Niall Ferguson writes about empires that have collapsed in the March/April 2010 issue of Foreign Affairs.
The established historical view of the collapse of empires -- Rome, Britain, German, Hapsburg, Ottoman, Russian, Soviet, etc. -- is that the collapses are the result of a long series of events that are intrinsic to a cyclic nature of empire creation and collapse.
Ferguson argues that this approach reflects the prejudice of the historical method of searching for a long chain of causation, and is really absurd.
Empires, he explains, are complex systems, and that all complex systems are unstable. His succinct descriptions of the collapses of these empires -- contrasting the convoluted "historical" explanations with the actual facts -- is fascinating.
More importantly for this post, "most imperial falls are associated with fiscal crises."
"Alarm bells should therefore be ringing very loudly indeed, as the United States contemplates a deficit for 2009 of more than $1.4 trillion--about 11.2 percent of GDP, the biggest deficit in 60 years--and another for 2010 that will not be much smaller."
The key danger is that these numbers "can work to weaken a long-assumed faith in the United States' ability to weather any crisis. . . .But one day, a seemingly random piece of bad news--perhaps a negative report by a ratings agency--will make the headlines during an otherwise quiet news cycle. Suddenly, it will be not just a few policy wonks who worry about the sustainability of U.S. fiscal policy but also the public at large, not to mention investors abroad. It is this shift that is crucial: a complex adaptive system is in big trouble when is component parts lose faith in its viability."
One important factor that could reverse this deficit is the abandonment of drug prohibition in favor of a system of taxation and regulation of drug use and distribution. The U.S. is spending at least $50 billion annually -- federal, state and local -- in enforcement-related costs to combat drugs. The public recognizes that this effort is a waste of money. The public pays about $60 billion annually to buy drugs, but this industry remains untaxed, in effect receiving a government subsidy of $20 billion annually.
As Mark Kleiman stresses in his new book, When Brute Force Fails, punishment is a cost. The millions of persons who have acquired criminal records for using or selling drugs are driven out of the productive economy. Without the ability to work in most industries or occupations, their ability to participate in the consumption side of the economy is lost.
Since the 1970s, the number of persons in prison has grown from 250,000 to 2.5 million. That means that the pool of potential car buyers has shrunk by about two million men. These men with drug convictions were more likely -- for class and cultural reasons -- to have purchased Ford, GM or Chrysler cars than Volvos, Mercedes, or other imports. Unwittingly we have adopted criminal justice policies with profound adverse economic impacts.
On top of these costs, drug prohibition creates street crime. Conflicts in the drug business cannot be resolved by the courts, as other business conflicts are. Violence is a feature of the illegal drug trade because it is illegal, not because it is a trade in drugs. Prohibition is designed to make the drugs hard to afford. Drug users are driven out of legitimate employment, and those who are so defined as outlaws, are forced into an outlaw lifestyle. Crime ceases to be something to be avoided.
These crimes raise the costs of doing business across the country. Every retail establishment has to spend more to protect itself from employee theft, shop lifting and robbery. Security costs are greater. And insurance premiums are much higher.
Of course the neighborhoods in which drugs are openly sold are "blighted." The properties are worthless. The homeowners cannot realize the gains in value that other homeowners can. The major engine of wealth creation for American families is unavailable in those communities. On a day to day basis, there is little reinvestment in these communities. Even a real estate agent who handles the sale of one of these properties earns a smaller commission.
Since real estate taxes are a major component of local government revenue, the undervalued properties depress the total tax base, putting pressure on the financing of schools and other vital public services.
All of this is a consequence of the criminalization of a massive industry.
If we want to pass on the American dream to a grandchildren and great grandchildren, one feature of the world we need to leave them is one without drug prohibition.
