Monday, 14 May 2012

A developing "paradox" of democracy

For the relatively brief period that I studied political philosophy, one of the topics I thought about most were the so-called "paradoxes of democracy" where "naive" democratic principles clash with other principles.  For instance, can a majority today vote to remove the democratic rights of future generations?  Presumably not.  Can a simple majority vote to enslave the minority?  No, such a vote would clash with the individual human rights of the minority.

So what if something has to be done that voters would vote against?  For instance, what might a majority do if a Government ran out of the money required to keep them in the style to which they have voted? 

The current economic debate is percieved as being "growth versus austerity".  Voters are fed up with austerity and are voting for more or less anyone who tells them what they want to hear - that austerity is unnecessary and that things can go back to how they were before the current austerity.  Certain groups remain targeted as villans in this process.  "Bankers" is a generic term for those whose fault it is all said to be - politicians have done a superb job of holding them responsible.  "The Market" also is held responsible - we are told that we should not be beholded to "the markets", or, as a letter writer said in the Guardian last week, the markets should serve the people not vice versa.

These generic terms work because they enable an "us and them" to be created.  "They" are to blame for "our" problems.  It is also like the problem of global warming.  No one is individually to blame for global warming, it is the sum of individual decisions.  No one can make that big a difference to solving the problem either.  So no one sees any need to make any of the necessary changes which we as a group would need to make if the problem is going to be fixed.  Likewise no one sees themselves as responsible for the economic crisis and no one sees why they should face any austerity in order to fix it.  Someone else should, but not them. 

This raises questions about the extent to which a people are responsible for what their government does on their behalf.  The most left wing of the Greek parties seem to have little notion that the greek people are responsible in any way for the level of debt of their country.  This is the fault of the corrupt old regime and the people should feel able to renege on this indebtedness.  Instead the greek people should throw off the shackles of the market and reclaim their future.

Yet the term "the market" means, in this case, "those institutions that will lend us money in the future and are the people we owe money to now".  Phased like this, it is less apparent that we should not be beholded to the market - if you do not want to be beholded to creditors, the solution is simple.  Don't borrow money.  If you do borrow money, it is critical that you keep your creditors on your side

But what if "the people" would prefer to vote for no more austerity?  Quite a lot of politicians have been arguing that we should delay austerity, ease up on austerity, so that growth might start again and, as the ludicrous David Blanchflower argued in the Independent, once growth is restored, the deficit will take care of itself. 

Such a statement is only true if the gross level of debt at the start is relatively low (probably less than 65%), the current deficit is low (less than 3%) and the stimulous required to produce growth is very tiny (less than 1% of GDP).  If you are past these levels, then the real danger exists that you will tip your creditors past the point where they wish to lend to you any further and will either sell their current debt or will not buy any new issuance.

The issue is like the question that arises when faced with the choice of whether to have chemo-therapy as a treatment for cancer.  The treatment is extremely painful, takes ages to recover from and might not work.  Suppose then, someone comes along and says that you don't need top bother with the chemo, just drink this fruit smoothie and all will be well.  How tempting is it to drink the smoothy and hope for the best?  Yet if that fails, the cancer will have spread further, the chomo might need to be more severe and will have less chance of success. 

The distinction between growth and austerity is a false distinction.  Economic growth cannot be simply decided by a government.  Like "confidence", it is something that can rarely be boosted.  The conditions for its emergence can be created and it can be stopped by poor policy.  But it is not possible to adopt policies to boost growth per se.  Indeed, it could well be that the more you go on about boosting growth the more elusive it will become as people worry more and more that there is something really bad going to happen.

If you decide to release austerity now, there is a chance that creditors will be unimpressed and hold back on future lending, and that others will defer growth decisions until they see whether the promised growth is occuring, which by their actions will then ensure that it won't.  Then the extra debt will not be cleared by growth and the situation takes a step towards a worse outcome.  If you pass the tipping point where creditors lose confidence, you are more or less finished. 

What I also find odd in this process is that the root cause of the eurozone crisis is not even the levels of debt as such - these are a symptom.  The actual causes are the trends in relative competitiveness between the regions of the eurozone.  And restoring competiveness in a fixed exchange rate zone, is virtually impossibe once it has been allowewd to occur.  Like a football team that decides to not bother training for a period, once you lose your competitive position, the work required to regain it is so much more than would have been required to keep up earlier.  And if you decide you don't like training and are not going to do it, then you lose to those who are prepared to train hard.  In the end, what you most cherish about your lifestyle as a winning team will be lost.

As the Chinese curse goes, may you live in interesting times.  I suspect that things will get more and more interesting.  

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