increasingly intensely. That combination of circumstances typically leads to increased political extremism—
i.e., populism of both the left (i.e., those who seek to redistribute the wealth, such as socialists and
communists) and the right (i.e., those who seek to maintain the wealth in the hands of the rich, such as the
capitalists). That happens in both democratically and autocratically run countries. For example, in the 1930s,
increasingly extreme populists of the left became communist and those from the right became fascist.
Populists tend to be more autocratic, more inclined to fight, and more inclined to respect power than law.
When the rich fear that their money will be taken away and/or that they will be treated with hostility, that
leads them to move their money and themselves to places, assets, and/or currencies that they feel are safer. If
allowed to continue, these movements reduce the tax and spending revenue in the locations experiencing
these conflicts, which leads in turn to a classic self-reinforcing hollowing-out process in the places that money
is leaving. That’s because less tax money worsens conditions, which raises tensions and taxes, causing still
more emigration of the rich and even worse conditions, and so on. For example, we are now seeing some of
that happening via the rich leaving higher-tax states where there is financial stress and large wealth gaps.
When it gets bad enough, governments no longer allow that to happen—i.e., they outlaw the flows of money
out of the places that are losing them and to the places, assets, and/or currencies that are getting them, which
causes further panic by those seeking to protect themselves.
When these sorts of disruptive conditions exist, they undermine productivity; that shrinks the economic pie
and causes more conflict about how to divide the shrinking resources well, which leads to even more internal
conflict that increasingly leads to fighting between the populist leaders from both sides who want to take
control to bring about order. That is when democracy is most challenged by autocracy. This is why in the
1920s and 1930s Germany, Japan, Italy, and Spain (and a number of smaller countries) all turned away from
democracy to autocratic leadership, and the major democracies (the US, the UK, and France) became more
autocratic. It is widely believed that, during periods of chaos, more centralized and autocratic decision
making is preferable to less centralized and more democratic, debate-based decision making, so this
movement is not without merit when there is unruly, violent crowd fighting.
When a country gains enough economic, geopolitical, and military power that it can challenge the existing
dominant power, there are many areas of potential conflict between these rival world powers. Since there is
no system for peacefully adjudicating such disputes, these conflicts are typically resolved through tests of
power.
When a leading country’s costs of maintaining its empire abroad become greater than the revenue that the
empire brings in, that economically weakens the country. When that happens at the same time that other
countries are emerging as rival powers, the leading power feels compelled to defend its interests. This is
especially threatening to the leading country both economically and militarily, because greater military
spending is required to maintain the empire, which comes when worsening domestic economic conditions are
making it more difficult for leaders to tax and more necessary for them to spend on domestic supports. Seeing
this dilemma, enemy countries are more inclined to mount a challenge. Then the leading power is faced with
the difficult economic and military choice of fighting or retreating.
When other exogenous shocks, such as acts of nature (e.g., plagues, droughts, or floods), occur during times
of vulnerabilities such as those mentioned above, they increase the risk of a self-reinforcing downward spiral.
When the leadership of the country is too weak to provide what the country needs to be successful at its stage
in the cycle, that is also a problem. Of course, because each leader is responsible for leading during only a
tiny portion of the cycle, they have to deal with, and can’t change, the condition of the country that they
inherit. This means that destiny, more than the leader, is in control.
I threw a lot at you fast in the last few paragraphs in which I tried to briefly describe the major cause-effect
relationship, so you might want to read them again slowly so you can see if that sequence makes sense to you. In
Part 2, we will get into a number of specific cases in greater depth and you will see the patterns of these cycles
emerge, albeit not in a precise way. The fact that they occur and the reasons for them occurring are less disputable
than the exact timing of their occurrences.
To summarize, around the upward trend of productivity gains that produce rising wealth and better living
standards, there are cycles that produce 1) prosperous periods of building, in which the country is fundamentally
strong because there are a) relatively low levels of indebtedness, b) relatively small wealth, values, and political