There is another government concealed behind the one that is visible at either end of Pennsylvania Avenue, a hybrid entity of public and private institutions ruling the country according to consistent patterns in season and out, connected to, but only intermittently controlled by, the visible state whose leaders we choose.
—Mike Lofgren, “Anatomy of the Deep State”
In case you missed it, former Capitol Hill staffer Mike Lofgren created a sensation with his essay “Anatomy of the Deep State,”1 delineating the contours of the Deep State. Bill Moyers devoted an entire program to discussing Lofgren’s account of “the big story of our time” on February 21, 2014. Literally dozens of articles have appeared since then analyzing some aspect of Lofgren’s argument.
He says that a hybrid entity of public and private institutions—a latter-day version of President Eisenhower’s military-industrial complex—“is effectively able to govern the United States without reference to the consent of the governed as expressed through the formal political process.” The Deep State has carved out an autonomous orbit apart from the checks and balances of constitutional government.
As reported by the Washington Times in 2006, when National Security Agency (NSA) whistleblower Russell Tice offered to testify before Congress on unconstitutional and unlawful spying on American citizens, the NSA sent him a letter stating that while he had the right to testify before Congress, the intelligence committees that he wanted to testify to were not cleared for the programs he wanted to discuss. Absurdly, the NSA considers its programs too top secret to be divulged to Congress.2
But meanwhile, consulting firm Booz Allen Hamilton brags on the third page of its 2012 annual report that 49 percent of its 25,000 employees hold “top secret or higher” security clearances. Booz Allen Hamilton is paid billions of dollars to know all about the NSA’s secret programs, even to design and implement them, but members of Congress only know what the Deep State cares to tell them.
In 2007, Jay Rockefeller, former chairman of the Senate Intelligence Committee, explained that despite his position in the Senate Intelligence Committee, he only received the information that “they” allowed. As he put it, “Don’t you understand the way Intelligence works? Do you think that because I’m chairman of the Intelligence Committee that I just say I want it and they give it to me? They control it. All of it. All of it. All the time. I only get—and my committee only gets what they want to give me.”3
Equally, Tea Party stalwart Congressman Justin Amash (Republican Michigan) says of the NSA: “You don’t have any idea what kind of things are going on. So you have to start just spitting off random questions. Does the government have a moon base? Does the government have a talking bear? Does the government have a cyborg army? You don’t know what kind of things the government might have, you just have to guess and it becomes a totally ridiculous game of 20 questions.”
But that is not all. As my beautiful wife puts it, elected officials only ostensibly run the visible government, as outlined in Civics 101. She says they are merely Muppets who do the bidding of the Deep State, the people George W. Bush referred to as “the deciders”—a fascinating phrase from a former president who was twice elected by voters who naïvely assumed that Mr. Bush would be the “decider” so long as he inhabited the Oval Office.
Apparently not.
As a Washington insider, Lofgren has never met my wife, but he is well placed to document the truth about the Deep State. He came to Capitol Hill in 1983 as an aid to Republican John Kasich, a rising star in the House of Representatives. Lofgren stayed on with Congress for twenty-eight years, ending his career in 2011 as the chief Republican analyst for military spending on the Senate Budget Committee.
From that vantage, Lofgren was able to report as a matter of fact that the Deep State has first dibs on your money. In his “Anatomy of the Deep State” essay, he describes how the government spent $1.7 billion since 2007 to construct a building in Utah, the size of seventeen football fields, in which the NSA plans to store a yottabyte—the largest numerical designator computer scientists have yet coined—of information. This massive storage capacity has been implemented to archive every single trace of our electronic lives. Of course, there are many more illustrations of the primacy of the Deep State in spending the resources siphoned out of your pocket.
The Washington Post quoted George S. Hawkins, general manager of the Washington, DC, Water and Sewer Authority, lamenting the deterioration of the infrastructure under the streets of the nation’s capital. He presides over a “decrepit system” of 1,300 miles of water pipe and 1,800 miles of nineteenth-century sewers.4 Leaky pipes lose an average of 25 percent of drinking water before it reaches the faucet. And every year, Washington’s sewage system, built in 1889, flushes three billion gallons of raw sewage into the Potomac River and its estuaries.
Yuck.
