Page 17 - Griffenomics

FACT:

THE ROMAN ECONOMY IS ESTIMATED TO HAVE A GDP PER CAPITA OF 940 USD, JUST ABOVE THAT OF CURRENT DAY BURMA

SPRING ISSUE

GRIFFENOMICS

17

emerged. The inventions therefore were

merely toys that never left the artisan’s

shop.

Unlike China or Rome, Spain lacked

technological innovation, relying instead

upon violent conquest. The Spanish rul-

ers imposed an oppressive tax system

and individual wealth was resented, ex-

emplified by the expulsion of the Jewish

merchants in 1492. The precious silver

trade was centralised, and the crown

reaped the fortune. Combined, these fac-

tors prevented a rise in both productivity

and the living-standards of its citizens. As

a consequence, the population decreased

by 25% in the 17th century, due largely to

manufacturing decline and emigration.

The turning point in the Ottoman Em-

pire was in the latter half of the 16th cen-

tury, Hubbard and Kane suggest. While

the Western world evolved through the

Renaissance and then the Industrial Rev-

olution, the Turks refused to adapt. The

rise of Shia Islam in Persia signalled the

end of acceptance of foreign languages

and cultures. Inflexibility began the Ot-

toman Empire’s long road to destruction.

STEP 3:

OVERSPENDING

Short-changing the future to overspend

in the present is the final ingredient in

the cauldron of economic demise. Em-

perors in Rome spent lavishly, splashing

out on security, transportation, and food,

disturbing market forces. In a move to

gain popularity, Hadrian even cancelled

all state loans. Gladiator fights inmagnif-

icent amphitheatres, much like NBA or

NFL in modern America, were a means

of diverting public attention away from

the worsening standard of living. The

final straw for the Roman economy was

the debasing of coinage. The Romans

made coins smaller and more impure,

with silver reaching just 3%purity by 284

AD. Crippling inflation followed, eroding

the value of the empire’s debt, which was,

of course, the Senate’s intention. With

a meaningless currency, exchange be-

came impossible. In an empire founded

on trade, its future, or rather its lack of

one, was inevitable. Spain’s productivity

problem was exacerbated by its ruler’s

decision to vastly overspend on the mil-

itary. Fortunately, the USA has noticed

this particular pitfall, and has cut their

expenditure significantly over the past

decades. Spain’s pursuit of silver to fund

the military did yield greater supply.

However, because silver was used for

currency, inflation took hold, and Spain

became gripped by the same disease as

Rome, as toomuchmoney chased too few

goods.

In Turkey, sultans lost sight of long-

run economic growth, becoming caught

in political negotiation with interest

groups. Objecting to any reforms that

threatened their interests, the military

corps, known as the Janissaries, was pow-

erful and particularly problematic. Since

the state was forced to sustain spending

on the corps, large debt piled up. In the

19th century, Turkey declared bank-

ruptcy. None of the examples mentioned

above, however, come close to the scale

of American expenditure. Annually, the

USA spends above $6 trillion and public

debt, as a percentage of GDP, stands at

roughly 75%. In the past, American debt

can be pinned down to major wars. This

is not the case currently. Hubbard and

Kane believe that the emergence of the

entitlement state of social security and

Medicare lie behind the mountain of US

debt. Politicians are prepared to forgo a

balanced budget in return for political

popularity. Such is the nature of democ-

racy. Term-limits discourage future eco-

nomic planning. Politicians rack up huge

debts, only to leave the problem to the

next person in charge.