I read an article the other day that discussed growing rejection of democracy in developing countries. There is conflict between urban middle classes and rural lower classes. In conventional political thinking the middle classes are viewed as proponents of democracy leading nations away from various despotisms such as monarchy and military authoritarianism, but the despots have turned the tables on them and become populists who buy the votes of the poor cheaply. The countries then spiral into poverty and chaos, as in Zimbabwe and various S. American nations.

It occured to me that the same thing is happening in developed nations but that it is the urban poor that support populist despotisms. This has been so in Europe for decades and more recently in the USA too. The trend is accelerating as the old industrial base decays and formerly middle class people and their children face bleak prospects.

Social Democrats are working to create a society where the majority are net recipients of the "sharing economy." They are fighting a culture war of attrition with economic tools. Defenders of capitalism risk getting caught flat-footed with increasingly antiquated arguments that free enterprise is a Main Street pocketbook issue. Progressives are working relentlessly to see that it is not.

Advocates of free enterprise must learn from the growing grass-roots protests, and make the moral case for freedom and entrepreneurship. They have to declare that it is a moral issue to confiscate more income from the minority simply because the government can. It's also a moral issue to lower the rewards for entrepreneurial success, and to spend what we don't have without regard for our children's future.

Enterprise defenders also have to define "fairness" as protecting merit and freedom. This is more intuitively appealing to Americans than anything involving forced redistribution. Take public attitudes toward the estate tax, which only a few (who leave estates in the millions of dollars) will ever pay, but which two-thirds of Americans believe is "not fair at all," according to a 2009 Harris poll. Millions of ordinary citizens believe it is unfair for the government to be predatory -- even if the prey are wealthy.

Political strategy aside, intellectual organizations like my own have a constructive role in the coming cultural conflict. As policymakers offer a redistributionist future to a fearful nation and a new culture war simmers, we must respond with tangible, enterprise-oriented policy alternatives. For example, it is not enough to point out that nationalized health care will make going to the doctor about as much fun as a trip to the department of motor vehicles. We need to offer specific, market-based reform solutions.

This is an exhilarating time for proponents of freedom and individual opportunity. The last several years have brought malaise, in which the "conservative" politicians in power paid little more than lip service to free enterprise. Today, as in the late 1970s, we have an administration, Congress and media-academic complex openly working to change American culture in ways that most mainstream Americans will not like. Like the Carter era, this adversity offers the first opportunity in years for true cultural renewal.

My concern isn't moral, it is practical. Such nations are not sustainable. They consume their social as well as their economic capital in unproductive entertainments. The hook is the promise of easy living but it doesn't last. Muddled thinkers (administration, Congress and media-academic complex) fail to understand systems dynamics and focus on the short term. It's as if membership in those professions is equivalent to a massive IQ reduction.

Curiously, this is similar to the sort of thinking that caused our current financial woes.

It was a brilliant simplification of an intractable problem. And Li didn't just radically dumb down the difficulty of working out correlations; he decided not to even bother trying to map and calculate all the nearly infinite relationships between the various loans that made up a pool. What happens when the number of pool members increases or when you mix negative correlations with positive ones? Never mind all that, he said. The only thing that matters is the final correlation number—one clean, simple, all-sufficient figure that sums up everything.

The effect on the securitization market was electric. Armed with Li's formula, Wall Street's quants saw a new world of possibilities. And the first thing they did was start creating a huge number of brand-new triple-A securities. Using Li's copula approach meant that ratings agencies like Moody's—or anybody wanting to model the risk of a tranche—no longer needed to puzzle over the underlying securities. All they needed was that correlation number, and out would come a rating telling them how safe or risky the tranche was.

As a result, just about anything could be bundled and turned into a triple-A bond—corporate bonds, bank loans, mortgage-backed securities, whatever you liked. The consequent pools were often known as collateralized debt obligations, or CDOs. You could tranche that pool and create a triple-A security even if none of the components were themselves triple-A. You could even take lower-rated tranches of other CDOs, put them in a pool, and tranche them—an instrument known as a CDO-squared, which at that point was so far removed from any actual underlying bond or loan or mortgage that no one really had a clue what it included.

We seem to be living in an old Philip José Farmer novella in which the giddy and flawed futurism of the early 1960s is being actualized, as if the past 40 years had never happened and our understanding of the world has not progressed. The disconnect between the stunted development of culture and reality is massive. More from an old post:

I've argued, as have others, that a more sophisticated understanding of democracy is required. It's not about voting and majorities, it's about self rule. The purpose of the agora is to become aware of what others think, to learn what must not be done, what they think is intolerable. Deliberation does not mean arriving at a consensus. Consensus is not possible except in trivial cases involving small and homogenous groups. It's tribal thinking. Deliberation is the process of shedding cherished illusions and grand schemes for perfecting society based on parochial views. Governance of this sort is very limited since there are few things that can be done that don't oppress significant minorities.

In the past this sort of more humane governance was too weak to fight external threats. It would have invited conquest by grasping neighbors not yet so evolved. The necessity for maintaing national defense made it impossible to govern well. Perhaps this too shall pass. Perhaps the end of the cold war and the collapse of the socialist dream of world conquest heralds a growing understanding that conquest isn't useful any longer, not now that we have good and fast communication. You can't really get away with anything and all can hear the cries of the oppressed.

So, the two major sources of oppression - internal and external - are outed at the speed of light. This won't end oppression quickly, nothing can do that, but it has painted a huge message on the wall announcing the future. Now all the powers and pundits need to focus on reality and imagine institutions that fit. It won't be quick - evangelists are slow to learn anything - but I expect progress to proceed funeral by funeral as the old guard dies off one by one over the coming decades. The alternatives are ugly and violent. I suppose my expectations are really just hopes. I hope that the old notions of perfectibility and squeamishness about individual bizarreness and failure fade away. We're a diverse lot and some of us make silly choices and have stupid enthusiasms. Some of us do much better. When all have the liberty to pursue their enthusiasms the net achievement exceeds that of controlled systems that seek improvement through regulation and uniformity.

The flawed visions of the past based on an assumption of some sort of totalizing power that could and so would control everything still animate what passes for intellectual elites. They have trivial disputes about the details of this settled position: what type of totalizing system will we have. The repeated collapses of totalizing systems - governments, financial empires, ecologies etc. - provide sufficient data to grasp that these are bad approaches. We should be suspicious of any proposed system that does what Li's equations did in masking the complex details of reality with an abstraction, a derivative reality. It isn't just that such views are necessarily false, it is also that they in turn are fodder for further abstraction: derivatives squared, cubed etc. The method is as flawed for government systems as it is for financial management. It's old fashioned thinking that we really need to move past, hopefully before the task can be accomplished by the traditional funeral-by-funeral method.