The United States in its relatively short history has never experienced a cataclysmic societal breakdown. Not even during the Civil War was there a complete breakdown of civil and economic institutions.
(There is a fact hiding out in the open here that is almost too obvious to notice: for a societal and economic breakdown to occur, first there must be a society and an economy sufficiently sophisticated to break down. For example, the history books don't record any of the famines and hard economic times that happened in sub-Saharan Africa before Christian missionaries began writing them down. A subsistence economy is already at the lowest economic level that can possibly exist; any lower, and people cannot subsist -- they starve. Without a written history, there are no witnesses.)
This doesn't happen very often in the West. When it does happen, sometimes the cause is natural. A bubonic plague epidemic -- the "Black Death" -- hit Europe in the mid-14th century, killing an estimated 75 million people. When 30% of an entire population dies within a two-year span, it cannot help but have profound ramifications on society and the economy.
But sometimes the problems are man-made and are a long time in the making. Take the Romans, for example.
The Roman Empire had been the richest, most powerful country in the world for almost a thousand years. It started out hundreds of years before Christ as a loose trading alliance between Rome and its sister cities on the Italian peninsula. Somewhat geographically isolated and receiving the benefits of a mild climate and good farming conditions, their wealth eventually made them a favorite target for large-scale plundering by an assortment of foreign baddies including the Celts, Franks, Macedonians, and Carthaginians. The Roman army was never invincible, but their economic engine enabled them to quickly rebound from a defeat and to raise and equip an array of formidable legions in short order. In addition, they had developed exceptionally good organizational and administrative skills. Once the Romans grew tired of having a target painted on their backs and decided that the best defense is a good offense, it was time finally for their neighbors to know the meaning of fear. The Romans effected their own liberty by subjugating the nations around them. Being secure from a bunch of neighboring bad-asses required that they become the biggest bad-asses in the neighborhood. By the time of Christ's birth, they ruled the entire Mediterranean -- all of North Africa, including Egypt; the crumbled pieces from the old Persian and Macedonian Empires in the Middle East, including Judea (Israel), Phoenicia (Lebanon), Syria, Asia Minor (Turkey), Eastern Europe at least up the Danube; Western Europe (Spain, France, Switzerland) and even Britain.
Conquering is one thing; maintaining what has been conquered is something else altogether. Holding together a country of various tribes, tongues, cultures and religions was a daunting task. But the Romans had learned from other cultures, particularly from the Greeks, and had arrived at certain empire-building truths that had eluded the less successful empires (Macedonian, Persian, Babylonian, Assyrian, Egyptian) preceding them. The Romans were not vengeful or oppressive rulers as a general rule, and were actually quite tolerant. However, subject nations could not cross certain lines. Rebellions were ruthlessly crushed; failure to pay taxes was not tolerated; Roman law had to be obeyed -- that was the stick. The carrot was a peaceful society and a well-ordered chain of authority. The Romans applied the same free-trade logic that had worked so well within Italy to the rest of their Empire. Even subject peoples could attain Roman citizenship, and could freely move about within the Empire. Cultural differences and in particular local religious practices were tolerated, even though the ruling Caesar was the official god of the Empire and Rome still had its own parallel tradition of pagan worship. With peace and order came stability, and with stability came economic activity and, finally, great wealth. And the cycle was largely self-perpetuating: wealth promoted order and stability, which promoted more economic activity and wealth.
How do you mess up something like that? Bad things can become cyclical, too. It all started with a built-in source of instability: Rome had no constitution and thus no mechanism for a peaceful transfer of power. When the emperor died (and sometimes an emperor's death was, shall we say, scheduled in advance by a committee of his critics), Roman legions fought each other to install a particular general or consul as the new emperor. Imagine if Obama had become president not by being elected, but by ordering his supporters in the U.S. Army to defeat John McCain's supporters in the U.S. Navy and Marines. Such internecine fighting is destructive of stability, to say the least.
On top of which, there was growing institutionalized corruption within the Roman government. At the height of Rome's power, its citizens paid low taxes and could expect predictable if not equitable treatment in its courts. However, a new emperor, installed in office through alliances with senators and generals, had political debts to pay as well as scores to settle, resulting in favoritism for the few and higher taxes for the many. Like other addictive substances, taxation when imposed in moderation can have a relatively benign or even a helpful effect. But raising taxes beyond a certain point can set off a vicious and sometimes irreversible downward spiral, eventually turning the taxpayers' trust and respect into rage and cynicism. When taxes are generally regarded as unfair, it becomes harder to collect them, as the economic activity that generates revenue is discouraged and depressed. Beyond a certain point, raising tax rates results in less revenue for the government, which leads to another round of tax hikes, resulting in less revenue, and so forth -- a vicious circle.
