Removing The Velvet Glove

March 23, 2013

Democracy, Law, Legitimacy

Removing the Velvet Glove

A lifetime ago, in a college political science course, I remember spending an inordinate amount of time studying the concept of ‘legitimacy’, how people come to believe in the authority of government and what makes them obey or feel loyal toward their governments. In earlier times legitimacy may have been conferred by, say, a belief in the divine right of kings or an averred social contract between the ruler and the ruled. But, in the U.S. today, legitimacy stems from a belief in one of the central tenets of the Declaration of Independence, that “governments derive their only just powers from the consent of the governed”.

Without significant legitimacy governments would quickly collapse, overwhelmed with the task of using brute force instead of voluntary compliance to ensure implementation of their program (see Syria today).  Consequently, most governments go to great lengths to bolster their legitimacy, surrounding their leaders with the trappings of wealth and power, ensuring that schools teach an ‘approved’ curriculum, particularly history, and making sure that the media apply the correct spin to their reports.

Unfortunately, political legitimacy has been on the decline in the U.S. since the New Deal transformed government in the 1930’s. Today, only 25 percent of U.S. voters think the federal government has “the consent of the governed”. This should not be surprising as we have come to accept as routine the capture of government by a slew of different interest groups ranging from congressmen, banks and public sector unions, to corporations, environmentalists and the military. This concept is the polar opposite of the original meaning of “consent of the governed”.

As legitimacy wanes so the disquiet of civil society waxes. Governments with a high degree of legitimacy have no need to station soldiers on street corners, close down non-compliant newspapers or websites and/or confiscate the property of its citizens. As a result, for most of the time, the iron fist of government remains well concealed in its velvet glove. However, when a government decides, as the government of Cyprus did last weekend, to close the banks and rob even small investors of 10 percent of their savings at a stroke, to help pay for the profligacy of both banks and government alike, the rubber hits the road and the velvet glove comes off. The fist of the state is now in the face of the people and most people have no doubt what they are looking at.

The strategies of financial repression are many and varied, including debt default, protectionism, exchanging retirement accounts for worthless government bonds, confiscation of gold, foreign exchange controls and travel restrictions. One day we will be Cyprus. If and when the U.S. government decides to remove its velvet glove and implement financial repression, at what point, if any, would you choose to withdraw your consent to be governed?


“There is no reason to accept the doctrines crafted to sustain power and privilege, or to believe that we are constrained by mysterious and unknown social laws. These are simply decisions made within institutions that are subject to human will and that must face the test of legitimacy. And if they do not meet the test, they can be replaced by other institutions that are more free and more just, as has happened often in the past.”  Noam Chomsky

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill


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46 Comments on “Removing The Velvet Glove”

  1. A Gripping Life Says:

    Excellent, Malcolm. What’s happening in Cyprus is so scary. I do feel like our country is headed in this direction. I think many of us are feeling powerless to change this course.
    Thanks for being such a great teacher. The idea of legitimacy, as it pertains to government, is new to me. 🙂


  2. chr1 Says:

    Malcolm, great post.

    As you know, I’m probably a little less anarchic than you. I’d love if we could dig ourselves out of the New Deal collectivist contract through legislation, and that the minds of Americans would be fitted to this change. Add the Great Society, and now Obamacare (Democrats have had this on their wishlist for decades) and the outlook is grim.

    Cypress is bad, and there is an iron fist. Force alone is a dead end, though, as you point out, and in this case it is not physical yet, just financial. I would definitely wonder what my options would be as a Cypriot today.

    A society with Russian mob money and some mix of monarchy and oligarchy running things has got serious problems. Add this little island to the top down Euro project, which is not necessarily run by consent of many Europeans, and you’ve got serious issues. Some parts of the Euro project are probably worth saving, and I think some structures can tie such different economies, peoples, languages and cultures and states together, but as it stands, such obvious examples of coercion to keep the thing going are troubling. Consent of the governed doesn’t always mean some inviolate contract between individuals in a state of semi-anarchy, as Chomsky’s anarcho-syndicalism or libertarian socialism proposes.

