The Dominance Hierarchy of America’s Future

There is a question underneath everything I have been writing for the past week.

When interests collide, who wins?

Not who should win. Not who has the better argument. Not who won the election. Who actually has the power to impose an outcome on everybody else? Every society has a dominance hierarchy. We don’t like talking about America that way because it conflicts with the story we tell ourselves about democracy. We prefer to believe that political authority ultimately flows from the voter and that government acts on behalf of the people who elected it.

That arrangement depends on trust. More specifically, it depends on moral authority: the belief that even when government makes decisions you dislike, the institution is legitimate enough that you accept its right to make them.

That is why I keep returning to 2009. When the people responsible for the financial crisis were protected while millions of ordinary Americans absorbed the consequences, government didn’t merely make a bad policy decision. It damaged its moral authority. It demonstrated that when the interests of concentrated financial power collided with those of ordinary citizens, the losses would not be distributed equally.

The people learned. That was The Original Sin.

Then comes The Ultimatum Game. People will tolerate losing for a long time. What they have much more difficulty tolerating is an arrangement they believe is deliberately unfair. Eventually they become willing to hurt themselves if doing so allows them to punish the person they believe is exploiting them.

That is one way to understand much of American politics now. Normally a democracy would have a mechanism for dealing with this. If enough people concluded that the government was no longer representing their interests, they could replace it with something else.

That’s where the political monopoly matters. America has two parties with complete control over entry into the political marketplace. They fight ferociously over which one gets to control the government, but neither has much interest in changing the architecture that gives those two organizations exclusive control over it.

So the public can change management.

It has a much harder time changing the system.

And that brings us back to the question.

When interests collide, who wins? I spent much of my career watching this happen from inside the rooms where those conflicts were negotiated.

The voter has power. The government has more.

Large corporations and wealthy individuals have extraordinary influence over the government because they finance campaigns, employ lobbyists, control investment and possess the resources required to remain permanently engaged in policymaking. Government, in turn, has enormous power over everybody beneath it. It can tax, regulate, subsidize, prosecute, borrow and spend.

That hierarchy can operate for a very long time.

Until it encounters something above it.

The bond market.

That is why the bond story I wrote about yesterday matters so much.

The United States government can tell voters almost anything.

It can run deficits. It can borrow. It can postpone difficult decisions. It can change accounting assumptions. Politicians can blame each other. They can blame foreigners. They can blame billionaires or immigrants or socialists or bankers.

They can hold hearings. They can go on television.

The bond market doesn’t care.

It asks a much simpler question. Are you going to pay me back in money that is still worth something?

If the answer becomes sufficiently uncertain, lenders demand more money to lend. Interest rates rise. Debt service rises. The deficit gets worse. More borrowing becomes necessary. And eventually something has to give.

This is where the story becomes much darker than the comforting idea that “the market will impose discipline.”

Because markets do not impose justice.

They impose prices. If the bond market finally imposes discipline on a government that has borrowed too much, it does not carefully identify the politicians, donors, lobbyists, corporations and wealthy interests that benefited most from the decisions that created the debt and send them the bill.

The bill moves through the entire society. Mortgage rates rise. Credit becomes expensive. Businesses cut investment. Workers lose jobs. Government programs get cut. Taxes can rise. Inflation can destroy purchasing power. Asset prices can fall.

And the people with the least margin suffer first.

The family living paycheck to paycheck cannot hedge inflation.

The renter cannot borrow cheaply against appreciating assets.

The small business owner cannot call a private banker and restructure the portfolio. The person dependent on a government benefit cannot diversify away from a government whose finances are deteriorating.

The wealthy can lose enormous amounts of money in a financial crisis and remain wealthy.

The poor can lose a job and lose everything.

This is the brutal irony at the top of the dominance hierarchy.

The only force powerful enough to discipline the United States government is incapable of distinguishing between the people who created the problem and the people trapped inside it. The bond market can discipline Washington.

But it cannot administer justice.

And the people most insulated from that discipline are often the same people who possessed the greatest influence while the debt was being accumulated.

That completes the circle of what I have been trying to understand.

The American economic bargain is being threatened by artificial intelligence at exactly the moment institutional trust is already badly damaged. The moral authority required to negotiate that transition was squandered years ago.

Behavioral economics tells us what populations do when they believe the bargain has become intolerably unfair.

The political monopoly makes structural reform extraordinarily difficult.

Institutions themselves can acquire incentives to preserve dependency rather than eliminate it.

And above the entire arrangement sits a creditor. For a long time, America could ignore that creditor because the world considered lending money to the United States essentially risk-free.

That privilege gave us enormous freedom.

It also allowed us to postpone choices.

Now the number is north of $40 trillion.

And eventually arithmetic becomes a form of power. That is the part of the dominance hierarchy that politics cannot repeal.

A President can defeat another President. A party can defeat another party. The federal government can dominate an individual, a company or an industry.

But the United States government cannot order the rest of the world to lend it unlimited amounts of money at a price it finds convenient forever.

There is always something higher in the hierarchy.

The danger is believing that when that higher power finally asserts itself, it will somehow correct the injustice beneath it.

It won’t. The bond market is not a moral authority. It is not a democracy. It doesn’t know who caused the problem. It doesn’t care who deserves what.

It clears the market.

And if we wait for that mechanism to resolve conflicts that our political system no longer has the credibility or competitive structure to resolve itself, the people who will pay the highest price are unlikely to be the people who made the decisions.

That may be the most dangerous part of the entire story.

When moral authority disappears, power settles disputes. And when government finally encounters a power greater than itself, everybody underneath it is still standing in the blast zone.