The bubble that must burst is a very, very large bubble. It is worldwide. It is co-existent with most nations of the world.

Like all bubbles, for a time it appears rational. It even seems to work. The bubble seems to bring all gains and no losses, and all at very low cost. The returns seem very high and never-ending. They attract the resources and allegiance of many because the yield seems so high.

But like all bubbles it cannot go on forever, because it is based on greed and gain extracted from other persons against their wills. It is a bubble based on extrapolative expectations that eventually cannot be sustained by reality.

What is this bubble? It is the bubble of constitutional and representative democracies that lack the consent of all of those being governed. It is the bubble of states that promise more and more social gains and cannot deliver upon these promises. It is a bubble of governments that are chain letters and Ponzi schemes. It is a bubble built upon robbing some to pay others.

All of these bubbles must, by the dynamic of their intrinsic nature, come to an end. They all must, by the necessity of facing reality, be deflated. And, in the process, the peoples of the earth will have to come face to face with themselves and will have to fashion new social and political relations.

The constitutional and representative democracies cannot be saved by changing the leadership, because they are based on rules of force that must come to grief. They cannot be changed by voting. No stable economy can be reflated by a central bank, and no stable nation can be reflated by voting in new leaders. Counter-intuitively, the government bubble will burst when more and more people do not vote and withdraw their support from a government based on unworkable and unjust rules of force.

Democracy, as people are now exercising it through majority force throughout the world, is rotten to the core. It is common within these government systems for people to rush to take advantage of anyone else they can, in their greed. Democracy has become one big speculative bubble, as many people have placed bets on an ever-expanding gain for themselves at the expense of others. This cannot go on indefinitely, so it is a bubble that has to burst.

Chain letters must come to an end. Ponzi schemes must unravel. The music must stop and there will not be enough chairs for all to sit on. Speculative bubbles must burst. Governments built upon ever-expanding circles of greed and gain must fail. Trees do not grow to the sky.

Deep down, we know this. We only hope that we will not be the one left standing when the music stops. We only hope the system will last another 10 or 20 or 30 years or whatever life we have left. We wish our children and grandchildren well, but we are secretly glad that we do not have to confront the problems we hope will be deferred to them and not fall upon us.

Why must bubbles burst? Basically because they cannot pay off according to our expectations.

Take the housing bubble as an example, but a bubble in growth stocks works in the same way. Changes in expectations cause price changes. If we think houses will rise in price, we are more inclined to buy them. This makes the price rise. It reinforces our expectations and draws in new buyers. Many causes of changes in expectations are possible. In the U.S., we had lower interest rates and the authorities encouraged re-financing at lower rates. In some places, new house building was restricted as in California. House prices started to rise. This started a speculative move in which people started bidding house prices higher. This was concentrated in a handful of states. Some areas grew because they had a real business boom. The idea got around, from several sources, that prices were rising. People had extrapolative expectations. They thought that what was past was prologue. These expectations self-reinforced for a while, even years.

Eventually, the reality sets in, which is that the asset cannot rise too fast in price indefinitely. It sets in for a number of reasons. Builders build houses at much lower replacement costs, drawing demand away from the high-priced houses. They also build more of the high-priced houses than there are buyers. Rentals begin to look relatively less expensive. The market runs out of new buyers, because prices are high compared to wages and salaries. Other investments begin to look relatively more attractive. Interest rates rise. Speculators begin to sell out what they had bought earlier in order to take profits. The bubble bursts, as it has to.

People are expecting a big profit, or a high yield from the house purchase. That is why they buy at high prices. They think they are going higher. When people count into their calculation of a high yield the expected future price gains, as in buying high-priced growth stocks or high-priced houses, they are pouring money into these assets thinking they have higher yields, and they are bidding the prices up so as to get those yields. In the process, the yields are falling. The whole price process is driven by what is in their minds because it’s all what they expect will happen in the future.

Greed for gain comes to grief. Many people and institutions borrowed heavily to take advantage of the housing bubble. It was like the stock margin buying in the 1920s. All of those that used so much financial leverage should fail. We who did not should not be made to pay them for their greed and mistakes. All the ones that took out asset insurance from counterparties that had no assets — they erred in their evaluations too, and they also should bear their own losses or fail. Innocent people shouldn’t be paying for the mistakes of others. All the ones that can’t pay for their houses now and are under water should face the consequences themselves. They too blundered. No one should be made to bail out someone else.