    This is why I return to Burkean conservatism, or maybe can be persuaded by Joseph Epstein’s addition of capital markets being the glue that unites individuals beyond their families and trusted groups. I’ll take common law contracts and torts, and a Lockean gov’t securing life, liberty and property. I’ll listen to Natural Law arguments, the Straussians, the traditionalists and even Darwinian conservatives, as I have trouble being a believer myself.

    Hopefully, we’re a long way from Cyprus, and beneath the current progressive crowd, the cronyism, and the long slow growth of government, there are many traditions worth keeping and growing that make us more likely to avoid such a fate.

    Hopefully, I won’t have to answer your last question for a while.


    • Malcolm Greenhill Says:

      Chris, thank you. You always bring to the debate such a wealth of knowledge about foreign affairs and intellectual currents, although I’m not sure who Joseph Epstein is. Do you mean Richard Epstein? I hope you’re right that “we’re a long way from Cyprus”. Our debt ratios are larger than Cyprus but, as you point out, we still have a lot going for us.


      • chr1 Says:

        Whoops. I meant Richard Epstein. Sorry to get off track here.

        Well, geographically, we actually are quite far from Cyprus, so there’s that.


  3. The Sicilian Housewife Says:

    Very interesting, and something we Europeans have been worrying about for a long time.

    What would you do if you were governing Cyprus, BTW? Most of the Russians with investments there are millionaires, whilst the regular German taxpayers are wondering if they will be called up on (again) to bail them out, since nobody else in Europe can or will do it.
    It’s a tough one. What a horrible situation.

    Also, how likely do you think it is that the US will end up in a similar situation?


    • Malcolm Greenhill Says:

      Veronica, thank you for asking such simple and easy questions 🙂

      Historians are going to look back and see this unfolding credit crisis as one of the great economic crises of all time, on a par with the 17th century Tulip Mania, the 18th century South Sea Bubble, the U.S. Panic of 1837 and the 1930′s Great Depression. Cyprus, as you know, is only one very small part of the problem although it might yet prove to be the proverbial straw that breaks the camel’s back. After 30 years of unprecedented credit expansion and mismanaged economies there are no good solutions left. I am of the opinion that debt default with all its consequences, is virtually inevitable, certainly in the United States and probably in Europe. The timing, is of course, unknowable.

      There are some advantages to default which I addressed in an old post here:


  4. NicoLite Великий Says:

    You paint a bleak picture of the American Future, but alas, it is not far fetched. Even if I could argue on some minor points of your argumentation, I very well get what you are saying.

    If that day comes, I will cast my vote not at the urn, but from the roof top


  5. Argus Says:

    I think the legitimacy of most western ‘democratic’ governments springs from force of habit and circumstances (much like one’s religion being highly indicative of locality).
    We accept what we grow up with, rarely questioning the norm—the old ‘if today’s Friday is fish-day’ sort of thing.

    We are conditioned everywhere to accept the status quo, it’s that simple. So we do. And if we didn’t—what can we do about it?

    And when the gloves do come off—as they will—in America at least you can expect vast movements of troops across the entire empire, such that Yankee soldiers are enforcing the Law in the South and vice versa.


    • Malcolm Greenhill Says:

      Don’t underestimate the power of legitimacy or the lack of it. Once a government loses legitimacy in the eyes of its citizens the emperor is revealed in all his nakedness.


      • Argus Says:

        After loss of ‘legitimacy’ as a means of holding power, the velvet glove comes off the iron fist.

        Is this why the US government is setting itself up for a role-reversal? One doesn’t have to be a Conspiracy Theorist to read between the lines and come to unpleasant conclusions.

        Hmmm … velvet glove … iron fist … kinda catchy, I like it …


  6. Ed Says:

    Excellent piece Malcolm.

    The tyranny of the status quo is a powerful force: It’s funny that people inevitably ask “what will they [the government] do ” in situations like this, when it is “they” who create the problems in the first place.

    Just noticed a minor typo, “as the government of ‘Cypress’…..”, should be Cyprus. I’ve had that one evade the spell checker before.


    • Malcolm Greenhill Says:

      Ed, that’s a very good point. To a large extent we get the type of government we deserve. Ideas are the real movers of history and until we change our ideas we will continue to elect the same rap-scallions. Thank you also for catching the typo.


