Recommended: Balance

To paraphrase H.L. Mencken, for every political or economic problem there is an answer which is simple, obvious, plausible, ideologically consistent, and wrong. In the hard sciences theories aren’t accepted until there is hard evidence to support them. Unfortunately the same rules apparently don’t apply in either political thought or economics, where people believe, often passionately, in all sorts of theories for which there is either no evidence at all, or worse yet, clear evidence that they are incorrect.

Glen Hubbard and Tim Kane address this issue in their new book Balance: The Economics of Great Powers from Ancient Rome to Modern America.  Hubbard and Kane are both prominent economists bent on testing popular economic and political theories against real data from the real world. The results are often surprising. Several things I thought were true certainly aren’t supported by the evidence.

I got three major take-aways from this book:

(1) Despite its currently dysfunctional political process, America is still by far the leading economy in the world, and will remain so for some time yet, whatever the pessimists say and however incompetent our politicians prove to be,

(2) the history of great power decline is depressingly consistent throughout history: increased centralization of power, increasing debt, increasing shift of power to rent-seekers (what we now call special interests) who oppose change because it would threaten their prerogatives, until finally the empire/nation is so rotten from inside that it falls to (an often fairly puny) outside threat, and

(3) although America is going down the familiar path of great power decline, there is ample time still to change course, if only we as a people have the will to do so.

This is perhaps the most enlightening book on economics I have read this year.