Unfortunately, nobody rings a bell when taxes are raised to the level of counterproductivity. The greed for more, even when such greed is labeled as "fairness", knows no limit. (The modern conceit is that governments, unlike individual humans, do not get greedy.) Like most sins, greed becomes self-consuming, like the way an Eskimo kills a wolf: he simply dips a razor-sharp knife's blade into the blood of a seal and embeds the knife by the handle, blade up, in the ice and leaves it. A wandering wolf smelling the blood will come to lick it off of the knife -- but in so doing will wound itself. But rather than stop licking, the blood lust will become too intense to resist; the wolf will continue on, unable to stop licking and unable to keep itself from acquiring more wounds, finally dying from the blood loss. Taxes can have this same effect on government. Obviously, the government would be better off not destroying their own economy and thereby withering its tax base, but once policy makers get that taste in their mouths, the frenzy settles in.
Rapacious taxation causes instability, too, same as pillaging and sacking. Many overtaxed denizens of the Empire tried protecting themselves by selling out and fleeing to the outer provinces. Rather than heed this warning and cut back on their demands, the government kept licking the knife. They responded by binding farmers to their land, destroying their centuries-old right to move freely within the Empire -- effectively, enslaving them. The small farmers were left with few options. Most eventually deeded their land to a favored lord or duke, who could work a better tax deal for himself, in return for the right to work the land. Thus the "road to serfdom" (Friedrich Hayek's memorable phrase) was complete: the feudal system was born and was to outlive the Empire that institutionalized it by well over a thousand years.
With a diminished economy and tax base, the power and glory of the Roman Empire shriveled, and by the end of the 5th century it blew away. In its final years, it was unable even to prevent private armies of foreign nationals (the Goths and Huns) from roaming freely through the empire, extorting money from the government at will and sacking the cities, even Rome itself, when their demands were not met. By about 470 A.D., the Roman government had paid its last bills. Once a government quits paying its bills, it's over.
And all because Rome could not resist consuming itself. They could not control the urge to kill the economic goose that had laid their golden eggs. The government had transformed from a cautious and judicious steward of order and stability into an insatiable devourer of the fruits of the taxpayers' labor. Rome had become what they had always dreaded most, the very thing the Empire had been institutionalized and empowered to protect against: Rome had become the marauder, the outlaw, victimizing its own citizens.
And the consequences of Rome's fall? In modern terms? It caused an economic recession that lasted for well over a thousand years. That is, it lasted until the 19th century, which is about the time modern economists say the living standard of the typical European had finally caught back up to the level enjoyed by the typical citizen of the Empire.
Because the essence of economic wealth is knowledge, it follows that the destruction of a society and its economy happens through the destruction of its knowledge, and this is achievable only through instability and fear. Romans were phenomenal architects and engineers; their roads, bridges, and aqueducts were magnificent achievements, some even surviving and functioning to this day. They understood commerce and logistics. They were excellent farmers and carpenters and metalworkers and shipbuilders. They were fond of poetry and the arts. Much of their knowledge disappeared completely during the Dark Ages that followed. Knowledge is not free and it is not cheap; it is hard-earned, and thus its destruction on a scale such as this was an epic tragedy.
However, to say knowledge was destroyed is not to say that individuals necessarily knew less about the world around them. What was lost was the specialization of knowledge and the leverage it provides in terms of economic efficiency. People are pretty good at learning the things they need to know to survive. If they farm, they tend to become pretty good at farming. If they tan hides into leather, they tend to become pretty good at tanning. But when economic activity is depressed, humans are forced to become more self-sufficient and, as a result, knowledge becomes less specialized. A human can learn, but his capacity for learning is finite. Someone who -- just to survive -- needs to grow his own vegetables, raise his own livestock, tan his own leather, make his own tools, weave his own cloth and sew his own clothes will never learn any one thing to any great depth, and will not able to do any one task particularly well or efficiently. That's why it is more productive to specialize: one farmer freed from having to learn tanning and metalworking can concentrate on farming, and can produce food much more abundantly than three or four part-time farmers. He can then trade his surplus for leather, tools, and clothes made by those who have specialized in other areas. Such specialization is at the root of economic growth and wealth-creation.
