Incompetence, Fraud, and Corruption

Grafner |

Those old enough to remember the 80s and 90s will have noticed the distinct absence of good news these days, replaced by never-ending stories about incompetence, fraud and corruption. Bad customer service, poor quality products, banks charging dead people, appalling conditions in aged care facilities, investment scams, corrupt politicians and officials, there seems to be no end to the bad news these days. Why?

Peter Turchin and Sergey Nefedov postulated that history has been moving in cycles, which they termed ‘secular cycles’. They identified overpopulation, elite overproduction and state insolvency as the main drivers of the cycles. Each cycle begins with a long growth phase, which leads to overextension due to population growth and debt growth. When resource extraction can no longer keep pace with population growth and debt growth, the cycle switches from growth to stagflation – which is where we are now. This stagflation phase goes hand-in-hand with elite overproduction and increasing inequality.

Both are evident today wherever you care to take a closer look. Thomas Picketty and many others have documented the staggering extend of wealth transfer from the poor to the rich over the last 50 years. Degree inflation, the massive increase of ‘administrators’ in academia and of ‘managers’ in ‘business support roles’ and the prevalence of non-productive industries (like financial services) are clear evidence of elite overproduction. When too many elites compete for too few good opportunities, there are two main effects – increasing inter-elite competition and the proliferation of ‘alternative’ pathways to riches (scams, frauds, Ponzi schemes, Pyramid schemes etc.).

Increased inter-elite competition leads to power struggles and nepotism. In our supposed meritocracy that means that those best adapted to gaming the system are winning – psychopaths, narcissists and sociopaths are vastly overrepresented in powerful positions in business and government. Nepotism is now rampant in many industries craved by the elites that have high barriers to entry, such as in the media industries and in government.

What is interesting about this late stagflation phase is how much elite overproduction goes hand-in-hand with fraud, incompetence and corruption. Fraud is no longer just the domain of fast-talking hustlers and Ponzi-scheme advocates. The much larger incidents of fraud are perpetuated by the large corporations on both their clients and their investors. UBER has produced US$32billion in losses over its 13-year history, yet consistently reports ‘being profitable’ by using its own (made up) metric ‘Adjusted EBITDA Profitability’. Wells Fargo has been fined billions by US regulators for defrauding its own customers. In fact, 111 known member corporations of the US Chamber of Commerce have violated state and federal laws a staggering 15,896 times and racked up penalties totalling more than US$154 billion since 2000!

City of London by Pere Sanz |

This criminal elite behaviour is made possible by greatly weakened regulators and the fact that white collar crime is not considered crime by law enforcement. In all the cases above, no executive went to jail. Today, almost without exception, only poor people go to jail. In most countries if you ‘loot’ a convenience store you can end up serving a long prison sentence, but if managers or directors loot a company (or its customers), they basically never go to jail. Instead, companies are slapped with fines that are paid by the company and the perpetrators can continue as before.

Elite fraud and corruption don’t only target other elites, they also come at the expense of the general public – crypto scams and NFTs were just the latest instalment of selling ‘investments’ in what amounts to nothing more than collectible digital tokens. With young people locked out of the housing market due to a decade of asset price inflation, the typical crypto investors were millennials hoping to ‘make it’ financially.

We have been conditioned over the last 40 years that looking for protection from the state is wrong and that when people fall for these scams it is their fault. The state is supposed to stay out of people’s lives, and we are supposed to take personal responsibility for our own choices. This is a convenient lie that allows the elites to game the system to push the consequences of their criminal/corrupt/incompetent behaviour onto the general population – socialise the losses, privatise the gains, no elites go to jail and any dissent or protest is suppressed by compliant media and anti-protest legislation.

This constant lowering of expectations on the power and role of the state and the accountability of politicians allows elites to loot the state and the commons. The ongoing drive to reduce regulation and protections for citizens is excused by talking about ‘red tape’ and ‘green tape’ and impediments to growth, making regulation look bad. This narrative is now so ingrained that it is no longer being questioned.

As a result, trust in governments and government institutions is at all-time lows across the developed world. One of the key reasons is that politicians are part of the problem, not the solution. Their behaviour today is far too often corrupt, and politicians are putting in place incompetent officials who are happy to aid corruption and benefit in return. A great example of this interplay is the stock trading of politicians in the US as reported by the New York Times:

At least 97 current members of Congress bought or sold stocks, bonds, or other financial assets that intersected with their congressional work or reported similar transactions by their spouse or a dependent child … between 2019 and 2021.”

It should be obvious that politicians will in many cases have access to ‘insider’ information that will affect stock prices and that they could benefit from such information. Prudent regulation would require members of parliament to either divest their shares and similar securities or mandate placing them into blind trusts that prevent trading by the owner.

We could carry on listing more examples of incompetence, fraud, and corruption than anyone would care to know about. Most people today have realised that the old normal is dead and the new normal is no longer going to be comfortable and secure for those fortunate enough to being accustomed to it being this way.

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Peter Lanius

Peter Lanius is a physicist by training who has worked in IT, Telecoms and as an executive coach across many industries. He believes in collapsing early to avoid the rush and lives on a 20acre property in regional Australia.