August 29, 2010

Hard Endings: Rome, China and the Modern West

By Jack Curtis

Roman government broke the economy; the people abandoned their myths, and outreach became an inward collapse. China went from wealth, developing technology, and trade to stagnation and decline at the hands of an ossified mandarinate. Europe wasted centuries in its long recovery, and China is still climbing from its lengthy stasis; endings like those have been hard with enduring consequences.

It's clear that Europe and North America -- the interlinked West -- are reaching an ending, though denial by the political spin-meisters continues, offering comfort to the gullible. Such rare and overpowering events deserve thoughtful attention, not cost-raising obfuscation.

Governments tend to devalue their money, so the Founders mandated precious metals valued by the market; the bankers and politicians substituted paper valued by the government. The Fed's old Silver Certificate dollars backed by metal were exchangeable at will for silver; today's Federal Reserve Notes are backed only by politicians' promises. That's why a new Chevrolet can't be bought for the $750 of 1937 and inflationary policy continues to devalue money.

The USSR and China collectivized at gunpoint with enormous suffering, discovered with more suffering that it didn't work, and are attempting to restore individual initiative; the suffering has declined. The West has collectivized gradually and unevenly without the gunpoint, but it shares one condition: the various governments' social programs have become unaffordable. This breakdown of the social contract follows years of governmental overspending and faces destructive demographic trends that promise worse to come as the numbers of working wealth-makers shrink while the numbers of dependents grow.

If a citizen with no money and a $100,000 income is spending $200,000 a year and owes $400,000 on his mortgage and credit cards, he and his future approximate the United States, though citizens can't stall creditors by printing increasingly worthless money. Add to that the fact that the citizen is paid for piecework and is intentionally reducing his work output but not his spending. ObamaCare coverage, the costs of being green, regulations restricting energy and production, and increased taxes all reduce productivity by removing resources from the economy. The economy, government-deprived of freedom, capital, and resources, can only shed jobs and shrink.

Living standards have fallen since Mom had to go to work; that's accelerating as jobs are lost. Too many jobs have left the country as government-generated costs have made them uncompetitive. They won't return while those costs remain, yet keeping them high is government policy. Other jobs have been replaced by machines; they won't return at all. Regularly extended unemployment benefits keeping millions from breadlines and soup kitchens are borrowed money; they soften the present for a harder future. Food stamp use has surged, but Congress is switching food stamp money to other programs for lack of other resources, a signal for those paying attention. Another signal is the currently shrinking Social Security benefit; the pensioners' cost-of-living raises are frozen, while their Medicare deduction increases...and congressfolk and federal employees get raises.

The U.S. government's income covers only about half of its spending. The social contract promised cannot be delivered at a time when millions are depending on that delivery with millions more lining up behind them. The politicians will choose between stopping the wars, chopping the benefits and throwing all those beneficiaries plus new unemployed onto their own resources or, by avoiding that choice, continuing the overspending until the money is worthless and the economy does it for them, affecting still more millions. Either way, that's an ending.

In Europe, formerly spendthrift Britain is reducing spending and cutting social services. How far it will go is yet unknown. Germany has been more frugal, burdened by its bailout of East Germany. France is better off than the chronic overspenders: Greece, Portugal, Spain, and Italy. How the EU will contain its spendthrift south and deal with its debts is a wager. Here too, the social spending is unsustainable, even in Germany; the familiar Europe is ending, too.

Western governments have bribed voters with their own money; now, the promises are past their ability to pay, reprising the Soviet and Chinese economic experience. If they'd thought to become politicians, Charles Ponzi and Bernard Madoff might have avoided jail.

When real pain overwhelms empty promises, the socio-political glue softens; it's as likely as not to re-harden in a new format. Russia and China bought off their unhappy people with capitalism of sorts, imitating the visible economic success of the West. But the West has demonized capitalism and subverted its former utility. Capitalism and the Judeo-Christian social construct that underlie Western development have been scrapped, with results comparable to the Romans' abandonment of their myths. Western collectivism has already failed, though the failure is not yet fully revealed. It soon will be; the times approach uncertainty.

Flailing, desperate governments often hide behind wars and increase their control of individuals and business in the name of stability -- something that's just as contrary to sense during hard times as the increased taxes they also impose when the opposite is needed. Weakness in the formerly strong lures secondary aggressors to adventure; economic risks increase, and risk-takers pull back. Economic activity suffers further, reinforcing the cycle. Rome was not left peacefully alone to work out its collapse, nor was China in its withdrawal; vacuums are usually filled.

Perhaps America will return to its founding myths as it works through politically imposed economic failure, leading -- eventually -- to a restoration. Rome and China were denied that grace.