by Mike Kimel

There seems to be something inherent in human nature that leads to frequent predictions of the end of the world. Usually, those predictions turn out to be wrong and then require some form of backpedaling. As an example, folks who use(d) a statistical package called Shazam might remember the two quotes that appear at the start of the chapter on Probit and Logit estimation in the user’s manual:

“The deliverance of the saints must take place some time before 1914.”
Charles Taze Russel
American religious leader, 1910

“The deliverance of the saints must take place some time after 1914.”
Charles Taze Russel
American religious leader, 1923

Charles Taze Russel, incidentally, founded the Bible Student Movement, which would birth, among other things, the Jehovah’s Witnesses.

But more, er, secular predictions are not uncommon – there’s always someone predicting that a given policy is going to bring gloom and doom. Those predictions are also usually wrong, but here there’s an important caveat – sometimes the doo-doo really does hit the fan. The Great Depression happened, and more recently, so did the Great Recession. Even systems collapse – the past few decades alone have seen the end of the military dictatorships in South America, of the USSR, and of Apartheid in South Africa, which goes to show that the end comes to the bad as well as the good.

Which raises a point – how can you tell whether a big, quasi-end-of-the-world story has any credibility? I think it comes down to a few things. One is whether the source has been pretty good in its predictions in the past. On the economic front, clearly, anyone who talked about the Great Moderation, and the benefits that financial deregulation would bring is immediately suspect, and more so if they predicted, say, disaster in the 1990s. Another is whether the story makes any sense, and whether there’s any data to back it up.

Now, the point of this post is that I’m going to break a rule I’ve been following since I started blogging in in 2006. See, I have a long-run prediction, one I made in early 2001 – people who know me personally have heard it ad nauseum but I haven’t put it on paper because I really don’t like sounding as if I’m one of those crazy prophets of doom. However, a) I think my calls so far while blogging, though limited, have been pretty good, and b) what I’m seeing is conforming more and more to what I was expecting, so maybe its time to put things on paper in the hope in some small butterfly-flapping-its-wings way it helps change things. (I started toying with the idea of writing down this prediction when I wrote this post a few weeks ago, noting my correct calls about the start and the end of the Great Recession.)

My conclusion, back in 2001, was that when someone got around to writing The Decline and Fall of the American Empire – not the Gore Vidal version, but rather the Edward Gibbon version – they would start it on January 20, 2001. The nutshell version: during the Reagan administration, the Republican Party began buying into magical thinking (a.k.a., supply side economics). The result was a massive increase in the national debt. While these days that isn’t considered a big deal, its important to remember, other than Ford, who only served two years at a very difficult time, Reagan was the president since World War 2 to run up rather than pay down debt. Now, that could have been a one-off, as a single administration changing direction does not necessarily make a trend, but marketing beats product, and the story line, to this day, is that growth in the Reagan era was particularly impressive, never mind reality.

His successor followed in his footsteps – despite the backpedaling on “read my lips” tax burdens fell under Bush Sr. too, which is to say, the magical thinking continued. Under Clinton, things changed (as noted in my book, tax revenues began rising and spending began falling in Clinton’s first year in office, thus predating Newt’s influence by two years) and we had a break in the insanity. It wasn’t a complete break – this was the era of “black helicopters” and “UN military bases on US soil” and “Clinton shot some fellow drug dealers at the Mena airport while he was governor of Arkansas” but on the fiscal front, at least, the country was more or less united; paying down the debt was viewed as a positive. And it certainly is, because there are times when the government has to spend money (think World War 2, or a monster recession), and if the debt is high enough, its freedom of operation is very, very limited.

But just as Reagan’s change in direction wasn’t inevitably permanent, neither was Clinton’s. The country’s policies stood in balance – we could have gone either way, and we went the profligate route. And now, it will be that much harder to change direction again. Obama isn’t man to do it – as I’ve noted before, where it counts, this administration resembles nothing more than GW’s third term. (Back in 2001 I didn’t expect GW’s eventual successor to turn things around, largely for the reason that a) Republicans following the Reagan myth and GW’s more recent approach would have little incentive to break that mold, and b) any Democrat would realize that he’d be tarred and feathered as a big spender – see JFK, LBJ, Carter and Clinton for an example.) Granted, a few of the details – like Obama was going to shovel money at the folks who brought down the world’s financial system – were unknowable in 2001, but they aren’t exactly warm-fuzzies inducing. If anything, they make the story worse, and move the time line up.

So there it is… we are going to spend ourselves, for no reason, into a position where we have no freedom of operation whatsoever. That leads to a million and one otherwise un-necessary cuts in the sort of spending that otherwise boost growth, and not a time of our own choosing either. And then the big need arrives – some event that requires the spending of money- and the resources aren’t there. Rome pulled back little by little, and so will we. The decay in Rome was gradual, and not noticeable, and for much of the decline, but the lives of the have-nots were much poorer than before, and even the haves lost their ability to control wider events.