The Top

While in the top phase, most of these strengths are sustained, embedded within the fruits of their success are the seeds of their decline. As a rule, as people in these rich and powerful countries earn more, that makes them more expensive and less competitive relative to people in other countries who are willing to work for less. At the same time, people in other countries naturally copy the methods and technologies of the leading power, which further reduces the leading power's competitiveness.

For example, British ship builders had less expensive workers than Dutch ship builders. So, they hired Dutch designers to design better ships that were built by less expensive British workers, making them more competitive, which led the British to rise and the Dutch to decline. Also, as people become richer, they tend not to work as hard. They enjoy more leisure, pursue the finer and less productive things in life, and at the extreme, become decadent.

Values change from generation to generation during the rise to the top from those who had to fight to achieve wealth and power to those who inherited it. (boy groans) (boy blows raspberry) They're less battle heartened, steeped in luxuries and accustomed to the easy life, which makes them more vulnerable to challenges. The golden era of the Dutch empire (glasses clink) and the Victorian era of the British empire (glasses clink) were such high prosperity periods like this.

As people get used to doing well, they increasingly bet on the good times continuing and borrow money to do that, which grows into the financial bubbles. Naturally, the financial gains come unevenly. So, the wealth gap grows. Wealth gaps are self-reinforcing because rich people use their greater resources to reinforce their powers. For example, they give greater privileges to their children, like better education, and they influence the political system to their advantage.

This causes the gaps in values, politics, and opportunities to grow between the rich "haves" and the poor "have-nots". Those who are less well-off feel the system is unfair, so resentments grow. But as long as the living standards of most people are still rising, these gaps in resentments don't boil over into conflict. Having the world's reserve currency inevitably leads to borrowing excessively and contributes to the country building up large debts with foreign lenders.

While this boosts spending power over the short term, it weakens the country's financial health and weakens the currency over the long-term. In other words, when borrowing and spending are strong, the empire appears very strong, but its finances are in fact being weakened. The borrowing sustains the country's power beyond its fundamentals by financing both domestic over consumption and international military conflicts required to maintain the empire.

Inevitably, the cost of maintaining and defending the empire becomes greater than the revenue it brings in. So having an empire becomes unprofitable. For example, the Dutch empire overextended around the world and fought war after increasingly expensive war with the British and other European powers to protect its territory and trade routes. The British empire similarly became massive, bureaucratic, and lost its competitive advantages as rival powers, particularly Germany, soared, leading to an increasingly expensive arms race and world war.

The US has spent about eight trillion dollars on foreign wars and their consequences since September 11th, and trillions more for other military operations and for supporting military bases in 70 countries, and it still isn't spending enough to support its military competition with China in the area around China. In this cycle, the richer countries eventually get deeper into debt by borrowing from poor countries that save more.

It's one of the early signs of a wealth and power shift. This started in the United States in the 1980s when it had a per capita income 40 times that of China's, and started borrowing from Chinese who wanted to save in dollars because the dollar was the world's reserve currency. Similarly, the British borrowed a lot of money from its much poorer colonies and the Dutch did the same at their top. If the empire begins to run out of new lenders, those holding their currency begin to look to sell and get out rather than to buy, save, lend, and get in, and the strength of the empire begins to decline. The decline.