Emergency crews are busy around-the-clock patching an average of 450 breaks a year. “All the big cities have these problems, and to me it’s the unseen catastrophe,” Hawkins said. There is no money to repair or upgrade the water and sewage systems in Washington and the other 771 US cities with water infrastructure on its last legs. But the Deep State had no trouble coming up with $7 billion to rebuild the sewers of Baghdad.
Lofgren points out that Washington, DC, is the geographic headquarters of the Deep State. A partial explanation for the apparently puzzling fact that the denizens of the Deep State would prefer to spend $7 billion making sure that the toilets flush in Baghdad rather than in their own hometown is that they are only incidentally in the infrastructure business.
George S. Hawkins may play a crucial role in keeping Washington functioning, but he probably doesn’t have a top-secret security clearance. If some of the trillions that are lavished on national security budgets were reallocated to repair decrepit infrastructure in the United States, Hawkins’s days and nights would pass more easily, but the 854,000 contract personnel with top-secret clearances who feast on taxpayer largess would do less feasting.
For one thing, an appropriation of $1 trillion or more to repair and upgrade domestic water and sewer systems would necessarily be open to more competition than Deep State firms faced in Baghdad. Every construction and civil engineering firm in the United States would be eligible to participate, along with many large international firms, such as MACE of Abu Dhabi and Muna Noor Engineering & Contracting of Muscat, Oman. Such firms, experienced in building water projects in the desert, would be far more difficult to exclude from the bidding process if top-secret clearance was not required as a condition for participating.
Seen in this light, the secret clearance required to cash in on Deep State contracts is an effective crony capitalist mechanism for minimizing competition and controlling markets.
Because there would be more competition over the tenders for civilian water and sewer projects, profits would be lower. The firms winning the contracts would also be subject to more exacting completion standards than they faced in the chaos of Baghdad.
James Glanz summarized what happened in Iraq in a 2007 New York Times article, “Bechtel Meets Goals on Fewer than Half of Its Iraqi Rebuilding Projects.”5 Quoting an Inspector General’s report, Glanz wrote that the new audit revealed landfills that were never dug, fiber-optic networks that were never completed, and sewage treatment facilities that never worked as planned.
With civilian contracts to build water and sewage facilities in the United States there would be no chance for contractors to collect millions while just going through the motions and failing to complete facilities and other major infrastructure projects.
Lofgren highlights another telling aspect of the rule over America by the Deep State: when President Barack Obama does the bidding of the deciders, he has more or less free reign to completely ignore the Constitution. The tattered remnants of constitutional checks and balances, however, were briefly strong enough to bind Obama and frustrate his wish to appoint Dr. Vivek H. Murthy as US Surgeon General. He could tell the generals in the Pentagon to kill almost anyone on the globe on his own say-so, but he barely had the power to install his own candidate in the ceremonial office of Surgeon General.
I offer four observations:
In the meantime, be aware that “the subsurface part of the Deep State iceberg” has mostly been content to float along on the ocean of red ink that is the consequence of the deciders’ own efforts, and those of others, to spend uncounted trillions out of an empty pocket.
Unfortunately, Olson died in 1998, long before the Tea Party was ever heard of. Yet he could not have imagined a circumstance where powerful special interest lobbies, like those comprising the Deep State, would share the interest of some citizens in reforming government finance. He doubted that those groups with the power to enact policies and programs that benefit themselves at the general expense would forgo any benefit they might otherwise have won out of public-spirited concern for the solvency of future generations.
In fact, Olson personally told me in the 1980s, while I was laboring to enact a balanced-budget requirement in the US Constitution, that even if I succeeded, I would fail. In his view, the desire of special interest lobbies to benefit from runaway deficit spending was stronger than the Constitution.
He cautioned that “the scarce resource of respect for the Constitution” would be swept away by the powerful groups who would pay no more attention to a restriction on their ability to empty your pocket than they have to constitutional niceties that ostensibly prohibit the government from tapping your phone or reading your email word-for-word without a warrant.
