Global Economic Crisis

The proliferation of sombre headlines can no longer be obscured by the proclamations issued from politicians that their unprecedented binge of public borrowing has “saved” us all from a global depression, and paved the way for renewed economic growth of such intensity that it will surely create the new tax revenues required to service the expanded public debt interest payments made necessary by those same policies. The European debt crisis is now a reality, as the contagion  of fiscal insolvency migrates from Greece to Portugal and now Spain, and ultimately through the rest of the Eurozone. The UK, Japan and United States are not far behind, as they have annual deficits and total levels of national debt as bad as the worst of the Eurozone members.

Where will all this lead? If the politician are wrong, and the miraculous and unprecedented rates of economic growth required to pay annual interest payments and convince the global bond markets that providing new financing for structural deficits is a wise investment don’t materialize, what then? History provides a clear answer. When all else fails, the capacity to impose taxation on its citizens is the only recourse left to sovereigns for convincing bankers and investors of their credit worthiness as borrowers.

In the latter period of the Roman Empire, a long succession of bad economic policies had destroyed the basis of  agriculture and industry. To pay for its foreign military outposts and large standing army, not to mention a vast imperial bureaucracy, the authorities debased the currency, which in turn created inflation while furthering undermining the Empire’s economy. Ultimately, and in desperation, the latter Roman emperors vastly increased the rate of taxation, and their ability to squeeze every last denarius out of its increasingly impoverished citizens.

In their epic work on the history of human civilization, the historians Will and Ariel Durant wrote the following to explain the draconian fiscal reality in the latter centuries of the Roman Empire:

“To support the bureaucracy, the court , the army, the building program, and the dole, taxation rose to unprecedented peaks of ubiquitous continuity…Since every taxpayer sought to evade taxes, the state organized a special force of revenue police to examine every man’s property and income; torture was used upon wives , children, and slaves to make them reveal the hidden wealth or earnings of the household; and severe penalties were enacted for evasion. Towards the end  of the third century, and still more in the fourth, flight from taxes became almost epidemic in the Empire. The well to do concealed their riches, local aristocrats had themselves reclassified as humiliores  to escape election to municipal office, artisans deserted their trades, peasantry proprietors left their overtaxed holdings to become hired men, many villages and small towns  were abandoned because of high assessments; at last, in the fourth century, thousands of citizens fled over the border to seek refuge among the barbarians.”

With many leading economists predicting that the vast orgy of public debt created by policymakers in response to the global economic crisis will sooner rather than later require significantly higher levels of  taxation, there is no guarantee that highly indebted countries will escape the painful consequences that appear inevitable. The remaining uncertainty is if we will escape the hellish taxation nightmare that afflicted the citizens of ancient Rome in the period leading to its ultimate decline and fall. Perhaps it is just as well that our policymakers seldom read history, let alone learn from it.