The International Role for the United States in the Current Financial Crisis

As promised, this post will be on the international aspects of the financial crisis of the United States. There's been much talk on how this crisis was a domestic crisis caused by bad banks or something of the sort. While there were a lot of issues in the American banking system in this crisis, the cause of the crisis was not the banks and it certainly wasn't "deregulation" or the removal of Glass-Steagall. The cause of the crisis had more to do with international capital flows and how these international capital flows were resolved on the domestic side (which led to domestic imbalances) rather than what the banks actually did.

In this post, I'll start off by splitting this post into four parts:
1. The role of regulation in exacerbating the 2008 financial crisis
2. International Aspects of the 2007-08 American Financial Crisis
3. The Domestic Crisis as a Response to International Capital Flows and the Role of China
4. Restoring Healthy Household Balance Sheets MUST Involve Changing International Imbalances

The Role of Regulation in Exacerbating the 2008 Financial Crisis :
In 2008, the US experienced a financial crisis. Of course leftists, socialists, and statists would immediately claim that the problem is "deregulation" or "financialization". As I've stated, this is completely nonsensical. When a leftist, socialist, or a statist points out how the removal of Glass-Steagall "created" the crisis and that we need to protect commercial banks from the "gambling" of investment banks, they seem to forget that commercial banking is more dangerous than investment banking. Of course, the leftists, socialists and statists never mention that the largest bank failure in American history came from Washington Mutual, which was a savings and loan thrift (a commercial bank with deposits backed by the FDIC) making regular loans in a bad area. They didn't diversify anything and were lending into one of the worst hit areas in the financial crisis. Since Washington Mutual was a commercial bank, the bank had no ability to hedge and got absolutely crushed.
Note: Commercial banking is basically when a bank issues regular loans and takes in deposits.

Also note that leftists, socialists, and statists always leave out the role that Fannie Mae and Freddie Mac had in securitizing mortgages. Around 50% of total mortgage securitization in 2008 went through Fannie Mae and Freddie Mac. The leverage ratios for Fannie Mae and Freddie Mac were also worse than any banks and their bailouts were also larger than any financial institution. Keep in mind these were GOVERNMENT AGENCIES whose sole purpose was to securitize mortgages as a way to increase home ownership for lower-income people and the poor by making them take on debts they couldn't afford. Simply put, it was government regulation that created incentives for turning lower income people into debt slaves. Of course, leftist "logic" tells them that we need more rules to tell people what to do because what we told them to do last time didn't work. As such, it's obviously not logical thinking.

So what actually caused the depression and the downturn in the American economic and financial system? The impact on unemployment and household balance sheets along with the sluggish recovery came from over-indebted households that were sustaining unsustainable consumption levels by borrowing money and using their houses as ATMs. So how did this situation come to be?

The International Aspects of the 2007-08 American Financial Crisis:
As I've discussed before, the role of the US Dollar as the world's reserve currency must take primary importance when discussing the 2007-08 financial crisis. By definition, a country that's the world's reserve currency implies that all international payments are cleared in its currency. Thus, in order for foreign countries' accounts to be resolved, other countries must--on the net--accumulate dollars or dollar backed assets. So this accumulation of USD assets by foreigners necessarily means the United States is running a capital account surplus. Since the capital account balance+current account balance=0, a capital account surplus is necessarily a current account deficit. In other words, the US Dollar as the world's reserve currency forces the US to run persistent current account deficit (see chart below).

As we know Y=C+S=C+I+NX (where C=C_p+C_g, S=S_p+S_g, I=I_p+I_g), so a persistent current account deficit forces a demand leakage that creates a persistent lag and fall off in the total income of the United States. In order to maintain this income at a high level and maintain GDP growth rates until 2008, the US used the capital account surplus to lend money to consumers to consume beyond their means to sustain higher levels of income, sustain higher aggregate demand, and thus reduce unemployment.

The decision between higher unemployment or higher income from 1998-2005 was really in the hands of the Federal Reserve. If the Federal Reserve took up monetary tightening, the current account deficit would've resolved itself as lower income, lower aggregate demand, and higher unemployment. Since the Federal Reserve took up monetary easing, the current account deficit resolved itself as higher income, higher aggregate demand, higher employment, and a massive credit-fueled consumption bubble.

Household debt levels increased at a very rapid rate from ~1999 to 2007 and these debt levels kept increasing until US households effectively hit debt-capacity ratios, which means that debt servicing costs were too high for current income levels to maintain. When this happened, the US consumer could no longer consume what the rest of the world was overproducing which created a domestic adjustment in the United States.

The Domestic Financial Crisis As a Response to International Capital Flows and the Role of China:
Simply put, the domestic financial crisis is nothing more than a response to the shifts in international capital flows and the way in which American policy makers chose to resolve the effects of international capital flows. Due to the US Dollar being the world's reserve currency, the international capital flows of USD and USD-backed assets created domestic imbalances. The domestic imbalances were merely a response to international imbalances created by the role of the USD as the world's reserve currency.

Starting in the late 90's, the Chinese government decided to take an investment and export-based growth model that drove Chinese growth by expanding Chinese exports and turbo-charging their current account surplus. The expansion of the balance sheet in the PBoC (the Chinese central bank) as a means to accumulate USD assets (FX reserves since the US is the world's reserve currency) was an explicit attempt to drive up growth rates via an undervalued currency. Of course, an undervalued Chinese currency helps Chinese exporters and this produced a Chinese current account surplus. Of course, since the USD is the world's reserve currency, the capital account of the US is basically completely uncontrolled while the US is the world's largest economy. In other words, the only country large enough and willing enough to run the corresponding current account deficit to China's current account surplus was the US.
Note #2: The specific direction of the flows do not matter. What matters are the NET flows between the countries.

In other words, the Chinese government decided to hit its GDP growth rates by lending the US money to buy Chinese stuff and to finance our housing bubble. Ironically, this is exactly what the US did from 1914-1929, but that's a different topic for a different day. The 2007-08 crisis represented the moment when this international imbalance could no longer continue as American households hit debt capacity ratios. A correction occurred and the US current account deficit fell ~3% in 2008-09. China still hit GDP growth ratios by switching its model from primarily an export-driven model with moderate levels of investment to a model that was more reliant on fixed-asset investment than probably any other country at any time in world history.

Restoring Healthy Household Balance Sheets MUST Involve Resolving International Imbalances:
In order to have the American financial and economic system return back to its vitality, we must fix the problems of household balance sheets. The American economy and financial system is still highly indebted. If we continue to run current account deficits, the American financial system is still (by definition) being a net debtor, on the margin, to the rest of the world. If we want to really reduce the debt levels of the United States, we must begin by first reversing the current account deficit and turning it into a current account surplus.

In the current worldwide financial situation, we have the rich countries in the world borrowing from the poorer countries, but it's poor countries that're capital poor with domestic infrastructure and investment needs. In other words, the current account balances must shift for the current financial system to adjust. The US is the world's most capital rich country in the world. The solution must necessarily involve the US exporting its capital to developing countries, which would not only provide investors with productive assets that produce a real return, but would also help the poor and middle-classes deleverage.

There are a few ways to resolve this problem in international asset markets. One way would be with a tariff on foreign goods that would impact the capital account balance via a shift on the current account, but this isn't ideal because there's no need for the US to protect American goods from foreign competitors if you're the most wealthy country in the world. A more sensible way to resolve these issues in international asset markets would be by simply tax the accumulation of American asset abroad, which would affect the current account balance of the United States by reducing (and hopefully reversing) the capital account surplus of the US. The most ideal solution would be to simply switch to a Bancor or some other form of an international currency, but this is nothing more than idealism as of right now.

Capital Flows and the Impacts of International Liquidity on Less Developed Countries

I'll start off by saying that this will be my first post on financial crises, how they play out, and the international nature of these things. This post will primarily discuss how capital flows in wealthy countries affect less developed countries. The next post (which will be done by the end of this week, it's already ~60% finished as of this publishing) will discuss the specific crisis that began in 2007 and the middling through we're currently ongoing. Now, I'll begin by bashing leftists, socialists, and statists as usual.

Usually when I hear about economic crises, we usually hear people say that financial crises that were caused by factors like "deregulation" or "financialization". Of course, such ideas usually come from those who subscribe to certain political ideologies (usually leftists, socialists, and statists). Not surprisingly, most of the basis for such arguments is nonsense. Almost all financial crises (I can't think of one that wasn't) are international in nature, not domestic or national. So focusing on the domestic or national nature of these crises tells us very little about the development and occurrence of financial crises. Financial crises occur, and are triggered, by expansions and contractions of liquidity in the world's financial centers in combination with international capital flows.

Basically, financial crises aren't caused by "deregulation" or "financialization". New financial instruments will play a role in a financial crisis, but they're not the cause. The cause of any financial crisis lies in international capital flows across borders. Anyways, I'll begin by splitting this post into three separate parts:
1. Liquidity
2. Wealthy Countries Financial Centers as Drivers of Capital Flows
3. Impacts of Capital Flows on Less Developed Countries (LDCs)
NOTE: I'M DEFINING LDC DIFFERENTLY FROM THE DEFINITION USED BY THE WORLD BANK. I'M USING LDC TO MEAN EMERGING ECONOMY!

