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Why Democracies Will Always Go Bankrupt

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posted on Aug, 27 2011 @ 03:02 PM
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The following argument is made by one Gonzolo Lira, and the source can be found here:

Why Democracies Will Always Go Bankrupt

I am not sure to what extent I believe in his argument -- he rails against unwarrented assumptions, but his own view also contains a priori assumptions that may not be as rational as he thinks, and models claiming something "must" happen are apt to be flawed in some way, I believe. Nevertheless, his analysis is astute and his general line of reasoning is strong and deserves serious consideration.

Mr. Lira begins by observing that although it is universally acknowledged that the world's advanced democracies have all slidden into deep debt, nobody can really explain exactly why this is, in either ideological or economic terms. He calls the problem the "Democratic Bankruptcy Paradox," defined as "the paradox by which every democracy eventually goes bankrupt—regardless of the people’s will and intention of keeping it from going bankrupt." He roots the issue in a philosophical principle he calls the "discursive dilemma," which I won't get into here, but the nub of his argument is perhaps conveyed by the following metaphor:



You, me and Mary are in the middle of campaigning for our democracy’s budget for next year. I am campaigning for the Balanced Budget Bill, which requires that our budget be balanced—and all three of us, wholeheartedly and without reservations, agree. So the Balanced Budget Bill sails through. You are campaigning for the Lower Taxes Bill, which you obviously favor, and to which I also wholeheartedly agree. Therefore, the Lower Taxes Bill has a majority—and it too passes. However, Mary is campaigning for the More Government Services Bill, to which which I also wholeheartedly agree, creating another majority—and it too passes.

You may say to me, “But your position is contradictory!” But I reply, “Certainly not!” In fact, I did my civic duty: I listened to all the arguments, and I voted for all the bills. I think we should cut taxes—so when it came to a vote, I voted in favor of the Lower Taxes Bill, which passed. But I also want more government services—so when it came to a vote, I voted in favor of Mary’s More Government Service Bill, which also passed. And all the while, I’m still in favor of my law, the Balanced Budget Bill, for which I voted.

Thus, as a group, we have an incoherent outcome: The majority of the group believes taxes should be cut—and at the same time, the majority of the group thinks the government should deliver more services to the people. All of the members of the group individually do not want a deficit, but as a group their incoherence leads to a deficit.This is the democratic fiscal incoherence, a situation unique to democracies.


This "fiscal incoherence," claims Lira, happens in democracies each year when it comes time to determine the budget. If a country has strictly enforced limits on how it can deploy public money, he argues, it is forced to resolve this incoherence one way or another. If, however, the nation can take on debt, it is able to "paper over" the difference by avoiding hard choices.



Here is where what Lira calls the "tipping point" sets in: When the political cost of making hard choices increases significantly beyond the short-term costs of taking on more debt and kicking the can down the road, the democracy will always (he claims) vote for more debt. He believes the US reached this tipping point in 1975, "when it failed to balance its budget for the first time in peacetime, and never balanced it again." He goes on:



Once the democratic regime fails to resolve its fiscal incoherence one year and instead covers the shortfall with debt, the democracy enters a debt spiral: The cost of resolving the fiscal incoherence of the electorate is double what it was last year (last year’s cost plus this year’s cost), while the cost of borrowing in order to paper over the fiscal incoherence has likely remained the same, or risen only slight. Therefore, the cost of borrowing the second year is half what it was the first year. And the third year? Assuming the costs of debt haven’t risen significantly, the debt is cheaper still on the third year, when compared to the costs of the accumulating, unresolved fiscal incoherence of the previous years.

This is how every year, the costs of additional debt falls in relation to the cost of resolving the accumulated fiscal incoherence. And this is how it will continue in a democracy, as its debt spirals. So long as the cost of issuing debt remains lower than the political, financial, personal, social, and emotional costs of resolving the democratic fiscal incoherence, then the deficit will continue (or expand), and the total fiscal debt will grow—because each of the majorities will want more of what it got with each passing year. This is the problem of unresolved fiscal incoherence: Each majority in a democratic regime becomes accustomed to getting its way, and not reaching a compromise or accomodation with the other majorities that would be necessary, were the fiscal incoherence of the democratic process forced to be resolved.



So what does ATS think? Is debt "inevetable"? Or is there a way out?




edit on 8/27/11 by silent thunder because: (no reason given)




posted on Aug, 27 2011 @ 03:39 PM
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reply to post by silent thunder
 


He seems to be arguing that emotional and rational decisions are one and the same. They're not.

Rational decisions are usually the hardest ones to make as you almost always hurt someone by making them. Most times it’s just feelings, but in terms of fiscal responsibility, it affects lives.

Emotional decisions usually just smooth feathers and kick the can down the road.

