86-year old Charlie Munger, Warren Buffet's long-time investment partner, has decided that Basically, It's Over. The article, subtitled "a parable about how one nation came to financial ruin," was published in Slate Magazine on February 21, 2010. No doubt Charlie is not a reader of Decline of the Empire, so it's gratifying that he and I have arrived at the same conclusion independently.
If Charlie was in the middle of his life rather than near its end, I suspect he would not fess up to the Empire being basically over. In fact, like most investors and economists, he would be optimistic about the future despite the obvious warning signs. But this octogenarian has been there, done that, and has made far more money than he could ever spend, so it's Truth & Reality Time.
In his parable, Munger calls his fictional country Basicland. I suggest you read his not-so-subtle critique of the United States for the obvious details, but this quote will give you an idea of what's he's saying—
But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called "the bucket shop system"...
The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called "financial derivatives."
Marketwatch's Paul Farrell, who is fast becoming my favorite collapsitarian, provides a long overview of Munger's doom prophesy in his Munger warns 2012 is our tipping point on 'road to ruin'. Although he doesn't use the word, it's clear that Farrell is talking about a declining Empire—
But we also know, as we said earlier in "The Death of the Soul of Capitalism," that over the long-term, through many centuries, historians give nations an average of about 200 years before they burn out. Why? Because the "blind optimism" that makes a nation great in the early years of its rise to power and glory becomes, paradoxically, its worst enemy in the end-days.
Their arrogance traps them in a self-sabotaging cycle that weakens their resolve, makes them vulnerable to new, unpredictable challenges, ultimately destroying them from within. That happens over and over throughout history, even as their optimistic brains tell them they're still the greatest.
I'm not so sure about Farrell's diagnosis. Blind optimism—also called denial—is certainly a key to our Decline. A decaying, over-extended, bankrupt Empire falls apart from within, due to venality and spiritual exhaustion. Suicide, not murder. Power corrupts, absolute power corrupts absolutely. The Executive has been assuming "special powers" for some time now. For example, Congress merely rubber stamps Imperial wars. The Empire's vital institutions, such as the Two Party System and Congress here in the United States, cease to function.
But this is a complex subject. See my The Wheel of Suffering or Part I of my Charlie Rose discussion for some other thoughts along these lines. Joseph Tainter wrote a book about it called The Collapse of Complex Societies. I found his discussion too academic, too generalized, and thus lacking in the juicy details I enjoy reporting here or reading elsewhere. (Try Goldman Sachs 666.)
And what about Munger's 2012 prediction? Here at Decline of the Empire, we are far too humble to make calendar forecasts. No doubt some of you will note, as I did, that the Mayan Calendar ends on December 21, 2012... Just kidding!