This is not the way of most governments, however. Bailouts are the way. The attempt is to find chairs for those left standing. The chairs have to be stolen from those who were prudent enough to sit down earlier before the music stopped and the game of musical chairs ended. Governments today routinely violate basic human rights to life, liberty, and property.

Government bailouts are the government’s absorption of the housing bubble into its own social security bubble. This hastens the bursting of the government bubble.

Generations before us started the government bubbles that now rule us. They bet on government. They saw gains coming down the pike as they collected their Social Security and built their subsidized houses and drove on their subsidized highways and grew their subsidized crops, all through subsidized loans. They saw gains from favoring labor and executives and public schools. The bubble grew because shifting coalitions bid up the power of government and collected the gains. Voters psychologically buy into the government bubble. They have extrapolative expectations. They think that they will secure the gains that the earlier generation managed to extract. But those gains are in their minds. They are unpaid promises made by their officials. Who will pay for those gains? Who will pay for the bailouts, the health care promises, the retirement promises, and all the other trillions upon trillions of guarantees being liberally handed out? The bubble has to burst. There’s only so much gold in them thar hills before the price of extraction rises beyond its worth.

One can do no wrong by buying a house that is going up in price, or so it appears. And one can do no wrong by endorsing a government that provides a rising stream of benefits, or so it seems. Why not buy a second home or a third? Why not borrow to buy them? And why not expand the government and get more benefits? Why not have the government borrow to provide them?

Government in its current form is an overpriced growth stock. It is paying dividends out of contributions forced out of newcomers to the game and extracted in countless ways from the dividend recipients and obtained from borrowing. It is promising a rising stream of future dividends, while itself producing nothing of value.

When the value of the obligatory debts exceeds the value of the assets, the enterprise is insolvent. The owners walk away from the assets. When government debts exceed the value of the social benefits, people will walk away from the government. Many already have, in a variety of ways. Why pay more than what something is worth? Why invest any emotional capital in an institution one regards as unfit, unjust, inefficient, intrusive, irrational, unworkable, and ineffective?

Government is now an insolvent enterprise. Government is a Ponzi scheme. Government is a fraud. Government is a bubble that must burst.

That being the case and while there is still time to think without the pressure of rapidly changing events, we can only benefit by exploring and considering a wide range of social and political options that are in accord with basic and sound principles of peace, liberty, justice, and rights. A period of revolutionary reconstruction lies ahead of us. We should not be reflating the government bubble that will burst; we should not be reflating the forces of domination and greed exercised through and by coercive government.

We should be shaking off the myths, fallacies, errors, and wrong turns of the past. We should be stating, and reinstating, and advancing those principles that can shape societies along sound lines. There are sound ideas that came along with constitutional governments, but they have been shunted aside and diluted. Consent of the governed, all of the governed, is one of those principles. This implies a second principle: Government without claim over territory, or an end to the idea that a sovereign has a right to claim rule over a territory and every person and thing within it. No person can rightfully be made a citizen of a government without his consent and by virtue of the place where he happens to live.

The internet can be a model of what is to come with respect to getting to a much-reduced arbitrary and non-consensual governance and a situation where social interactions are freed from unnecessary coercive restrictions. People can freely join whatever societies of persons they wish throughout the globe in a way that surpasses the force-ridden idea of territorial domains. The internet has no such territorial borders, and such borders only reinforce coercion as well as being the product of coercion. The internet is breaking down those borders as it opens up communications.

The bubble governments of the present have vastly intruded upon social matters. They have made the social into the political in areas where they have not obtained the consent of all. There is a large enough and difficult enough realm of governance without government absorbing society. There are all sorts of disputes, conflicts, and crimes that require governance and justice procedures. Libertarians have thought long and hard about how to preserve and improve these governance systems, even as the non-consensual features of the present bubble governments fall by the wayside when these bubbles eventually burst. Libertarians have thought long and hard about rights, rule of law, due process, and property rights. This thinking needs to be continued, questioned, tested, ramped up, restated, refined, integrated, and understood even better. The government bubble is going to burst, and we will need this and more thinking in order to cope with the coming opportunities to remake social and political relations.

The Best of Michael S. Rozeff