1. Liquidity:
First, I'll start off with the concept of liquidity. What is liquidity? This is a difficult term to define, but liquidity is basically the amount of "cash" in the financial system. Does liquidity have to be solely defined as the amount of cash? Of course not. Liquidity can not just be cash, but can also be any sort of instrument that is basically like cash. In my post about the basics of banking, I talk about how money has a hierarchy with the short term money market rate of interest being the price of liquidity. In my post about QE and monetary policy, I spoke about how the point of QE was to create a massive pile of cash looking for somewhere to go. Basically, the purpose of QE was to create a massive increase in liquidity by a central bank coming in to swap less liquid assets for more liquid ones. In my most recent post, I discuss how the use of liquid assets in today's financial system has led to a massive decentralization in money. I basically treat these highly liquid assets as another form of money because they're convertible for cash at any point. Anyways, I'm gonna focus on the concept of liquidity for the rest of this post where I'll use liquidity to represent the "money-ness" of an asset.
However, liquid assets can be virtually any money like asset including Asset-Backed Commercial Paper or short term bills (ex. T-bills). In other words, expansions in liquidity can come in a host of ways for a multitude of reasons.

This brings us to the next question: how does a massive increase in liquidity affect asset markets? When you expand liquidity, by definition, we see an increase liquid assets. This can come about for various reasons, but the most common reason usually stems from central bank balance sheet expansion. So how exactly does this work? Recall from my post on the basics of monetary policy and QE that central banks can buy assets by issuing new deposits (or reserves). When central banks expand their balance sheet, it shows up as an asset swap on the private sector balance sheet. So the end result is that the private sector ends up with a bunch of cash looking to go somewhere as short term money market rates fall (assuming you're not at the ZLB). So the cost of financing short term drops while there's a whole bunch of cash looking to go somewhere for a yield. The end result is often times mistaken to be inflation, but the end result often times is asset market dislocation, asset bubbles, massive increases in debt, and the longer term consequences are often deflationary, not necessarily inflationary (although it does depend on the balance sheets and supply-side structure of the different economies in question).

2. Wealthy Country Financial Centers as Drivers of Capital Flows:
So now that we have a basic understanding of liquidity and what drives liquidity, we can see that the largest expansions of international liquidity can only come from the world's largest and most powerful economies because they're the largest and most powerful. Today, that role is played by the Federal Reserve (and has been played by the Fed since either 1914 or 1919 depending on how you look at it).

From September 2008 to December 2014, the balance sheet of the Federal Reserve has increased from $900 billion to $4.5 trillion (it's held flat since). So the net increase in cash for the private sector from the Federal Reserve has been $3.6 trillion. So during this expansionary phase, we've had a $3.6 trillion increase in cash that's looking for a yield. This pile of cash looking for an interest bearing asset goes into both domestic and foreign assets. Due to the sheer size of the American economy, even the smallest capital flows into foreign assets creates huge distortions. For example, a country like Nigeria (with a population of ~150 million people) has NGDP of ~$500 billion. So even a small shift in capital flows by the Federal Reserve can have a HUGE impact on the finances of the country.

When you get a massive expansion of liquidity in the international financial centers, it means there's plenty of cash available for whomever (usually foreign firms/governments) to issue liabilities to get access to international financing. On the other hand, when the wealth country financial centers start to contract liquidity, the amount of cash available for foreign firms/governments becomes very tight. So what we start to see is that the capital that flew into these countries during the expansion phase tends to fly right out in the liquidity contraction.

Simply put: liquidity expansion in the world's financial centers leads to capital inflows and economic expansion in LDCs while liquidity contraction in the world's financial centers leads to capital outflows and economic contraction in LDCs.

3. Impacts of Capital Flows on LDCs:
During the liquidity expansion in the wealthy countries financial centers, financing is available in large amounts for any LDC that cannot finance investment (or consumption) out of current income. So firms and governments can access financing easily for either investment or consumption. If the investment is productive, the future increase in real income is usually well more than enough to pay back the debt and then some. So if an LDC uses foreign financing well to fund productive investment opportunities, they may experience an economic contraction, but they will not be in horrible shape. They may still have a financial crisis (and usually do), but the impacts of the financial crisis will be limited.

Inversely, if the foreign financing is used to finance unproductive investment or unsustainable consumption, the economic activity creating by the unproductive investment or unsustainable consumption stops immediately as financing as dried up which will trigger a financial crisis. Unlike the case where the foreign financing is used well, this time the financing is used poorly while debts still need to be serviced which will usually lead to either private bankruptcies or an increase in government debt which could, and often does, trigger a government debt crisis in LDCs that have poorly managed incoming capital flows.

Note that if the debt taken on by the LDC is denominated in foreign currencies or via a currency peg, the country will usually run out of FX reserves trying to pay off the foreign debt or maintain the peg and eventually, the country will experience a currency crisis along with a sovereign debt crisis and private bankruptcies. Even if the foreign currency debt of the LDC is used productively, there's still a VERY HIGH chance of large private bankruptcies, a banking crisis, a currency crisis and a sovereign debt crisis simultaneously.
Note: If the total financial system of the LDC holds FX reserves larger than their foreign currency obligations, they'll usually be fine, but that's rarely the case. Even when it is the case, things can still get screwy. The only way for a financial system to protect itself against the risks of having foreign currency debt is to not have debts denominated in a currency you can't control.

The Decentralization of Money and Its Consequences

A decent while ago, I wrote a series of posts on the basics of money and banking that mostly focused on traditional banking and monetary policy. This post, on the other hand, will go further in detail and consists of three sections:
1. Shadow Banking
2. The Decentralization of Money
3. The Consequences of the Decentralization of Money

But before I get into anything else, I'll first speak a little bit more about how our current financial system operates outside of traditional banking. Basically, what I termed as money in my first post about money is the primary form of money for most households. However, the primary form of money as used by the entire financial/economic system is actually much larger than the total amount of bank deposits. Of course, it depends on what you consider money since many very intelligent, knowledgeable people would simply consider this form of money as a "very liquid assets", but I'll be treating these "very liquid assets" as money because (in today's financial system) they are money.

Shadow Banking
Anyways, firms that hold assets like treasury bills/bonds, mortgage backed securities (MBS) or asset-backed commercial paper (ABCP) or other securities that include the securitization of things like credit card loans or student debt or corporate debt or various forms of equity or whatever else can be can used as collateral in a transaction called a "Repurchase Agreement" (repo). So what exactly is a "Repurchase Agreement"? A repo is just an agreement where person A sells an asset today at price P with the agreement to buy it back at some time T (after today) at a certain price Q. The time-adjusted relative price differential is known as the "repo rate" and can be thought of as an interest rate on the repurchase agreement. If the repo seller defaults on their obligation (fail to repurchase), person B can choose to either keep the asset or to liquidate the asset for cash at market price.

Anyways, the important points aren't about the details of repo transactions, but instead about how capital assets can be used as a mechanism to acquire on-demand financing and, for many transactions, capital assets are basically as good as money because they're used as collateral to acquire cash. Now someone could make the claim that they're used primarily to acquire some form of traditional bank credit, but they could just as well be used to acquire some "bank deposits" in a money market fund (MMF).

So for there to be a widely used repo market for capital assets, there must also be a liquid market for capital assets. So in order to have a liquid market for capital assets, we must also have market-makers. These market makers are willing to buy and sell capital assets from anyone at the market price, which means that they generally have some kind of an inventory--and in order to be able to buy or sell capital assets, they must be able to acquire the funds to make the purchase/sale. So these market makers make the market by using their existing inventory as a means to acquire financing via the repo market. In other words, the entire capital asset market functions off the repo market.

Keep in mind that MMFs, hedge funds, investment banks, and all other similar types of firms are outside of the traditional banking system, but these firms are still critical parts of the American financial system. Basically, all of these institutions are effectively "shadow banks". Typical banks fund regular loans by issuing deposits. Shadow banks fund capital market lending via money-market funding.

Decentralization of Money:
As I briefly discussed earlier, shadow banking effectively creates capital assets via the creation of "deposits" in MMFs or some equivalent that can be converted into reserves held at the Federal Reserve or bank deposits, and thus anything else, at 1:1 par on demand. In other words, when you get some firm issuing ABCP to fund productive investment which is then bought by a MMF which issues "deposits" to buy various ABCPs from other firms as well, and then packages these ABCPs into an ABS, which is then sold to some hedge fund, what we end up having is a form of money creation.

For the financial system as a whole, the money created here was by the MMF that issued "deposits" to buy ABCP (or some other asset like a normal loan or whatever), which was then packaged into an ABS and sold to a hedge fund. However, if that hedge fund were to get rid of that ABS to some other firm that wanted an asset which could provide a return, that capital asset (ABS in this case) can be turned into cash at any given point to meet cash flows due to the existence of a repo market. So as we can see, these capital assets function as cash for much of the productive (and some parts of the financial) economy.

Basically, distinguishing between money for different groups or types of firms becomes very difficult. Hell, even talking about what money is becomes difficult and virtually any firm or company in our financial system can basically issue money at will, even though it's not a "traditional" "bank". So what does this do? For a person who isn't very well-versed in finance, it certainly does confound them, but other than that, all it tells us is that the money issuance by the financial system and private sector is far more decentralized than it has been in probably about 100 years (before World War I).

Anyways, when money becomes this decentralized, it becomes difficult to even distinguish what money is or what it gets used for. So what this has produced is a few discontents who feel that this decentralization in the issuance of money has transferred power from "the people". In other words, we've created a new set of discontents because we have a financial system that's become far more decentralized over the past 70 years, and particularly the last 30-40 since the USSR had sustained financial pressure and eventually broke.