  7. Gregory Zaretsky Says:

    Malcolm, your post is historically grounded and has a logically sound way of looking at reality. The closing question is chilling.


    • Malcolm Greenhill Says:

      Gregory, it is a chilling question and we all need to know what our line in the sand is before we reach it. More importantly we should make our politicians aware of it.


    • Mark Sipper Says:

      Malcolm, your articles are usually quite thoughtful. The question on consent to be governed is interesting but most likely relies on a very small statistical sample. No one from the Rasmussen Report asked my opinion. My concern isn’t consent to be governed, my concern is how many people care? People are too busy addicted to playing with electronic gadgets and watching sports or other entertainment. While I agree with Gregory that removing the velvet glove would be “chilling”, I am not sure today’s U.S. politicians have the fortitude to do something like their counterparts in Cyprus (and they are doing it only because they have no alternative.). I think it would take a grave national crisis for this type of confiscation to occur. Over the last 200 years, the U.S. government has periodically shortchanged lenders and I think that in the future foreign lenders might experience it before domestic lenders and taxpayers since the immediate political consequences are far less painful when foreigners lose money (see This Time is Different: Eight Centuries of Financial Folly by Reinhart and Rogoff). I agree that we may be heading toward such a crisis and we have a president who wants to play Robin Hood, but there is still hope that the financial irresponsibility can be voluntarily corrected before the markets force it. Even though I wasn’t asked, I do consent to be governed, even if by a Narcissist, because I don’t know of a better system than we have. In other words, I am not so pessimistic for now.


      • Gregory Zaretsky Says:

        Mark, I am confused by your comments. You feel that people don’t care and then you say that you’d like to be governed. Isn’t saying that our government would first try to stick it to foreign investors a way of saying that it understands its dependency on a democratic vote? What Cyprus is doing can hardly be described as showing “fortitude”. Also, every president wants to be seen as Robin Hood. Have you forgotten how much every president “fights for our freedom”, “defends our liberties” and “lowers our taxes”?

        Indeed, the XVIII and early XIX centuries in Europe as well as Latin America showed us how much blood must spill before you get rid of dictators. Democracy was supposed to end that. Unfortunately, today like you, I don’t think that as an individual I have much influence on my supposedly democratic government. And yet, winning the election emboldened Barak Obama by giving him a sense of a mandate. Do not forget that our society is distinctly individualistic (as opposed to communal societies in Europe). It evolved through pioneers coming to America and the pioneer wagons rolling west of the Mississippi. We are the people that plowed the unending wheat fields of Wyoming while raising children on isolated farms in the middle of nowhere and while defending our families with guns in our hands.

        This is why there is such thing as the Tea Party and the Oklahoma Bombing. This latter was perhaps a terrorist attack and a tragedy where many innocent people died, but still, it was a citizen uprising typical of a lonely cowboy driving into a sunset. Actually, it was not that very different from many anarchistic attempts on the crown heads of Russia, France and England, etc.

        The origin of the current unrest is the population implosion in Western Countries. That shrunk the tax base of the most seemingly stable countries including our own. Governments do not know how to tighten their belts. No private company would ever survive if they would operate the way our government operates. I work hand in glove with several governmental agencies, and I can tell you for sure that I would fire any of my project managers if they would “manage” the way those people do.


        • Malcolm Greenhill Says:

          Gregory, you raise some great points: the incentives that politicians have to do the wrong thing while appearing to do the right thing; the fact that democracy seems to have evolved into a tyranny of the majority; the fact that individualism is hard-wired into the American psyche and the fact that governments have an in-built incentive to expand their power while at the same time shrinking demographics ensure shrinking government revenues. It is not a pretty picture.

      • Malcolm Greenhill Says:

        Mark, thank you. I am somewhat more pessimistic than you, believing that a default on U.S. Treasuries is virtually inevitable although the exact timing cannot be known. The best argument I have seen for this was made by my good friend Professor Jeffrey Rogers Hummel here. An interesting Economist article discussing the possibility of a U.S. Government default can be found here. Meanwhile, from This Time is Different quoted by yourself above, we know that current debt trajectories are a significant risk to long-term growth and stability, as the United States and many advanced economies have already exceeded the important marker of 90 percent debt to GDP. You say that “it would take a grave national crisis for this type of confiscation to occur”. I agree, but as we are in the midst of a global deleveraging event of unprecedented proportions, I don’t think it too unrealistic to expect such an event, say sometime within the next ten years.


