How A Country Dies

Monty Pelerin / Economic Noise

A country dies slowly.

Those living during the decline of Rome were likely unaware that anything was happening. The decline took over a couple of hundred years. Anyone living during the decline only saw a small part of what was happening and likely never noticed it as anything other than ordinary.

Countries don’t have genetically determined life spans. Nor do they die quickly, unless the cataclysm of some great war does them in. Even in such extreme cases, there are usually warning signs, which are more obvious in hindsight than at the time.

Few citizens of a dying nation recognize the signs. Most are too busy trying to live their lives, sometimes not an easy task.  If death occupies their mind, it is with respect to themselves, a relative or a friend. Most cannot conceive of the death of a nation.

A Country Dies Slowly First

For those interested, signsor symptoms precede death for a country often as they do for a person. There is a pattern that involves the following:

1. The Economy

Economically, people become poorer. It becomes harder to feed a family. Economic growth stalls and then reverses. Work opportunities decline. Disincentives to work rise as government tries to ease the burden on the unemployed and lower skilled. These efforts require more revenues which means higher taxes or debt financing. Disincentives to create jobs are magnified by attempts to address the problem. Higher taxes and other burdens are imposed on the productive making work less attractive.

The response should not be surprising. Capital flees first. It goes to areas where adequate returns are still available. Jobs are created but not in the host country. Finally a “brain drain” begins. Talented people leave the country for places that offer greater opportunity. In the case of the US, to escape US taxes these people must renounce their citizenship. Citizenship renouncements are currently at the highest levels in the history.

The flight of capital, both real and human, further  lowers standards of living. Signs of stagnation become more apparent. They may begin as seemingly benign as roads which have too many potholes. “For rent” signs are seen more frequently. Classified job ads  decrease. “Going out of Business” sales are no longer marketing gimmicks.

Initially, people dig into their savings or begin to borrow in order to retain their standard of living. Most believe it is a temporary situation. Eventually bankruptcies increase. Strip or full malls close. Large areas like Detroit become close to uninhabitable.

These conditions characterize the beginnings of the decline. As the decline continues, things get much worse.

read more at Economic Noise:

http://www.economicnoise.com/2014/06/20/country-dies/