The five forces that affect prosperous nations: author Todd Buchholz talks with TIE's David Smick about his latest book.

Author:Smick, David

The Price of Prosperity: Why Rich Nations Fail and How to Renew Them by Todd G. Buchholz (Harper, 2016)


Smick: In your new book, The Price of Prosperity: Why Rich Nations Fail and How to Renew Them, you have the amazing ability to make reading about economics a fun experience. You bolster your thesis with interesting and provocative anecdotes. Congratulations--it's very difficult to make this stuff as lively as you have.

Let's start with your main thesis that nations are just as likely to unravel after periods of prosperity as during periods of depression. Why is that so, and what are the forces that threaten to unravel prosperous nations?

Buchholz: Many people have written about how poor nations fall apart. They discuss Syria, Sudan, Libya, and so on. But we have seen rich nations fall apart as well. My family recently celebrated the 100th birthday of my wife's grandmother, and the 102nd birthday of her grandfather. When these two were born, a Habsburg empire and an Ottoman empire stretched across middle Europe and the Middle East. Now those empires are long gone. They didn't fall apart due to a terrible depression that led to starvation and insurrection. Instead, they unraveled.

Five forces, I submit, are common among nations as they become more prosperous, but then lead to their unraveling. Together they make up what I call the price of prosperity. One of them is falling birth rates. When countries grow rich, people have fewer babies. That's not just something that we've seen in the last twenty or thirty years in the United States. It's something that Victorian England experienced, as did France in the early 1800s. Even Aristotle wrote about it when describing the Spartans.

In peasant economies, more kids meant more prestige. We used to size up a man by counting his children. Now we count Rolex watches, six-pack abs, and Twitter followers.

Why do wealthy countries have fewer kids? In modern times, you don't need children as farmhands or to crawl on their bellies into coal mines, so prosperity turns children more into luxury goods--as if they were pets. As Gary Becker, the Nobel laureate from the University of Chicago put it, in modern times people see a tradeoff between the quality and the quantity of children. Parents would rather have a few kids but get each of them into a super-competitive college, invest in orthodontia so they have perfect smiles, get them perfect haircuts and the latest fashions, rather than have six or eight kids running around with smudged faces and buck teeth.

So what's the problem? If life expectancy expands, someone has to service people as they get older. Someone has to act as a respiratory therapist in the hospital. Someone needs to clip toenails at the nail salon. That means a country with a falling birthrate generally needs immigrants. Immigrants can provide a very positive charge for the economy, but they raise a challenge: A country cannot maintain its character and its sense of patriotism amidst newcomers unless the newcomers embrace the dominant culture and adopt the history of their new home. That was a problem faced by the Habsburgs and the Romans and virtually every other successful civilization that is now relegated to history books.

All of these issues are paradoxes because they're both demonstrations of prosperity, but carry the possibility of undermining that prosperity.

Smick: You had some interesting data on economies that grow faster than 2.5 percent annually for a certain period. Can you explain that further?

Buchholz: Essentially, the population replacement rate is about 2.1. In other words, you need a fertility rate just over two children per woman if the population is not going to shrink. Looking at the data throughout history, I found...

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