Dysfunctional Democracy

As I reflect on the last four years of economic crisis and the current stalemate in Washington over the payroll tax, a couple points stand out about democracy and markets.

First,  markets are important, but ideological free market capitalism is deeply flawed.   The core reason is simple: assumptions.

There’s an old joke – a physicist, chemist, and economist are trapped on an island with a crate of canned goods but no can opener.  “I think I can get these cans open,” says the physicist, arguing that coconuts dropped from the top of a tree would be powerful enough to rip the can open.   “That’s too risky, the food could splatter all over,” says the chemist, noting that a few choice chemicals available might help weaken the metal and make it easier to open.   “You guys are making this far too difficult,” laughed the economist.

“OK,” the other two said, “what’s your solution.”

“Easy,” said the economist, “first, assume a can opener….”

The most powerful assumptions in crude ‘ideological’ economic theory involve the distribution of information and the inability of people with resources to game the system, rigging it in their favor.  In any capitalist system those assumptions fall apart.  Some people know more, have access to better information and analysis, and can use their resources to reinforce their position.   This means that class divisions are inevitable and aren’t based primarily on who works harder or shows more initiative.   Ironically the more truly “free” the market is, the more such abuses can become standard, yielding a starkly bifurcated society lacking a true middle class.

Second,  democracy has real flaws.

What keeps democracy viable is the activity of the elites.   Elites have to be able to work behind the scenes to forge compromises based on their understanding of very complex issues, often issues far beyond the understanding of the average voter.  If elites become trapped in ideological combat and lose the capacity to see that their main task is to work together to deal with real problems, democracy can fail.   If the elite focus focus so much on politics over pragmatic problem solving, democracy can fail.

Our system gives the Brits a laugh

One reason Americans tend to overstate the value of democracy is that they are in denial of its need for elite guidance.   Without elite cooperation and problem solving, poor decision making can harm a polity.   Conversely, a non-democratic state can be run very well if the elite are focused on the good of society.

Perhaps the most dangerous  problem a democracy can face is if its elites not only cannot compromise but if the economic elites trump the political elites.   Remember, capitalism produces an elite economic class which can use its clout to reinforce its own position.   When those elites are countered by a political elite who have a sense of what’s best for the state as a whole, the capacity of this economic elite to truly control things is limited.   That’s good, because they operate out of self-interest and distrust even the notion of collective interest.

But when the economic elites eclipse the political elites, democracy becomes a handmaiden for what some have called “crony capitalism” or “government of the corporations, by the corporations and for the corporations.”   In the US where elections have become exceedingly costly, the ability of the economic elite to manipulate and even control the political elite has become profound.    Add to this ideological gridlock, and a downward spiral of dysfunctional government could threaten both prosperity and democratic stability.

That’s at the root of our current dilemmas, and while we may emotionally invest in Presidential and Congressional contests, when the system  is sick, no one person can fix things.   The President is doomed to become a part of the machine.   Add to that the power-mania of Washington — what Lloyd Etheredge called “hard ball politics” — and the US is facing a political crisis of our own making.

Etheredge’s solution to ‘hard ball politics’ was a stronger press to report the truth of what’s happening, and a better informed and educated public.   Back in the 1980s when his book Can Governments Learn (focusing on US foreign policy towards Latin America) appeared, that seemed a pipe dream.   You can reform institutions, but you can’t make people smarter or the press more motivated.

It seems to me, though, he was on the right track.   The information revolution gives us the internet and the capacity to get information from a variety of sources, thereby making a stronger “press” feasible.   The public is using it to organize and learn more — it may not be obvious yet, but in talking to students I realize that on so many levels even “average” students are generally more informed about a variety of issues than was common even among very good students when I was in college.

Ultimately, unless our laws our changed limiting corporate influence on politics, or our political parties forego politics as marketing and start finding ways to both solve problems and focus on the general welfare and not corporate welfare, the only solution to our crisis comes from the people.    We have relied on the elites to make democracy work for two centuries; now we have to actually start relying on the people — we have to save our democracy.

Advertisements
  1. #1 by pino on December 20, 2011 - 05:05

    The most powerful assumptions in crude ‘ideological’ economic theory involve the distribution of information

    This should not be seen as a flaw. Gathering, obtaining and assimilating information is a powerful skill. We should expect to see a distribution in its mastery.

    the inability of people with resources to game the system, rigging it in their favor.