So if a burdensome tax is proposed that will reduce the real living standards of millions of people by $100 each, Olson tells us that those millions will be unable to organize in order to achieve the collective good of defeating that tax. By contrast, if burdensome taxes were proposed that would cost one hundred people millions of dollars apiece, the smaller, privileged group of one hundred multimillionaires or billionaires would probably be able to defeat the tax. Unlike the encompassing general interest, smaller privileged groups will be represented in the political process, even if there is no obvious organization or explicit coordination undertaken on their behalf.
So whose interests would you expect to be represented, or at least accommodated, by the denizens of the Deep State?
Certainly not the general interests that you share with other citizens, common human betterment or even the survival of civilization itself. In Olson’s The Logic of Collective Action, he discusses the ideas of George C. Homans, author of The Human Group. Homans tells us that past civilizations, and perhaps even our own, might have been saved if large-scale cooperation could have been organized with the same cohesion found in small groups. Yet Olson tells us this can’t happen. He writes, “It does not follow that because the small group has historically been more effective, the very large group can prevent failure by copying its methods.”7
If you are one of millions poised to lose $100 to an annoying new tax, for example, you cannot thwart its enactment by pretending that you are a billionaire and personally hiring a battery of influential lobbyists. Billionaires can prevent themselves from being taxed on that basis. You can’t. That is why an accumulation of antimarket distortions could cost you and every member of your family $125,000 in lost income annually.
Equally, if you assume that the Deep State deciders have no political ideology whatever, apart from a commitment to prying as much loot as possible from the political process in the guise of national security, the most logical way for them to go about it is to see that the cost of their appropriations is passed on to you and not to those with a greater capacity to fight them.
It would make no sense for the Deep State to risk antagonizing other privileged groups that possess the incentives and resources to rival their political power. Consequently, they tend not to pick fights with other vested interests. The deciders more or less leave other privileged groups to scramble for whatever dollars they can squeeze out of a nearly bankrupt political system.
That is not to say, however, that the deciders of the Deep State may not lend support to policies and programs of other vested interests in cases where doing so seems to increase the resources the Deep State can capture.
This logic helps explain why there tends to be a single economic orthodoxy ruling America—a not always logical amalgam of arguments and rationales favored by the various privileged groups of crony capitalists that control the political process. Even before Richard Nixon proclaimed, “We are all Keynesians now,” military Keynesianism had fattened the coffers of the Deep State.8
The United States now spends more than every other country combined on the military. And our stated expenditures comprise only about half the real costs. Hundreds of billions in annual military outlays are hidden in the budgets of the Departments of Energy, Homeland Security, State, and Veterans Affairs.
But enough is never enough. There are massive new weapons systems on the Pentagon’s drawing board that would add trillions more, such as the Littoral Combat Ship and the F-35 Joint Strike Fighter. the F-35 alone is expected to cost $1.5 trillion—enough to cover Russia’s entire military budget at current levels for the next thirty-seven years. David Crawley helps explain why military equipment costs so much:
I worked for a company that sold a microchip to the military for more than $2k per chip. This chip would have sold to a civilian contract for about 30 cents, but we never sold it to civilians as it was such an old technology (about 20 years old) that no civilian wanted to buy it . . .
The cost to re-qualify to a lower cost part was about half a billion dollars (all that paperwork remember). We were just one of thousands of line items of parts that were too small for congress to notice. So we absolutely price gouged like crazy. Contrary to what other people answering this question might claim the part was not more reliable, or somehow magically better, it was actually quite a lot worse than alternatives. Imagine that happening thousands of times over on millions of small parts that make up hundreds of big contracts and you can see why the American military is the most expensive in the world by far.9
As the agenda of the Deep State is all about government spending, its leaders are only too glad to profit from neo-Keynesian arguments that government spending should be increased. It is a measure of the success of the Deep State that the twenty-five biggest military contractors sell $235 billion per year of weapons and security services to the US government.
Equally, the policy of financial repression that robs middle-class savers with a regime of invisibly low interest rates not only subsidizes too-big-to-fail banks; it also facilitates greater government spending. As I write, net outlays for interest payments on the national debt are a bare fraction of what they would be in a normal interest rate environment.
In mid-1995, the Fed funds rate—the interest rate banks charge other banks when they lend each other cash—was as high as 6 percent, and all other interest rates were comparably higher. The total net interest paid to service the national debt then was $232.1 billion—more than 15 percent of federal outlays. At that time the national debt was $4.974 trillion, which was just 29 percent of its level at the end of fiscal year 2013 ($16.738 trillion). In 2013, with the Fed funds rate at 0.25 percent, debt service took 6 percent of federal outlays, or $222.8 billion—$9.3 billion less than in 1995.
