Saturday, May 3, 2014

Visualizing a Response to the 2070 American Collapse

Misallocation of resources, inefficiency, and absence of innovation cause all civilizations to collapse. China has gone through 20 or 30 dynasties over its 4,000 years, a new one every 200 years or so.  The American case is tragic because the Lockean liberalism on which America was founded held out a possibility of permanent stability and development. Of course, permanence would have depended on restraint, both moral and economic, yet restraint did not obtain.

First, there was a tendency to misallocate and overexploit resources.  Second, there was a failure to live up to the standards required of  Lockean liberalism, especially the requirement to avoid the use of force to extract wealth or to capriciously allocate wealth through the state.  Third, the moral foundation on which America rested was the best the world has seen, yet it was not good enough.  The Calvinism of the nation's founders gave way to materialism. Fourth, the envy and greed that attended wealth inequality was exacerbated by legitimate grievances about the state's use of resources to benefit the few.

The result was an intensified system of state allocation of resources to American elites at the expense of producers, who under Lockean liberalism and the economic law of wages are entitled to the marginal value of their productivity.  America's is not a fair system.

The redistribution of wealth has recently accelerated, and there is little reason to think that it can be reversed. Moreover, the American standard of living today depends on global subsidization through a propped up dollar. The need to prop up the dollar will extend  as Americans grapple with the need to fund retirement,  health care, housing, welfare, and the stock market.

Claims of homeowners, whose houses have inflated values, and house buyers, who are entitled to affordable housing, conflict. So do the claims of baby boomers, to whom government has promised  Social Security benefits, and the millennial generation, who are entitled to their wages.

Entrepreneurship and innovation enable societies to overcome the misallocation of wealth, but the increasingly shrill claims of crackpot environmentalism, corporations, cronies of elected officials, and financial markets lead to ever-greater regulatory rigidity. Such rigidity stalls entrepreneurship, limiting it to already-known domains such as technology. The importance of entrepreneurship is greatest in areas in which its benefits are least known and least anticipated.  This bounded rationality problem leads to diminishing returns to entrepreneurship.

America's universities have contributed to economic decline.  Their claim that social problems can be analyzed and cured through scientific positivism leads to focus on the known as opposed to the yet-to-be-learned. Universities substitute correlation for morality, yet their greatest contribution has been the recognition that correlation is not causation.  They are centers of ignorance and opportunism.

The confluence of declining innovation, increasing indebtedness, and decreasing entrepreneurship transforms America, once the land of achievement, into the land of entitlement.  The end result is stagnation, then decline.  The differences among the nations will likely diminish because other nations lack the confluence of characteristics--need for achievement, a laissez faire economy, and a foundation of morality--that are necessary for a nation to excel as America has.  In the past, military organization, military valor, and luck led to ascendancy. Such will be the characteristics of great nations in the coming two centuries.

In the long term, decentralization, the breakup of the federal republic into the separate republics of the states, may help.  The reason is that elimination of central control stimulates competition, innovation, variety, and alternative approaches.  That is precisely how Western Europe was transformed from an economic laggard in the Middle Ages to the dominant culture of the modern era.