Are economies of democratically elected governments stable?

Discussion in 'Business & Economics' started by Billy T, Jun 29, 2010.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    My answer is No as discussed below:

    “… ‘Soft despotism’ is a term coined by Alexis de Tocqueville {to describe the US of ~1835}…
    Tocqueville's vision of “soft-despotism” is … mutually corrupt citizens and the democratic state. Citizens vote for those politicians who promise to use the state to give them whatever they want. The political-class delivers, so long as citizens do whatever it says is necessary to provide for everyone's desires. The “softness” of this despotism consists of people's voluntary surrender of their liberty and their tendency to look habitually to the state for their needs. …

    {the government} extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals …”

    From: but actually just quoting and paraphrasing from Democracy in America

    Billy T comment: Quite perceptive for a Frenchman who arrived in NYC in May 1831 and returned to France less than a year later (Feb 1832). IMHO the main thing that he did not foresee was fiat money. Thus, he probably would reply to the thread’s question:
    “Yes, but degrading to individuals, and true freedom.”

    I know how much easier fiat money has made it for governments (especially the US government with the dollar as the international reserve currency) to grant the wish of almost all to live beyond their means – for as long as the printed paper is accepted as having value, but law of supply and demand operates on fiat currency too. This continued increase in money supply makes the currency less valuable. I.e. there comes a day when the piper must be paid for the dance of consumption in excess of production.

    In the US case this day or reckoning has been delayed by years, mainly by China's willingness to return the currency to the USA so it can be used again to buy more consumption goods, beyond US production, without printing more currency. For decades, the CCP keep the Chinese workers in near poverty, slaving away in factories (and even thankful to the CCP for having that job) so Americans could enjoy the consumption of the goods they made more cheaply. The Chinese people are now saying:

    “Enough already – we want higher wages, better working conditions, to enjoy the fruits of our labors etc.”

    And the CCP is responding: – Making: a social welfare system, hospitals, better schools, more paved roads, a network of trains, smart electric grids, rapid expansion of power generation from many sources, factories producing cars, washing machines, cell phones, TVs, computers, etc. in greater volume than any other country. For example, ~ 360 million Chinese have high speed internet connections – more than the total of ALL Americans!

    In modern China, economic democracy is limited to the market place. I.e. the invisible hand of Adam Smith determines what is produced and consumed. The CCP reserves for itself the decisions as to how and what basic infrastructure will be created. When keeping the population slaving away in factories making export products was still possible, capital investment mainly supported these, inefficient and often unprofitable, exporting factories. They earned the foreign currencies that the CCP would lend back to the consuming nations so they could continue consuming beyond their means.

    But “The times are a changing” The population is demanding more and getting it in form of double digit increases in their real salaries (and many new services like those listed above). China no longer has cheap labor. It increasingly produces mainly for the domestic market – For example: World’s leader in car sales and domestic sales of many electronic items, such as cell phones, computers, digital cameras etc., but it still exports too as conversion from an export to domestic based economy is not done in only a year. China is trying to accelerate this switch with too many measures to name all, but a very important one was the land reform of a few years ago that has allowed farmers to rent their land to larger, more efficient, producers and sent those farmers to the new cities (100 planned for populations of 1 million each) now being constructed in the interior, and serviced by the new rail lines, etc.

    Although China is again a net buyer of US Treasury bonds (last three months) it was a net seller for the prior 5 months. The day is coming soon (a year or two at most) when only Treasury’s printing presses will pay off the maturing Treasury bonds as China will cease to “roll” maturing bonds. Long ago, I predicted a run on the dollar before Halloween 2014, and I am increasingly (especially after G-20 achieved nothing but promises) sure that will be correct.

    SUMMARY: Now that fiat money exist, democracy and economic stability are mutually incompatible. The situation is worse than Tocqueville, ignorant that fiat money would exist, could imagine.

    PS This thread is in philosophy forum, but can be moved to B&E forum; however, "Philosophy" need not be entirely "ivory tower." - I.e. it can and should be guided by real world human experiences, including how man behaves economically. Thus, the thread's question is really a philosophical one for which economic realities will provide the final answer. - We just speculate now.

