It's hard to say whether Harvard Historian Niall Ferguson means what he says in his new book, Civilization: The West and the Rest; that the Western World's 500 years of predominance is over, thanks to growing debt problems in the U.S. and Europe, and dwindling populations.
It's true that the rest of the world is catching up to the developed West, and want what we have. For instance, the U.S. with 5 percent of the world's population can no longer count on corralling 25 percent of its resources. Our military -- a major source of budget deficits -- is already stretched thin, for one thing, and can't afford to invade another Iraq for its oil resources.
It's also true that the U.S. has declined -- not as a military power, but in almost all the measures of social and economic well-being. This is reflected in studies just now coming out by sociologists and psychologists, as well as economists. Richard Wilkinson is one such researcher who has managed to bring together a huge amount of research -- especially on how income inequality affects citizens' well-being.
We have discussed how this has affected individual states in past blogs, but never misery at the national level. The list is long. The U.S. has highest prison incarceration rate of any county, and income inequality next to Bulgaria, yet the highest per capital income rate.
But does he really believe that the United States and Europe "will tip over from weakness to outright collapse"? It's true that U.S. public debt has doubled over the last 10 years, but that is due to a very ill-advised shift of wealth to the top-most income brackets by conservative administrations over the past 30 years. It was epitomized by GW Bush's attempt to fund 2 wars and a Medicare drug program without any public sacrifice -- i.e., by borrowing the monies while lowering taxes.
And we know from the #OccupyWallStreet protests and economic historians that the growth in income inequality has reached its limit. It turns out most Americans did have to sacrifice -- the 99 percent whose incomes stagnated because they didn't benefit from the tax cuts, loopholes and such that have also elevated corporate profits as a share of GDP to the highest in history.
So Professor Ferguson really means the West will continue to decline if we continue on the path of Oligarchy, where a few at the top have most of the wealth, and the rest of us have to borrow to maintain our standard of living. Then wealth will continue to be transferred to the developing giants who are willing to lend us money -- China, India and Brazil with their young and growing populations.
But Dr. Ferguson's theme isn't new. Root causes of the rise and fall of western civilizations were earlier explored by UCLA Professor Jared Diamond in his books Guns, Germs, and Steel, and Collapse in far more convincing fashion. Our technological superiority was enabled by having major resources such as oil, benign climates that allowed cultivation of the major foodstuffs, and domesticated animals that gave us immunity to the major diseases that have wiped out native populations where such animals didn't exist.
It follows then that the major reason for the huge debt loads isn't too much government. Governments can easily pay for public services that lift all boats if sufficient growth is kept up. But there has been a steady decline in economic growth rates in the U.S. since the 1970s, at the same time as wealth was being transferred upward and government services cut.
Such a wealth transfer also meant diminished income growth for the majority of Americans -- the wage and salary earners who make up 80 percent of consumers. And so overall aggregate demand, which is the willingness of consumers and businesses to spend, is diminished. We also know that higher corporate profits have in fact created greater market instability, and retarded economic growth rates. In his New York Times Op-ed, "It's Consumer Spending, Stupid", and various blogs, economic historian James Livingston says what has been known to most modern macro economists -- consumer and government spending have driven economic growth over the past century, not corporate profits.
For instance,
The underlying cause of that economic disaster (the Great Depression of 1929-33, 1937-38) was a fundamental shift of income shares away from wages/consumption to corporate profits that produced a tidal wave of surplus capital that could not be profitably invested in goods production -- and, in fact, was not invested in good production... By the same token, recovery from this economic disaster registered, and caused, a momentous structural change by making demand for consumer durables the leading edge of growth.
We know Niall Ferguson has taken the opposite tack. His glorification of empires has made him blind to the results. The west's predominance was at the expense of exploiting underdeveloped countries, and when they began to want more of what we have, our privileged position began to decline. Isn't that what we want? To be an island of privilege among a sea of poverty does not make for a stable, or more peaceful world.
Harlan Green © 2011
Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen
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All of them collapsed, with one exception: Chinese Empire is alive and well, after more than 3000 years.
Thursday, December 1, 2011 at 0:38
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
Ferguson does properly identify the current threats to that supremacy and arguably even viability - debt and depopulation. Both are the consequence of progressive and socialist government making an increasing percentage of the population dependent upon government.
Every such progressive/socialist society has experienced reproduction rates plunging below, often well below, replacement rates. This is a recipe for decline in any society, but more so in a welfare state that depends upon young workers to support much of the rest of society. With an ever shrinking pool of young workers, the system collapses.
Progressive/socialist governments are predicated on redistributing wealth from the productive to government favored dependents. In order to get elected in such a system, the governments have to make a majority of the population dependent. Eventually, a society where more people are taking than giving will run out of other people's money to take.
