When superpowers default, history remembers

Player utilities

This story is based on a radio interview. Listen to the full interview.

Audio Transcript:

Marco Werman: I'm Marco Werman, this is The World. Today, two days away from debt ceiling default, here's about the only thing I can tell you to make you feel better about your government. If this happens, the US won't be the first economic superpower to do so. Historians and economists often mention Imperial Spain. We are talking 400 or so years ago, that is. Back then, Spain was the world's economic, political, and military powerhouse, from Manilla to Mexico City, and from Mumbai to Naples and Lisbon, all bowed to the will of the Hapsburgs. So, what went wrong? Well, Geoffrey Parker has studied that question for years. The globe-trotting historian is now professor at Ohio State University in Columbus. So, what fiscal problems did Spain's Hapsburg's rulers run into, Geoffrey Parker?

Geoffrey Parker: They run into much the same problem as any global superpower - whether it's today or 400 years ago, imperial overstretch. You can get away with spending more than you make for some of the time, but you can't do it for all of the time. The problem is that it's easier to start wars than to finish them, as we have found out ourselves in the 21st century. It's the same with Spain; they spend millions and millions and millions of dockets, and someone has to provide it.

Werman: So, what I want to know is whether there's a lesson from Spain, 400 years ago, for the US today? And is there a lesson here - it sounds like you're saying there might be a lesson - about never ending war?

Parker: Yeah. Don't start a war. Don't believe those who say "Oh, it will be over by Christmas. Oh, as soon as we arrive as liberators, they'll be putting roses in the barrels of our guns." It just doesn't happen that way.

Werman: So, let's circle back to Spain. I mean, what were the consequences of Spain defaulting those early years? I mean, the lenders survived, but what was the cost to the Spanish realm?

Parker: The lenders do not survive.

Werman: Oh!

Parker: The lenders do not survive. Some of the lenders do. You see, you have a terrible carrot and stick dilemma. If you've lent money to the Spanish government and it defaults, the government will come to say, "Well, *laughter*, if you lend us a little bit more, we will in fact start repaying the debt we already owe you." And some bankers go for that, and of course, they just get sucked in deeper and the next time there's a default, they lose even more. Others say, "Absolutely not, we are not going to go down that way," and they lose everything.

Werman: And, can a country ever pull out of that? And how long did it take Spain, to kind of get back to...

Parker: Spain, amazingly continues to find bankers. There were enough bankers who were not prepared to... it's very difficult to say goodbye to your assets. It's a very bold decision to say "You know, we have spent so much, but we now realize we made a terrible mistake, and we're just going to draw a line under that investment. We're not going to lend anymore."

Werman: I mean, whether the debt ceiling is defaulted on, or not... I mean, you're a historian, Geoffrey Parker; what do you think people are going to be saying about the United States in 400 years?

Parker: You can tell, perhaps from my accent, although I've lived in this country since 1986, I'm not a native born American. I am a citizen. I pay my taxes here and I vote. But, looking at the outside world, it is just incredulity that the greatest power in the world cannot get its act together. I mean, to link the default on sovereign debts, something which really does tarnish a country, to a particular piece of legislation was already passed, I don't think anyone outside the United States can understand that. How we could be holding the economy of the world to ransom, in return for some concessions on a piece of legislation which has already passed? What is there still to discuss? That's what I think the rest of the world can't understand, and I think one year, ten years, a hundred years from now, that will still be something which is very hard to understand.

Werman: A fair point indeed, and now we have to say goodbye to our asset, Geoffrey Parker, professor of history at Ohio State University in Columbus. Thanks a lot.

Parker: Thank you.

Do you enjoy our audio? Please help support it with a donation.