EU5 And Economics Part II: Inflation And The Fall Of The Roman Empire

This article is a part of a series that resulted from some observations about the economic modelling in the strategy video game Europa Universalis 5 (EU5). That game allows you to take over the leadership of one of the very many political organisations that existed in 1337 and steer it into the following centuries (the game timeline ends in the 1800s). However, in order to understand the economic situation in 1837 in Western Europe, you need to understand how Western Europe evolved out of the Western Roman Empire. My previous article gave a potted history of how the Romans provided for their military, (an important topic in government finance).

If one is writing popular economic commentary and stray into Roman history, one needs to address the popular idea that inflation caused the collapse of the Roman Empire. Since my previous article had no mention of inflation, I obviously disagree. I will explain my disagreement in this article, finally returning to EU5 in the next article.

EU5 And Economics: Part I, Historical Backstory

The fifth installation of the video game Europa Universalis (hereafter EU5) just came out, and it had some interesting economic modelling issues. However, to get to explanation of how EU5 relates to the historical period (the start date of the game is 1337) I first need to go back to the historical background of what the situation was like in 1337 in the lands of the Roman Empire. (Although EU5 is global, I am really only familiar with European/Mediterranean history of that era. The game systems best fit “Western” regions, although the rest of the world gets filled in better as the developer adds content updates.)

This article is the first of a projected three-part series gives a very high level overview of the issues around the transition to and from monetary economies, and the issues faced by the Roman Empire. One reason is why this is interesting in the economic commentary context is that there is a fair amount of reductionist analysis of the period by hard money types as well as moralisers trying to draw lessons from the demise of the (Western) Roman Empire and the (so-called) Dark Ages.

Oh No, Missing CPI Data

It appears that the American October Consumer Price Index (CPI) will not be calculated by the Bureau of Labor [sic] Statistics (BLS), courtesy of the now-ended shutdown. Since the CPI calculations rely on an extremely large survey of data on a particular set of dates, the absence of employees making that survey makes it impossible to recover that data point.

Although this is not too big a deal, I just want to comment on some arcane side effects of this hole in the data.

De-Liberation Day And Other Topics

Rather than write a few small articles, I am just going to have a single article covering a few threads. My blog writing time has been limited by working on my manuscript.

De-Liberation Day?

Outside observers have argued that the Trump administration’s arguments before the Supreme Court were shambolic at best, and the questioning by judges was viewed as hostile. Although the Supreme Court normally bends to the will of President Trump, the argument that he can impose taxes at will might push the conservatives too far. The recent blowouts of Republicans in state and municipal elections is a reminder that politics has not yet been abolished.

Ambling Towards A Crisis?

After 2008, there was a small community who always predicted repeats of The Financial Crisis. The problem the doom-mongers faced was the back side of “The Minsky Cycle”: actors react to a crisis by reducing risk and taking steps to avoid repeating the exact same crisis. That was done throughout the financial system (including Canadian regulators who changed their housing market policies, which was my worry at the time). However, memories fade — and new ways to spawn a crisis pop up.

Financial crises of varying strength have popped up on a frequency of (roughly) once per decade in the United States since the 1960s (when the lingering fear of the Great Depression finally subsided). The COVID recession hit at about a decade after the Financial Crisis — and so we had another crisis that stood in for a financial crisis. The question one might ask is whether the clock is ticking. Although I am fairly permanently pessimistic, I still lean towards a financial crisis being delayed.

Canada Muddling

Canadian CPI data came out today, and the general trend is that it is bouncing around “normal levels” for an expansion. Although higher than the average for the 1990-2020 period, no reason to get too excited. Grocery prices have been trending higher on a year-over-year basis (4%) since a low in April. To what extent this is partly the result of turmoil in the United States is not clear to me. Although I am not spending too much time handicapping the Bank of Canada, I lean towards the policy rate sticking near current low levels.

Tariffs And Fiscal Policy

The customs duties data for the United States was recently updated, and we can assess the “success” of Trump 2.0’s tariff policies so far. On an annualised run rate, customs duties were 0.88% of GDP in the second quarter (the latest monthly figure Treasury I saw was around $350 billion annualised versus the $267 billion BEA second quarter figure).