When I was in college back in the 1970s, it was routine for professors and left-leaning students to decry the "over-specialization" of society. Au contraire, mon commie-pinko freres. It is precisely such specialization of knowledge that creates the wealth that affords professors and students the time to sit around decrying the specialization of knowledge. (Instead of going to college, after all, they could have used the time and money saved to buy a plot of land and enjoy acquiring all that wonderful generalized knowledge afforded by subsistence-level dirt farming.) Most of us employ skills on a daily basis that can only earn us a living because there already exists an enormous infrastructure of highly-specialized knowledge professionals. As a database administrator, I can only ply my trade because someone else is making money as a developer of database management software, and this is only possible because there are others who develop operating systems, build computers, maintain communications networks and power grids, and generate electricity. And there is no one to purchase my skills if information is not a sufficiently valuable commodity to force some folks to protect and maintain it -- folks like bankers, actuaries, investors, merchants, and others who need to have reliable data available at their fingertips.
Economic woes tend to strike us at a primal level. The knowledge we have fought to acquire over the course of a lifetime has meant much to us in our struggle to distance ourselves from the desperate poverty that has dogged humankind throughout history. Within a few short months, a lousy job market can render such knowledge as worthless as a politician's promise. If the insurance companies go under, there will be no need for the actuary. If the software firms go out of business, there will be no role for the programmer -- or the DBA. We fear that we may need to acquire the knowledge of subsistence -- to learn how to grow vegetables and raise chickens in our backyards to feed ourselves -- and find ourselves at the bottom rather than the top of the knowledge ladder, worse off than the dirt farmers and food-gatherers who have been doing just that all along.
This discussion should, I hope, put into perspective our present problems with real estate bubbles and relative financial chaos. We have seen no calamities of such a magnitude. Yet it is possible that the seeds of our eventual demise are being sown even now, or were sown years ago and are just starting to bear their first fruits. We know what our political class would like to do: take our money and run our lives. As the dog sprang from the wolf, so the democratically-elected President retains a lineage to the autocratic Caesars, and they share the same magisterial and autocratic instincts: "I'm in charge; I need more power; I understand how to fix this and you don't." There are two types of politicians: those who can be trusted with power and those who cannot. But both types will tell you they can.
(There is a fact hiding out in the open here that is almost too obvious to notice: for a societal and economic breakdown to occur, first there must be a society and an economy sufficiently sophisticated to break down. For example, the history books don't record any of the famines and hard economic times that happened in sub-Saharan Africa before Christian missionaries began writing them down. A subsistence economy is already at the lowest economic level that can possibly exist; any lower, and people cannot subsist -- they starve. Without a written history, there are no witnesses.)
This doesn't happen very often in the West. When it does happen, sometimes the cause is natural. A bubonic plague epidemic -- the "Black Death" -- hit Europe in the mid-14th century, killing an estimated 75 million people. When 30% of an entire population dies within a two-year span, it cannot help but have profound ramifications on society and the economy.
But sometimes the problems are man-made and are a long time in the making. Take the Romans, for example.
The Roman Empire had been the richest, most powerful country in the world for almost a thousand years. It started out hundreds of years before Christ as a loose trading alliance between Rome and its sister cities on the Italian peninsula. Somewhat geographically isolated and receiving the benefits of a mild climate and good farming conditions, their wealth eventually made them a favorite target for large-scale plundering by an assortment of foreign baddies including the Celts, Franks, Macedonians, and Carthaginians. The Roman army was never invincible, but their economic engine enabled them to quickly rebound from a defeat and to raise and equip an array of formidable legions in short order. In addition, they had developed exceptionally good organizational and administrative skills. Once the Romans grew tired of having a target painted on their backs and decided that the best defense is a good offense, it was time finally for their neighbors to know the meaning of fear. The Romans effected their own liberty by subjugating the nations around them. Being secure from a bunch of neighboring bad-asses required that they become the biggest bad-asses in the neighborhood. By the time of Christ's birth, they ruled the entire Mediterranean -- all of North Africa, including Egypt; the crumbled pieces from the old Persian and Macedonian Empires in the Middle East, including Judea (Israel), Phoenicia (Lebanon), Syria, Asia Minor (Turkey), Eastern Europe at least up the Danube; Western Europe (Spain, France, Switzerland) and even Britain.
