Singapore’s Prime Minister Lee Kuan Yew successfully took the country through these stages by running the
country as prime minister from 1959 to 1990 and mentoring until his death in 2015. He created the principles
and shaped the culture to be successful way beyond him and avoided wars without losing power.
In the postwar US, John F. Kennedy in his 34 short months as president from January 20, 1961, to November
22, 1963, simultaneously inspired the country to go to the moon, advanced the civil rights movement,
undertook the war on poverty with Vice President Lyndon Johnson, and kept the United States out of major
wars while simultaneously strongly containing opposition to the American Empire.
In China, Deng Xiaoping transitioned a weak and inefficient communist system to a highly productive state
capitalist system, quickly changing the nation’s psychology to make these changes with sayings, such as “it is
glorious to be rich” and “it doesn’t matter whether the cat is black or white as long as it catches mice”; built
China’s economy and finances to be very strong; enormously improved the education and quality of life of
most people; dramatically lengthened life expectancies and reduced poverty rates; successfully led China
through internal political conflicts; and strictly maintained China’s sovereignty while avoiding major external
conflicts.
The longer countries stay in this stage, the longer their good times last.
During this stage the developments to pay attention to that reflect the big risks that naturally develop and
undermine the self-sustaining good results are the widenings of the opportunity, income, wealth, and values
gaps accompanied by bad and unfair conditions for the majority, luxurious and unfairly privileged positions for
the elites, declining productivity, and bad finances in which excess debts are created.
History shows us that the great empires and great dynasties that were able to sustain themselves stayed in Stage
3 by avoiding these risks. The failure to avoid these risks leads to the next stage, which is a period of excesses.
This is the stage in which the temptation to do everything and borrow money to do everything can lead to the
movement to the next stage.
Stage 4: A Period of Excesses
I also call this “the bubble prosperity phase.” I will describe it briefly because we touched on these elements
before. Classically:
There is the rapidly increasing debt-financed purchases of goods, services, and investment assets, so debt
growth outpaces the capacity of future cash flows to service the debts. So, bubbles are created. These debt-
financed purchases emerge because investors, business leaders, financial intermediaries, individuals, and
policy makers tend to assume that the future will be like the past so they bet heavily on the trends continuing.
They mistakenly believe that investments that have gone up a lot are good rather than expensive so they
borrow money to buy them, which drives up their prices, which reinforces this bubble process. That is
because as their assets go up in value their net worth and spending-to-income level rise, which increases their
borrowing capacities, which supports the leveraging-up process, and so the spiral goes until the bubbles
burst.22
There is a shift in spending of money and time to more on consumption and luxury goods and less on
profitable investments. The reduced level of investments in infrastructure, capital goods, and R&D slows their
productivity gains and leads their cities and infrastructures to become older and less efficient.
There is a lot of spending on the military at this stage to expand and protect global interests, especially if the
country is a leading global power.
The country’s balance of payments positions deteriorate, reflecting its increased borrowing and reduced
competitiveness. If the country is a reserve currency country, this borrowing is made easy and the result of
non-reserve currency savers having a preference to save/lend to their currency.
Wealth and opportunity gaps are large and resentments between classes emerge.
During this phase, the archetypical best leader is the “well-grounded, disciplined leader” who understands and
conveys sound fundamental behaviors that yield productivity and sound finances and creates restraints when the
crowd wants to overdo things. These leaders are the ones who lead the country to continue to reinvest a significant
amount of their earnings and their time to being productive when they become richer. As mentioned, Lee Kuan

Yew, the former Prime Minister of Singapore, assured that his country and fellow citizens had the culture to
become well-educated, disciplined, and of strong character even after becoming successful and rich. However,
these leaders are few and far between because their fighting the ebullience of the masses is very unpopular. In
almost all cases, after becoming rich, the country (and its leaders) become decadent, borrow to finance excess
consumption, and lose competitiveness. This period of decline is exemplified by decadent leaders such as the
notorious Roman emperor Nero (who used a city-wide fire in Rome to confiscate land to build an expansive
palace)23 as well as Louis XIV (who similarly expanded the Palace of Versailles while productivity fell and people
endured hardships at the height of his power)24 and the Ming Dynasty’s Wanli Emperor25 (who withdrew from
actively governing and focused on the construction of his own immense tomb).