Consequences of the Decentralization of Money:
Due to the drastic amount of decentralization in money and banking we've had over the past 30-40 years and technological shifts we've seen in our lives, what we end up with is a system where it's very easy for virtually anyone to get financing to do basically anything. Of course, the costs of the financing aren't free and can vary depending on the person, but that's besides the point.

Not only is it firms in, or related to, the financial sector that have really benefited in their access to financing, but it's also others who now have access to credit ranging from credit cards to online sources of financing (like Lending Club). What this massive decentralization of finance has basically created a massive financial system that operates under such lenient conditions that haven't existed until really the days before the creation of the Federal Reserve.

The most obvious direct consequence is that the federal government has a very small role in the operation of the financial system, which has meant more decentralization across the board for the entire country. Over the past 25 years, the nationalist sentiment in the US stemming from the Cold War has slowly started to dissipate while internal divisions between states are becoming far more prominent than they've been over the past 80 years and probably back to a time before World War I. Note: I'd say we have less government intervention than the financial system than we did during World War I and certainly less than we did during the interwar years, even though taxes have gone up (taxes are a terrible way to measure the centralization of an economic system, and particularly a financial system).

So there's this idea that it was the banks who created this crisis that's being pushed by certain political movements--primarily the left which consists of most Democrats--which isn't correct for reasons I'll discuss in another post (not that there isn't an issue with the banking system, but it's not a lack of government control). Anyways, the political impacts are that we'll end up seeing a divide that's very similar to what basically existed in the 19th century United States where the political divide literally takes the line along the banks with one side being for a greater centralization and control of money/banking and the other side being for less control of money/banking.
Note #2: There's a difference between control over the financial system and breaking down the big banks. Those are two completely different things and completely different issues. I do suspect the cartel formed by the big banks will be broken, but that will come from both sides--albeit from two completely different angles. One side (probably Democrats) will be for "regulation" while the other side (probably Republicans) will push something more akin to "free banking". But in reality, what I've described has already started to happen.

Political Correctness, Free Speech, and Censorship

About a month or so ago, I took apart the fundamental aspects of all leftist thought, whereby leftist is defined as anything rooted in Marx-based thought. I added a specific note wherein I specifically exempted the American left from my critique because if I hadn't, my attack would've had no validity. However, I will not exempt myself from such attacks on various aspects of the American left today (note that this argument still applies to non-American leftists). On the contrary, I will be discussing the importance of free speech, a free press, and how political correctness is not only retarded and erroneous, but how it also compromises censorship.

I'll start off by discussing political correctness. The idea of political correctness is the basic idea that certain things shouldn't be said because those aforementioned things can be perceived to hurt a certain group or people who may fell marginalized or socially disadvantaged in a certain way. Simply put: political correctness is the idea that nothing should be said or written if it makes someone, or some group of people, feel bad in whatever way anyone may deem it so. In other words, political correctness is inherently stupid. Why is political correctness inherently stupid?

There's lots of reasons why, but the first basic reason it's stupid is because if you actually care about how someone, somewhere said something that made you feel bad, you need a reality check. The idea that there should be strong negative consequences, and even bans, because someone disagrees with you and has done no action to harm anyone else while claiming you "feel bad", imagine the kind of actions we're allowing because someone "feels bad".

Another reason why political correctness is retarded is because we don't have free speech to make people "feel good" (or some variation that usually amounts to the same thing). We have free speech because healthy debate is necessary for sound decision making. The basic point of free speech isn't to make people feel good that they can say certain things. One of the most important reasons for free speech is to allow for the dissemination of information. When taking most decisions in anything half-way complex, we don't actually know what will happen or what all of the possibilities are. We have free speech as a way for people to get access to different sources of information from different points of view. It's virtually inevitable that some of those views or sources of information will piss someone off somewhere, even if the point of view or source of information is robust. Do we ban such behavior simply because someone "feels bad" (or some equivalent)? If we do, then we're not only jeopardizing a particular action being taken by a certain individual, but we're interfering with the entire decision making process by preventing necessary debate. Unless you think that someone can be right all the time about everything (only a sucker would think this way), political correctness cannot end well.

Secondly, we have free speech and a free press to prevent certain people from ruling with a firm hand. We have free speech and a free press to place checks on those in authority and on rulers in general. Using the argument that someone may "feel bad" or that someone may be "marginalized" or some other equivalent nonsense allows figures in authority to stomp out anything simply because they don't like it while claiming someone somewhere "feels bad" because someone said or wrote something they didn't like. In other words, political correctness distorts incentive structures.

Thirdly, political correctness relies on the basic ideas that a certain opinion or view that marginalizes a certain person or group of people leads to a certain action so that opinion or view must be ruthlessly crushed. In other words, it's just another way of saying that opinions of a certain kind lead to a certain action so anything that comes close to showing that opinion must be crushed because of various actions that result.

In other words, political correctness presupposes that:
1. We know what's correct beforehand and we know what the correct decisions are before we make them
2. Opinions are never changing
3. Opinions lead to actions
4. Thus, preventing certain actions means preventing certain opinions from being voiced

Of course, opinions are changing and one of the key aspects of free speech is that dissenting opinions or views must necessarily be tolerated because we don't know what's gonna happen or what's actually correct. Similarly, a free press and free speech is necessary for a sound decision-making process. Anyone who always thinks we have 100% accurate information all the time and that opinions are always constant is necessarily an idiot.

We actually know very little and our information or our process for converting information into knowledge is always muddled. In other words, our opinions must necessarily be constantly changing for them to be correct at some point because of our lack of knowledge. Unless we want to limit our knowledge, political correctness isn't a good option.

Also, opinions don't usually lead to certain actions because our opinions themselves are changing. We don't take actions based on opinions if we think our opinions could be wrong. However, there are many cases where people do one thing while saying the exact opposite or having a different "opinion". In other words, not only does hypocrisy exist among human beings, but the idea of opinions leading to actions is inherently wrong. PEOPLE SHOULD BE JUDGED ON ACTIONS!!!

POLITICAL CORRECTNESS IS CENSORSHIP!!!!!!

Various Geopolitical Financial Systems

On my page, I usually discuss or develop various models to understand geopolitical financial aspects in various different ways. In this blog post, I'll be doing something somewhat similar. Instead of developing or discussing various factors going on across the world right now or possible risks in the future, I'll be talking about different kinds of geopolitical financial systems used by governments.

I'll begin by talking about what some of the various forms are. It's important to keep in mind that most geopolitical financial systems are usually a mix of different forms, but the forms can be (roughly) split up into:

1. Liberal Empire
2. Old Crony/State Capitalist Empire
3. Democratic Nationalist
4. Democratic Socialist
5. National Socialist
6. Liberal Nationalistic

Note: Any time I use the word liberal, I mean classical liberal (not the American use of the term).

1. Liberal Empire

The basic idea of liberal empire is pretty straightforward: an empire operated by liberal institutions. When I say empire, I basically mean a political structure that composes of a multiethnic polity that derives its power from various autonomous regions subject to its control. The basic idea of empire, the way I see it, is to simply impose peace and collect taxes. By liberal institutions, I mean a Constitution, a rule of law, a free press, an independent judiciary, and free elections to throw out bad leaders. The classic example of a liberal empire today would be the United States.

Note #2: Anyone who wants to claim the US is closer to a nation-state over an empire needs only a half-baked understanding of US history to get rid of such nonsense. The ethnic structure of Miami and South California is not the same as West Virginia or Eastern North Carolina. If you take a typical person in Miami and put them in a small town in the South, they'd be actively discriminated against. To say the US has a single ethnic structure is a joke. I can go into the historical details if you'd like, but the claim of the American nation-state is pretty much a joke. The US is obviously imperial and it always has been imperial (ex. the US has been at war for >80-85% of its existence with constantly shifting frontiers until it established military bases, which it has in virtually every country).

Anyways, the geopolitical financial structure of Liberal Empire is obviously imperial where you have lots of ethnically diverse communities operating autonomously wherein the different communities fight for power on a federal scale. Due to the diversity of regions and peoples in such an empire, the basic idea is to split the people apart into various factions among different issues, and then use a liberal elite to buy out the people on the sidelines by either giving them kickbacks or giving them a separate degree of autonomy--like an empire.

It's the elite that run the show in a Liberal Empire, but there is a catch. The catch is that the elite are not a stable group. Due to the existence of liberal institutions, virtually anyone can become elite (often including foreigners). There's a Constitution to provide a set of basic principles for governance, a rule of law to protect basic rights, an independent judiciary to ensure the principle of equality in front of the law, and free elections to prevent crooks from maintaining power via crony methods. What the liberal ideas basically ensure from a social perspective is CLASS MOBILITY. Due to the nature of a liberal empire, there are clear class structures and hierarchies across the system, but those class structures and hierarchies are constantly shifting.

In a Liberal Imperial geopolitical financial structure, the goal is to keep maintain institutional flexibility and institutional credibility which leads to minimum constraints on finance. In general, the kind of financial structures remain very flexible while equity and capital-assets end up becoming the primary mode of financing. Loans usually become securitized to make it easier for risk-takers to pool together and acquire capital while equity becomes common-place. Traditional banking often takes a third place while financial structures place an emphasis on flexibility due to the incentive structures.

2. Old Crony/State Capitalist Empire

In an Old Crony Imperial system (or State Capitalist empire), the basic idea of empire still exists. You have a multiethnic polity with the power of the imperial authority deriving from the states in the level of the hierarchy below it while the basic idea is still to impose peace and collect taxes. However, in the Old Crony Imperial system, we do not have any form of liberal institutions. There may be either an explicit Constitution or some other statement of general principles, but that's about as far as it goes. There are usually no free elections (there may be bogus elections), there's no free press, no independent judiciary, and no rule of law or if there is a rule of law, it's not enforced. Classic examples of this kind of a system today would be China and Russia.

