The Decline and Fall of the American Empire

To attract attention above the bawling crowd, the professional Doomsayers perforce must use each gravestone along the way to mark the end of American life as we have known it.  Thus, when Bear Stearns failed, that was it; when Fannie Mae and Freddie Mac were nationalized, that was the final straw.  Now Lehman Bros., Merrill Lynch, AIG and Washington Mutual have their heads on the chopping block and surely there is no tomorrow.  Even the House Liberal, Paul Krugman, has weighed in with a considered "Yikes" in today's column, wondering whether the American financial system is about to collapse.

James Kunstler, the Peak Oil Man, finds yet another in a series of apparently inexhaustible omens in today's roiling Wall Street news.  The American Economy, that sickly patient forever in extremis, with the priests of high finance always at the bedside reading Last Rites, struggles up off his death pallet to stagger through another day.

Why doesn't he just die, dammit?  It's because he's slowly starving to death, that's why, and when this period of privation began, he weighed 10,326 pounds.  It takes a long time to metabolize all of one's caloric stores.  We've been at this work for decades, but there's never going to be a final straw.

At the height of the Roman Empire, perhaps one million people lived in Rome.  10% patrician, 90% plebeian, rather similar to America's wealth distribution today.  By the time the Vandals from the north sacked Rome, there wasn't much left to conquer.  Maybe 50,000 stragglers still hanging around the Pantheon and the Forum, wondering why funny things never happened anymore.  Where did they all go?  They had died, gone insane from lead poisoning, mainly dispersed.  Rome perished of imperial overstretch.  It got too expensive to subdue all those far-off lands and the returns on investment were rapidly diminishing.  Rome, like America, was built on a growth model, and there were no new worlds left to conquer.  So the Roman Empire went into a long period of gradual decline as it lived off its accumulated largesse and its population became complacent, lazy and stupid.

The United States, a mostly agrarian country at the turn of the 20th Century, sagged into the Great Depression, a noticeable downturn, but things had not been so opulent before the Depression and so Americans rode out the storm with grit and determination.  The Second World War vaulted the United States into industrial overdrive, pulling us out of the Depression.  After the ruination of all other industrial powers by the war itself, the USA emerged as the unquestioned economic leader of the world.  While Europe and Japan struggled to rebuild their countries out of rubble, America built a huge, heavy industrial infrastructure and began selling its products to its citizens and to modernizing customers all over the globe.  The 1950s and 1960s were our true Golden Age.  Those of us now running the country (into the ground) had our consciousnesses formed during that halcyon period, including the clueless incumbent in the White House.  It was easy to believe in American Exceptionalism because it was manifested all around us.  We felt so expansive we even elected a liberal President, the last one as it turned out, Lyndon B. Johnson, and by a landslide.  A Bircherite candidate like Barry Goldwater, indistinguishable politically from his modern-day avatar (and Senate replacement) John McCain, had no chance in those days.  We didn't need to be small, mean, dishonest and highly partisan because there was enough for everybody.

There was enough for everybody because we still had the habits of hard work left over from the immediate post-Depression generation.  But let's face it: who really wants to work hard in factories and mines and on construction sites?  We certainly didn't, as we went through various incarnations as the Information, Technology and Consumer Economies.  That last national descriptor said it all: we would support ourselves by buying stuff from each other, and all the stuff would be made elsewhere.  Japanese and European cars, Asian electronics and then finally, Chinese everything.  Oil importation went from 30% of national use in 1973 (the time of the Oil Shock) to 70% today.  And while all that progressed, Americans not only did not adjust to privation and scarcity, they doubled down on their wastrel habits, buying SUVs instead of Corollas and building 12,000 square foot McMansions which required vast amounts of natural gas and fuel oil to heat.

With zero savings and tightening international competition, Americans looked around for ways to conserve their dough (freeing it up for consumer purchases) and decided to starve the public sector.  The most popular candidates and political leaders became the Republican tax-cutters and screwballs like Howard Jarvis in California, who decided that gutting the educational base with the axe of Proposition 13 represented a good investment in the future.  Americans now look around in wonder at the bridges collapsing, the dikes breaking in New Orleans, the potholed, disgraceful highways, the old, tired airports, the absence of mass transportation and wonder -- where did all the money go?  

Money, or rather the assets representing that money, have been pledged as collateral.  That was the true meaning of the final financial game the Gnomes of Wall Street could come up with to keep the merry-go-round spinning for a few more turns.  In that last spasm of putative solvency, when the money we sent abroad was being recycled to us by the people who made the stuff we bought, we lowered the effective borrowing rate to Less than Zero, and like a nation of crack addicts we binged on the easy credit.  To keep the consumerism in motion, Americans pledged the last remaining things they owned, their houses, as collateral, and those pledges were bundled up into mortgage-backed securities and sold all around the world.  It bought time, slowed the unwinding of the Empire, but it hastened our demise because we also bought the distrust of the entire world as they saw themselves conned by American fast-buck artists.

And now the Giants of Wall Street are toppling one by one.  The short view is to blame the Republican Party as the party of deregulation, as the party "that wrecked America," and certainly there is something to that.  But the long and true view is far more nuanced, and ultimately more damning, than that.  

Kevin Phillips, in a series of brilliant books, has chronicled the ascension and demise of the Dutch, Spanish and British Empires, more modern successors to the Romans of antiquity.  Great empires follow a predictable arc of triumph and dissolution, in the shape of an inverted parabola.  In the end America is not really "Exceptional."  We're just like all the other empires.  Great wealth, resting uneasily on world domination, inevitably breeds generations who begin to believe in the Cosmic Free Lunch, in the unearned incremental advantage, in the idea it's possible to prosper permanently without doing much.  These views are heard daily on the financial news channels.  There will be a "housing recovery," a turnaround, the market fundamentals suggest prosperity is just up ahead.  The housing recovery will occur when foreigners actually start buying American residences in large numbers, instead of simply buying the collateral for them.  We can count on the federal government, corrupt to its core, to assist in this process.  You might think of it as the Vandals entering Rome.  There will be no resistance.  A desperate populace will greet them as liberators.