History reminds us that extremely low interest rates will ultimately rebound to more normal levels. That would mean a jump in magnitude of the Fed funds rate. It would not be 0.25 percent—the historic average for the Fed funds rate is 4 percent. Obviously, the historically low interest rates secured by the too-big-to-fail banks also conveyed substantial benefits to the Deep State by permitting government spending for line items other than debt service to be higher than it would have been otherwise.
The national debt has more than tripled since 1995: total federal outlays have risen by 244 percent, yet thanks to QE and financial repression that drains the savings of America’s middle class, net interest payments on the national debt are lower than they were in the mid-1990s.
When interest rates rebound, the carrying costs of past deficits will balloon, crowding out other spending in the federal budget. This will likely lead to the emergence of more intense intra-elite competition, a factor identified by Peter Turchin and Sergey Nefedov as characteristic of the disintegrate phase of the Secular Cycle.
As Lofgren reminds us, the Deep State is crucially dependent on the appropriations process:
While it seems to float above the constitutional state, its essentially parasitic, extractive nature means that it is still tethered to the formal proceedings of governance. The Deep State thrives when there is tolerable functionality in the day-to-day operations of the federal government. As long as appropriations bills get passed on time, promotion lists get confirmed, black (i.e., secret) budgets get rubber-stamped, special tax subsidies for certain corporations are approved without controversy, as long as too many awkward questions are not asked, the gears of the hybrid state will mesh noiselessly. But when one house of Congress is taken over by tea party, life for the ruling class becomes more trying.
This highlights a puzzling contradiction in Lofgren’s thinking. He issues a clarion call to awaken the public to the dangers posed by the Deep State to “the visible, constitutional state . . . envisaged by Madison and the other Founders,” yet he paradoxically adopts a snarky attitude toward “the Tea Party,” the only effective expression of constitutional politics to yet pinch the Deep State’s siphon on the jugular of the body politic. Lofgren became a vitriolic critic of the Tea Party, likening it to “Frankenstein’s monster,” and deriding the tactics of fiscal brinksmanship that have threatened default on the national debt, and led to sequestration, and thus a partial defunding of the Deep State.
Which is it? Is he more alarmed by the dangers posed by the Deep State? Or, rather is he more piqued by the disruptions the Tea Party has imposed on the “functionality in the day-to-day operations of the federal government”? He tells us himself that the Tea Party has made life more trying for the Deep State (and also presumably for senior budget analysts who process national security appropriations). Lofgren says, “If there is anything the Deep State requires it is silent, uninterrupted cash flow and the confidence that things will go on as they have in the past. It is even willing to tolerate a degree of gridlock: Partisan mud wrestling over cultural issues may be a useful distraction from its agenda. But recent congressional antics involving sequestration, the government shutdown and the threat of default over the debt ceiling extension have been disrupting that equilibrium.”
On the one hand, Lofgren tells us that the status quo “equilibrium” should be disrupted. On the other, he has the Deep State insider’s contempt for the simple citizens who have gradually come to realize—a quarter of the century after the death of the Soviet Union—that the national security state has become an expensive scam they can no longer afford.
Lofgren’s unresolved cognitive dissonance is reflected in his confusions about where the Deep State ends and other elite interests begin. Let’s examine these more closely as they point to the likely emergence of more intense intra-elite competition, a factor identified by Peter Turchin and Sergey Nefedov, as characteristic of the disintegrate phase of the Secular Cycle. They argue that as states break down and bankruptcy approaches, the interests of various elite groups tend to diverge, leading to factional battles between patron-client groups.
Of course, so long as government spending capability was sufficiently abundant, the Deep State has good reason to avoid conflict with other privileged groups with the incentives and resources to effectively represent themselves politically. This explains the compliance of the Deep State with the prevailing economic orthodoxy. And it alone could account for the fact that the Deep State was content to allow the bankers lobby to control monetary policy. Further to that, the Deep State profited tremendously from the increase in government spending capacity achieved through quantitative easing.