In the old crony imperial system, the basic idea is to use the financial system for geopolitical goals whether they be to control payments or to transfer power among elites or whatever else the goals may be. In these kinds of systems, the financial systems are usually tightly controlled for a myriad of reasons. Usually, it's to prevent class mobility and to sustain existing power structures and to maintain the power of the elites. Unlike in a Liberal Empire, there are no liberal institutions that can check the power of the ruling elites--although there can  sometimes be other types of institutions including traditional institutions that may check their power.

One of the reasons that the financial system might be tightly controlled is to make sure that financial or economic dislocations don't occur and end up causing civil unrest or even rebellion. Another reason could be to control natural resources or supply lines of natural resources for geopolitical goals. Either way, there's little class mobility in these types of systems and Old Crony Imperial systems can be very repressive on certain issues. These types of systems are heavily reliant on a tightly controlled banking system so that the elites can transfer power in a simple, cost-effective manner as we currently see with China. Capital-assets or equity play a minor role in this kind of a system.

3. Democratic Nationalist

In a Democratic Nationalist geopolitical financial system, we basically have a democratic electoral base built around a common cultural or ethnic identity combined with the view of capital as a nationa asset leading to tight financial controls. These types of geopolitical financial systems tend to be somewhat tightly controlled with a critical emphasis on national unity. Although there are some semblance of liberal institutions in these regions, they often go well beyond purely liberal institutions. The press, in many cases, isn't completely free (like bans on associations or certain parties or speaking a certain way about certain people, etc.); a Constitution and a rule of law often takes a backseat to the will of the people or "democracy"; and even though the judiciary may be "independent", there's often very little emphasis on the ability of people to really get whatever they desire. A typical example of such a system would be Germany.

The most important aspect of this kind of a geopolitical financial system is that it's built around a nation-state. Due to a nationalist geopolitical structure, the types of financial structures in these countries tend to be very rigid. The banking systems are usually very tightly controlled in these kinds of systems and almost all of the financing, including private financing, occurs via the banking system.

Why do we get such rigid financial structures? Even though the elite are less powerful in these kinds of regimes, they still do hold disproportionate power like in any other regime. However, the Democratic Nationalist structure basically creates a situation where foreign elites buying into the system creates incentive structures to disrupt and change the system. Either the system adapts or it prevents foreigners from gaining influence, but nationalist structures introduce an institutional rigidity that prevents adaptation. The easiest way to prevent foreigners from gaining influence is to control who can hold deposits in your banking system and to what degree they hold such deposits. Such a system necessarily requires the banking system to be the primary source of financing.

A Democratic Nationalist geopolitical financial structure obviously implies the principle of equal representation in government, which means that these types of institutions often end up being socialist due to the nationalist structures in place, but they don't have to be socialist. Either way, the financial systems are tightly controlled because capital is viewed as a national asset. Thus, financial institutions are often stable, but inflexible, where capital gets thrown towards anything deemed in the national interest while risk-taking is usually discouraged.

4. Democratic Socialist
In a Democratic Socialist geopolitical financial structure, there isn't necessarily a nationalist element. Instead, the idea is the principle of equal representation combined with a tight grip on financial and economic structures. The principle idea underlying Democratic Socialist regimes is the principle of "social democratic equality". A typical example of such a system would be India before the liberalization reforms starting at ~1991 and would include much of Latin America today such as Brazil and Argentina--although there may be strong nationalist sentiment in these countries.

Often times, these types of systems turn to despotic styles of government (Indira Gandhi in India or similar structures in Venezuela and Argentina currently) due to the lack of liberality in the financial systems. The tight control required over these systems mean that any sort of liberality has to be checked stringently, which automatically means that liberal institutions cannot really exist in any real sense over any particular period.

The financial structures in these countries yet again involve a tightly controlled banking system because any sort of capital based system undermines the socialist aspects that restrict the use of capital for private ends. However, these types of structures can be very diverse from a political perspective as it is in Brazil or how it was in India pre-liberalization.
Note #3: Those who argue that India is highly nationalist and lacks diversity need to go to India. The idea of India being a single nation is something I find to be kinda stupid. There are many Indian nations including Tamils (old Madras region), Teluglu (modern Telanagana and parts of Andhra Pradesh), Gujurati, Hindustani (Hindi-speaking), and many others.

5. National Socialist
Historically, national socialist geopolitical financial structures have often been fascist and it usually devolves into something similar. Anyways, the basic idea is a tightly controlled economic system driven for the goals of a particular national identity for the good of the nation-state. Obviously, this entails a tightly controlled financial system that, yet again, has to operate almost entirely via the banking system.

In this kind of a financial system, there are "private" firms, but the firms' profits, production processes, use of labor, wages, etc are tightly controlled by the government. Liberal institutions are completely non-existent and everyone is basically told what they can and can't do, particularly from an economic/financial perspective.

Culturally and socially, these countries are obviously rather intolerant. In these kinds of systems, there's very little institutional flexibility which makes such geopolitical financial systems EXTREMELY fragile. The typical example would be Nazi Germany or modern-day Venezuela. Due to the tight control necessary to maintain the system, excessive repression makes such kinds of systems impossible to maintain over any extended period of time.

Usually, National Socialist geopolitical financial structures get stuck in situations where they're forced to become geared completely toward war and end up with massive blow-ups when things go wrong. There's no institutional flexibility and they almost always turn despotic. They can often stem from democratic institutions (Hitler and Mussolini were democratically elected and were, by and large, supported by the populace).

6. Liberal Nationalistic (or Social Democratic)
A Liberal Nationalistic geopolitical financial structure is basically a relatively liberal structure that's usually combined with some nationalistic element, even though this element may not be particularly strong. In these kinds of geopolitical financial structures, financial structures are relatively liberal and free of restrictions, but there is a strong democratic element that brings in some socialistic elements into liberal financial and economic structures. Countries with such current structures would be the Scandinavian countries and Japan.

The socialistic elements often come in to remove the antagonistic class divides that can occur with truly liberal structures. In the case of a Liberal Empire, the idea is to have lots of diverse (in many different ways) autonomous regions so that you can pit the autonomous regions against one another and if the class divides do begin to show, an simple institutional shift in either power or resources again turns the autonomous regions against each other and class divides usually take a backseat. However, Liberal Nationalistic geopolitical financial structures don't have that kind of diversity so they incorporate socialistic elements to prevent class divides from getting too out of control.

Due to the nature of these regimes, the financial systems are debt-based while still having some relatively strong equity or capital-asset base. However, unions can also be strong while existing within certain social hierarchies. The social hierarchies have both dynamic and static elements. There's some institutional flexibility introduced by the liberal institutions with regards to new ideas, an independent judiciary, a free press, a rule of law, and a Constitution. However, there are limitations on liberal institutions due to the lack of diversity among the polity whether that be unions, somewhat controlled wages, somewhat controlled profits/wages, and other aspects that require some control over financial institutions.

Usually, these types of countries can have difficulty in assimilating different populations because they don't have the diversity or institutional flexibility to pit the populations against each other while maintaining a constantly shifting elite. The downward mobility of the elite in a Liberal Empire can lead to social instability among certain autonomous populaces. However, a Liberal Nationalistic geopolitical financial structure means that the autonomous populaces facing social instability creates an entire population facing social instability so it usually leads to some rigidity in social hierarchies and class/power structures.
Note #4: Notice how I used Liberal Nationalistic instead of Liberal Nationalist to imply that there may not be fully fledged structures to impose the nationality on the polity. This implies there may be some imperial aspects to the diversity of the population or to adapt to a shift in the polity, but those aspects are limited due to the nationalistic aspects.

On the Absurdity of Leftist (Marx-based) Thought and Dangers of Taking Marx, Engels, Guevara, Lenin, etc. Seriously

Note: I DO NOT consider the American left as leftist, although there are fundamental disagreements I have with the American left. I mean leftist as it'd be used in most of the world.
Any time I refer to leftist, I mean ideas rooted in the basic ideas of Marx or Engels. Anyways, leftist thought is usually preached by leftists as a form of "equality" or something that is inherently just and morally correct, but there's virtually no wisdom in leftist thought. The ideas of leftist thought, rooted in Marx, surely enough are ideas contrary to any sort of liberty in speech or thought, are contrary to any sort of traditional philosophy, or common sense.

If you read actually read Marx, you'll notice that Marx was a materialistic, racist pig. Marx was a complete bigot who viewed any group of people that wasn't European "proletariat" as inherently evil. He derides and despises the bourgeois, other elites, and people of other races who weren't European. Marx, in a letter to Engels, wrote about what he called "Chinese rabble". Here's Marx in correspondence with Engels in 1869:

The brute believes in the future ‘state of democracy'! Secretly that means sometimes constitutional England, sometimes the bourgeois United States, sometimes wretched Switzerland. ‘It’ has no conception of revolutionary politics. Copying Schwabenmayer, he quotes as proof of democratic activity: the railway to California was built by the bourgeoisie awarding itself through Congress an enormous mass of ‘public land’, that is to say, expropriating it from the workers; by importing Chinese rabble to depress wages; and finally by instituting a new off-shoot, the ‘financial aristocracy’.

