Financial FAQs

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 are over, thanks to growing debt problems in the U.S. and Europe, and dwindling populations. He obviously believes it’s not a good thing.

Well, maybe not, but why worry about western predominance when so many Americans are suffering from the misdeeds of our own governance that has piled debt upon debt, all in order to make the wealthiest even wealthier?

It is 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 income and education disparities have affected individual states in past blogs that have divided them into Blue and Red state politically, but never misery on a national scale. The list is long. The U.S. has highest prison incarceration rate of any country, combined with the highest per capita income rate, as well as subpar educational standards accompanied by an income inequality level next to Bulgaria’s.

So, 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. In fact, those deficits are a major price we have had to pay to maintain our world dominance.

And we know from the #OccupyWallStreet protests and economic historians that the growth in income inequality has reached its limit. Americans are finally becoming aware, in a word, that they have made an enormous 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 the U.S. 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 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 huge debt loads are a symptom of the underlying illness, economic class warfare over the past thirty years that has taken away much of the wealth of the middle class. Governments can easily pay for public services if wages and salaries continue to grow. But there has been diminished income growth for the majority of Americans—the wage and salary earners who make up 80 percent of consumers.

We know where much of that wealth has flowed—to higher corporate profits, for one. And those excess profits have created greater market instability, and so 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.

The great wealth shift began during the Great Depression, according to Livingston: “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…and that, on the other hand, produced the tidal wave of surplus capital which produced the stock market bubble of the late-1920s.”

So 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.

Harlan Green © 2011