Comparison Between Rome and the U.S. - A Response

We need to be cautious with historical analogies because, obviously, no two historical periods ever track one another that closely, and the implications we draw from comparisons between them can easily drift astray. Furthermore, the less we know about any particular period, the greater the temptation there is for historians to connect whatever dots are available to them in a manner that suits their preferences. The resulting picture may ultimately tell us more about the ideas of the author than about the era itself. My suspicion is that Keith may be indulging in a bit of that here with his comparison between the late Roman Empire and our contemporary America. Nonetheless, historical parallels can be useful to ponder, and I think he is onto something substantive in his commentary that warrants further examination.

The rise and fall of empires has always been a favorite topic among historians, and probably no empire has received more attention over the years than that of the Romans. It’s “fall”, if such it was, has been attributed to everything from imperial overreach to impurities in the Roman water supply. Keith offers us a different perspective, suggesting that a key reason the Roman system broke down was widening class disparities, and with them, increasing gaps in wealth and opportunity between rich and poor. He then makes the leap to contemporary America and suggests that similar inequalities here could lead to an analogous outcome if something isn’t done to intervene.

What interests me about this thesis is that it goes beyond the conventional “fairness” issue, which tends to be a battle of axioms and is therefore difficult to debate analytically. The thrust of Keith’s argument is that extreme disparities of wealth, in addition to being unfair, wreck the very economic infrastructure upon which is based the wellbeing of all classes in a society, including the rich. As I understand the point, the underlying problem is the erosion of the middle classes, whose economic creativity and labor constitute the core source of a society’s wealth. In the ancient Roman world, this “robust class”, as Keith labels it, consisted of “knights, entrepreneurs, civic leaders, and well-paid retired soldiers”, among others. They are thus distinguished, one presumes, from the landed aristocracy, who enjoyed the lion’s share of that ancient world’s wealth and political power in return for essentially passive management of inherited resources. Maybe we could refer to this latter group as the "reaper class", in the sense that they reaped an economic harvest largely sewn by others.

Applying the analogy forward, our “robust class” would consist of those people whose work is essential to our economy. At the very least this group would include entrepreneurs, small business owners, engineers, technology innovators, and those workers producing goods and services demanded by free markets. Our productive class is in fact much broader than this and, I would think, must include some senior executives, some lawyers and accountants, corporate middle managers, teachers, workers providing essential government services, and all others whose often invisible contributions undergird the robust functioning of our society. As Keith argues, any social dynamic that diminishes or demoralizes this class of people while rewarding an oligarchy or "reaper class", threatens our economic bone and muscle.

This far into his argument I concur entirely. Where I suspect I part company with him, however, is in the implied next stage of the argument, largely unspoken in this brief commentary. For if we must "repudiate oligarchy" and eliminate "grotesque disparities of wealth", we need tools to get the job done. And the tools Keith probably has in mind would be (1) higher and more progressive tax rates and (2) activist government programs aimed at re-distributing wealth downward. While at a theoretical level there is nothing wrong with considering these options, there is a great deal wrong I suspect with how they would probably pan out in practice. I can currently see very little to persuade me that, in America today, gains to be had from aggressive redistributionist policies would not be lost in a morass of perverse unintended consequences.

First of all, we need to try to understand who this "oligarchy" is that's so in need of being squeezed harder. It's interesting that President Obama, in pumping for more sharply progressive taxation, has pointed out that rich people themselves are saying they should pay more taxes. Presumably, here he's referring to people like Bill Gates, Warren Buffet, George Soros, and others in their class who, generally liberal-leaning in their political views, have indeed said exactly that. If it's possible to identify an elite super-rich oligarchy in America today, surely these are among the guys we're talking about.

Going beyond this small group of celebrity plutocrats and trying to uncover the broader universe of our modern-day oligarchs, there would be no more fertile ground to search than the hedge fund universe. Hedge funds are by definition investment vehicles for the very rich in America, since it's only by restricting their investor base to supposedly sophisticated high-net-worth individuals, or institutions, that they are exempt from the regulations applying to ordinary mutual funds. It's a revealing fact that hedge funds, being an important source of political contributions, have in general spread their money around between Republicans and Democrats and in fact, until perhaps very recently, have actually favored Democrats in the balance. Anyone who has spent time talking to hedge fund principals knows Democrats, and even liberal Democrats, to be well-represented among their numbers. Many of them support more progressive taxation and the ideals of interventionist government. George Soros, because of his liberal activism, is probably the most visible of this breed, but he is by no means alone.