  8. johnrchildress Says:

    The options are not easy. But one highly effective option is to vote out the entire encumbent class in Congress and elect a new, less conflicted group to “enact the will and consent of those governed”. The other option is for the people of the US to get back in touch with the constitution and the “accountability of the governed” to act with responsibility and care for others. The hating from all sides must stop before we can be a nation of “governed civility”.


  9. Kavita Joshi Says:

    Good read..thanks for sharing n visiting my posts


  10. swedishpotato Says:

    When it comes to legitimacy, Adam Smith said it best:

    The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

    Too true. And a lesson for Cyprus and the ECB here too.


  11. aurorawatcherak Says:

    You make some excellent points, Malcolm, in a similar vein to what I’ve been exploring lately.

    I think an important point about the legitimacy of the US government is that, ultimately, the people are the government. Well, not lately, but historically. So the ruling elite loses legitimacy and, if we have the will, the American people can seize control and install new officials who REPRESENT us rather than try to rule us.

    Yeah, I know. Scary stuff. Thomas Jefferson warned that the roots of the tree of liberty would require occasional watering with the blood of patriots and tyrants. We have loads of the second group. Not sure how many of the first group there might be.

    And, no, I’m not suggesting a call to arms. Martin Luther King Jr. affected a revolution in American society without firing a shot.


    • Gregory Says:

      What is a Patriot (the kind that is willing to spill his blood)? It is someone called a “trouble maker” or worse, a “terrorist” by the rulers of the day and their subservient media. It is someone that we – cultured and meek intellectuals call “the crackers” or “the roughnecks”. Or perhaps we don’t call them names, but we smile condescendingly. We are much too cynical to believe that an armed uprising would help.

      When that happens and there is a successful uprising, frequently the dreamer who led it becomes a dictator. Dictatorship allows for quick decision making process and for swift execution of those decisions. I bet that most dictators believe that they are an enlightened kind.


      • aurorawatcherak Says:

        Oh, I totally agree that there are major pitfalls, but I am personally unwilling to continue to hand away my rights as if they are something the government can grant to me. We need to recognize that conservatives (and that’s a broad brush) are a plurality in this nation, approaching a majority. If we resolve to change things as a cohesive group, we stand a chance of changing things. If we opt for violence, we stand a very good chance of becoming the French Revolution. If we opt for non-violent civil disobedience, there’s hope that we can take a measured approach to fixing what’s wrong. That does not guarantee that things won’t turn out badly. Unfortunately, we may have neglected the roots of liberty too long to save it — for now. That leaves it to our grandchildren to decide to throw off the bonds of slavery. Hopefully we will have buried some guns for them to use for that purpose.


        • Malcolm Greenhill Says:

          Aurorawatcherak, I should add that, based on earlier exchange, I know that your idea of conservatism is not the same as the GOP and you do not agree with all the positions I listed in my previous comment to you. It is just that sometimes you seem to include yourself in the “40-45%” self-identified conservatives who presumably have views somewhat similar to the GOP, while at other times you seem to identify with classical liberalism and positions closer to those of the Founding Fathers. Consequently, I realize that my replies to you may sometimes miss the mark.

        • aurorawatcherak Says:

          Malcolm, you’re right. I do include myself with the self-identified conservatives, but not necessarily with the GOP, because I don’t really think that the GOP is conservative. But really, I didn’t come to that conclusion until about halfway through GWB’s second term, so I do understand why conservatives vote GOP. We all want a voice and the GOP is one of the two available on the national level. I think that could change, but it will only change if conservative people get brave enough to make it change.

    • Malcolm Greenhill Says:

      Forgive me for also being a little cynical but, after the American people “seize control” and “install new officials”, how do you ensure that they continue to represent the American people with all their diverse goals and interests? Constitutionalism was a great experiment which seemed to work for a while in the young republic but eventually succumbed to interest group politics and constitutional activism.