What we are witnessing today are the death throes of progressivism/socialism. Whether the demise of that political economy also drags down western civilization remains to be seen.
Consumption is not production.
Finally, the socialist trope that only labor creates wealth ignores the necessity of intellectual capital, investment capital and management to the success of all business ventures.
But that is exactly what people want. That is what drives everyone to try to 'keep up with the Jonses', or to drive a bigger Bimmer than their neighbors. That is what drives the rich to seek more riches, long, long after they already have more money than they can ever possibly spend.
It is the fundamental desire to show the world that I am better than you.
I think that the dividing line that separates people who think that way from people who don't is a fundamental political divide. I also suspect that dividing line is highly correlated with the political divide that separates those who believe that society should take care of its own from those who advocate dog-eat-dog social darwinism.
You seem to be saying that collectivism is good, individualism bad. Both orientations have up sides and down sides and America has reached a reasonably good balance, in my opinion.
There is nothing seriously wrong about our political value system. We are experiencing the normal bust that follows a boom. Changing fundamental political values to avoid the inevitable business cycle makes no sense.
The truth, as always is somewhere in between.
It has to be both, individualism and collectivism.
One way of describing a better society is: unique individuals, that put the collective interest above all, as long as it doesn't affect their way of life. This was Cicero's philosophy.
He presents the moral about a man that gives light from his lamp to a traveller that passes by with an extinguished lamp. He didn't lose anything by doing it.
Then he goes on to argue that, in the same way, you should give a small enough amount of money, so your life is not altered.
And since I mentioned Cicero, there is another interesting fact about his philosophy. Nobody mentions this, but I believe it's true nonetheless, and I'll demonstrate next post.
The EU cannot insulate itself from the world economy as has been amply demonstrated. There will be a levelling out whereby lifestyle in the west will worsen as the rest of the world improves until a new balance is found. This is already happening to the PIIGs who are already facing drastic cutbacks.
The Ming dynasty conducted maritime expeditions into the Indian Ocean during the early 1400s, which the Chinese reached the east coast of Africa, and also in the Persian Gulf. However, the expeditions ended which the Chinese withdrew back to their waters, and have never conducted such expeditions until now. For 611 years, the Chinese Navy is expanding its opeations into the Indian Ocean, with very modern designed warships. You maybe correct with Chinese history, but it was the Chinese self-imposed isolation, and didn't modernized their military which lead to many foreign invasions by the Europeans which you have stated.
Sigh.
The the real question is whether or not the United states can continue to generate it's economic output. We might be limited by lack of raw materials, or lack of food (See guns, germs and steel for a great illustration on how food and access to raw materials is a key predictor of civilization.
In modern society access to cheap energy is another predictor of wealth.
It's easy to see how the lack of domestic oil (or other energy sources) is a key driver of an economic decline.
But 5% of the worlds population uses 25% of its resources largely because that 25% is physically located within the country.
We are wealthy because of where we live, not necessarily who we are.
And that isn't really changing much.
If we can overcome the energy hump (transition from oil to something else) then long-term prosperity becomes a political choice, not a outcome of our situation.
Mike
The issue with a declining civilization is that the 20% of global consumption isn't offset by producing something else that people want to pay for it. So we use debt to sustain that level of consumption.
Cheap energy (or lack of it), is the greatest risk to our civilization from a decline point of view. But when you look at total available resources (both energy and raw materials), we have one of the largest reserves of any industrialized country.
The only question is how do we get from using what we don't have, to using what we do have.
Mike
Oh, and there is plenty of oil in the U.S., we simply lack the political will to recover and refine it. See the most recent reports by the U.S. Geological Survey. We are more energy rich than the entire Middle East, but the "dreamers" want us to die on their cross of "green"...
For example there are 2.7 trillion barrels of oil estimated in the form of shale oil. Unfortunately the energy required to extract it into something useful is incredibly high. So it usually isn't very recoverable. That's not to say some cool new technology won't be invented to get it, but right now, we're stuck importing.
Conventional sources like continental shelf, and Alaska arctic wildlife refuge have significant oil, but not significant enough to make a big dent in import/export numbers.
The real gold find is natural gas. Unconventional shale gas (environmental issues aside) is a real interim possibility until new technologies make Shale oil, solar or wind a viable replacement for transportation fuels.
Don't poo-poo alternative technologies. Remember Shale oil is an alternative technology, and unconventional natural gas was one about 10 years ago.
We can never predict where the energy will come from. Only that there are costs and benefits to exploiting it when it becomes economically viable (just ask the canadians about the costs associated with Tar Sands).
Mike