It does not follow, however, that every consequence of current economic policy expresses the will or the interests of the Deep State (which should be understood as shorthand for crony capitalists with guns). And according to Olson’s trenchant analysis of the logic of group action, it is unlikely for a group as sprawling as the Deep State to formulate coherent policy perspectives in opposition to those adopted by other groups, whose perspective is adopted by the establishment of the moment, given that these are an amalgam of the self-interested viewpoints of the leading organizationally privileged groups in different areas.
Lofgren mistakes this “get along to go along” orthodoxy for evidence of a genuine ideology binding the denizens of the Deep State with Wall Street and Silicon Valley in a quasi-official ruling class. He suggests that they are deeply dyed in the hue of the official ideology of the governing class, an ideology that is neither specifically Democrat nor Republican. Domestically, whatever they might privately believe about essentially diversionary social issues, such as abortion or gay marriage, they almost invariably believe in the Washington Consensus: financialization, outsourcing, privatization, deregulation, and the commodifying of labor. “Internationally, they espouse twenty-first-century American exceptionalism: the right and duty of the United States to meddle in every region of the world with coercive diplomacy and boots on the ground and to ignore civilized behavior.”
In case you’re not up to date with your Marxist jargon, “commodifying of labor” is a concept Marx developed in The Communist Manifesto, where he decried “the callous cash payment” that transforms the labor of workers into just another cost of the production process.10 For my part, I’ve never understood what the fuss was about. It seems to me that recognition that labor is a cost of the production process is not so much an ideological artifact as it is rudimentary accounting. No economic system could fail to take it into consideration. And as to the “callous cash payment,” most people think of that as the good part.
The fact that Lofgren lists “commodifying of labor” as a key feature “of the official ideology of the governing class,” tells us more about his discontents than it does about the views and postures of the elite. As we look more carefully, you can see the potential for looming, intra-elite conflict.
Such is all but assured by the fundamental divergence of interests between the “essentially parasitic, extractive nature” of the Deep State (tax consumers) and the entrepreneurial focus of the more productive (tax paying) segments of the fabled 1 percent.
The utter impossibility of meeting all financial claims on future production in a flat line economy will be ever more obvious as we totter toward the Breaking Point. And this will trigger a more acrimonious intra-elite conflict along the lines delineated below.
In an eerie echo of the Cold War, the conflict of interest likely to trigger intra-elite fighting arises from an anachronistic ambition that the Deep State shares with Russia’s strongman, Vladimir Putin.
Both the Deep State and Putin want to nationalize their elites. Putin is utilizing sanctions handed to him by the Deep State over the crisis in Ukraine to ring-fence Russia’s tycoons. These sanctions will help keep Russian money bottled up within the borders of the country rather than chasing opportunities across the whole global economy, as Russia’s richest billionaire, Alisher Usmanov, has famously done with major stakes in Apple, Facebook, and Alibaba.
Equally, the Deep State’s prosperity is threatened by the globalization of America’s investment elites. As authoritarian policies like FATCA show, the Deep State wants to close off options for Americans to live and build businesses outside the borders of the United States. This entails a major conflict with the interests of a considerable portion of the 1 percent who embrace the technologically driven globalization of industry and services. They don’t want to keep losing business because customers of American technology products don’t want the Deep State spying on everything they do. As reported in the New York Times, revelations about Deep State spying have already cost American technology companies billions.
Maria Rankka, CEO of the Stockholm Chamber of Commerce, says the balkanization of the World Wide Web, in response to US data surveillance policies, threatens to destroy “the borderless character of the digital economy,” jeopardizing between $4 trillion and $11 trillion in gains to the global economy by 2025.11
As globalization has developed, many markets around the world have come to be dominated by transnational companies, the top one hundred of which are 85 percent owned by American shareholders. As examples such as the Apple iPhone, iPod, and iPad so vividly demonstrate, even much of China’s growing industrial production is deployed in the service of American companies.
In a February 2014 Politico article, Sean Starrs, a PhD student at York University in Toronto, pointed out that despite China becoming the largest PC market in the world, American firms still command 84 percent of the profit share in computer hardware and software.12 It is not only the tech sector that knows it can make higher profits by operating across jurisdictions. The whole market-oriented contingent of investors and high earners are unlikely to welcome Deep State efforts to perpetuate international conflicts and the declining marginal returns they engender.