He is right though, our Congress has been making both types of decisions and we need to hold their feet to the fire.

I think that a balanced budget would hurt in the short run, but it should be the path to take for the US.

I think the term "incumbent" should be replaced by "unemployed". Vote 'em out.

People talk about subsisting on Social Security. SS was not put in place to be the end all once you reach retirement age. It was put in place to assist with retirement.

There is a saying in the military; Proper Planning Prevents Piss Poor Performance. (The 6 P’s)

I have reached the conclusion that there will be no SS check for me and will probably work until the day I die. Hmmmm...That looks odd as I am currently unemployed.
But my own retirement makes ends meet for now.

But I do expect it to ring true nonetheless.



posted on Aug, 27 2011 @ 03:47 PM
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Originally posted by TDawgRex
reply to post by silent thunder
 



I have reached the conclusion that there will be no SS check for me and will probably work until the day I die. Hmmmm...That looks odd as I am currently unemployed.
But my own retirement makes ends meet for now.

But I do expect it to ring true nonetheless.


If I am correct, you are quite far-right and conservative in your views, am I correct? If so I have an important question.

Since you are 'unemployed' right now, I assume that you are refusing your "socialism" unemployment benefits now and not depending on the government, right?

Funny how the far-right-extremists will accept their unemployment checks but yell to high hell about socialism.

So my question here is, are you excepting your "socialist" check now?

edit on 27-8-2011 by pplrnuts because: (no reason given)



posted on Aug, 27 2011 @ 04:53 PM
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reply to post by pplrnuts
 


Nope, you're not correct, well to a degree you are. I consider myself Center-right. I am not eligible for a unemployment check because due to my retirement, I do not qualify. I'm cool with that, but I do want to be counted amongst the unemployed for my states statistical data. Nothing more.

Like I said, I make enough monthly to make ends meet and I know that there are people far worse off than me. But I planned for this eventuality. I thought, erroneously, that I would be employed by now. But it is, what it is.

Why should I feel sorry for those who fail to plan? I have empathy for them and wish them the best.

edit on 27-8-2011 by TDawgRex because: (no reason given)



posted on Aug, 28 2011 @ 07:18 AM
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It would help a GREAT DEAL if these so called experts would realize that the USA is NOT a Democracy. We are a Republic who elects our Representatives by a Democratic Process! Democracies are inherently problematic in that they can and do become either ruled by mobs or Governments that become tyrannical! Although many on this board feel they have no power to change things here in the US we still have a chance!

Zindo



posted on Aug, 28 2011 @ 07:58 AM
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I'd argue the reason why Democracies go bankrupt is because 99% if the time politicians are self-serving. What happens when you get a bunch of self-serving politicians together in the same place with the same platform? They start cooking up ways to get themselves elected. Then what happens is self-serving politicians start making promises like, "If you vote for me, Friday night dinner will be paid for by the state." People don't think about the consequences of this or how we are going to pay for it, but they are hungry and free Friday night dinner sounds great at the time.

Then this goes on for a decades with a lot of these politicians promising things that aren't sustainable such as increasing spending without raising taxes, or even lowering taxes while expanding entitlement programs. The politicians don't think anything of it because all they care about is getting elected to congress for the next 2, 4, or 6 years. So inevitably they end up trying to figure out how to only get re-elected in the next 2, 4, or 6 years instead of fixing the problem which would mean them having to tell all the people that voted for them, "Hey I lied, we lied, we have to take away your free Friday Night dinners and raise your taxes in order to fix the problem."

Then when have the voting populace too that, in most cases, will vote for the handout every time. So just as much blame falls upon them too. Then that goes into a whole long psychological thing too, where so much wealth is coming in that these programs look like they are sustainable and people get use to government handouts and start believing that the government is a bottomless piggy bank and actually start to form their thinking and base their politics around this thinking.

So I somewhat agree with the reasons this guy says Democracies will always go Bankrupt, but it almost seems like he is trying to avoid the human element and be "politically correct" about it instead of just coming right out and saying, "People are greedy and they will always vote for the policies that will benefit them now and politicians are just as greedy and will even keep the populace dumb, deaf, and blind in order to maintain power."



posted on Aug, 28 2011 @ 08:26 AM
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reply to post by Timing
 


That's what my signature is about! Plutarch understood this centuries ago!

Zindo



posted on Aug, 28 2011 @ 09:04 AM
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Benjamin Franklin already did all of the heavy lifting on this one. After the Declaration of Independence was signed and the Constitutional Convention convened he stated, "Once the people realize that they can vote themselves money, that will herald the end of the Republic."

Guess where we are today? The end of the Republic. Why? Because liberal policies have catered to the masses who have realized that they can vote themselves money by electing the officials who buy their votes with various social engineering programs.

That is why democracies always go bankrupt!



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