Marx was also explicitly anti-Semitic and called the "Jewish God" literally "money". In Marx's racist and anti-Semitic essay On the Jewish Question: Marx says:

Let us consider the actual, worldly Jew -- not the Sabbath Jew, as Bauer does, but the everyday Jew. Let us not look for the secret of the Jew in his religion, but let us look for the secret of his religion in the real Jew. What is the secular basis of Judaism? Practical need, self-interest. What is the worldly religion of the Jew? Huckstering. What is his worldly God? Money. Very well then! Emancipation from huckstering and money, consequently from practical, real Jewry, would be the self-emancipation of our time.... We recognize in Jewry, therefore, a general present-time-oriented anti-social element, an element which through historical development -- to which in this harmful respect the Jews have zealously contributed -- has been brought to its present high level, at which it must necessarily dissolve itself. In the final analysis, the emancipation of the Jews is the emancipation of mankind from Jewry

Also note how in Marx's work, he references revolution so much and how "'[Constitutional England, the US, and Switzerland] has no conception of revolutionary politics". A typical leftist would respond that, "Marxist thought goes well beyond Marx" and this is certainly true. However, ALL Marxist narratives only go one way (I'd love to see someone show me a counter example and if they did, I will PUBLICLY retract my statement and admit my errors). They always assume what they're, in effect, trying to prove. But for the sake of this argument, I'll suppose that all of this wasn't the case.

Instead, I'll attack the leftist Che Guevara, who is still portrayed by leftist as a hero. In the view of revolution, this is a quote by the evil Che Guevara:

To send men to the firing squad, judicial proof is unnecessary. These procedures are an archaic bourgeois detail. This is a revolution! And a revolutionary must become a cold killing machine motivated by pure hate.

Guevara also said:

Youth must refrain from ungrateful questioning of governmental mandates. Instead, they must dedicate themselves to study, work and military service.

Youth should learn to think and act as a mass. It is criminal to think as individuals!

We must do away with all newspapers. A revolution cannot be accomplished with freedom of the press.

The victory of Socialism is well worth millions of atomic victims!

Then, leftists, socialists, and statists argue that Hitler was not a socialist, without recognizing that Hitler's party was the national socialist party. They also ignore the kind of economic system that Hitler ran was a more tightly controlled version of China's current economic system wherein government inputs and outputs were tightly controlled, but suppose we ignore all of that. Here's Hitler on the topic in 1927:

We are socialists, we are enemies of today's capitalistic economic system for the exploitation of the economically weak, with its unfair salaries, with its unseemly evaluation of a human being according to wealth and property instead of responsibility and performance, and we are all determined to destroy this system under all conditions.

If that's not convincing that Hitler was a socialist, here's more written in Time Magazine in 1939:

Most cruel joke of all, however, has been played by Hitler & Co. on those German capitalists and small businessmen who once backed National Socialism as a means of saving Germany's bourgeois economic structure from radicalism. The Nazi credo that the individual belongs to the state also applies to business. Some businesses have been confiscated outright, on other what amounts to a capital tax has been levied. Profits have been strictly controlled. Some idea of the increasing Governmental control and interference in business could be deduced from the fact that 80% of all building and 50% of all industrial orders in Germany originated last year with the Government. Hard-pressed for food- stuffs as well as funds, the Nazi regime has taken over large estates and in many instances collectivized agriculture, a procedure fundamentally similar to Russian Communism.

If even that isn't convincing, just look at the actual economic policies of fascism. The basic idea is for the centralized state to nationalize industries, let the old guys in charge operate according to rules set by the state, then control the inputs and outputs as necessary. Sure enough, this is exactly what Hitler did.

There is no justice with these ideas. Leftists always claim that they know the best and claim to be non-violent and want peace. However, all of their ideas NECESSARILY require someone holding a gun to someone else's head if others don't comply. If others don't comply, the idea is to ostracize them and effectively wipe them out. Even today, the violent aspects of their perspective is limited, so leftists use any sort of claim to attack and suppress opposition including "political correctness", "equality", and even "democracy" (when naively used by the mass imposing their will on the minority. Note that Guevara, Mussolini, Hitler, Marx, and Engels all supported the masses imposing their will on the minority).

The leftist ideas of revolution, radical change, and the willingness to throw all sense of logic away for some emotional call to "revolution" while supporting the worst acts possible is EXTREMELY dangerous. These people honestly want to take the most extreme ideas and implement them forcefully while ruthlessly wiping out all forms of opposition.

While I can't prove this, even today when I read Marxist thinkers, I recognize these same principles and tendencies in their works. They still seem to sympathize with something like the Soviet Union or principles like Guevara suggested. I consider legitimate sympathies to ideas illustrated my Marx, Engels, or Guevara to be PURE EVIL!

Class Issues in America Masquerading as Race Issues

As usual I'm gonna start off by attacking leftists, socialists, and statists for their stupidity by claiming the issues in the ghetto are race issues. The issues in the poor neighborhoods of America (whether white or black) are not race issues, but class issues. The problem is that we've created a permanent underclass with no class mobility or a mechanism of class mobility that's illegal. In my estimation, there are three key factors in the poor communities of America that MUST be dealt with in order to fix these problems:
1. The drug war and drug sentencing laws.
2. The incentives structures that discourage honest work or entrepreneurial behavior.
3. The lack of a family structure among the poorest communities.

Problem #1: Drug War and Drug Sentencing Laws:
I've previously spoken about the retarded nature of the drug war and how the drug war is the biggest national security threat to the US, but in this post, I'll be sticking to the discussion of its social impacts on the lower classes. First off, those charged of drug use tend to heavily skew towards the lower classes even if we do adjust for income. Basically, those in the lower classes get charged for drugs more often than those in the upper classes even though people in both classes still have similar issues with drug use.

Secondly, those of higher classes who do get charged using drugs can afford better lawyers, live in better areas, and can find/afford ways to avoid jail time and other excessive charges. Those in the poor communities without a proper family structure that either grow up with dead-beat fathers, single-parent households where there's no one to look after them, or those who don't have the ability to afford good lawyers due to monetary issues face the brunt of the damage. Keep in mind that almost all American prisoners are in jail for non-violent crimes.

Selling marijuana or cocaine on the street may be wrong, but if there's no violence involved, there's absolutely no reason why a 20 year old kid deserves jail time. It's not only wrong, but it's an active destruction of a person's life/future that doesn't benefit society in any way. If someone has real issues with drugs, throwing them in jail won't solve the problem because once they're out of jail, you're stuck with the same problem except they've spent more time in jail and lost a real portion of their lives wherein they could've been bettering themselves.

Problem #2: Incentive Structures Discouraging Education, Honest Work, or Entrepreneurial Behavior:
Under current incentive structures, many of those under welfare would actually lose income if they worked more for reasons including the taxation of new income and the elimination of previous benefits from new income. Of course, those who're currently on welfare tend to be the poor and those from poor families. If some kid in the family decides he's gonna start working for income, sure enough the family's income drops because of welfare cuts. So what does the kid do: not work, sit on his ass, and end up doing things that may not be productive (ex. drugs, gangs, violence).

So what if some kid has an idea that he could make and sell something on the street corner by setting up his own shop? Well, of course we need "regulation" and he'd need authority from a "regulatory body" to do that, so his shop gets taken down in the name of the "law". Of course, some leftist would claim "profit is evil and makes people worse" or some other nonsense to justify it, but such arguments only help eggheads hellbent on maintaining power in the name of "safety".

Of course, not only do these incentive structures affect the poor disproportionately from a first-order perspective, but they also prevent businesses and investors from investing in large areas with heavy poor populations. They discourage genuine investment that could actually provide the people in these communities with skills to improve not just themselves, but their entire communities in a self-organizing manner AND they eliminate profit opportunities for businesses.

In the case of education, the public schools in poor neighborhoods are absolutely awful. Private schools cost money that the poor simply do not have and due to the monopoly of schooling as per the way school districts are drawn up, there is simply no other option for poor kids other than to go to shitty schools with other kids that have similar backgrounds as them. Sure enough, a disproportionate amount of these children end up in crime, drugs, violent backgrounds, and end up in the same family issues as the ones they come from.

Problem #3: The Lack of a Family/Support Structure:
In areas with a heavy poor population, there tends to be a lacking family support structure. Of course, the middle and wealthy classes tend to have are less children, intact families, and a better support structure in general while the poor do not. The one stability in my life has always been my family and when we have troubles, those closest to us are the ones who're most likely to help.

In the poor communities, there's not much of a family structure so there's not much support if something goes wrong. When you have a father who's not at home alongside an uneducated mother on welfare who keeps popping out kids and has no clue of family planning, each and every child ends up being strained for resources (not only material, but also personal). Sure enough, this causes issues in a child's education, in a child's future ability to accumulate assets, and in future income potential.

In the end, the poor kids end up having no way out, get stuck where they are, and opportunities rapidly disappear as these children get older. Those who're in situations like this are far more likely to end up in drugs or crime simply because there is no real way out.

The lack of a family structure IS THE BIGGEST problem facing the lower classes. Improper leadership available for boys/young men and girls/young women stacks the barriers for these kids so high that there really is no way out.

Leftist Solutions Provide No Real Solutions:
Again, I'm gonna attack leftists, socialists, and statists for having no real solutions to this problem. Leftists always claim (correctly) that a lack of basic education is a major problem for those in poor communities. However, their solutions for education involve more direction from the federal government and centralization of education. Clearly, if the parents or families aren't involved in the kid's life, how can we ensure the kid gets a good education? This isn't just an issue for the poor, but for others. Leftists have also vehemently been against school choice with regards to issues like school vouchers. Naturally, the solutions of giving more power to those in power and relying on "trust" or "democracy" or "equality" while telling people mindlessly what to do is not gonna work, but this is what leftists, socialists, and statists rely on.

Secondly, there's the issue of "regulation" and incentive structures. Very few ideas proposed by leftists, socialists, and statists do anything to fix the real problems regarding incentive structures. Instead, on issues like education the first response of leftists is to throw more money at it, which solves none of the underlying problems. On issues regarding entrepreneurial or business activity in these areas, leftists actively want to discourage entrepreneurial or business activity that could actually lift entire poor regions out of poverty and provide some semblance of class mobility.

Thirdly, leftists do nothing at all to try and fix the problems of a lack of a basic family structure. Instead, the solutions usually involve increasing welfare and government handouts, which exacerbate the underlying problem. Leftists, socialists, and statists also attack religious organizations who actually provide/help community connections across a community. They're often against charter schools because of "religion" and a "state establishment of religion", which is just blatantly false. In many poor communities, it's the churches, temples, etc. that're the only organizations working for communal good and justice. They're the only things keeping kids off the streets and into community building projects. Discouraging these types of activities is foolish.

Another issue in regards to solutions provided by leftists involves labor issues like labor unions or high wage policies. Naturally, those that get screwed the most by high wage policies are gonna be those who don't provide businesses the productivity to pay for the higher wages necessary. Sure enough, these are going to be the poor.
Note: The effects of minimum wage and high wage policies depend on the capital structure of the businesses involved, which means capital intensive businesses won't be affected very much. Needless to say, smaller scale businesses tend to be more labor intensive, particularly those in very poor areas.
Note #2: I'm NOT arguing against high wage or a minimum wage policy. I'm just saying we need to be careful WHERE and HOW these policies are implemented. I'm also VEHEMENTLY arguing against one size fits all policies in this regard.

In the case of labor unions (mainly public sector unions), teachers unions have consistently been opposed to support for charter schools and school vouchers. Other public sector unions (ex. police unions) have consistently been against for drug sentencing laws, the drug war, and opposed to sensible ways to deal with drugs. Clearly, the actual solutions force us to break public sector unions like teachers and police unions, but leftists consistently trump how important unions actually are.

Solutions:
Although I've attacked leftist solutions to fixing class issues, the actual solutions aren't that complicated. Simply put, the solutions are:
1. End the drug war
2. Shift incentive structures for businesses to encourage opportunities in poor communities (ex. removing income taxes, remove structures discouraging honest work)
3. Shift incentive structures for entrepreneurial activities and wealth accumulated via honest work by the poor (don't require senseless "regulations" to prevent the "evils of profit" or other nonsense)
4. Break the unions actively trying to destroy these communities (ex. police unions, teachers unions) and ruin their power
5. Break regulatory structures discouraging genuine investment in poor communities (ex. placing "regulations" on hiring some kid on welfare)

Sure enough, leftists and socialists would only argue to solution (1), but strongly fight against all of the others while statists would fight all five. The solutions to fixing the real problems are relatively simple, but most are vehemently fought by certain groups that mostly support the left.

The real problems--as I've diagnosed above--aren't really race issues, but class issues. They affect those that're white, black, hispanic, or whatever given that those children are from poor communities. To say that these are race issues takes us further away from fixing the real issues while we end up fighting about complete and useless nonsense.

Global Decentralization and the Rise of Warlord States

This post will be the first in a series of posts (probably consisting of 2-3 posts) about market-states and the mechanisms of market-states, which have embedded in them market states. The topic of this particular post will be about the occurring global decentralization and the shift of the decentralization in the functions and organization of governments or states along with the rise of warlord regimes across the world. It will be split up into five sections:
1. Introduction
2. Basic Organizational Structure
3. Geopolitical Financial Organization of Warlord States
4. Fragility of Regions Controlled by Warlord States
5. Conclusion

Introduction:
Over the past 200-400 years (depending on how you wanna define things), we've had a world that's effectively been industrializing, a world that has through various cycles become more centralized, and we've seen the rise of nation-states. However, this process has effectively come to an end. Across most of the world, centralized governments are ruling ineffectively. Nowhere is this process more obvious than in regions like Arabia, North Africa, Sub-Saharan Africa, and Central Asia. Even in other places like India or even China and the US, we've seen lots of decentralization over the past 20-30 years.

In the poorer regions of the world, this decentralization process (via the incompetence of centralized governments) has effectively led to failed states or soon to be failed states. However, many of these regions like Angola, Nigeria or Iraq do have lots of natural resources while developed countries like the US, much of Europe along with developing countries like China and India have a need to import natural resources to sustain economic production and economic development, whether this production or development is good or bad is another question all together.

Due to the demand for natural resources in the large powers and the luxurious loot that can come from the extraction of natural resources, there has been a rise of institutions in natural resource rich places of the world that allow for the buying and selling of critical economic inputs. This has led to the rise of what I like to call warlord states, where we're seeing the rise of regimes that extract natural resources in one area to sell them to someone else, collect the revenue, and organize some structure to take advantage of power vacuums. In virtually all of these cases, what we have are warlord states embedded as a part of new market-states (there will be a future post on this topic).

Not only are we seeing the rise of warlord states from unofficial governments looking to seize opportunity, but we're seeing it from--for lack of better words--"official" or "internationally recognized" governments. What are these examples of these types of governments? It's governments like Nigeria, Saudi Arabia, Angola, and other similar places. In other words, it's not some nationality that's holding these states together, but the market for natural resources.

Basic Organizational Structure of Warlord States:
There's been a lot of talk about ISIS, Boko Haram, Al Shabaab, and other Islamic Caliphates in other places as places that're primarily driven by religious ideology, but these false assumption leads to erroneous conclusions. These Islamic Caliphates are really just groups of warlord entrepreneurs seizing profit opportunities via:
1. collecting booty and loot
2. extracting natural resources or commodities
3. selling vital economic inputs to economic actors in need of such inputs

These Islamic Caliphates are not rooted in Islamic tradition and care little for Islamic tradition. The role of ideology in the operations of these groups is primarily designed to:
1. garner public support
2. make the initial objective of seizing profit opportunities easier via social structures
3. to gain international support from sympathizers
4. gain financing from sympathizers
5. more technological or physical support (ex. fighting) from international actors, including governments

If we look at the way in which these groups operate, we will see little difference between a group like ISIS, Boko Haram, or Al Shabaab and actual governments like Nigeria or Saudi Arabia. However, these warlord states or official governments are only the representations in the Islamic world. In other similar regions of the world, we see the same patters, although we see different ideologies to make things happen.

In other places like Latin America, we see the same thing happen. Places like Venezuela and Argentina have historically been great for the extraction of natural resources. It seems difficult to notice much of a difference between the structure of Angola, Nigeria, or Venezuela vs ISIS, Boko Haram, or Al Shabaab when we remove the Islamic banner in the latter group. If we use the procedure and logic outlined in this post, we'll see that there really is no difference between these official governments in Africa, Latin America, or the Middle East and the new rise of warlord states.

Geopolitical Financial Organization Structures of Warlord Enterprises:
True to all of the warlord regimes and governments I've listed above, almost all of their revenue comes from natural resources or commodity extraction. Government revenue resulting from rent extraction is critical to the functioning of these states. Due to the fact that most of these states or regimes gain primary financing from rent extraction, the most important thing is to maintain the revenue that comes from the extraction of rent, even though the process is unsustainable.

In order to maintain the revenue, it's common for the leaders at the top to have ties to large companies, multi-national corporations, or similar entities across the globe. For this revenue to be protect, the first objective must be to make sure no one else can extract the natural resources or commodities in question. In other words, these groups must maintain their monopolies at all cost for their very survival. In order to do so, these groups must hierarchical from the top-down.
Note: Not only must these groups have top-down hierarchies, but rebellion at any level of the hierarchy cannot be tolerated because it threatens the necessary hierarchy. These types of systems can be split into roughly three kinds of systems: (1) patronage systems, (2) vertically integrated organizations that function like mafias, or (3) bureaucratic systems involving a military, "regulation", or some form of state monopoly.
1. In patronage systems, the money flows from the top to the bottom. The guys at the top receive the cash flow directly and distribute it to those who have supported them. In patronage systems, the initial cash flow is centralized to the guys running the show, usually by links to multinational corporations or by ties to natural resource producers or whatever the revenue source may be. Examples include countries like Afghanistan
2. In the case of vertical organization, we see money flow from the bottom to the top whereby the guys at the bottom level of the hierarchy extract some form of rent or bribery from the regular populace, tourists, governments, or whatever the cash flow mechanism is. Then, the hierarchical layer above the bottom layer takes a cut from the bottom layer. This mechanism continues up until the guys at the top. A classic example would be a country like Afghanistan.
3. Bureaucratic systems involve systems where the rule of law favors extremely wealthy elites. This can be run via the military to "fund programs" where most of the funding is stolen by the elites. It can also be run via regulatory or tax collection agencies that use regulations to penalize people who don't do what they want.

Another key aspect is that the local populace must be subdued in whatever manner necessary. A society that's in open rebellion to your regime has an obvious threat to your regime. Not only is there an obvious threat to your regime, but it's an all or nothing situation for the guys in running the show. These regimes end up being extremely repressive of all dissent and ruthlessly wipe out anyone who has any idea or thought of speaking against them.

As I've stated before, all of these enterprises get most of their revenue from the taking loot and the extraction of natural resources or commodities. However, it's important to note that taxation is a minor part of these regimes. Due to the fact that taxation is a minor part of these regimes, there is no economic or financial incentive to support the local populace. Instead, the consent of the governed matters little in governance. Unsurprisingly, this leads to poor governance.