But this is a story that will more fully unfold tomorrow.
Meanwhile, a little-noted consequence of QE has been to temporarily forestall the endgame intra-elite conflict by conveying substantial gains to both the Deep State and the larger, more globalized segments of the vaunted 1 percent.
The key to understanding how QE defers intra-elite conflict is to recognize that the Federal Reserve’s choice to divert the savings returns of middle-class Americans, to fatten the balance sheets of banks, was a desperate measure to preserve a status quo, one dependent on rising debt to fund government deficits at a scale that private savings could not support. It was not altogether an accident that this fattened the balance sheets of the 1 percent as well. The central bankers were hoping to stimulate a wealth effect. As Dallas Fed president Richard W. Fisher was widely credited with saying, “QE was a massive gift intended to boost wealth.”
When the Fed essentially monetizes stock indices, the owners of stocks tend to get richer. This is true quite apart from whether they mainly own stock in firms that prosper in the crucible of market competition or they’ve invested in crony capitalist ventures that profit from government contracts and favors.
That this wealth effect tended not to trickle very far down the income distribution to reach the bottom 80 percent of the population reflects the fact that middle-class finances have already been hollowed out since the signal crisis of US hegemony in the 1970s. Due to the tendency of the middle class to invest in housing stock in preference to corporate stock, middle-class families were much more adversely affected by the subprime mortgage bust than were wealthier persons. In the housing bubble of the last decade, home prices rose sharply due to the abracadabra of cheap money conjured out of thin air by the Federal Reserve. In response, median households with stagnant income drew down their housing equity by extracting an average of $1 trillion annually, in excess of closing costs and satisfaction of previous mortgages, between 2001 and 2005.
You don’t need to be a Nobel prize–winning economist to see that going deeply into debt on the basis of inflated values spells trouble. As Joseph Stiglitz argued in a January 2013 New York Times piece, the growth in the decade before the crisis was unsustainable, reliant on the bottom 80 percent consuming about 110 percent of their income.13 The excess consumption was financed by “free cash” mortgage refinance as described above.
When the housing bubble burst, household net worth in the United States fell by $16 trillion. Because middle-class households were seven times more exposed to housing, which comprised two-thirds of their wealth before the bust, they were much more adversely affected than the 1 percent with more diversified portfolios. The 1 percent held 90 percent of their assets in stocks, securities, and business equity rather than in homes.
When the penultimate bubble burst, the bottom 80 percent lost, on average, 39.1 percent of their net worth between 2007 and 2010. By contrast, the top 20 percent lost an average of just 14 percent of their net worth. They made this up, and more, from gains in the stock market. While housing prices only began to rebound in 2012, the S&P 500 rose 60 percent between March 2009 and the end of 2010 alone. As the much-maligned top 1 percent owned 50.9 percent of the stocks in America, they made a lot of money from the bull market stimulated by QE, pocketing, according to David Cay Johnston, 95 cents out of every dollar of income growth from 2009 through 2012.
So while by some estimates household net worth has rebounded by $16 trillion since 2008, most of it rebounded to the top 1 percent, who owned most of the stock that soared in value. But if you’re one of the top 1 percent yourself, you may recognize that’s not all it’s cracked up to be.
As Phil DeMuth explored in The Terrible Tragedy of Income Inequality among the 1%, you may be part of the 1 percent without being a fabled tycoon like Warren Buffet, George Soros, Peter Thiel, or Donald Trump.14 In fact, DeMuth points out that about half of the 1 percent are small business owners and professional practitioners, such as doctors and lawyers. Still, according to DeMuth, even the bottom ranks of the 1 percent hold, on average, about $1.5 million in liquid assets.
To really achieve what my friend Bill Bonner calls “financial escape velocity,” you need to be, at a minimum in the top one-tenth of 1 percent. DeMuth puts it this way: once you achieve an annual income of $1.9 million, then you “start to escape earth’s monetary gravitational field.” Even then, you won’t be “Hollywood rich” until you reach the top one-hundredth of the 1 percent, making at least $10.2 million per year.