None of this squares very well with Keith's picture of America's super-wealthy elite banding together like reactionary Roman aristocrats in a tooth-and-nail fight against economic democracy.

So what then is the real source of political resistance to the liberal economic agenda in America? A clue to the answer can probably once again be found in the words of President Obama. During the last Presidential campaign he put forward $250,000 in annual income as somehow a dividing line between "ordinary Americans" and the "super-rich". This line is, of course, orders-of-magnitude south of Warren Buffet's socio-economic turf. Still, Mr. Obama put the spotlight on this second group as being the ones who should bear the entire burden of increased taxation. The group was thus implicitly stigmatized as a pampered elite who could easily afford to pay more, and who should be made to do so anyway as a matter of economic justice. This distinction made for good campaigning, since $250,000 is far above what most Americans make in a year, and the majority would have no obvious reason to feel threatened by the suggested new tax burden.

The problem comes in thinking about exactly who would get caught up in this net thrown down by our soon-to-be President. It's not hard to imagine many people who might indeed deserve to pay more taxes, and who could be made to so without negative consequences to the economy. People living on large amounts of inherited money come to mind, as perhaps do investment bankers, some corporate executives, celebrities, lottery-winners, big-time tort lawyers, and anyone like Gates or Buffet who has made so much money, even when fairly gained, that he really doesn't know what to do with it all.

However, also represented in this targeted class is another group of people whose interests are closely aligned with our society as a whole, and for whom increased taxation would likely force a curtailment of vital economic activity. These would be owners of successful small and medium-sized businesses. Such enterprises in the aggregate make up a substantial portion of our economy, and represent a disproportionate share of our economic growth and new job creation. Their success usually means that they are contributing useful and innovative products to the economy, as well as vital employment opportunities. For expanding companies, profit means a source of low-risk equity capital for financing growth, more than a source of luxury-living for their owners. Diverting such income, through taxation, from productive investment and into government programs, even well-conceived ones, would in general lead to a net loss in economic vitality.

The other consideration to keep in mind here is the risk-return tradeoff that business people have continuously on their radar screens. Small businesses in general, and expanding ones in particular, are by their nature exposed to a high risk of failure and loss. Entrepreneurs willingly undertake such risk only because the prospect for outsized gains makes it attractive. If the risk remains while the gains, should they be achieved, are immediately subject to punitive taxation, businesses have little incentive to incur the risk of expansion at all. If such disincentives became pervasive, our economy would slide into chronic malaise that no amount of fiscal "stimulus" could do much about.

It is, of course, then government spending itself that represents the other prong of the liberal agenda. Proposals for such spending are often sold politically on the basis of either correcting social injustice or stimulating the economy. Such promises are often plausible on the surface but a little vague upon closer examination. In practice, too often federal money gets channeled into standing bureaucracies that grow relentlessly, whether or not they continue serving their missions. They also become conduits for federal money enriching networks of private contractors wedded to them politically and economically.

Liberals are, of course, not alone in facilitating this kind of wasteful application of government resources. Among the most entrenched federal bureaucracies is surely the United States Defense Department, long the darling of conservative Republicans. Decades ago President Eisenhower, himself a former general, coined the derisive term "Military Industrial Complex" to convey the omnivorous nature of this particular public-private partnership, and its lack of real accountability. This syndrome is typical of how government bureaucracies can learn to function once they gain access to the institutionalized flow of money from taxpayers and government bond sales.

Getting back to Keith's commentary, I think he's made a provocative analogy between ancient Rome and the contemporary United States. Just as Roman citizens enjoyed a relatively stable and prosperous way of life for many years, so do many of us today. And the fact that the Roman system eventually devolved into discord and relative poverty for most should be read as a cautionary tale.

Furthermore, I believe that Keith has identified an interesting correlation in the decline of Rome and the disintegration of its middle classes. Any healthy economic system depends on a "robust class" of hardworking pragmatists who innovate, solve economic problems, and keep the flow of goods and services moving to the maximum number of people. If this class becomes diminished or demoralized, the entire system is at risk because takers and consumers and start to overwhelm the producers.

In the United States, our commercial classes are essential to the healthy functioning of our society. Too often our politicians take this group for granted and, even when giving lip service to its importance, seem ready to burden it with ever increasing levels of taxation, regulation and litigation exposure. The beneficiaries of these policies often are not so much disadvantaged citizens as government bureaucracies, crony capitalists, and tort lawyers.

The closest thing we have to true "oligarchs", our hedge fund millionaires and billionaires, remain happy and don't seem to care that much one way or the other.