Conquering is one thing; maintaining what has been conquered is something else altogether. Holding together a country of various tribes, tongues, cultures and religions was a daunting task. But the Romans had learned from other cultures, particularly from the Greeks, and had arrived at certain empire-building truths that had eluded the less successful empires (Macedonian, Persian, Babylonian, Assyrian, Egyptian) preceding them. The Romans were not vengeful or oppressive rulers as a general rule, and were actually quite tolerant. However, subject nations could not cross certain lines. Rebellions were ruthlessly crushed; failure to pay taxes was not tolerated; Roman law had to be obeyed -- that was the stick. The carrot was a peaceful society and a well-ordered chain of authority. The Romans applied the same free-trade logic that had worked so well within Italy to the rest of their Empire. Even subject peoples could attain Roman citizenship, and could freely move about within the Empire. Cultural differences and in particular local religious practices were tolerated, even though the ruling Caesar was the official god of the Empire and Rome still had its own parallel tradition of pagan worship. With peace and order came stability, and with stability came economic activity and, finally, great wealth. And the cycle was largely self-perpetuating: wealth promoted order and stability, which promoted more economic activity and wealth.
How do you mess up something like that? Bad things can become cyclical, too. It all started with a built-in source of instability: Rome had no constitution and thus no mechanism for a peaceful transfer of power. When the emperor died (and sometimes an emperor's death was, shall we say, scheduled in advance by a committee of his critics), Roman legions fought each other to install a particular general or consul as the new emperor. Imagine if Obama had become president not by being elected, but by ordering his supporters in the U.S. Army to defeat John McCain's supporters in the U.S. Navy and Marines. Such internecine fighting is destructive of stability, to say the least.
On top of which, there was growing institutionalized corruption within the Roman government. At the height of Rome's power, its citizens paid low taxes and could expect predictable if not equitable treatment in its courts. However, a new emperor, installed in office through alliances with senators and generals, had political debts to pay as well as scores to settle, resulting in favoritism for the few and higher taxes for the many. Like other addictive substances, taxation when imposed in moderation can have a relatively benign or even a helpful effect. But raising taxes beyond a certain point can set off a vicious and sometimes irreversible downward spiral, eventually turning the taxpayers' trust and respect into rage and cynicism. When taxes are generally regarded as unfair, it becomes harder to collect them, as the economic activity that generates revenue is discouraged and depressed. Beyond a certain point, raising tax rates results in less revenue for the government, which leads to another round of tax hikes, resulting in less revenue, and so forth -- a vicious circle.
Unfortunately, nobody rings a bell when taxes are raised to the level of counterproductivity. The greed for more, even when such greed is labeled as "fairness", knows no limit. (The modern conceit is that governments, unlike individual humans, do not get greedy.) Like most sins, greed becomes self-consuming, like the way an Eskimo kills a wolf: he simply dips a razor-sharp knife's blade into the blood of a seal and embeds the knife by the handle, blade up, in the ice and leaves it. A wandering wolf smelling the blood will come to lick it off of the knife -- but in so doing will wound itself. But rather than stop licking, the blood lust will become too intense to resist; the wolf will continue on, unable to stop licking and unable to keep itself from acquiring more wounds, finally dying from the blood loss. Taxes can have this same effect on government. Obviously, the government would be better off not destroying their own economy and thereby withering its tax base, but once policy makers get that taste in their mouths, the frenzy settles in.
Rapacious taxation causes instability, too, same as pillaging and sacking. Many overtaxed denizens of the Empire tried protecting themselves by selling out and fleeing to the outer provinces. Rather than heed this warning and cut back on their demands, the government kept licking the knife. They responded by binding farmers to their land, destroying their centuries-old right to move freely within the Empire -- effectively, enslaving them. The small farmers were left with few options. Most eventually deeded their land to a favored lord or duke, who could work a better tax deal for himself, in return for the right to work the land. Thus the "road to serfdom" (Friedrich Hayek's memorable phrase) was complete: the feudal system was born and was to outlive the Empire that institutionalized it by well over a thousand years.
With a diminished economy and tax base, the power and glory of the Roman Empire shriveled, and by the end of the 5th century it blew away. In its final years, it was unable even to prevent private armies of foreign nationals (the Goths and Huns) from roaming freely through the empire, extorting money from the government at will and sacking the cities, even Rome itself, when their demands were not met. By about 470 A.D., the Roman government had paid its last bills. Once a government quits paying its bills, it's over.
