We've always assumed that there is a Social Contract. Ever since Jean-Jacques Rousseau published his book about the origins of society, the Social Contract, the world has assumed that society does function according to terms of a social contract passed on from generation to generation over the eons. There appears to be a gene in our DNA marked "Social Contract."
This Social Contract gene mandates that society functions only with the permission of people living in it, with those people giving up some of their freedoms and resources to a government for the greater good. Society is orderly because everybody knows his or her role in it. Society provides security and peaceful existence, in exchange every member of society contributes something to society according to that person's means.
The poor contribute their labor, enabling the rich and the aspiring middle class to amass wealth that the latter two groups contribute to society to assure the continued functioning of that society. The rich and the middle class in modern societies pay the taxes that keep their government running and assuring that justice, law and order, security, peace are maintained. The poor survive on a combination of wages and handouts and refrain from robbing the rich, making war on the rich, and cursing the rich.
What happens when one sector of society shrugs and refuses to carry its load?
It started in the 1950s, when perhaps the most influential novelist-philosopher of the 20th century published her book, Atlas Shrugged. Ayn Rand, whose disciples have included some of the best known and respected minds of the 20th and early 21st centuries, looms large in western societies today.
Alan Greenspan, the predecessor to Ben Bernanke and perhaps Ben Bernanke's most influential teacher, is one of the notable disciples of Ayn Rand. Many Mensa (society of genius-level IQs) and Mensa wanna-be's have over the past five decades been letting out a shriek as they shrug their shoulders to shake loose the world that has rested upon those shoulders through the centuries.
Those who presumably have supported the world with their job-creating industries and their taxes have been hinting for decades now that they are no longer willing to support their world and their governments. They have let loose and have threatened to let the world go in free-fall. They are no longer willing to bear the burden imposed on them by the original Social Contract. That Social Contract is too much to bear, if you ask the collective Atlas - the rich, the geniuses, the entrepreneurs, the small businessmen who create society's new jobs.
In western societies - in America in particular - the elites have outmaneuvered the progressives, who maintain that the elites must continue to support the government and society in general, or the whole world collapses.
In Atlas Shrugged, there is the underlying assumption that when the collective Atlas - the elites - refuse to carry the world on its shoulders any further, there would be a societal realignment and a confrontation of the new challenges. The world will adjust as the collective Atlas continues to shrug from its traditional role as the world's pedestal.
In America, the rich and super-rich have managed to decrease their contributions to the government through taxes over the past decades. From an average of 30% of income paid in the form of taxes by the rich and super-rich, now that group pays on average only 18% of their income. You can google this and know this to be true.
The effect of this long-term trend of decreasing taxes paid by the rich and super-rich is that American federal, state and local governments are at or near bankruptcy.
While the incomes of the rich and super-rich have increased by some 200 percent in real terms, the incomes of the poor and middle classes have actually decreased over the past few decades.
Meanwhile, as society becomes more complex and as prices increase, making governments' budgets infinitely more difficult to balance, the rich insist that they are not willing to cover the budget shortfalls that are occurring all over God's created universe. Thus, the most important element in the Social Contract - the willingness of the more fortunate members of society to contribute sufficiently to the maintenance of that society - is no longer a tappable reserve.
The Social Contract has effectively been abrogated.
Paul Krugman of the New York Times wrote what appears at first blush to be a brilliant column yesterday, called the Social Contract. He assumed, just as nearly everybody in America assumes, that the Social Contract is still operative. Unbeknownst to Krugman and to most people in America, the Social Contract is dead. It's abrogated, it's obsolete.
Where we are now is the post-Social Contract world. The rich have become so rich that the world they inhabit is markedly different from the world of the rich that the Great Gatsbys of America used to inhabit. It's not enough to make their first million, young people today aspire to make their first billion. Athletes and entertainers no longer dream of the million-dollar contracts. They assume that every project they enter into will produce multi-million contracts.
There is a gold rush going on, and it's not panhandlers anymore who are in the middle of the stampede. It's the rich and super-rich, the talented and super-talented. Everyone - with few exceptions - assumes that their goal in life is to make as much money as fast as possible and to keep as much of that money as the federal and local governments will allow them to keep. That is why you see most of them buying influence in government so they can wrangle from government the most pro-rich legislation that they can get.
Governments, which still function in the pre-Ayn Rand world where the assumption is that governments must take care of the needs - all needs - of modern living, continue to budget as though money in the form of tax revenues would somehow magically be forthcoming to finance governments.
They can't be any wrong-er (if that is a word). Atlas (the rich, the super-rich, the elites, the geniuses) has shrugged. The Social Contract is dead, gone, kaput, went belly-up.
The top 400 people in America have more assets than the bottom 150 million Americans. Since assets typically are income producing, you can see why the top 400 people in America should pay enough taxes on their income that support the bottom 150 million Americans. It's not even close. The top 400 people in America would like to pay taxes to support a lot of people - but not anywhere near the 150 million bottom-feeding Americans. Not even close.
That, folks, is why the federal government and the state and local governments are bankrupt or near-bankrupt. We can cut government expenditures drastically, which would exacerbate the problems confronting the poor and the lower middle classes, or we can ask the rich and super-rich to shrug a little more slowly. We can ask the rich and super-rich to ease the country into smaller and more efficient governments instead of insisting on tough-love policies that will hurt tens of millions of Americans who will be thrown out of their houses because dramatic cutbacks in governments will mean massive layoffs.
The old Social Contract is dead. After the transition and hopefully a softer landing than we seem destined to make, we will need a new one.
That, or there will be chaos. Perhaps even a second Civil War with the rich and their paid servants - who number in the millions - massed against perhaps two hundred million Americans who will not understand why the rich and super-rich are not willing to support their federal, state and local governments, which have done an excellent job in protecting the lives, properties and businesses of those rich folks.
The equivalent of an Arab spring? More like an American winter.
