How A Country Dies - Is the world we know dying?

Originally posted at Economic Noise blog,

A country dies slowly.

Those living during the decline of Rome were likely unaware that anything was happening. The decline happened over a couple of hundred years. Anyone living during the decline only saw a small part of what was happening and likely never noticed it as anything other than ordinary.

Countries don’t have genetically determined life spans. Nor do they die quickly, unless the cataclysm of some great war does them in. Even in such extreme cases, there are usually warning signs, which are more obvious in hindsight than at the time.

Few citizens of a dying nation recognize the signs. Most are too busy trying to live their lives, sometimes not an easy task. If death occupies their mind, it is with respect to themselves, a relative or a friend. Most cannot conceive of the death of a nation.

A Country Dies Slowly First

For those interested, signs or symptoms precede death for a country often as they do for a person. There is a pattern that involves the following:

1. The Economy

Economically, people become poorer. It becomes harder to feed a family. Economic growth stalls and then reverses. Work opportunities decline. Disincentives to work rise as government tries to ease the burden on the unemployed and lower skilled. These efforts require more revenues which means higher taxes or debt financing. Disincentives to create jobs are magnified by attempts to address the problem. Higher taxes and other burdens are imposed on the productive making work less attractive.

The response should not be surprising. Capital flees first. It goes to areas where adequate returns are still available. Jobs are created but not in the host country. Finally a “brain drain” begins. Talented people leave the country for places that offer greater opportunity. In the case of the US, to escape US taxes these people must renounce their citizenship. Citizenship renouncements are currently at the highest levels in the history.

The flight of capital, both real and human, further lowers standards of living. Signs of stagnation become more apparent. They may begin as seemingly benign as roads which have too many potholes. “For rent” signs are seen more frequently. Classified job ads decrease. “Going out of Business” sales are no longer marketing gimmicks.

Initially, people dig into their savings or begin to borrow in order to retain their standard of living. Most believe it is a temporary situation. Eventually bankruptcies increase. Strip or full malls close. Large areas like Detroit become close to uninhabitable.

These conditions characterize the beginnings of the decline. As the decline continues, things get much worse.

2. The State

The State is threatened by a decline. Generally it moves into full pretend mode. Three behavioral traits characterize its behavior. The State must convince citizens:

• things are not as bad as they seem.
• the State is not responsible for the situation.
• the State must do more (grow bigger) in order to solve the problems.

Statistics issued by the State are fudged to convey a false image of well-being. Government spending soars in an effort to juice reported economic activity. Much of the spending is unproductive in terms of providing things that would have otherwise been bought. It is also counterproductive to a proper functioning economy as price discovery is disrupted and consumer and investment decisions are based on false signals.

Incentives are provided to encourage people to live beyond their means. Debt appears nearly free and readily available. Bubbles occur and then burst. New bubbles are necessary to replace old bubbles. People and businesses are encouraged to make imprudent decisions, all in the attempt to make the economy appear better.

The State has one objective and that is to remain in power. Laws and regulations multiply at ever faster rates. Tyrannical rules and legislation are passed under the pretense of protecting the people against some threat. In reality, these laws are passed to protect the leaders against the public when they finally understand what has been done to them.

“Bread and circuses” increase to divert peoples attention from the developing problems. Dependency increases reflecting an attempt to placate the masses. A “wag the dog” war or crisis is often used as a means to rally the public against some phony enemy.

3. Society

Society becomes coarsens as this process progresses. People increasingly are unable to provide properly for their families. Some desperately turn to unethical behavior, even criminal acts. Common decency declines.

The regulations imposed from above reduce the sphere of voluntary interactions between people. The government decides more and more what you must do, when and how you must do it. What you can say comes under attack. Finally how you must live is increasingly determined.

Free markets are slowly replaced by a command and control ordering of society. Coercion displaces freedom as the coordinating force for society. People increasingly do what they must rather than what they want.

Interest groups, i.e. politically preferred constituents, created in good times don’t demand less when there is less available. The inability to meet their demands creates political strife and eventually civil problems. Honoring their demands divides society even more. Not honoring demands may produce rioting and civil unrest.

Society becomes increasingly divided in terms of the “makers” and the “takers.” As the takers grow in numbers, the makers shrink in numbers. Soon the parasites overwhelm the productive. Society collapses at that point.

Are The People Aware?

The United States, the once beacon of freedom and wealth, shows advanced deterioration in all three areas above. The rate of deterioration is accelerating. To paraphrase Ernest Hemingway’s response to a bankruptcy question:

How did your country die? Two ways. Gradually, then suddenly.

Do people understand what is happening to them and their country? I suspect they are not aware of the full consequences. Most people are not trained to think in these terms, nor should they be. For most of us, it is a chore to get through each day. That is true of the dullards and the brilliant, for most of us end up at levels that tax our abilities.

People sense there is something wrong even though they may be unable to identify what that something might be. Many probably believe that whatever is happening is temporary, sort of like an economic slowdown that reverts back to normal. For them, it is tighten the belt until the good times return.

The results from a recent Gallup poll are interesting and illustrate the increasing dissatisfaction:

Numerous observations could be made regarding many of these institutions. All have decreased in favorability. Gallup was definitive in this regard:

The current 7% of Americans who place confidence in Congress is the lowest of the 17 institutions Gallup measured this year, and is the lowest Gallup has ever found for any of these institutions. The dearth of public confidence in their elected leaders on Capitol Hill is yet another sign of the challenges that could face incumbents in 2014′s midterm elections — as well as more broadly a challenge to the broad underpinnings of the nation’s representative democratic system.

The poll is not a direct measure of the health of the nation. However, it provides a very negative composite of public satisfaction. People know they are unhappy even if they don’t know the cause of their unhappiness.

This confusion and distrust always precedes the death of a nation.