Social, Political, Economic, and Financial Impacts of Warlord States:
Due to the fact that most warlord states rely on rent extraction for revenue and basic financing, these states are inherently unsustainable. Why are the economic and financial structures based on rent extraction unsustainable? Economic rent is defined by economic gain stemming from nonproductive activity. In almost all cases of warlord states, the extraction of rent is not only unproductive, but it is usually counterproductive and almost always destructive (I can't think of a counterexample).

These groups destroy capital in all of the cases where they extract revenue, which are:
1. In the extraction of loot or booty, there is no economic productivity that results from it and there's certainly aspects that destroy capital.
2. In the case of the extraction of natural resources, the result is environmental degradation and the resulting social, political, and economic structures that discourage capital formation and actively seek to destroy the creation of capital (ex. killing those who speak out against what's going on, discouraging qualities like intelligence or education among the populace, etc.)
3. The selling of vital economic inputs to other countries strengthens the financial ties of political actors, increases the geopolitical presence and power of warlord states, and creates international structures that undermine shifts in global incentive structures to create substantial shifts

It becomes important to notice that these warlord states do provide temporary political (pseudo-)stability in some regions by creating monopolies of violence and by violently putting down anyone who threatens their monopoly on violence. It can be argued (usually by those who benefit from warlord states) that these groups do some good by providing "stability", but this is a wrong statement.

The social, political, and economic impacts of these groups are entirely negative in every sense of the word. These groups, in every single case, destroy social, political, and economic capital of the regions they take. They make seem to be providing more "stability", but reduce the ability of these places adapt to future shocks by destroying necessary capital.

It's also important to note that the "stability" provided by these groups isn't actually stability. What they're doing effectively amounts to volatility suppression, whereby any sort of social, political, economic, or financial fluctuations are ruthlessly suppressed because of geopolitical financial incentive structures. Since there are no fluctuations that appear on the surface it appears to most people that the system is stable. However, the lack of fluctuations are a sign of weakness, not a sign of strength.

Everything in the world survives according to one principle: adapt or die. There is only one guarantee: change will happen. In these warlord states, change is not constantly occurring in small, regular intervals (as it does in capitalist republican institutions). So when the change occurs, the changes are sudden, drastic, large, and appear as tail events. In other words, the "stability", or pseudo-stability, provided by warlord states guarantees large blowups with virtually unbounded negative consequences. On top of this, the timing of these blowups is not only unpredictable, but the less often and less likely the blowup, the disproportionately large the consequences.

Fragility of Regions Controlled by Warlord States:
In times of large spikes or collapses in commodity prices or natural resources, these regions become even more sensitive to underlying shocks (whether internal or external). In other words, places controlled by warlord states become much more fragile under periods of high international geopolitical or financial volatility. The chances and costs of a rapid, discontinuous dislocation becomes far more likely.

In periods of high commodity prices, these regions become subject to larger geopolitical pressures and these regions become more valuable. Functional countries, governments, and multinational corporations view these regions as places of opportunity when commodity prices are high. These states become more likely to come under empires or quasi-empires while violence is more likely to break out over locations of natural resource or commodity extraction, over supply lines, over trade routes, and other areas I'm not thinking of.

In periods of low commodity prices, the revenue for warlord states collapses. Financing basic projects of infrastructure or providing social services to prevent populist uprisings becomes far more expensive. Using patronage to bribe or pay those lower in the hierarchy becomes far more expensive and costly. Debt can become heavily used, usually out of necessity, to preserve the regime under these periods of stress.

Basically, any sort of "unpredictable event" makes rapid dislocations in regions controlled by, or heavily influenced by, warlord states extremely likely. Usually, this event is a major geopolitical crisis, financial crisis, or a sudden collapse in commodity prices, but it could be other events as well. Any way you put it, these regimes are extremely fragile and rely on nothing going wrong all the time to sustain themselves. As volatility increases or the size of a shock rises, the harm from a further increase in volatility increases at a faster rate.

Conclusion:
Due to the shifts occurring in the world, we're seeing a radical decentralization that is absolutely necessary (some say China is centralizing, but China is decentralizing economically and financially although Xi Jingping is centralizing power politically). While this decentralization removes some risks, it creates others, including opportunities for certain profit seekers in areas with access to rent income, natural resource extraction, and/or in places with power vacuums.

Eventually, we've started to see the rise of warlord entrepreneurs come in to seize these profit opportunities. This can come as "official" or "internationally recognized" governments, but they've started to show up as criminal enterprises, "terrorist organizations", or other similar regimes. These regimes operate as ways to effectively extract rent and end up destroying capital, which makes them horrible at actually governing. These warlord regimes are effectively failed states, whether they're actual governments or not.

Due to the basis and organizational structure of the regimes along with the international basis that allow these regimes to exist, these places become highly fragile where small shifts can end up with massacres or famines. We could end up seeing large population corrections in these areas along with unprecedented levels of environmental degradation that creates environmental risks.

Capitalism, Tradition, and Spiritual Capital

In my previous post, I discussed how capitalism, by its very definition design, is more sustainable than socialism. In criticism from socialists and statists, there’s this conception and idea that capitalism is destructive for the environment, destructive for society, and destructive in general to everything because of “exploitation by the bourgeoisie”, the “profit motive”, and other similar nonsense. The socialist argument continues that the reason for this is because of the profit motive and nothing telling people not to destroy things. Of course, this is all just nonsense.

Even in capitalist thought, there are structures that govern society like tradition (ex. entire Austrian School) which most of the left (by left, I mean socialistic left based in Marxist thought) basically sets up as a strawman to attack based on faulty assumptions that allow these groups a sense of moral superiority. In the modern sense of the word religion, we think of centralized organizational structures primarily designed to structure society in such a manner as to protect a certain region from geopolitical threats (most versions of Islam and Christianity today). However, this has not been the case historically. These structures develop over time as ways to prevent environmental degradation, reduce social costs of various activities, and other reasons (that I think are spiritual as well, but don’t have to be for the argument I’m making). Actually, religion developed as rituals where deities were created later to consolidate those rituals. Note that ALL traditional religions emphasize environmental degradation as one of the worst vices: as a crime against God’s creation.
Note: This idea of paganism vs monotheism is really retarded if spoken in terms of belief. All religions are fundamentally monotheistic where pagan religions differentiate between a god and God (notice the capital G). The difference comes because theology in polytheism is decentralized while it is centralized in monotheism. Pagans in most places did not leave any books and the only polytheistic religion with books, that I know of, is Hinduism where the primary scriptures are almost entirely--if not entirely--metaphysical.

As I’ve discussed before, capital is any input in production that’s not land (natural resources) or labor. Therefore, we must also consider spiritual capital as an input in production. Most socialists and statists would respond that how does religion add value to society or to capitalist economic systems if religion is the reason for war. Of course, religion is not the cause of war; war is completely natural and occurs over a genuine conflict of interest arising between two parties and the sinew of war is usually (almost always) not money, but this is a different topic for a different day that I will probably write a post on later.

With regards to tradition in society, many would say that it’s “irrational” because religion is about “belief” and that these things aren’t true. They usually cite some biological evolutionary theory and use naïve Darwinism to support their point. The first point of contention would be that there’s a fundamental difference between the physical manifestation of a biological process vs the birth of our spiritual consciousness, but I don’t even need that fundamental truth to prove my point. All that’s necessary to prove my point is the simple fact that there’s a difference between knowledge of an underlying action, concept, or idea (or whatever else you can think of) vs our RESPONSE to the underlying action, concept, idea, etc..

For example, let’s take the simple idea of avoiding debt. I could avoid debt because I know that large amounts of debt can divert my entire income towards debt servicing costs, force my forecasts of the future to be exactly correct, and could potentially face underwater balance sheets if my assets were to fall. I could also avoid debt in the name of God. Either way, there would be no difference in my RESPONSE to shifts in my balance sheet. On the other scenario where I use some form of naïve rationalism to claim that large amounts of debt will be profitable because I can buy illiquid, risky assets on leverage and sell them a year later for a higher price because it’s “rational” since it can lead me to more profits if I’m correct. Obviously, following some blind interdict with little downside (that offers me CONVEXITY) in the name of God is the better option.

What I’m emphasizing is that there’s a fundamental difference between knowledge of some event or idea vs our RESPONSE to some underlying idea, event, etc.. In other words, controlling our response (or a system’s response) to some underlying variable is FAR MORE important than the underlying variable itself. Similarly, tradition and religion allow us to benefit from various heuristics reached via bottom-up experimentation and tinkering that have withstood the test of time. Basically, it’s far more rational to follow traditional religion than to go completely without it.

With that being said, am I arguing for a literal teaching of religious texts as the word of God? Hell no. In the case of Christianity, the Bible was compiled under the reign of the Roman emperor Constantine which was >300 years after the death of Christ. The idea that all the teachings of Christ and only the teachings of Christ were contained in the modern translations of the Bible is literally dumbfounded and retarded. Similarly, the rise of Islam came about with an Arab empire that stretched from the Middle East to, at its height, modern-day Spain in harsh terrain where other peoples were more savage than the ones in question. Again, taking the Qur’an as the literal word of God is retarded (and most Muslims do not actually think the Qur’an is the literal word of God). In the case of Hindu scriptures, the primary topic is about metaphysical principles (Hindu theology is decentralized).