    I would change my answer to Yes, if the population were better educated, instead of just "trained" to be productive and useful citizens. - Perhaps in Scandinavia democracy and economies are stable, even with fiat money - they have been for a few hundred years.
    Last edited by a moderator: Jun 29, 2010
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  3. cosmictraveler Be kind to yourself always. Valued Senior Member

    Last time I read about this you stated it woud happen by 2011, why did you change your prediction?
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  5. GeoffP Caput gerat lupinum Valued Senior Member

    They're systems open to exploitation by more rigid, controlled world-memes; then again, they reinforce each other via sanctions and preference.

    Too many variables. In the short-view no, in the wide-view who knows?
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  7. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Your memory must be wrong. It has been Halloween 2014 for at least five years. Initially I predicted, and posted many times, a run on dollar with deep long lasting depression to quickly (a few months) follow without any date - Then the Barron called me out on that vagueness, so I set this definite date.

    A few months ago in one or two posts, I noted that I had not even heard of Obama when that definite date prediction was made. He is very smart, so I said I "would not be surprised" if he could delay the run on the dollar until his first term ends and that he would choose not run for a second (too smart to have a depression while POTUS) - That was not a new prediction and certainly not predicting a run on dollar in 2011, although that is possible, especially if someone shoots Obama in 2011, but still within my prediction's six year window which opened 31 Oct 2008. I think it was early 2005 The Barron asked me for a date.

    Obama, if living, will leave office in late January 2013. I said that I was NOT changing my "by Halloween 2014" prediction, but expected the run on the dollar to come between 1 Feb 2013 and Halloween (31 Oct 2014). Initially my "run window" was 6 years wide.
  8. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Are you saying: In the short term there will great ups and downs, but no collapse, say of the dollar as the world's reserve currency? How may years does the short term last? Specifically does it extend to 31 October 2014 - date before which my long standing prediction states the dollar will have collapsed.

    As this is philosophy thread, can you tell some of the "too many variables" that relate to man's beliefs, thought patterns, dogmas, social systems, etc. and how they relate to the thread's question?

    No need to fear being too long winded - Philosophers always are.

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  9. NMSquirrel OCD ADHD THC IMO UR12 Valued Senior Member

    its not how bad we mess up, but how well we fix it..

    inflation caused by citizens demanding more money to pay for the basics..

    i often wonder how it would end up if our basic needs were taken care food, clothing, shelter,
    i do understand about humanitys ability to mess it up..
    how can it get set up to work?

    i have heard of some companies setting up housing, and other benefits for their employee's, not sure how that is working..(wanna hear more)

    how do we move away from aquiring things determining our self worth?
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    To moderator: I still did not make the thread title reflect the question well. It should be:
    "Are democratic economies stable? Please change it to this.

    that is old philosophical question - which comes first, the chicken or the egg? I tend to think they are demanding more money (for their work) to pay the inflated price of the goods they need.
    That is quite common in China's coastal factories - their workers often come (or did, prior to recent changes) from inland villages as single persons, knowing no one. - They were glad that the company provided a dorm room, company kitchen, etc. and perhaps four companions to share it. (Same sex as China is very prudish still)

    To put a philosophical twist on this - we are by nature social creatures and need this type of help when forced to move to a strange city.

    Answer in a word: "education"
    Last edited by a moderator: Jun 29, 2010
  11. glaucon tending tangentially Registered Senior Member


    Mod Note:

    Fair enough Billy T, but I have to admit, philosophically, I prefer your original.
  12. NMSquirrel OCD ADHD THC IMO UR12 Valued Senior Member

    exactly so what if the goods we are buying are cheaper because we dont have to worry about rent..

    that is the basic model, yes, and there are problems involved with that,which can be fixed..

    just reads better..

    see for me the word education intones a formal setting to aquire knowledge,it also means teaching everyone in the same exact way,we dont all learn the same way..

    but to aquired the knowledge nessesary to understand, our worth is not based on our current emotional state of being, sometimes takes a more personal approach..
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I don't see how this relates to inflation or the price of goods. Perhaps you are assuming (from your post6):
    "I often wonder how it would end up if our basic needs were taken care food, clothing, shelter."