Apart from the president of the United States, very few government employees would qualify for even the lower ranks of the 1 percent. And that may be part of what irks Lofgren about the Deep State: he was a firsthand witness to the “revolving door” deals that reward government operatives with a second career, lucrative beyond their dreams. He jumps to the conclusion that because money is available to grease the wheels of this lucrative revolving door, Wall Street must be “the ultimate owner of the Deep State and its strategies.”
I don’t think so.
It isn’t really Wall Street that funds the Deep State. That money is drained from your pockets and those of the US citizenry through the political process. Wall Street merely capitalizes the income streams that pour into Deep State companies. Almost without exception, the twenty-five biggest defense contractors are public companies. Their CEOs and other executives earn salaries that, in most cases, put them high into the upper rungs of the 1 percent. And the public listings offer added options for lucrative Deep State rewards.
The antics of the Deep State are among the hardest to parse and decipher in the contemporary world of crony capitalism, as they are shrouded in a gauze of secrecy; this makes it all but impossible for you to know with how many groups the war on terror is being fought (that number is top secret), much less the names of these groups.
Edward Snowden, a computer geek and high school dropout earned $200,000 a year at Booz Allen Hamilton (NYSE: BAH) (enough to place him in the top 5 percent of the income distribution), pulled back the curtain and revealed some of these details.
He showed that BAH, with a market cap of $3.25 billion, seems to have designed much of the strategy and tactics of the war on terror. BAH even originated and helped implement the National Security Agency’s plan to spy without a warrant on all your conversations, read your emails, and record every detail of your electronic life—or as Snowden put it in his sensational revelations, “to hack into the entire world.”
Thanks to Snowden, we now know that BAH, a firm that draws 99 percent of its $5.76 billion annual revenues from government contracts, was one of the primary deciders of the Deep State. In that role, it was in a position to perpetuate and increase its profits by perpetuating and broadening the war on terror.
Hungry dogs are famous for believing only in meat.
BAH specifically shilled and lobbied for a cyberwar program to “re-engineer the Internet” to eliminate any vestige of privacy you might enjoy. As BAH puts it, the firm is oriented to “improving public safety with analytics.” That included writing speeches for politicians—BAH quite literally put words in their mouths. Talk about muppets.
BAH’s EBITA of $529 million pales compared to some of the other big military contractors such as United Technologies, Raytheon, General Dynamics, Northrop Grumman, and Lockheed Martin. Still, Booz Allen Hamilton contributes its share of employees to the top one-tenth of the 1 percent. Public filing show that five of its executives earned $3.5 million or more in 2013, topped by the $4,659,255 paid to John M. McConnell, executive vice president and former NSA director. McConnell was also the director of national intelligence under former president George W. Bush. He worked for BAH before taking that job and returned to the firm after leaving it. The company website reports that McConnell is responsible for its “rapidly expanding cyber business.”
Talk about crony capitalism. As commentator Glenn Greenwald put it in a March 2010 Salon article, “McConnell’s behavior is the classic never-ending ‘revolving door’ syndrome: public officials serve private interests while in office and are then lavishly rewarded by those same interests once they leave.”15 Greenwald pointed out that McConnell’s main role at Booz Allen is the same as it was in public office: outsourcing US intelligence and surveillance to private corporations. These private companies’ activities are even more shielded than normal from all accountability and oversight, while they generate massive profit at the expense of the public.
McConnell has been a straight-out advocate of authoritarian control over the Internet and cyberspace. He wants the US government and the for-profit Deep State firms to be able to monitor and control every message and transaction that goes over the Internet anywhere in the world.
In strict logic, McConnell’s proposed crackdown on cyberspace reflects the plunging scale at which violence can be organized in the Information Age. Unlike the situation through most of the modern period, where violence was almost entirely monopolized by nation states operating at ever-larger scale, violence in the twenty-first century can, in principle, be organized even at the individual level.
This means there is almost an infinite set of potential enemies or “terrorists” involving every living human in manifold combinations with every other individual.
In the paranoid world of the Deep State, anyone could be an enemy; indeed, as you learn anew whenever you go through the screening process to board an airplane, everyone is an enemy until proven otherwise in real time. You could be conspiring with one or more of 2,500 passengers with whom you once took a cruise to disable a utility network. That’s ridiculous, of course. But they won’t take your word for it.
