Fall of Empire

Articles on the imminent fall of the American Empire are hardly few and far between, but one recently published in the Guardian newspaper (UK) persuaded me to think yet again about this topic.

That America is in a serious situation is hardly open to discussion. Even with government numbers fudged by re-definition to hide the true numbers unemployment and inflation are at worrying levels.

Using the same metrics as during the great depression, unemployment in America is now somewhere north of 20%, and putting fuel and food back into the inflation calculation, it is now running at somewhere around 11%.

American influence is also failing rapidly.

People like to draw parallels with the Greek, Roman and British empires and the way they collapsed, claiming that the collapse is a result of decadence and corruption of the political system. However, it can be argued that these are by-products of collapse, not the cause.

Empires are built upon three things: Industrial capacity, a strong military, and a willingness to use force to achieve  dominance. Empires fall when the balance between these three fails.

Empire building

America gained power and influence through its industrial capacity, which was driven by access to a whole continent’s natural resources, and the huge internal free market and continent-wide,  unimpeded, communications. Noth through military conquest as previous empires have been built.

At the end of the 19th and beginning of the 20th centuries America’s military was not up to the task of building a traditional empire. Attempts in China and South America failed pretty miserably, which reinforced traditional isolationism. Even the (somewhat belated) entry into what was essentially an European conflict, turning it into WWI only really made a difference because of the added industrial power and large numbers of warm bodies added to the conflict.

American trade was increasing all the time, and reached levels sufficient to cause world-wide problems when the 1929 Wall Street crash occurred.

The financial collapse which led to the great depression was caused by the financial services industry becoming too greedy. This industry existed (and exists) for a reason, it provides a marketplace for the sharing of capital. This should be a service industry, with fairly limited potential to make money, but given the huge amounts of money it controlled (not owned) there was a strong temptation to use the availability of that money to make more money. This can work, and if done correctly is relatively safe. However, with seemingly no limit to the leverage that could be applied, the amount of “virtual money” in the system expanded dramatically. Once it became clear that there actually was insufficient actual money to cover “investments” people panicked and withdrew what they could, effectively bankrupting the entire financial system.

Recovery was possible because the underlying industrial infrastructure was still there. Industries which required access to capital to continue suffered, especially agriculture, but although production slowed, it continued, and continued to make profits, pay workers, and form the base for recovery.

Recovery was finally enhanced by WWII. Not only did this cause a massive expansion in industrial output and capacity, but achieved what America had failed to do militarily in the past; produce a large foreign market with somewhat captive buyers.

The empire that America built was quite different from previous large scale empires. It was not deliberate government policy, with the government providing the military muscle to expand territory, giving access to new resources and cheap labor. Commercial interests did influence government policy significantly though. The changes in immigration policies in the mid 1960’s imposed entry restrictions on the traditional European immigrants, who were becoming more affluent, and less and less reliable as a source of cheap labor, in favor of the much poorer (and therefore much cheaper labor pool) immigrants from the Pacific rim and S. America.

Empire stagnation

Beyond the territorial expansion of influence post WWII, there was no further real expansion of the empire. There was the possibility of expansion in SE Asia, but the failures to secure victories Korea and later Vietnam effectively excluded America from those areas. The small boost given by the cheap labor available with the modified immigration policies helped to keep American industry competitive, but the real expansion was happening on the periphery, in countries with much cheaper labor, Japan, The Philippines, etc. it was also clear that these countries were detaching from the US as they became self-sufficient and prosperous.

Commercial interests saw these changes and attempted to influence American policy to compensate. NAFTA was one such attempt after seeing the success of the EU Common Market in increasing market sizes and providing access to cheaper labor.

Empire was getting close to unstable. Although the military was strong, there was a distinct lack of will to use it to its full potential. Vietnam was probably the biggest indicator of this. A militarily winnable war was lost because of lack of will. Industry, although still dominant in terms of innovation and sheer capacity, was slowly becoming less and less competitive.

The 1970’s problems with oil supplies was a final indicator that America was not a traditional empire, and was reluctant to defend what it had. Previous empires would not have hesitated one second to annex any resource needed. Indeed, a few years earlier France and the UK had mounted a joint military operation to recover the Suez Canal from “nationalization”. Both countries were less than happy that American pressure halted their operations, especially since at that time America had its own oil sources and was not dependent upon middle eastern oil.