    Certainly there could be a society where the state's division of "public welfare" provided food, clothing, and shelter, but I think it would be very inferior to letting the "invisible hand" of Adam Smith do that. To a large extent the old USSR tried to do that. Products, when available, were inferior and required waiting in long lines. If there was no heat in the apartment you were assigned, there was nothing you could do about that. etc.

    China has learned from the USSR's mistake and does let Adam Smith's hand manage the market place. The CCP only plans and develops the infrastructure (and much better than the US does as they work from ten 5-year plans. I.e. projects that will only cost and provide no benefit before the next election cannot be funded in the US, even if the long term pay off is great.) For example now in construction or advance planning in China are 28 new nuclear power plants but some will not be on grid until 2020. China is signing 30 year contracts for future delivery of oil and minerals they will need 20+ years from now. etc.

    To take just one food item, bread: There is still cost for the flour, heating the oven, etc. that does not cease to exist just because the state gives each citizen one loaf / week "for free". Probably if instead of paying for that loaf in the store, and trying to make it last 10 days to save money, you pay more taxes and your life will be much worse. Not only is there cost to have government employees making all the decisions the baker can make better, but there is no incentive in the system to improve efficiency, etc. I think history shows clearly that such a system is doomed to collapse, probably as it citizens revolt.

    The compatibility problem with democracy and capitalism is not caused by the efficiency of letting Adam Smith's hand manage the economy in a market place where you decide what to buy. It is caused by the current generation voting for things they can not afford and transferring the associated borrowing debt to their children. Look at Greece, the origin of democracy. They lived well while others were willing to lend to them. The US is just beginning to realize that living beyond your means for years by borrowing is not a stable plan.
    Last edited by a moderator: Jul 1, 2010
  14. NMSquirrel OCD ADHD THC IMO UR12 Valued Senior Member


    this is the type of info i was refering to when i said i wanted to know more..

    now i am not the expert so correct me if i am wrong..
    but isnt the set up in russia more of a welfare state? i mean they tried to provide everything? or was it just the staples they provided?

    sound like they are trying to make it work,and of course there will be problems,but we learn from them..(some of us anyway)

    the government should not be the desicion makers, they should not be the ones in control of such a system, they can help by giving tax breaks to those who provide such a system,but they should not be in control..
    and im not saying everything should be free, just the basics of survival,anything more than that has to be paid for. i also think corporations are in the best position to make something like this happen,i also think
    this is an area which needs more serious disscussion to which you have begun.

    i think i agree with that...the last part anyway..could you rephrase the first part?
  15. Faure Registered Senior Member

    I certainly agree that there is a fundamental tension between state power--including but not limited to monetary power--and democracy.

    However, I don't see any sort of special problem that fiat money causes. I think that its perfectly possible to have both fiat money and fiscal conservatism, and I also think its possible for commodity-backed money to be at tension with democracy in similar ways.

    Frankly I find that all too often, discussion of fiat money is a preface to your standard, overly simplistic, The-Fed-Controls-All Ron Paul style conspiracy talk that seems ubiquitous on the internet! :shrug:
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Certainly there is no necessity for the fiat money and democratic society to ultimately have a near worthless currency, but to avoid that a well educated population is required. The voters must understand that they can not have everything they may desire just be cause some source of fiat money is available. I.e. they need to produce or trade for things they consume, not print money to buy them.

    I thing the Scandinavians do have the level of public education required to avoid excessive consumption with borrowed (or printed) fiat money. Clearly Greece did not, several others, the US included, either already have or soon will have debt to GDP > 100%. There is only one case in last several centuries when that ratio greater than approximately 90% has not ended in a collapsed currency.