And all because Rome could not resist consuming itself. They could not control the urge to kill the economic goose that had laid their golden eggs. The government had transformed from a cautious and judicious steward of order and stability into an insatiable devourer of the fruits of the taxpayers' labor. Rome had become what they had always dreaded most, the very thing the Empire had been institutionalized and empowered to protect against: Rome had become the marauder, the outlaw, victimizing its own citizens.
And the consequences of Rome's fall? In modern terms? It caused an economic recession that lasted for well over a thousand years. That is, it lasted until the 19th century, which is about the time modern economists say the living standard of the typical European had finally caught back up to the level enjoyed by the typical citizen of the Empire.
Because the essence of economic wealth is knowledge, it follows that the destruction of a society and its economy happens through the destruction of its knowledge, and this is achievable only through instability and fear. Romans were phenomenal architects and engineers; their roads, bridges, and aqueducts were magnificent achievements, some even surviving and functioning to this day. They understood commerce and logistics. They were excellent farmers and carpenters and metalworkers and shipbuilders. They were fond of poetry and the arts. Much of their knowledge disappeared completely during the Dark Ages that followed. Knowledge is not free and it is not cheap; it is hard-earned, and thus its destruction on a scale such as this was an epic tragedy.
However, to say knowledge was destroyed is not to say that individuals necessarily knew less about the world around them. What was lost was the specialization of knowledge and the leverage it provides in terms of economic efficiency. People are pretty good at learning the things they need to know to survive. If they farm, they tend to become pretty good at farming. If they tan hides into leather, they tend to become pretty good at tanning. But when economic activity is depressed, humans are forced to become more self-sufficient and, as a result, knowledge becomes less specialized. A human can learn, but his capacity for learning is finite. Someone who -- just to survive -- needs to grow his own vegetables, raise his own livestock, tan his own leather, make his own tools, weave his own cloth and sew his own clothes will never learn any one thing to any great depth, and will not able to do any one task particularly well or efficiently. That's why it is more productive to specialize: one farmer freed from having to learn tanning and metalworking can concentrate on farming, and can produce food much more abundantly than three or four part-time farmers. He can then trade his surplus for leather, tools, and clothes made by those who have specialized in other areas. Such specialization is at the root of economic growth and wealth-creation.
When I was in college back in the 1970s, it was routine for professors and left-leaning students to decry the "over-specialization" of society. Au contraire, mon commie-pinko freres. It is precisely such specialization of knowledge that creates the wealth that affords professors and students the time to sit around decrying the specialization of knowledge. (Instead of going to college, after all, they could have used the time and money saved to buy a plot of land and enjoy acquiring all that wonderful generalized knowledge afforded by subsistence-level dirt farming.) Most of us employ skills on a daily basis that can only earn us a living because there already exists an enormous infrastructure of highly-specialized knowledge professionals. As a database administrator, I can only ply my trade because someone else is making money as a developer of database management software, and this is only possible because there are others who develop operating systems, build computers, maintain communications networks and power grids, and generate electricity. And there is no one to purchase my skills if information is not a sufficiently valuable commodity to force some folks to protect and maintain it -- folks like bankers, actuaries, investors, merchants, and others who need to have reliable data available at their fingertips.
Economic woes tend to strike us at a primal level. The knowledge we have fought to acquire over the course of a lifetime has meant much to us in our struggle to distance ourselves from the desperate poverty that has dogged humankind throughout history. Within a few short months, a lousy job market can render such knowledge as worthless as a politician's promise. If the insurance companies go under, there will be no need for the actuary. If the software firms go out of business, there will be no role for the programmer -- or the DBA. We fear that we may need to acquire the knowledge of subsistence -- to learn how to grow vegetables and raise chickens in our backyards to feed ourselves -- and find ourselves at the bottom rather than the top of the knowledge ladder, worse off than the dirt farmers and food-gatherers who have been doing just that all along.
This discussion should, I hope, put into perspective our present problems with real estate bubbles and relative financial chaos. We have seen no calamities of such a magnitude. Yet it is possible that the seeds of our eventual demise are being sown even now, or were sown years ago and are just starting to bear their first fruits. We know what our political class would like to do: take our money and run our lives. As the dog sprang from the wolf, so the democratically-elected President retains a lineage to the autocratic Caesars, and they share the same magisterial and autocratic instincts: "I'm in charge; I need more power; I understand how to fix this and you don't." There are two types of politicians: those who can be trusted with power and those who cannot. But both types will tell you they can.
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