Historian warns of sudden collapse

Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival on 12 July with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt levels, writes Brent Gardner-Smith of the Aspen Daily News.

“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”

Ferguson said that empires – such as the former Soviet Union and the Roman empire – can collapse quite quickly, and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defence budget.

“That has not been the case, I think, at any point in US history,” he added. “It will be the case in the next five years.”

Ferguson was conscious of opening the Ideas Festival on such a stark note. “Walter Isaacson, the leader of this great institution, said: ‘Don’t be too dark!’,” he said.

The affable British scholar tried to keep it light. He used a stage whisper to tell the Aspen Institute audience, “I know you’re not comfortable with the word ‘empire’, especially just after the Fourth of July, but you are the Redcoats now.”

He said the US is now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial bailout programmes, two wars, the Bush tax cuts, and a growth in social entitlement programmes. And economic debt can lead to a sudden loss of military power and global respect.

“By combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,” Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20% – a fifth of all the taxes you pay – within just a few years.

“The item of discretionary federal expenditure most likely to be squeezed is, of course, defence. And there are lots of historic precedents for that,” he said. Ferguson is the author of Empire: The Rise and Demise of the British World Order and the Lessons for Global Power.

Ferguson added that the financial crisis which began in 2007 “has accelerated a fundamental shift in the balance of power,” with the US shedding power and China absorbing it. “I’ve just come back from China – a two-week trip there – and the thing I heard most often was, ‘You can’t lecture us about the superiority of your system anymore. We don’t need to learn anything from you about financial institutions, and forget about democracy. We see where it has got you.”

David Gergen of CNN, who moderated the discussion which also included billionaire Mortimer Zuckerman, asked Ferguson whether it made a difference if the US declined as a world power.

“Having grown up in a declining empire, I do not recommend it,” Ferguson said. “It’s not a lot of fun, actually, decline. To be more serious, a world in which the United States is no longer predominate is not likely to be a better world, actually.”

In what he called his “light moment”, Ferguson said: “I think there is a way out for the United States. I don’t think it's over. But it all hinges on whether you can re-energise the real mainsprings of American power. And those two things are technological innovation and entrepreneurship.

“Those are the things that made the United States the greatest economy in the world, and the critical question is: ‘Are we going to get it right?’ Can we revive those things in such a way that in the end we grow our way out of this hole the way the United States grew its way out of the 1970s and, of course, out of the 1930s?”

(This article, published on 14 July, was taken from the website of Information Clearinghouse at http://www.informationclearinghouse.info/article25938.htm)