    That case was UK at the start of the industrial revolution. England had both a technological advantage on the rest of the world and an empire to sell the items it could produce to. - I.e. was able to earn enough via exports with high profit margins to pay off most of its debts.

    Now no nations has great technological advantage and competition keeps profit margins modest. Thus, the debt burden interest, once the debt is more than ~0.9GDP only grows annually. The US is borrowing to pay the interest on the old debts already. Next year US will borrow more with the rate of increase growing faster than the GDP. This is a death spiral for the value of the dollar.

    Even rapid inflation* as a way to pay off the debt may not work as too much of the debt obligation is indexed to inflation. The largest of these is social security, but there are several others including the TIP bonds sold.** I expect "window dressing" adjustment will be made to reduce the cost of SS and /or increase the SS tax, but not anything that solves the problem. - There is AARP and too many self-interested older voters (and Congressmen wanting their votes) for the needed deep cuts to be made.

    * Perhaps inflation can pay off the debt when debt to GDP ratio is only 90%, but it certainly cannot when that ratio is 120%, which is only a few years away at current grow rates of the debt and GDP. Too large a fraction of the debt is indexed to inflation.

    ** "... Treasury reported more than $557 billion worth of TIPS outstanding at the end of the first quarter {1Q10} ..." From: where there is a good general discussion of TIPS.
    Last edited by a moderator: Jul 6, 2010
  17. Fraggle Rocker Staff Member

    Will this be like 1939 and cascade throughout the developed world, so there will be no safe haven?
  18. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    If dollar were to collapse in 2010, I think all the G-20 would fall into depression. China still needs too export to US and more so to EU, their larger buyer (in 2009, but with Euro down, not sure that is still true)

    China is rapidly converting to a more domestic market economy with more of its exports going to pay, in goods, for the long term contracts of energy and minerals. For example China will build railroad and port in the Congo to take out copper from the eastern part -far from the sea. Some more developed countries , like Brazil, just get up front "loans" that are to be paid back with oil, etc. China and Russia have recently become each other's main trading partner.

    For example, in Russia, but near the border with China is the Kimkan open pit (2.6Km^2) mine with more than enough iron to build many hundreds of millions of cars. (See recent NYT writer Andrew E. Kramer article. - I read copy in Portuguese today in my newspaper) Their mutual trade in 2009 was 39.5 billion dollars. Russian is sending large amounts of coal and lumber to China. A new rail bridge over the boarder river (Amur) at town Nijneleninskoye has been built for the ore. Russian is supplying minerals and oil via 48inch pipeline, etc.

    Russian & Chinese presidents met on 10 June 2010 in Tachkent to sign more trade agreements. Kingsmill Bond, Chief of Moscow bank of investments, noted that Russia & China were perfect partners as Russia has every resource China needs and China has the capital to help develop it. For example China, is giving 400million dollars for just the Kimkan mine development/ expansion. China places extra value on oil and other imported resources that the US Navy cannot block.

    I think by Halloween 2014 China's switch to a domestic economy will be far enough along so that the economic pain (if any) in not selling to the US and EU will be more than compensated by lower cost of its need imports if the US and EU are in deep depression and not buying in competition. So if the dollar has not already collapsed by then (as I predicted, long ago) China will take the one time loss of basically dumping the treasury bonds it still holds to send US and EU into depression via a collapsed dollar.

    Summary: It is still a few years before China will say: Go to Hell USA.
    We don't need your market. We won't lend more. Your green paper is worthless.

    When it does Brazil, Australia, NZ, Russia and a few other suppliers of raw materials, energy and food stock will not be in depression but basically become economic colonies of Asia. By 2030, the world will dance to China's tune with possible exception of India.
    Last edited by a moderator: Jul 5, 2010
  19. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

  20. Me-Ki-Gal Banned Banned

    It might get pretty ugly before it is over. Jubilee!!!
  21. Yazata Valued Senior Member

    Are democratic economies stable? I'm not sure what a "democratic economy" is.

