In 2008 the world economy faced its most dangerous crisis since the Great Depression of the 1930s, an event that led to the loss of 8.8 million jobs in the United States, with 11 million people still unemployed today.
Many Americans’ belief in the “American Dream” had been severely shaken.
After unpopular wars in Afghanistan and Iraq, Americans were weary and voted for Barack Obama’s promise of more governmental control of health care, higher taxes for the wealthy, more federal entitlements (larger safety net) and increased regulation of industry.
Did this turning point in America mark the end of a “Golden Age” as did the death of the Roman Emperor Alexander Severus in 235 AD, recognized by scholars as the beginning of the decline of the Roman Empire and known as the “Third Century Crisis”? Or is this just a bump in the long road of American Prosperity?
Parallels can be drawn between today’s economic and social problems and the “Third Century Crisis.”
For example, emperors began to offer citizens food and entertainment (gladiatorial contests and chariot races), as a way to gain popularity and win support.
Roman poet Juvenal called this “Bread and Circuses,” and as long as the emperor provided the masses with the essentials for survival and entertainment to distract them from more important things in life, the hordes were contented.
Over time this was followed by the debasement of the Roman currency, the denari, as competing emperors increased the handouts to the people, funded countless civil wars and created massive inflation. Is this really any different than today?
Today, tectonic shifts in the U.S. labor market have rewarded workers with skills and severely reduced high-paying jobs for unskilled or uneducated workers. As American industry has outsourced jobs of Middle America to Mexico, India, Taiwan and China, a vast pool of displaced workers who rely increasingly on government benefits to make ends meet has grown.
The number of Americans receiving entitlements has expanded to more than 100 million today. What’s more disturbing is that the percentage of Americans paying zero or negative federal income tax has increased to 51 percent. The share of federal income taxes paid by the top 5 percent of earners has risen to 59 percent.
While the base of federal taxpayers is shrinking, the number of people receiving aid is expanding. In 2012, the government spent an estimated $916 billion of $2,449 billion (or 37 percent) in tax receipts on these entitlement programs alone.
Then there are the “21st Century” Circuses. While many Americans with higher educational and income levels appear to be engaged in important national issues, many citizens of lower educational and income levels tend to be disconnected. Like the Roman masses of old, this group appears to lack any form of consensus or sense of shared ownership.
And what of the debasement of the American denari? Since the Fed’s creation in 1913 the value of the dollar has depreciated significantly. One dollar in 1913 can now buy $.04 worth of goods.
The federal government continues to live beyond its means. The federal deficit has been allowed to triple since the Clinton Administration left office in 2000, rising from $5.7 trillion to $10.7 trillion under George W. Bush, and then to $17.2 trillion during President Obama’s tenure.
As the federal government continues to spend more than it receives in tax receipts, the treasury is forced to issue more and more treasury debt to make up the difference. This places tremendous risk in the capital markets and should eventually lead to inflation or further depreciation of the dollar.
The parallels to the debasement of Roman coinage nearly 1,800 years ago are clear.
The Severan emperors, for example, enlarged the army by one quarter and doubled the base pay. As each of the short-lived emperors took power, they needed ways to raise money quickly to pay the military’s “accession bonus.” The easiest way was by simply cutting the silver in coins and adding less valuable metals, devaluing the denari.
The United States, with a $16.2 trillion economy, continues to tower over any other nation. Much like the Roman legions in the second century, the U.S. military is capable of projecting military power far from its capital.
Moreover, the U.S. financial system is still the most sophisticated, liquid and stable of all the leading nations, still considered the global “safe haven.”
However, unless America turns course soon and addresses these social and economic issues, the foundation could crumble from within. We must learn from the history of the Roman Empire’s collapse and not suffer a similar outcome.
Daniel Morgan is a senior portfolio manager with Synovus Trust Co. in Atlanta who makes regular appearances on major financial television networks and whose market comments appear in nationally recognized financial publications.
SOURCES
1) Tax Foundation
2) Congressional Budget Office, Office of Management & Department of Treasury
3) “Coming Apart: The State of White America, 1960-2010” by Charles Murray, 2012
4) Inflation Calculator