Blog 55. Democracy and bankruptcy

 Do all democracies drive themselves into bankruptcy?

In recent years we’ve seen cities descend into bankruptcy. Examples are Detroit, Stockton, San Bernardino, and Benton Harbor. The state of California reportedly teeters on bankruptcy.  The U.S. Congress is unable to deal with the national debt.  Is bankruptcy the inevitable end of a democratic government, leading to dictatorship?  Was Winston Churchill thinking of this when he reportedly said, “Democracy is the worst form of government, except for all the others.”

Why ask?

After all, some economists say debt doesn’t matter.  They ignore the fact: a debt is a promise that will be called.  As in the mortgage collapse of 2008, bondholders will eventually demand their money.  Federal debt will have to be answered, either with printed money or taxes, either of which leads to loss of wages, depressed economy, and the ascendance of a few people to extreme wealth or power.  The ultimate result is collapse and disorder, as exemplified by Detroit where good houses stand empty while poverty is in the streets.  A national collapse leads to dictatorial power, as in Nazi Germany.  When an institution goes bankrupt, investors or workers get hurt.  When a government goes bankrupt, everybody except a clever few get hurt.  Hence the question: Do democracies drive themselves into bankruptcy?

Why the growth of debt?

Others have asked this question.  Sophisticated blogger Gonzalo Lira says the growth of the American federal debt is due to “fiscal incoherence,” by which he apparently means wanting inconsistent things at the same time.

I offer the same reasoning in simplified terms.  People vote for increased benefits, hoping someone else will pay.

Here, “benefit” means anything you promote, even if not for yourself—such as farm subsidy, a larger military, or a new baseball stadium.  No congressman will be elected who puts the needs of the nation first, and federal spending in his district second.  Unless we outgrow that selfish juvenile sense of democracy, bankruptcy is inevitable.  Even small democracies, such as a church congregation, are subject to similar social forces in which members vote for programs while hoping that other members will pay.

Really inevitable?

Is bankruptcy indeed inevitable for a democracy?  Not if debt were disallowed.  Perhaps not of the voters were a cohesive, population, all of the same mind.  In a diverse democracy, perhaps the fiscal agent, like the supreme court, should be appointed.  Or, the tendency to vote taxes down and benefits up might be overcome by a moral governmental authority, such as a limited monarch, who can lead by exposing an issue without fear of losing his office.

It’s ignoring the unspoken consequences that sends democracies to destruction.  So long as our population is diverse, someone must speak the consequences.  That’s you.

Run like a business?

Some people say that government will not bankrupt itself if run like a business.  That statement is more fiscal incoherence.  A government can’t operate like a business.  A business has one purpose—to make profit.  A government should have one purpose—to provide for the needs of the people.  For government, a profit motive doesn’t work.  You can’t measure needs against a price, despite pronouncements like the inferred cost of productivity loss due to sickness.  The objective is a healthy population, not cash in the till.  Is justice—the courts, the law, the policemen—profitable?  Is the pavement on my street cost effective, or is it simply something the neighbors think we need?

Responsibility and integrity

Taxes and spending are subject to businesslike arithmetic, but the voters are not required to make the two balance.  Therein lies the problem.  We fail to require responsibility in our voting, as we fail to expect integrity in our politicians.

We want only benefits from both.