Charlie Munger is the other billionaire from Berkshire Hathaway, the one who has never pimped for Hillary Clinton and still retains a great deal of common sense. He’s written an essay for Slate.com on how the US has come to ruin:

In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature’s bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island “Basicland.”

The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.

Moreover, almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property. The one exception was the widespread presence of secured, high-down-payment, fully amortizing, fixed-rate loans on sound houses, other real estate, vehicles, and appliances, to be used by industrious persons who lived within their means. Speculation in Basicland’s security and commodity markets was always rigorously discouraged and remained small. There was no trading in options on securities or in derivatives other than “plain vanilla” commodity contracts cleared through responsible exchanges under laws that greatly limited use of financial leverage.

In its first 150 years, the government of Basicland spent no more than 7 percent of its gross domestic product in providing its citizens with essential services such as fire protection, water, sewage and garbage removal, some education, defense forces, courts, and immigration control. A strong family-oriented culture emphasizing duty to relatives, plus considerable private charity, provided the only social safety net.

The tax system was also simple. In the early years, governmental revenues came almost entirely from import duties, and taxes received matched government expenditures. There was never much debt outstanding in the form of government bonds…

…But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland’s citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called “the bucket shop system.”

The winnings of the casinos eventually amounted to 25 percent of Basicland’s GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called “financial derivatives.”

Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland’s currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship. (cont.)

Basically, Munger blames derivatives and speculation for Basicland’s demise, and much to my surprise, he believes that the current over-levered state of affairs is an outcome of the free market:

These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.

Of course, Austrians like myself could not disagree more with his implication of the market. We have anything but a free market in the US, nor have we had much of one in banking since 1913 when JP Morgan, JD Rockefeller, Jacob Schiff and friends secretly wrote the Federal Reserve Act and slipped it through Congress the night before Christmas Eve. With a government-sponsored cartel (the only lasting kind, by the way) and the power to bail themselves out, the bankers were freed from the restraints of the market. They created credit willy-nilly and blew bubble after bubble, each followed by a crash, only to outdo themselves each time.

Of course, if we are talking about the demise of a nation, there is a lot more to it than the banking cartel. I wouldn’t blame oil prices at all, and I would certainly blame welfare (moral hazard for the masses to match that for the bankers). I would also blame military adventurism, and I would put a very heavy stress on the ever-growing web of regulations that strangle enterprise and entrepreneurship, making everyone poorer while bestowing favors on particular corporations and interest groups.

Munger may not be an Austrian, and he may have a tad more respect for government than it is due, but he is a brilliant and honest guy, so his essay is definitely worth a read. Actually, his Almanac is a lot more fun.