And that makes for a huge problem. Quite apart from the usual difficulties that stand in the way of proving a negative, the ambition on the part of the Deep State to monitor and control every message and transaction on earth underscores the growing diseconomies inherent in a government attempting to control an economy at a continent-wide scale. Speaking for the Deep State, McConnell warns that an enemy could disrupt America’s financial and accounting transactions, equities and bond markets, and even retail commerce, resulting in chaos. US power grids, transportation, water-filtration systems, and telecommunications are also at risk.
A moment’s reflection shows that these vulnerabilities highlighted by McConnell reflect falling returns to the architecture of those large-scale systems. As Amory and Hunter Lovins detailed in their 1982 book, Brittle Power, a highly centralized energy-distribution system for electricity, oil, gas, and so on is vulnerable in the way that a distributed, decentralized system would not be.16 Clearly, the answer is to reconfigure the highly centralized systems’ architecture into a less vulnerable decentralized system.
If operating an economy on a continent-wide basis requires that an all-powerful state monitor every trace of human life on a real-time basis, then the cost and complexity this entails will inevitably drive down the scale at which economies function. Or to put the same conclusion in other words, the Deep State version of the command economy is bound to fail.
The attempt to hitch an evermore complex economy to a life-support system comprising serial asset bubbles in combination with politicians, a.k.a. Muppets, spending trillions upon trillions out of an empty pocket will end in tears. Equally, as in the last days of Rome, fighting expensive and pointless wars may enrich Deep State power, but it does little or nothing to enhance US security or long-term prosperity.
Taking the long view, the trashing of the Constitution by a Deep State desperate to increase national security funding should be viewed as a risk that accompanies the passing of an old order. As you read the news, it brims with stories that hint of the end of the American imperium. Typically, hegemonic systems collapse first at the periphery. That is happening now in Argentina, Venezuela, Thailand, Ukraine, Egypt, Libya, Yemen, Syria, Turkey, Greece, and throughout the Middle East. And the governments of Southern Europe are also bankrupt. As the terminal crisis moves from periphery to the center, all bets will be off.
1 Now published in book form: Lofgren, Mike, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government (New York: Viking, 2016).
2 See “Ex-Official Warned against Testifying on NSA Programs,” Washington Times, January 11, 2006.
3 http://www.zerohedge.com/contributed/2014-03-25/quote-chair-senate-intelligence-committee-proves-intelligence-agencies-are-co.
4 Halsey, Ashley, III, “Billions Needed to Upgrade America’s Leaky Water Infrastructure,” Washington Post, http://www.washingtonpost.com/local/billions-needed-to-upgrade-americas-leaky-water-infrastructure/2011/12/22/gIQAdsE0WP_story.html.
6 Olson, Mancur, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven, CT: Yale University Press, 1982).
7 Olson, Logic of Collective Action, 49–50.
9 https://www.quora.com/Why-does-military-equipment-cost-so-much-compared-to-comparable-civilian-equipment.
10 See Marx, Karl, and Frederick Engels, The Communist Manifesto (Moscow: Progress Publishers, 1969), first published 1848, trans. Samuel Moore in cooperation with Frederick Engels, 1888; ch. 1: Bourgeois and Proletarians, 2.
11 Rankka, Maria, et al., “We Shouldn’t Take the ‘World’ Out of the ‘World Wide Web,’” Financial Times, March 27, 2014, 8.
12 Ibid.
13 See https://www.equitymaster.com/dailyreckoning/detail.asp?date=01/23/2013&story=8&title=Is-inequality-holding-back-recovery.
14 http://www.forbes.com/sites/phildemuth/2013/11/25/are-you-rich-enough-the-terrible-tragedy-of-income-inequality-among-the-1/#41589a4f1bb1.
15 Greenwald, Glenn, “Mike McConnell, the WashPost & the Dangers of Sleazy Corporatism: A Former Bush Director Uses the Washington Post to Advocate Dangerous Policies He Would Personally Profit From,” Salon, March 29, 2010, http://www.salon.com/2010/03/29/mcconnell_3/.
16 Lovins, Amory B., and L. Hunter Lovins, Brittle Power: Energy Strategy for National Security (Lawrence, MA: Brick House, 1982).