    Market economies probably are less stable than command economies, if only because market economies are more dynamic and responsive. They are far more innovative and generate higher rates of growth. But they are also more exposed to financial shocks, speculative bubbles and such things. If we graph market and command economies, there will probably be more jagged up-and-down volatility in the market graph, while the command graph will be flatter. But the market graph will have a greater overall upward slope.

    With regards to political democracy, my opinion is similar to Churchill's (if I recall correctly) when he said that democracy is the worst system on earth... except for all of the others.

    It's true that political interference can distort an economy in favor of the interests of those in power. But abandoning democracy and turning control over to a self-appointed and brutally sustained party cabal like that in China won't make the political interference problem go away. It just expands it tremendously, institutionalizes it and makes it impossible to correct without large-scale revolutionary bloodshed.

    I'm not convinced that China is better governed than the US. It's just exploiting its huge low-wage labor force to undersell American manufacturers. They run up huge trade imbalances with countries that their leaders decide to target, driving industries out of business in the target country while simultaneously using that country's wealth to finance their own development efforts. It's right out of Europe's own playbook, just old-style 17'th century mercantilism updated. And in the process, China's "communist party" has totally abandoned Karl Marx and is building a state-led 'corporate' nationalism very reminiscent of 1930's European fascism.

    They may find that they are holding a tiger by its tail.

    As tens and then hundreds of millions of Chinese ascend to 'first-world' standards of living and become increasingly sophisticated and aware of the world around them, they aren't likely to be satisfied by the imperfect freedoms that the state grudgingly allows them. Freedom to make money if doing so is in the state's interest, but no freedom at all to challenge the hegemony of the self-perpetuating leadership. Long term, that's a source of real instability, a ticking time bomb.

    Then there's the even more dangerous problem of China's poor. It's just inherently destabilizing to give the billion-plus Chinese hopes of a better life and knowledge of how people outside China live, and then fail to deliver. But delivery isn't going to be easy. China has four times the population of the United States. If every Chinese was living at the American standard of living, then presumably China's annual consumption of raw materials would be four times that of the US. With some commodities, that might actually exceed total world production. Even if it doesn't, new demand on that massive a scale (another US x 4) will drive commodity prices through the roof. And it will likely initiate a ruthless 21'st century military competition to guarantee supplies. The 19'th century's "great game" is going to return bigtime, with a powerful new player on the board and the Western world in a greatly diminished state.

    And to the extent that the system does deliver, China's competitive advantage shrinks. Labor costs will inevitably rise once laborers are living at an American and European standard of living. But it might be possible to keep juggling all the balls in the air for decades to come, enjoying the best of both worlds, while those connected to the Chinese party elite and the country's growing middle class serve as a managerial and entrepeneurial class, in effect new mandarins exploiting an endless supply of rural villagers hopeful of moving to the big city and willing to work for low wages.

    But internal colonialism will inevitably prove unstable longer-term. The greatest fear that the Chinese communist leadership has is popular insurrection (it's ironic but not unexpected, since that's how they rose to power themselves) and they are clearly scared to death of it. We saw at Tiananmen what their response would be to an Egypt-style uprising. Bloody and brutal.
    Last edited: Mar 10, 2011
  22. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    As I started the thread, I will answer despite it being quite clear from the discussion in the OP (post 1):

    It is an economy where the government's leaders are "democratically elected" by the adult population (or most of them can vote). "Democratic" should not be understood as an adjective modifying economy, but as describing how the leaders of the government of that economy are selected. (One can not make short title (four words) reflect accurately what the OP states is the thread's subject.)
    Last edited by a moderator: Mar 10, 2011
  23. IceLight020 Registered Senior Member

    Ironically, communist economies are more stable... That is because everyone is pretty much made to be the same. You either follow one perception or die.

    In a democracy, you have people who have different views. Guess what happens? Chaos.

    I am not saying communist economies are the best, I am just saying they are, technically, more stable in general.

    Technically though...

    It depends on what you are comparing as well as what you define as "stable".


    Because I can easily say the killing of people is symbol of instability in communist governments, thus contradicting my previous statement.
    Last edited: Mar 12, 2011

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