"Slower" is not good enough

First, three brief excerpts on exhaustion of the soil from "Rome's Fall Reconsidered":

• "The soil of Italy did not get exhausted over night. It was a long process and many were its stages."
  
  
• "If the farmer is borrowing to meet the exigencies of a so-called bad year, his distress is temporary, and he is likely to square himself during the next good year; but if his distress is due to the progressive deterioration of his farm, he will be unable to extricate himself. Such indebtedness is hopeless. The increasing weight of accumulated interest on the loan and the decreasing productivity of the land seal the fate of the landowner."
  
  
• "The fundamental trouble could not be cured. In Italy, labor could not support life…"
  

 

I recently ran across a paper on financialization at ResearchGate: Christopher Witko's "The Politics of Financialization in the United States, 1949–2005". Interesting that it goes back to 1949; studies like this usually start around 1980, well after the policy change that got the whole thing started.

Just going by the Abstract, here. It reads in part:

Financial activity has become increasingly important in affluent economies in recent decades. Because this ‘financialization’ distributes costs and benefits unevenly across groups, politics and policy likely affect the process... An analysis of the United States from 1949–2005, shows that when unions are stronger, and when the Democratic Party is in power and is more reliant on the support of working-class voters, financialization is slower. In contrast, when the financial industry is more highly mobilized into politics, financialization is faster.

I'll have to get the paper so I can see where Witko takes the idea. But from the Abstract it sounds like Professor Witko is saying we can use policy to make financialization proceed less rapidly, if we so desire. Slower? I think that would be like choosing slow, painful death over quick painful death. The only way "slower" would be beneficial is if we use the extra time as no civilization has done before, to stop financialization dead in its tracks, reverse its progress, and assure that financialization would get smaller and less powerful with each passing day. 

That would have to happen soon, before financialization once again reaches its logical conclusion. For if we let financialization continue, fast or slow, it will lead inexorably to the fall of civilization and the next dark age. 

The pain of that decline has already begun.

In the paper on Rome, quoted above, economist Vladimir Simkhovitch reviewed surviving works of ancient Roman writers, calling those works "the testimony of the eyewitnesses". Fourteen pages later, he summarized his findings:

It seems to me that the progressive exhaustion of Roman soil is, judging by all the sources at our disposal, completely established...

As I recall, I was introduced to the "exhaustion of the soil" idea once, in passing, years ago in Econ 101. The idea was dismissed as ridiculous, without explanation. I approached the Simkhovitch paper with a preconceived notion rather than an open mind.

But looking again now at the summary of his findings, I no longer think Simkhovitch was arguing that exhaustion of the soil caused the fall of Rome. He judges by all the sources at his disposal, yes; but those sources are the ancient writings that happened to survive. The value of his evidence is roughly equivalent to that of relics like the sacred shopping list of Saint Leibowitz.

I'm not criticizing Simkhovitch's essay. I loved it. But I have come to think he was making a point unrelated to exhaustion of the soil: Any problem that caused the unrelenting increase of debt in Rome would have caused the fall of Rome. Look again at this sentence that I quoted above:

The increasing weight of accumulated interest on the loan and the decreasing productivity of the land seal the fate of the landowner.

Decreasing productivity of the land created the accumulated interest problem, but it wasn't only the soil that sealed the fate of Rome. As Simkhovitch tells the story, exhaustion of the soil led to increasing indebtedness until "labor could not support life", then growing poverty led to extreme concentration of land ownership, and ultimately to the fall of Rome. The story of increasing indebtedness is easy to believe, in this day and age.

Today we don't suffer from exhaustion of the soil. However, we do increasingly have the labor cannot support life problem. And we do have the increasing weight of accumulated interest on our debt. So we appear to be moving toward the Fall-of-Rome scenario again. And this, I think, may have been the concern Simkhovitch wanted to convey, a hundred-odd years ago.

Our troubles today could be explained by exhaustion of the soil leading to growing financial cost, as in the Simkhovitch paper, except that exhaustion of the soil is clearly not the problem today.

Our troubles could be explained by saying that people like me are worthless spendthrifts who never save a dime; people who do nothing with their lives but accumulate debt. Well, yeah, but that is a superficial view that sees the result and calls it the cause. And that view doesn't explain why the number of spendthrifts and the size of our debt have been persistently increasing for half a century now. I need a better explanation.

It could be explained by the fact that the increase in borrowing always outpaces the repayment of debt, without pointing a finger at people like me. Hey, we do what we have to do to survive, but our world is shaped by economic policy. If the weight of accumulated interest on our debt is so heavy that labor is failing to support life, then maybe the problem lies with economic policy.

The problem lies with policy that promotes the use of credit and the accumulation of private sector debt. It would be an easy problem to fix, if enough people were focused on it. Oh, and policy-as-cause also explains the persistent increase in debt and in the number of "spendthrifts" like me. 

BTW  I'd rather be poor than superficial.

In ancient Rome, they thought the farmland was exhausted. Maybe it was. But it was financialization that killed them. We can see, today, that financialization -- the relentless growth of debt -- was the reason labor could not support life in ancient Rome. 

Maybe we can also see that financialization will kill us too, unless we stop it in its tracks. The problem is not in our soil, nor in our character, but in the growing cost of finance. 

In Rome financialization became a problem, perhaps because of soil exhaustion. In our time we have exactly the same problem -- excessive financial cost -- simply because policy promotes it: Policy promotes credit use. Policy promotes the growth of debt. Policy promotes financialization in all its forms. Policy is the problem.

Slowing financialization is not enough. We have to stop it dead, reverse the process, and make sure that financialization and financial cost decline for decades. Then we can put our feet up and smoke a