I’m gonna reemphasize the point that the traditional aspects of religion are extremely important for a society. All religions come from the same underlying principles and are rooted in metaphysics although the particulars of each tradition are different. I’d like to add that the particulars must be different for each of these traditions because of the different geographical roots. For example, the diverse Indian subcontinent requires very different traditions than the Latin Christianity that rose to power from its center in the Mediterranean which must necessarily be different from the Islam that was built around the Arab world. However, the underlying principles are fundamentally the same--see the work of Carl Jung, Rene Guenon, and many others).

Sustainable Economic Systems, Capitalism, Socialism, and Constraints Imposed by Empire

This post is primarily about socialism, capitalism, the means of production, and the constraints imposed by empire. I'll split this post into six sections:
1. Introduction.
2. Capitalism
3. Socialism
4. Constraints Imposed on the Means of Production by Empire and Warfare
5. Why Do Countries with Peacetime Capitalist Structures Generally Win Wars?
6. Conclusion

1. Introduction:
Among socialists, leftists, and statists there's a common idea thrown out which says that the basic idea and structure of capitalism is based for warfare while socialism is what we need to work towards as a more sustainable way that's less likely to lead to war. As regular readers of my blog know, we shouldn't take socialists, leftists and statists seriously as they almost always just spew nonsense. This case is no different.

A typical leftist, socialist, or statist would argue, how can anyone say that socialism is better suited for war when capitalism is all about "exploitation by the bourgeoisie" or "the lower classes are being oppressed" or "it's the upper classes that start/want war"? Of course, these people have simply shown the inability to think clearly by making such statements while adding nothing of value to the discussion. However, I'm gonna throw aside such nonsense arguments as they add no value and instead start by talking about the primary differences between the way capitalist and socialist economic structures operate.

Let's start by focusing on empire and the constraints imposed by empire. These constraints are the fundamental reason why truly capitalist economies, if their organizational structure remains completely unchanged, are completely incompetent and cannot survive in warfare. During wartime, capitalist economic structures are forced to give way so that the means of production can be directed to where they need to go as dictated by geopolitical constraints. 

2. Capitalism:
First, I'll start off by defining capitalism. Capitalism is a system of economic organization built on the private ownership of the means of production as a means to accumulate capital, which is any input that's not land (natural resources) or labor. As I've discussed in my post on the basics/dynamics of real wealth creation, an economy is like an ecosystem with inputs and outputs with outputs paying for inputs. The laws of thermodynamics tell us that you can't create something from nothing, so the only sustainable way to increase output is by increasing the use of natural resources, labor, or capital (which is, by definition, anything not land or labor).
Note: Environmental degradation, which almost always accompanies the extraction of natural resources, destroys capital, but natural resources are necessary for production.
Note: All natural resources can be extracted in different ways and most have substitutes. For example, the use of oil or natural gas can be substituted with coal or firewood/biomass. The only natural resource I can think of with no substitutes is water, which is usually far more limiting in terms of food production than land.

Therefore, the entire idea of accumulating capital is inherently sustainable. Not only is it inherently sustainable, but the idea of capital accumulation is the ONLY sustainable economic system over any sustained period of time. Increasing doesn't enhance living standards as people are simply working more to produce more. Increasing the use of pure natural resources is actually destructive, forces future generations to bear the costs, and can actually destroy capital because it forces costs onto future generations. Therefore, THE ONLY SUSTAINABLE ECONOMIC SYSTEM IS ONE BUILT ON CAPITAL ACCUMULATION!

3. Socialism:
Now, I'll talk about socialism. Socialism is a system of economic organization built on the social ownership of the means of production as a tool for society to use as it pleases. Again, socialism is not an economic system designed to accumulate capital, but one that allows society to use inputs as it deems best. This system--due to its lack of emphasis on the accumulation of capital and emphasis on the pleasures of society at a given time--is almost always unsustainable because the pleasures of society rarely desire a sustainable way to accumulate wealth as it takes smart work, risk-taking, volatility, and difficulty. Usually, society desires easy riches over hard-won sustainable wealth as they seem to require less work and provide more. The classic example is old-school imperialism where nations or empires would go into places to take loot. Again, many dictators, military men, and politicians have done this (and still do this) as a tool to gain the support of the populace to rise to, or maintain, power.

In other words, socialism is about controlling the means of production and the direction or use of the means of production (this comes straight from the definition) towards some common goal as society deems it. Unless the goal of society is specifically determined towards the accumulation of capital, whether knowingly or unknowingly, living standards and quality of life cannot sustainably increase under socialism.

Of course, a socialist, leftist, or statist might say that the people can determine and choose such an outcome or that a king/dictator/monarch can choose such an outcome, but I'd like to point out that this choice is rare and unlikely. Again, the accumulation of sustainable wealth (capital) is difficult and takes sacrifice. Wealth accumulation requires both prudence, temperance, and courage, which is hard to find in any large group of people. Note that I'm making an implicit assumption about human behavior that basically says prudence, temperance, and courage together are rare qualities for most people to possess. I find it naive to expect society at large will choose an organization wherein the society at large suffers what seem to be large, up-front costs for benefits that may accrue in the future with lots of toil and hardship. Keep in mind that winner-take-all benefits will dominate in the creation of wealth, which makes it even less likely for a society following a socialist model to take up.

4. Constraints Imposed on the Means of Production by Empire and Warfare:
Now that we have a basic idea on what socialism and capitalism comprise of and the underlying ethos on the organization of both economic systems, we can talk about the impact of these systems on war. War is an armed conflict between autonomous regions that are either governments or behave like governments (ex. confederation). Wars usually contain a certain objective (or they end up with nation-building and as a waste of time like the War in Iraq) with the goal of the government to achieve those objectives. Those objectives could be to seize a territory, kill a certain person, ruin a city, take natural resources, or whatever. The important point to grasp is that whatever the objective or goal, the means of production must be directed toward that goal.

For example, at least some of a country's manufacturing capacity must be directed towards the procurement of arms. Real resources used in elsewhere in the economy must be redirected towards other ends. Infrastructure must be built and maintained in order to secure the transport of various goods or services critical to fight the war, regardless of the impact of infrastructure on productive capacity. Supply lines for troops must be protected. Certain classes of society must be used towards goals as deemed by the constraints of war (ex. nurses and doctors must be transferred towards taking care of soldiers). Capital must immediately be redirected towards the financing and operation of warfare.

Basically, the constraints imposed by warfare implies that resources must be redirected towards some other alternative goal or desire than those of private wishes. Capitalism, as I've described it, becomes very difficult for a society to use in warfare simply because of its structure and design. Capitalism is the private ownership of the means of production towards the accumulation of capital, but the accumulation of capital is useless during warfare. The goal of warfare is victory and the goals of the war for a government is whatever that victory requires.

In socialism, the means of production can be redirected at will towards whatever goal society deems necessary. If a society suddenly goes to war, the very design of the economic mode of organization provided by socialism makes it very easy to shift economic inputs toward warfare. It's in the nature and design of the system.

5. Why do Countries with Peacetime Capitalist Structures Usually Win Wars?
After reading until here, a socialist, leftist, or statist would often respond with a statement like, if socialism is better fit for warfare, why do capitalist economies perform better in warfare? That must mean that socialist economies cannot be designed for war. On the surface, such statement would seem to make sense, but capitalist economies are forced to shift their economic mode of organization in wartime when certain geopolitical constraints are present. In other words, capitalist economies basically turn socialist (or at least partially socialist) in times of war by constraints imposed on political systems.

Also keep in mind that capitalist systems, due to the emphasis on the accumulation of capital, tend to have higher levels of productivity, more wealth, better technology, and are more sustainable than socialist systems (as discussed above). This is why when capitalist societies do shift their economies towards war time, they often times overwhelm the other side given that they can fully transition to a wartime state given that they've secured key natural resources and supply lines (ex. US in World War I and World War II).

As ironic as it may seem, peacetime capitalist economic structures have won more wars and are more capable of winning wars not because they're built for warfare, but because they're built towards sustainable wealth creation. In warfare, all economies are, at least partially, socialist. However, war drains economic inputs that could be used elsewhere that end up being directed toward destruction and control. Increasing or diverting production towards goods and services purely designed to destroy other things is not a productive use of resources. It's just that peacetime capitalist structures just have a much large source of resources and inputs that can be wasted or put towards unproductive causes, which is why they tend to win wars.
Note: I'm assuming all else is equal when comparing capitalist and socialist economic structures during wartime. Of course, all else is never equal.

6. Conclusion:
Controlling the direction of labor, nationalizing entire industries, shifting natural resources to certain areas at certain times for certain goals, large and sudden increases in manufacturing capacity, the construction of large-scale infrastructure at will for whatever purpose, increases of certain kinds of production at certain times, control of certain lanes to supply certain groups in certain places, and other things of this sort for the "desire of society" is socialist, but it's also necessary for warfare.

Suppose we have a firm in a capitalist providing a service for, say, providing underlying technology infrastructure for other businesses or individuals. Taking control of the firm to direct the firm's assets, its workers, and its capital toward a societal goal is socialist, but that's exactly what happens in war. Profit and capital accumulation become secondaries to the common goal of victory in wartime. Capitalism, by itself, has no mechanism of organizing itself for warfare when necessary.

In essence, the idea that capitalism is suited for warfare is wrong. Capitalism is not built for war and cannot function in wartime while still maintaining its underlying structure. Socialism has a much better design for warfare than capitalism, which is why peacetime capitalist structures are forced to morph under the guidance of political systems when geopolitical constraints become imposed on the society in question.