In the current issue of Foreign Affairs, Niall Ferguson’s “Complexity and Collapse: Empires on the Edge of Chaos” argues that societies end suddenly, not through a protracted “decline and fall”.
While most historical postmortems seek direct causal links between calamity and loosely related events decades removed, Ferguson says societies are more complex systems—adaptive and chaotic—susceptible to shock through the unintended consequences of seemingly trivial actions.
Over the last three years, the complex system of the global economy flipped from boom to bust —all because a bunch of Americans started to default on their subprime mortgages, thereby blowing huge holes in the business models of thousands of highly leveraged financial institutions.
Ferguson argues that previous societal collapses can be similarly linked to contemporaneous fiscal disruption—and asks whether the United States might be the next society to push itself over the brink.
The next phase of the current crisis may begin when the public begins to reassess the credibility of the monetary and fiscal measures that the Obama administration has taken in response. Neither interest rates at zero nor fiscal stimulus can achieve a sustainable recovery if people in the United States and abroad collectively decide, overnight, that such measures will lead to much higher inflation rates or outright default.
Public debt in the United States is already high and continues to rise. Ferguson warns:
…2080—when the U.S. debt may reach staggering proportions—seems a long way off… But one day, a seemingly random piece of bad news—perhaps a negative report by a rating agency—will make the headlines during an otherwise quiet news cycle. Suddenly, it will be not just a few policy wonks who worry about the sustainability of U.S. fiscal policy… It is this shift that is crucial: a complex adaptive system is in big trouble when its component parts lose faith in its viability. [emphasis added]
Ferguson’s assertions about the nature of the collapse of civilizations deserve further examination. I tend to agree that we should look to more proximate causes to explain the recent financial meltdown than trying to blame a loosening of policy in the Reagan era.
I don’t think anyone can seriously argue that America’s finances are not a cause for concern. I am less certain about Ferguson’s claim that fiscal disaster is the cause of all societal collapse, but his larger work, The Ascent of Money: A Financial History of the World, explores the matter more fully.