      • aurorawatcherak Says:

        There are no guarantees. We could just as easily devolve into the French Revolution. But the alternative appears to be to remain as we are, with a government that the majority of Americans no longer feels has legitimacy, slowly parlaying away our rights in hopes of a few years more of benign tyranny, until at last, we no longer have the will or the arms to fight and then we become something akin to the Soviet Union. If we’re going to attempt to return to our constitutional roots, we need to do it while we still can. I’m not advocating violence — at this point. I’m advocating civil disobedience ala MLK. The polls showed self-identified conservatives at 40-45% in the run-up to the 2012 election — until Romney became the presumptive nominee of the GOP. Imagine, if we balked as a group at some of the crap our rulers want to dump on us? We could bring things to a standstill and force a reset.

        That doesn’t guarantee that the conservatives wouldn’t just become the next ruling class. Avoiding that would take some leaders with character.

        Still, the alternative is odious enough to say let’s try.


        • Malcolm Greenhill Says:

          Personally I balk at some of the “crap” that conservatives want to “dump” on me i.e. no drugs, no gay marriage, no abortion, no foreigners, pro-military, pro-corporatism etc. I also get scared silly when I hear about the need to rely on “leaders with character” to make things succeed. I totally buy into the idea of civil disobedience as a tactic for change but it is definitely not going to be for the above agenda.

        • aurorawatcherak Says:

          No, if done constitutionally, it won’t be an above agenda, but in a representative republic, the people select temporary “leaders” to carry out OUR agenda. I don’t buy into the extreme libertarian view that we would be just fine with no government at all. The Founders gave that a go under the Articles of Confederation and decided they needed a bit more government. We would discover the same thing, but unfortunately, we’d likely fall under the tyranny of another foreign power before we could correct our error. We aren’t protected by vast oceans anymore.

  12. aurorawatcherak Says:

    Reblogged this on aurorawatcherak and commented:
    Malcolm’s post is running along the same lines as what I’m thinking about right now.


    • Malcolm Greenhill Says:

      Thank you for reblogging.


      • Christian Says:

        Percy Bysshe Shelley wrote a poem in 1815 after the battle of Waterloo called:

        Feelings of a Republican on the Fall of Bonaparte

        In it he recalls how he hated the fallen Tyrant, how the jumped up fellow had danced and reveled ‘on the grave of Liberty’. But Shelley goes on to say that now the Tyrant has fallen he realizes that actually Bonaparte was not the true enemy of liberty:

        … I know
        Too late, since thou and France are in the dust,
        That Virtue owns a more eternal foe
        Than Force or Fraud; old Custom, Legal Crime,
        And bloody Faith, the foulest birth of Time.


  13. tannngl Says:

    Malcom, the demise of our country’s culture, economy, most of all our Republic, presents with chaotic causes, much like the weather. (which no weatherman, if honest can really predict).
    There’s so much that goes in to this. I think it seemed simpler in our beginning over 200 years ago. We didn’t have atheists working against the nation’s founding principles. We then didn’t have Communism trying to make real change in this country. We didn’t have any government give aways to make people lazy. Then, you worked, provided for your family, loved them, worshipped God, voted…Individual responsibility was revered.

    How did we get here? I think many look around and wonder that. It seems to have snuck up on us. To me anyhow.

    So, Malcom, how do we take the consent of the governed away from this government?


    • Malcolm Greenhill Says:

      Thoreau said that in an unjust world the right place for the just should be in prison. I agree with aurorawatcherak that civil disobedience is certainly one answer. Take an issue which a critical mass of citizens agrees is wrong, for example, an unjust war, the confiscation of savings accounts, the bailout of TBTF financial institutions, and then organize a broad based popular movement around it. The movement for the repeal of the Corn Laws in 19th century England is a good example of the effectiveness of such a movement in achieving broad based coalitions. Depending on the success of the movement, this could be a springboard for confronting other issues. Just a thought, as activism is not my forte.


      • tannngl Says:

        Thank you for your anwer. At times it simply seems impossible. But after reading your answer I remember the tea party and the 2010 vote which brought a majority in the House and many real conservatives to office. I took to the streets for that one. That’s what we need again. An issue that Dems and Republicans can support and be active to accomplish.


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