Note to readers. Yang Hu is the Director of Economics and Mortgage Market Analysis at Fannie Mae. He is also a serious student of history and a thoroughly skilled writer. He offered a rejoinder to my earlier commentary entitled "I'm worried."
What Kind of Decline? A rejoinder by Yang Hu
In drawing parallels to the decline and fall of the Roman Empire, a note about the distinctiveness of its disintegration.
David has kindly invited me to write a rejoinder to his column "I'm Worried", where he sees the parallel in the decline between United States and Rome. While my crystal ball is no more perspicuous than anyone else's (and my day job as an economist probably makes it less so, given our track record), I think it would be instructive to visualize what the United States might look like centuries from now, were we to follow the same arc of decline as the Roman Empire from its Augustinian heights during first century AD.
Were that the case, a century from now the vast majority of our presidents would die either fighting someone else or at the hand of his or her successor, most of whom had risen to prominence through the military . States west of the Rockies would break away and form their own countries, as trade and economic integration completely broke down . The strains from an overly expanded army and devastating plagues  would further cause the collapse of civil society. And there would be 100 million fewer Americans a hundred years from now, as incessant civil wars wiped out a large number of people .
All this, before our version of Diocletian shows up.
Historians Will and Ariel Durant, as quoted by David, attribute the final destruction of the Roman Empire to Diocletian's "socialist interlude." . I am of the opinion that this reflects more the anxieties of our times and that even had Diocletian been replaced by Empress Margaret Thatcher Augustus, who in turn appointed Imperator Ayn Rand Maximus as her co-emperor, the trajectory of the Roman Empire would not have been much different.
I will get to that later. First let me lay out five categories of decline, from most traumatic to least:
1) Complete population disintegration. The kind of decline described in Jared Diamond's Collapse in my mind ranks as the worst, because a society experiences irreversible shock and the entire society breaks down. Easter Island is the most vivid example of this. By one estimate, the post-ecological destruction of the island allowed it to hold only a fifth of its population during its height . Imagine the impact to civil society in America if 250 million of us starved to death tomorrow.
2) Social and political disintegration. This is better than the previous category in that the population is allowed to recover so that a remnant of the civilization can grow after the deluge, but nonetheless the polity that once encompassed these people has completely disintegrated. I would place the Roman Empire in this category, because not only did it lose parts of the empire that were either peripheral or non-core (in that they did not share common linguistic or cultural traits, such as the Greek part of the empire), but also, even those parts where there were closer cultural bonds, such as Roman Gaul, eventually broke away. Italy proper also broke into multiple city-states. If America experienced this category of decline, then a few centuries from now our country would cease to exist, the Constitution would govern no one, and successor city states such as the Republic of Miami would vie against the Grand Duchy of Annapolis over things like control of the hinterlands and fight against each other's navies on the high seas. The other example I can think of is the gradual disintegration of the Mongol Empire as it lost its Eurasian holdings and experienced tribal fragmentation by the 18th century.
3) Decline into vassalage. The example I have here is Egypt, which went from an imperial power in its own right to a regional province that was fought over by other empires – from the Persians to the Greeks to the Romans to the Fatimids to the Ottomans to the British. Maybe centuries from now the United States will be annexed by Emperor Wayne Gretzky VII of Canada as its eleventh province, from which much of their potatoes will come. An ignominious outcome for the Stars and Stripes, but better than the previous case, in that while the polity might not exist, there is still a level of cultural unity that, should the opportunity arise, can leave that vassalage and become a cohesive entity again. Egypt itself was able to regain its own independence at various times. A more dramatic example is Poland, which became a single political entity 103 years after its initial partition by the Eastern European powers . This political unity might seem like a cakewalk until you think about all the map-drawn countries that didn't pan out so well .
4) Imperial divestment. This is decolonization as the sun sets on the British Empire. However, this "decline and fall" is very different from the Roman Empire instance, in that England as a political entity remains as such, by and large: Manchester isn't a rival to Liverpool outside of Premiere League soccer. The United States in this scenario would lose Puerto Rico and Guam, but I'm guessing most people would not consider that as a deathblow to American civilization. Other examples include post-WWI Austria-Hungary and the Ottoman Empire, post-WWII Japan, and all the European powers, who had to disgorge their overseas possessions in the intervening decades. This is probably the type of "decline" that we most typically regard as such.
5) Relative decline and resurgence. In this I have in mind China, which experienced a relative decline from its height in terms of technological and economic prowess . But China, despite periodic fragmentation, retained its social and political integrity to this day. Other examples include Iran as it descended from the Persian Empire and, to a lesser extent, India.
China provides a curious contrast to Rome. Both were at the height of their imperial prestige during the first century AD. Both experienced massive political upheavals during the third century: civil wars fomented by usurping emperors in the West, civil wars amongst the Three Kingdoms in the East . Both experienced a massive influx of nomadic tribes in consequence of these power vacuums: Visigoth kingdoms in the Roman West, Xingu dynasties in the old Han North. And both suffered massive population losses as a result, between 30-50% .
By the 7th century, however, China is once again a unified political entity in the form of the Tang Dynasty, considered by many to be the golden age of Chinese civilization. Meanwhile the Latin West stayed as fragmented as ever. In fact the default setting for China is that of a single polity: it would experience civil wars and fragmentations over and over again, but always come back together. In contrast, once the Latin West fell, all the king's men could not put it back together again; not Charlemagne, not Napoleon, not the entire Habsburg clan.
And this is why I'm not convinced that imperial monopolies, inflations, and tax farming – the "socialist interlude" cited by Will and Ariel Durant – were the sine quips non reasons for the destruction of the Roman Empire, or even principal ones. As it happened, Imperial China experienced all these economic policies/developments: imperially imposed monopolies in trade  and industry , inflation from paper money , and enserfdom arising from tax farming . In one instance, the fall of the Ming Dynasty was not accompanied by runaway inflation but rather a deflation arising from external factors . These "socialist interludes" weren't unique Diocletian policies; and whatever their deleterious effects, China did not disappear from the face of the earth like the Roman Empire of antiquity.
Nor is this case of China particularly unique. The other great contemporary imperial power to Rome during the 1st century AD was the Parthian Empire, itself a successor to the Persian Empire. The Parthian Dynasty itself came to an end during the 3rd century, but Persia as a polity survived to this day. There was just something about the Roman Empire that once it fell it stayed fallen.
Will America decline like Rome? No one knows, but the kind of utter political disintegration experienced by Rome was pretty drastic on the scale of historical declines. Additionally, I'm also a bit leery of the extent to which one can draw parallels between economic policies of the past and where we are today. An imperial iron monopoly seems quite different from an EPA regulation on steel to me.
Or perhaps America's arc of decline would be more like China’s or Persia’s. Four hundred years after the fall of the Han Dynasty, Tang emperors would once again rule over a unified China. They financed their governments during their resurgent phase through revenues gained by an imperial salt monopoly .
Economics and Mortgage Market Analysisyang_hu[at]fanniemae[dot]com
Many thanks again to Yang Hu for this thoughtful and erudite rejoinder.
David R. Kotok, Chairman and Chief Investment Officer