Democracy is the worst form of government except for all the others that have been tried. – Winston Churchill
For tyranny is a kind of monarchy which has in view the interest of the monarch only; oligarchy has in view the interest of the wealthy; democracy, of the needy: none of them the common good of all.
Tyranny, as I was saying, is monarchy exercising the rule of a master over the political society; oligarchy is when men of property have the government in their hands; democracy, the opposite, when the indigent, and not the men of property, are the rulers. – Aristotle, Politics
Democracy and Debt
The U.S. debt-limit “crisis” is dominating the news on television and in the print media. The problem is that democratically elected governments will vote for spending programs and then will resist tax increases to finance them. Governments sell bonds to get the extra funds. Then the savings of millions of people are absorbed in “safe” government bonds. How much economic progress in the world economy is retarded by the ability of governments to borrow money, which is then not available to use for productive private investment?
To be sure, some government investments are productive, like building highways, sewers and hydroelectric dams – but the question is always what cost-benefit calculations are made, and what artificially low rates of discount are used? Any cost-benefit analysis will show a net present value benefit if you do the math to get a desired result. Government funded projects that are “estimated” to be profitable are often based on false math, just as the benefits of new aircraft carriers for the navy are based on very subjective theories about the future “need” for them.
Democratic government is a collective system of decisions. Nobel laureate Kenneth Arrow of Stanford University proved that democratic systems of voting cannot make coherent selections of priority in choosing among alternatives. For example, a democratic voting process can choose Option A in preference to Option B, and Option B in preference to Option C, but then choose Option C in preference to Option A. [A>B>C>A] That would be considered dysfunctional in a single family or business, since it does not confront economic reality.
So the U.S. Congress, and in Greece, Portugal, Italy and almost everywhere else, governments choose to run deficit budgets and borrow money from the investors who have a surplus, and who believe governments will never default. Greece and Portugal are today testing that theory, and the United States government is making investors hold their breath.
The Moral Argument against Debt
Maybe if one of the big governments, like the United States, simply defaulted it would change the “faith” in sovereign debt. Maybe as Thomas Jefferson believed, the system of government borrowing is actually immoral. He wrote that for a current legislature to borrow money, which would be repaid by yet unborn taxpayers, the current generation is committing the worst form of taxation without representation. The Tea Party spokesmen are talking about government debt and saying much the same thing about grandchildren. Maybe repudiating it would be a moral thing to do, in spite of good arguments about respecting contracts and property rights.
The U.S. House of Representatives is proposing a Balanced Budget Amendment as part of any debt-limit increase bill. The main argument against this idea is
(1) it would be about as effective as the 9th Amendment, which is wonderful but toothless;
(2) it is ephemeral, since it would have to be ratified by 38 State legislatures, all dependent on Federal money; and
(3) it would almost certainly end up justifying tax increases under a democratic system that seems to prefer welfare spending.
As much as I hate taxation, maybe the best system would be a constitutional mandate requiring every bill for government spending to be coupled with a specific excise tax. The current fiscal system generalizes tax collections assessed on wealth or income or sales price or property value assessments.
Generalized taxes are a big pot of money, commonly just forecast or estimated by “experts” on the basis of econometric models of future revenues. Those are all statistical guesswork, and they are frequently wrong. A brief examination of the accuracy of government revenue forecasting over the past 50 years provides no confidence in this magic art. What I want to suggest would be some very specific excise taxes, or even a capitation on every baby’s head.
Government spending is always very specific and detailed. Pork or earmarked spending would not be popular if it were not specific. Government spending is written into the law and beneficiaries can even sue in court to receive their payments. Thus, government deficit spending is built into the democratic process. Government borrowing and debt is required automatically by the incoherent system of “A > B > C > A” decision-making.
Milton Friedman pointed out the real burden of taxes on society is how much government spends, not how much revenue it collects. Spending uses up real resources and denies them to other economic activities. When a member of Congress or a State or city legislature votes for spending, they are voting at the same time for a tax collection. Somehow specific tax assessments ought to be tied visibly to the spending. When individuals go to the store and buy something, they see the cost and they evaluate the hoped-for benefits. It is a clear decision, not affected by the problem Prof. Arrow identified.
In a democratic system, the main process is deception, even self-deception. The French philosopher, Frederic Bastiat, described democratic socialism as the belief that each person can live at the expense of everyone else. For the survival of a free democratic society, or to avert eventual fiscal collapse, some way to clean up the deception is essential.
Democracy and Social Conservatism
But the problem of democracy is more serious than simply the irrationality of the fiscal system, which votes for spending but refuses to vote for taxes.
Consider the issues of individual rights, like freedom of religion or unpopular speech. If these were put to a popular vote, the social conservatives would vote against the specific examples that might be on a ballot. Socrates was put to death by a popular vote in classical Athens because he was accused to saying offensive things about religion and corrupting the youth. Many social conservatives today would vote without hesitation to ban Hustler magazine.
Even socially progressive voters want to ban what the Supreme Court has identified as First Amendment rights in political campaign financing. This should come as no surprise to students of the “progressive movement” that expanded democracy in the United States 100 years ago. One of its first achievements was the 18th Amendment and Prohibition – which were a triumph of feminism in that era.
Democratic referendum voting is the main political tactic for anti-gay activism. The gay rights movement has won its liberties primarily from court decisions, not from a vote of the people. When the Iowa Supreme Court declared marriage between gay partners to be legal, the justices were recalled by popular vote. In California, Proposition 8 by popular vote repealed private marriage vows.
In Egypt today, a new political party has been organized with surprising speed, the Nour Party, which reportedly is set to gain a majority in the upcoming elections. This is an ultraconservative Islamic party. According to a recent news report, it has been formed because the Muslim Brotherhood is seen as too moderate.
It should be no surprise that popular democracy is more likely to give political power to social conservative movements, as against individual rights or free speech – or freedom of religion. If the majority can vote for social or cultural conservatism, or for unlimited government debt, we get the result that Socrates died for.
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