ome 30 kilometers west of Rome is Ostia Antica. Now a tourist attraction, there’s little sense these ghostly acres once hosted the Roman Empire’s thriving port city. On a grass lawn in front of the museum sits a huge stock of precious, polychrome marble blocks. Most were imported from Africa, Greece and Spain in the third century AD and only partly carved. Public works in Rome had come to a standstill after a long period of expansion, leaving the vast stones in limbo. Their importers ultimately dumped them in the Tiber River, along with columns, vases, and pottery. The Ostia Antica harbor was eventually silted up and abandoned to mosquitoes and malaria until the 19th-century.
If you want a tangible sense of the consequences of a great fiscal crisis, there’s no better place to go than the mossy ruins of Ostia Antica.
In 1973, American economist James O’Connor wrote a book called “The Fiscal Crisis of the State” in which he predicted that within two generations the U.S. government would default on its debt. Progressive economists found his ideas interesting but mainstream academics paid little attention. At the time, U.S. debt was approximately 48 percent of GDP, Japan’s about 50 percent and the euro area about 45 percent.
Four decades later, the U.S. debt is estimated at 100 percent, Japan’s at 260 percent, and the euro area at 88. In some European countries — Belgium, Italy, Ireland, Portugal and Greece amog them — the figure hovers at around 200 percent. Governments appear to have lost their capacity to control deficits and reform fiscal systems. The reality is that the economic recession caused by the 2007 financial meltdown has yet to be overcome.
Economists Joseph Stiglitz and Thomas Picketty — neither one admittedly a member of the free market, budget-shrinking mainstream — recently appeared at a roundtable held by George Soros’s think tank INET. Both insisted that conservative “cut-spending” medicine wasn’t working. They pointed to lopsided wealth distribution as a key component of the ongoing crisis. Steep upward distribution of wealth and income had created stagnant demand and deepened poverty. Fiscal systems badly required reform just as workers were in urgent need of greater purchasing power.
Then there’s Greece, which just repaid a €450 million loan to the IMF. The country is likely to default on its remaining public debt unless it receives a bailout, which seems increasingly unlikely. But a Greek bankruptcy would open a huge can of worms with unforeseeable consequences.
There have been several government defaults and near public bankruptcies in recent decade, most of them in South America. But these crises have been localized. A Greek default would inevitably ripple through the whole of Europe and beyond.
History is an admonishing teacher. The English Civil war of 1641-1651 followed the financial crisis of the Stuart kings. Spain went into bankruptcy after 1660 and required more than two centuries to emerge. The French crown’s dismal finances ended with the French Revolution and the demise of the monarchy. The dramatic Russian Revolution of 1917 stemmed from the fiscal, social and political incompetence and corruption of 19th-century Tsarist governments.
In each case, the long-term solution was radical fiscal and governmental reform that gradually reined in the exaggerated privileges enjoyed by the aristocracy, the crown and the church. State revenue increased, resources rose, and societies grew more egalitarian. Social injustice and undue privilege persisted, of course, but the opening of a path toward more egalitarian and financially stable systems helped produce greater political stability and wellbeing.
Rome is a more frightening cautionary tale. The financial and fiscal crisis that enveloped the Roman Empire was unique in its destructive power. The calamity was triggered by heavy government taxation, which began in the second century. Soon, emperors lost the consensus of both the aristocracy and the populace. The decline grew pronounced by the start of the year 300. The wealthy began abandoning cities, taking with them their gold and silver bullion (coins were melted down and hidden inside the walls of country residences). Money stopped circulating. The flight of capital from urban areas saw the trade, commerce, manufacture, and public works languish. Population declined radically and urban areas emptied out. Government came to a standstill.
City property was seized in part by the Roman Catholic Church. In fact, many of the great churches of Rome, including St. Peter’s, were embellished over centuries by marble imported from the Mediterranean and North African from abandoned Roman quarries.
Rome’s sprawling fiscal failure was felt for more than a thousand years. Today we have measures to avert such centuries-long depressions. At the same time, it’s exceedingly unwise to ignore the potential perils of indulging a system that serves only the few. As Rome shows, the collapse of such system can produce human and material setbacks so immense that there’s no repairing them.