegal to resist the Aristocracy, you will suffer eternal damnation for even thinking about it.

Ask yourself this: how much influence do you as a citizen, voter and taxpayer have over the Federal Reserve? If we're honest, we must confess that the Federal Reserve is as remote to us as any branch of the North Korean government: we have zero influence over it, and the same can be said of our elected representatives.

This is the definition of an aristocracy, oligarchy (a power structure in which power is held by a small number of people), kleptocracy, etc.

The Power Elite has a key advantage over the citizenry: its own self-interest is clear. The citizenry must entertain this question: is the Status Quo really working for me or not? The Power Elite aristocracy has no such confusion: the Status Quo is working beautifully for them, and the only threat to their wealth and power is the possibility that the productive classes might opt out and stop paying the taxes and debt service which funds the parasitical Power Elite.

Thus the Power Elite has a single goal: to persuade and coerce the citizenry into accepting their powerlessness and debt-serfdom as a pathological form of self-interest.

There is another dynamic to the Power Elite aristocracy's grip on concentrated wealth and power: the self-selecting, self-perpetuating pathology of the aristocracy and the Upper Caste that so slavishly serves them. Author Chris Sullins identified this dynamic as one of self-propagating fractals (The MacRib is Back! September 23, 2008): There are readers who might feel I’m being very hard on the public with the comparison so far. But look how people have allowed their names to be changed. They have gone from being called citizens to consumers. A citizen is a very human word which denotes awareness, involvement, and participation. It’s a word that sounds active and conscious in its very nature. A consumer by contrast sounds far more passive. A lot of other animals and even inanimate processes consume things. A consumer sounds like sheep grazing. Once a populace accepts a self-definition that strips out their participation as anything but passive consumers, then the maintenance of power boils down to test-marketing new social control myths and fear-mongering.

This sophisticated level of marketing and predation requires a highly trained class of servants: an Upper Caste of technocrats, middle managers, marketers, lobbyists, "creatives," engineers, etc. who do the heavy lifting that keeps the Power Elite's wealth and status not just intact but expanding.

The reward for this service is a hefty salary that enables the purchase of the signifiers of upper-middle class existence and an intoxicating proximity to power and status visibility, i.e. some measure of recognition as "being somebody important."

Until very recently I reckoned this Upper Caste of loyal servants comprised about 20% of the American populace, but upon closer examination of various levels of wealth and analysis of advert targeting (adverts only target those with enough money/credit to buy the goods being offered), I now identify the Upper Caste as only the top 10% (the aristocracy is at most the top 1/10th of 1%).

Wealth and income both fall rather precipitously below the top 10% line, and as globalization and other systemic forces relentlessly press productivity into fewer hands, then the rewards aggregate into a smaller circle of laborers.

You cannot aggregate healthy, thrifty, honest, caring and responsible people into a group that is dysfunctional, spendthrift, venal and dishonest unless those individuals have themselves become dysfunctional, spendthrift, venal and dishonest.

This is the ontology of the pathology of power: If you want to join the elite levels of the Upper Caste, where "doing God's work" is a daily practice of fraud, embezzlement, misrepresentation, collusion, purposeful obfuscation, all in service of a pathologically self-destructive notion of self-interest, then you must become dysfunctional, venal and dishonest (with becoming spendthrift in service of acquiring signifiers of status a close fourth).

Since non-pathological people will quit or be fired, then these fractals of corruption are self-selecting and self-perpetuating. This is true not just of financial America but of elected officialdom. Anyone who is still naive or delusional enough to think that getting elected to Congress or the state legislature will empower "doing good" will soon learn the ropes: the next election is less than two years away, and if you want to retain your grip on power you're going to need a couple million dollars.

And if you want to "get something done," you will need to take orders from your party leadership and service your donors.

I once had a friend who by extraordinary effort got himself elected to the state legislature. Being a young idealist, he actually refused to vote as his party leadership directed: thus identified as a rebel, he was predictably out two years later.

So much for "working within the system." By the time all the donors, lobbyists, leeches and parasites have been properly serviced, the "reform" bill is 2,000 pages long.

As a result of the feudal structure of wealth and power in America and the self-reinforcing, self-propagating fractals of pathological servitude, the citizenry are increasingly remote from power. The aristocracy, like feudal lords in distant, fortified castles, demands obedient service of the powerless citizenry-- work hard, pay your taxes and service your debt--and fears any awakening of true self-interest.

Just because a devoted member of the Upper Caste is allowed to enter the castle to do his work doesn't mean he is part of the aristocracy. That glow of proximity to power is his reward for dutifully slaving away as a higher-order serf.

The American Revolution was triggered not by a sudden upwelling of noble ideals, but by the realization of the landed nobility and productive classes that the commercial and political domination of Great Britain was placing their wealth and liberty at risk.

Put another way: they awoke to the fact that the Status Quo no longer served their essential self-interests. When the Upper Caste and productive classes reach this same conclusion, then perhaps they will elect a transformational third party to sweep away the corrupt political class.

This new party must embody a moral imperative that acts as a social fractal: retaining power is not the goal. If the people want to restore the pathological aristocracy to power in two years, then by all means let them have it. They will do so without our complicity, interest payments, labor and servitude, for we have opted out of pathology.