"Every perception is to some degree an act of creation, and every act of memory is to some degree an act of imagination."

-- Gerald Edelman, Second Nature: Brain Science and Human Knowledge
People being able to work well together, united behind a common view of how they should be togetherOther exogenous shocks such as acts of naturePeople being able to work well together, united behind a common view of how they should be togetherThe items that are most important in making a great empire are…The War with Ourselves: The Enemy Is UsChapter 7: US-China Relations and Wars2020-10-18JournalIt is through the mutually reinforcing and unwavering improvements in these things that countries rise and sustain their powers. At the same time the gaining of these strengths tends to sow the seeds of the cyclical decline that one should watch out for, which shows up in the form of… …becoming less competitive because… …being successful and rich leads one to be copied by emerging competitors and leads to… …working less hard and engaging in more leisurely and less productive activities, especially as… …newer, less battle-hardened generations take the reins from those who had to be stronger and worked harder to achieve success.  Also, being the richest and most powerful global power leads to one… …having a reserve currency, which gives one… …the “exorbitant privilege” of being able to borrow more money, which leads to… …getting deeper in debt to foreigners, which sustains their power beyond their fundamentals, financing both domestic overconsumption and military and war spending that are required to maintain their empire.  When the richest get into debt by borrowing from the poorest, it is a very early sign of a relative wealth shift. Debt and capital market financed economic successes lead to both financial bubbles and large wealth gaps because people benefit disproportionately from them so… …when there is a lot of economic stress there are greater conflicts between the rich and the poor, at first gradually and then increasingly intensely, which leads to… …increased political extremism—i.e., populism of both the left (those who seek to redistribute the wealth, such as socialists and communists) and the right (those who seek to maintain the wealth in the hands of the rich, such as the capitalists)—which leads to… …the rich fearing that their money will be taken away and/or that they will be treated with hostility, which leads them to move their money and themselves to places, assets, and/or currencies that they feel are safer, which if allowed to continue leads to… …reduced taxes relative to spending needs, which leads to… …larger deficits and rising tax rates, which leads in turn to… …a classic self-reinforcing hollowing-out process in the places that people who were being taxed, spending money, and providing jobs are leaving.  That leads to… …less spending on essentials, which worsens conditions, which further raises tensions between the rich and the poor and further raises tax rates and deficits, causing still more hollowing out. With very large debts and the central bank having pushed interest rates down to stimulate debt growth as much as possible, the central bank loses its ability to stimulate debt and economic growth with hard money so… …when there is an economic downturn there are both a) more internal fights over money and b) more central bank printing of money, which eventually devalues it. The country’s foreign empire becomes uneconomical to support and to defend militarily as the costs of maintaining it become greater than the revenue it brings in, which further weakens the leading country financially and its power abroad. These sorts of disruptive conditions undermine the country’s productivity, which shrinks the economic pie and causes more conflict about how to divide the shrinking resources well, which leads to even more internal conflict that increasingly leads to fighting between the populist leaders from both sides who want to take control to bring about order.  That is when democracy is most challenged by autocracy. A rising competitive country often gains enough economic, geopolitical, and military power to challenge the existing leading power during its time of weakness.  Internationally the emerging country both a) competes more effectively to win markets and territorial influences and b) fills in the voids in these left by the retreating country. Continue reading…