Commercial interests saw these indicators of long-term weakness, and evolved a couple of strategies to decouple their fortunes from those of America as much as possible. There were two principle components to this strategy.

The first was to move many operations offshore. At first, this was not obvious as a strategic move. New factories were built overseas, and this was described as, and seen as simply expansion into new markets. However, over time, more and more of production and operations took place outside America. When existing operations and production were shifted, with consequent loss of jobs the strategy became obvious. The most obvious assumption is that it is simply to make use of cheap labor, but there is more to it than this. Much of the profits for many companies is earned overseas. This is principally why we see news articles on the fact that some company made X billion dollars in profits, but only paid $5 in federal taxes. The taxes were paid overseas. For example, Microsoft has approximately $50 billion in cash, but virtually all of it is held outside America, and is unlikely ever to come to America because of the 30% tax which would be imposed if it did.

The second part of the strategy was to move from companies within America dealing with physical product to services and “soft” industries trading in much less tangible items (media, intellectual property, consumer debt etc.). These companies are much less capital and labor intensive. They can also be leveraged at much higher levels. However, as we saw with the dot com crash, many of these companies are only worth what people think they are worth, and that can change drastically in a very short time.

Empire decay

With the foundations of empire missing (advanced industrial base, military used to impose empire) decay is inevitable. The only question is how fast will that decay happen?

The lessons of the great depression had not really been learned. There are a group of people within the country that put profit before any other consideration. They will push the envelope as much as possible, take risks that are capable of bringing down the economy, and worst of all, believe their own hype about companies and products based upon little more than wishful thinking. The banking crash of 2008 was essentially the same problem that caused the great depression and the dot com crash: Valuation put on traded commodities that far exceeded their intrinsic value.

The big difference between 1929 and now is that there is no longer  a vibrant manufacturing base which will drag the country out of recession. The majority of the economy is financial services, which rely on money, which is in very short supply and what there is is rapidly losing its value.

The government has not helped, by consistently spending beyond its limits. As the economic situation became worse, they actually accelerated their runaway spending. The actions that they took exposed the fact that rather than being a government of the people, for the people by the people, they were a government of the people for the benefit of the corporations. Help didn’t go to the people, it went to the corporations, who either transferred the money into their already huge stashes abroad or used it for personal enrichment of their executives.

As economic progress falters, the difference in wealth between the have and have nots is rapidly increasing. Wealth is being taken from the majority for the further enrichment of the corporations and the very rich individuals within society.

Government is taking actions that are by any reasonable standards calculated to cause further deterioration.

The American (to say nothing of world) economy is highly dependent upon relatively cheap energy. America government policies are (seemingly intentionally) forcing energy costs to rise. This is compounded by speculation in energy prices, which because of the artificially restricted supply (bans on drilling, bans on new power plants, threats of new carbon taxes) allows the traded value to soar well above the intrinsic value, and enrich the very same people that already at least partially destroyed the economy.

Higher energy prices cause virtually everything else to rise in price too. This is especially true of food. Not only is food production being limited by government policies favoring using land to produce ethanol rather than food, but the entire food distribution system relies heavily on land transport. Even the largest supermarkets only have a day or so of stock. That stock is constantly being replenished with “just in time” deliveries from food producers. As the cost of the constant deliveries rises due to fuel rises, so do food prices. Remember, food and fuel are excluded from the inflation calculation, so the problem goes unnoticed, except by the population that has progressively less and less money because they have to spend more to get to work (if they have any work) to spend on food which is getting progressively more expensive.

As if this is not bad enough, the runaway overspending by the government is rapidly devaluing the currency, which further adds to the cost of imported energy.

The inaction of government to acknowledge, let alone address the fundamental issues guarantees continued decay.

Corporations undoubtedly would welcome a collapse of the USA. The huge pool of relatively well educated cheap labor that would become available would be most welcome to them.

Federal government policies all point to a desire for a system in which states and individuals have much less freedom, and actions appear to be pushing towards a breaking point, whether deliberately or through incompetence is perhaps open to question.

If (or is it when?) the breaking point is reached the big question is whether the American empire will go quietly into the night, or whether the disintegration will look more like this painting.