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Monday, October 25, 2021

OPINION:

Is the U.S. on a road to destruction? The U.S. became the preeminent economic, political, and military power after the decline of the U.K., with what turned out to be a feeble challenge by the Soviet Union. But now, the U.S. seems to be following the same fatal mistakes of other great nations.

Up to about 200 years ago, the average person could not expect any improvement in their standard of living over their lifetimes. Real per capita incomes were stagnant, and people were living no better, and oftentimes worse, than the average citizen of ancient Rome. In 1800, the average Frenchman lived on average to age 35, the average Englishman lived to 40, and the average American, where food was much more plentiful, lived to 45.


But then the “Industrial Revolution” occurred – first in Britain in the mid-1700s, then slowly in Europe, and rapidly in America. For the first time in human history, children could expect to live better and longer than their parents. Innovations in iron making, textile manufacturing, and notably the development of the steam engine changed the world. Man was liberated from having to use human and animal muscle power to make things and travel.

For the past two centuries, there has been a steady rise in living standards and life expectancies. But now, the average American is seeing their inflation-adjusted income falling, along with rising death rates. The nature of man is to try to solve problems and innovate; but over the millenniums, people had many good ideas for products and services but no way to make them a reality, because they often required capital, property rights, and free markets.

It was not accidental that the industrial revolution began in England. From the time of King John and the Magna Carta in 1215, increasing numbers of Englishmen had gained property rights. By 1707, with the unification of England and Scotland to create the United Kingdom, and the influence of the Scottish Enlightenment on creating the rule of law, basic rights, and due process, the U.K. was well-positioned to make a great leap in economic progress.

As increasing numbers of Englishmen had gained property rights, many were able to save above subsistence level. Widespread savings enabled the development of banks and other financial institutions, where substantial amounts of capital could be accumulated to underwrite large projects, such as the development of coal mining and an iron industry. The steam engine was invented during the 1700s and consistently improved until it could be used on mobile platforms like ships and railroads by the early 1800s.

A week ago, a very generous railroad buff invited several of his friends, including yours truly, to take an overnight trip from Washington, DC to Chicago on a beautifully restored, hundred-year-old, Pullman sleeper car (which was attached to the back of an Amtrak train). When the Pullman was originally put in service, it was the epitome of luxury travel. The current trip took about 16 hours, which was longer than it took in 1910, and about eight times as long as my return flight.

The British legal and financial system was so superior to what most of the rest of the world had developed, that by 1913 almost a quarter of the world’s people and land – even with the loss of the American colonies – was governed by the British, with a remarkably small number of troops. The British had been on the gold standard – which became the world monetary standard – in the century before WWI. The result was stable global money with no inflation, or foreign exchange risks, or costs.

The costs of WWI and WWII caused the British to make a series of monetary and fiscal mistakes and to embrace big-government socialism until the election of Margaret Thatcher in 1979. During the period of 1924-79, the British lost their Empire, much of their influence, and their relative prosperity.

The U.S. currency, even though untied from gold, was functionally stable as long as U.S. government debt was less than 100 percent of GDP. But now, that benchmark has been broken, and the Fed continues to expand money in a way that will add more fuel to the rising price level.

Congress has abandoned any pretense of fiscal discipline, which will only guarantee that people will get poorer as their savings are taxed explicitly or through inflation and then used for transfers rather than real productive investment. Regulations spew from thousands of different government agencies, rarely coupled with serious cost-benefit analyses, making the people poorer and with less liberty.

Government law enforcement agencies, like the FBI, rather than protecting the people from the bad guys – too often turn out to be the bad guys. The Department of Justice has become politicized and corrupt, as Attorney General Merrick Garland in his disgraceful testimony before Congress made apparent for all to see.

Finally, too few judges take the Constitution seriously, allowing administrative agencies and other actions of government to erode both our economic and civil liberties. Margaret Thatcher stopped the decline of the U.K., and Ronald Reagan stopped the decline of the U.S. Will a new real leader emerge before it is too late?

• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.


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