When my grandparents bought their home in the 1930s, they made paying off the mortgage a high priority and celebrated when the house was finally theirs. They worked hard, pinched every penny and took good care of what they had. They kept their house tidy and in good repair; they never used the fireplace because they did not want to get it dirty, and the furniture stayed good as new under its plastic covers. When they died, they were debt free and had money in the bank. It was these virtues--thrift and industry--that built the United States into the most powerful empire the world has ever known, according to Bill Bonner and Addison Wiggin in their new book, Empire of Debt: The Rise of an Epic Financial Crisis.
Bonner and Wiggin view ancient Rome as the classical model of empire. Running an empire was an expensive business; the folks in the homeland needed to be mollified with government handouts (bread and circuses), while a large military had to be maintained in the frontier. Rome used its military power to exact tribute from neighboring states; it was a protection racket, no different from the Mafia. Nevertheless, this scheme generally kept the central state solvent and the territories at peace. The United States is also an empire, Bonner and Wiggin maintain, but it does not follow the classical model. It placates its citizens with massive distributions of government largess while using its powerful military to exert influence and keep peace abroad. However, "[i]nstead of getting paid for providing protection, the United States is on the receiving end of loans from its tributary states and trading partners " (p. 77). This is how the United States became the Empire of Debt.
In Bonner and Wiggin's version of history, the beginning of the American Empire was Wilson's entry of the United States into World War I. Wilson was behaving imperially, according to the authors, because he was using military force in an attempt to influence political events beyond his country's borders. By the Vietnam War, the United States had clearly shifted to imperial mode; although it made no difference to the American homeland who ruled Vietnam, it is nevertheless the role of the empire to "routinely and habitually contest control of periphery areas" (p. 169). Indeed, during the twentieth century the United States got involved in conflict after conflict that was irrelevant to maintaining its security.
What made America a peculiar empire was that it had an agenda for changing the world. It would not play empire by the old rules; instead, it would use its imperial power to remake the world in its own image. Wherever the American empire could exert its influence, it demanded not tribute but rather that its vassal states practice democratic capitalism. At first, this arrangement was profitable to the United States, especially in the case of Western Europe and Japan after World War II. But providing protection is costly, and the homeland, rather than the vassal states, was paying for it. Here the authors also see a parallel between imperial America and that other peculiar empire of the twentieth century, the Soviet Union. They comment that what made the Communists so "obnoxious was not their own goofy creed but their determination to do precisely what [America] wanted to do, remake its adversary into something more like itself" (p. 209). Changing the world is an expensive undertaking, and the Soviet empire was bankrupt before the end of the twentieth century, but was the American empire really in any better financial shape?
Thus is the history of the Western world according to Bonner and Wiggin. But is this interpretation of events reasonable? Is it even plausible? Indeed, there is much to hate about this book. And yet, therein lies its beauty. For Bonner and Wiggin toe no party line; rather, they expose the chicanery and buffoonery of every political persuasion. No matter where you stand on the political spectrum, you are bound to find something in this book to offend you. And this is a good thing, because we all need to be knocked down a peg or two from time to time. Bonner and Wiggin play the role of the little boy in the tale of the emperor's new clothes who is willing to admit that he cannot see the royal robes--the emperor is naked, and the empire is broke.
On page after page, Bonner and Wiggin challenge the conventional wisdom. For example, they dispute the commonly held belief that "democracies are more peaceful than other forms of government" (p. 109). As evidence, the authors point to World War I, which, they insist, "was already a largely democratic war" (p. 112) even before Wilson involved the Unites States in it to make the world safe for democracy. Of the major combatants, only France was officially a republic, but England, Germany, Austria-Hungary and Russia were constitutional monarchies with at least limited popular political participation. Indeed, there is evidence that King George V of England, Kaiser Wilhelm II of Germany and Tsar Nicholas II of Russia, who were all first cousins, worked together to keep their countries out of conflict, but they were overwhelmed by popular sentiment, which "found the prospect of a short, sanitary war charmingly distracting" (p. 115). Furthermore, when the Tsar was deposed in 1917, the democratic Provisional Government kept Russia in the war; it was the autocratic Bolsheviks that withdrew Russia from the conflict. Bonner and Wiggin also challenge the belief that democracy is the best form of government, maintaining that in "a modern democracy, it is relatively easy to stir the masses to absurdity" (p. 164). This is not to say that the authors favor autocratic rule. Rather, they mean that we should think carefully, before imposing democratic institutions on unwilling populations, whether we are really doing them--or us--a favor.
Bonner and Wiggin also see a parallel between the British Empire at the beginning of the twentieth century and the American Empire at the beginning of the twenty-first. A hundred years ago, the British Empire had become moribund and was going increasingly into debt to the then economically vigorous United States, especially to fund its participation in the Great War. (Indeed, the authors suggest that Wilson sided with the British not because they were more democratic but because they owed us more, and Wilson wanted to make sure that debt could be repaid.) Now, the economy of the American Empire has stagnated as it becomes increasing indebted to the new global economic engine, China. There are many reasons why China is growing while America stalls, but one important reason has to do with the fact that "Asian workers are younger and cheaper" (p. 233). As a frequent traveler to China over the last sixteen years, I have witnessed firsthand China's unfolding economic miracle. Its people are young, well-educated and ambitious; they are determined to make themselves wealthy and their country the world's next superpower.
However, the American economy is not simply being bogged down by an aging population; it is also being destroyed by a collective delusion that debt does not matter. As Bonner and Wiggin point out, "America's empire of debt rests on many huge deceptions," such as that "the rest of the world will take American IOUs forever" and that "domestic savings and capital investment are no longer necessary" to maintain the economy (p. 290). Instead of saving, the typical American family takes out home equity loans, thinking that the rising values of their houses means that they are getting richer. Thus, Americans use creative financing and "the savings of poor people in foreign countries" (p. 285) to maintain a standard of living they cannot afford. Nevertheless, this debt will eventually have to be repaid. "For what is a national debt," the authors observe, "but an intergenerational obligation, a burden placed on infants by their parents and grandparents" (p. 200). The revelers may claim that tomorrow will never come, but those who have remained sober (and solvent) can see that there are major problems ahead for the United States.
It may be too late to turn the United States from economic decline; its people seem to lack the willpower and the foresight. However, that does not mean that individual Americans are doomed to financial despondency, as long as they are willing to face certain facts. Bonner and Wiggin emphasize that you always have to work to make money, either by selling your labor or by putting in many hours learning about good companies to invest in wisely. Furthermore, you do not get rich by playing the stock market; instead, the authors argue, "you get rich by buying companies at good prices, holding them for a long time, and not spending your money" (p. 309). This sounds exactly like the kind of advice that my grandparents would have given.
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Empire of Debt: The Rise of an Epic Financial Crisis (Hardcover)
I had never heard of George Soros until I read an editorial he sent in to the Wall Street Journal. The editorial piqued my interest and so I looked him up and discovered this book.