    Here we seem to agree. I do not appreciate groups or classes of people creating legislation that favors themselves.

    This means that class divisions are inevitable and aren’t based primarily on who works harder or shows more initiative. Ironically the more truly “free” the market is, the more such abuses can become standard, yielding a starkly bifurcated society lacking a true middle class.

    Again, I don’t agree. I firmly feel that people who work hard and show more initiative will advance themselves. I do not feel that these people are doomed to fail because they wake and find themselves in such and such a class. You are invoking images of India where children are forced into the professions of their parents. That simply isn’t the case today.

    Ultimately, unless our laws our changed limiting corporate influence on politics, or our political parties forego politics as marketing and start finding ways to both solve problems and focus on the general welfare and not corporate welfare, the only solution to our crisis comes from the people.

    I am thinking of picking the most evil and vile retched corporation I can think of; Exxon. Or BP.

    What percentage of the total shareholders do you think are “corporate insiders”? In other words, if Exxon does well, how many other people, like cops and teachers and me, do well?

    • #2 by Scott Erb on December 20, 2011 - 19:16

      It’s not the mastery of the skill, it’s access to information that some people simply cannot have, and other people get by dint of their position in the system. People get information if they have power and wealth, not necessarily skill. And, of course, those with corporate power do control legislation and politics, the poor and middle class tend to be voiceless because they don’t have money. They have votes, but politics is a marketing campaign so those votes often lack any voice.

      People are not doomed to fail, but the amount of work and effort it takes to rise above increases the worse your position in society. A slacker born in a suburb to wealthy parents will probably do OK, someone born to a poor family has to undertake far more effort to work his or her way out of that situation. Statistics back this up, class mobility in the US is low. I believe we are seeing an increasing gap between the majority who are low and middle class, and the smaller numbers near the top, especially at the very top.

      The big financial institutions on Wall Street probably are the biggest abusers of inside information. But at every level of life – paying for education for your children, living in a safe neighborhood with good schools, getting good health care, having good nutrition – the wealthy can more easily set up their children for success than the poor. Now, that IS a necessary evil — some kids are going to face much longer odds because of their status of birth. But we can minimize that with efforts to assure quality basics: education, health care, nutrition, and opportunity. It’ll still be harder for the poor to succeed, but they’ll have more of a chance.

  2. #3 by Titfortat on December 20, 2011 - 12:55

    One thing I find most amusing/distressing about the global financial mess that were in is the fact that people think the system CAN work. No one seems to acknowledge the reality that pretty much every nation on the earth is in debt up the wazoo. I always get a chuckle when I hear my government say we are paying the deficit. Which for the most part is just paying the freaking interest. I cant remember the movie but I think the one line that stood out most from it was. “Youre dead, you just dont know it yet” 😦

    • #4 by Scott Erb on December 20, 2011 - 19:18

      The best case scenario is growth alongside a low decrease in debt to GDP ratios (such as what happened between 1945 and 1980). I don’t think that’s likely, though I do think we can rebalance. There just will be a less lavish consumer-oriented life style. Gee, we may have to discover family and community rather than just stuff again!

  3. #5 by Titfortat on December 20, 2011 - 13:20

    One of my clients recommended this book. It looks VERY interesting.

    http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/091298645X/ref=cm_cr_pr_product_top

    • #6 by Scott Erb on December 20, 2011 - 19:20

      It looks interesting, but countries with independent central banks tend to do much better than countries with the politicians in control of the money supply. I’ll try to check out the book, but I’m approaching it with some skepticism!

  4. #7 by George DeMarse on March 30, 2012 - 21:23

    I like this article and agree with most of it. The term “crony capitalism” (the Koch brothers, etc.) is equivalent to the term “Winner Take All Politics” by Hacker and Pierson. I am more pessimistic about the “cure” relayed in this article. The so-called “improved education” of the people is assumed to lead to better (more progressive) outcomes in the political future. It could be that since information becomes so corporatized, that “improved education” may lead to more free-market ideology rather than less, even though the middle class is losing wealth and opportunity at the same time, but they just continue to believe the corporate message. Also, we have lots of information available now and it has led to the Tea Party and more militia groups, not less.

    Something to think about.

    George DeMarse

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: