Nasty Fiscal Arithmetic
Niall Ferguson, professor of history at Harvard had a great column in Thursday’s Australian, raising the following question:
“Yet what if history is not cyclical and slow-moving but arhythmic, at times almost stationary, but also capable of accelerating suddenly, like a sports car? What if collapse does not arrive over a number of centuries but comes suddenly, like a thief in the night?”
He goes on to say that “(g)reat powers and empires are complex systems,” and adds:
“Empires exhibit many of the characteristics of other complex adaptive systems, including the tendency to move from stability to instability quite suddenly. But this fact is rarely recognised because of our addiction to cyclical theories of history. The Bourbon monarchy in France passed from triumph to terror with astonishing rapidity. The sun set on the British Empire almost as suddenly. The Suez crisis in 1956 proved that Britain could not act in defiance of the US in the Middle East, setting the seal on the end of empire.”
He follows that by noting “imperial falls are associated with fiscal crises”, and asks what the implications are for the United States. He writes:
“Think of Spain in the 17th century: already by 1543 nearly two-thirds of ordinary revenue was going on interest on the juros, the loans by which the Habsburg monarchy financed itself.
“Or think of France in the 18th century: between 1751 and 1788, the eve of Revolution, interest and amortisation payments rose from just over a quarter of tax revenue to 62 per cent.
“Finally, consider Britain in the 20th century. Its real problems came after 1945, when a substantial proportion of its now immense debt burden was in foreign hands. Of the pound stg. 21 billion national debt at the end of the war, about pound stg. 3.4bn was owed to foreign creditors, equivalent to about a third of gross domestic product.”
Ferguson goes on to cite the grim fiscal statistics that many Americans are all too familiar with, e.g., an estimated FY 2010 deficit of $1.47 trillion, etc. Numbers that don’t bode well for the United States; he asks whether “the nasty fiscal arithmetic of imperial decline drives yet another great power over the edge of chaos.” (emphases added)