Mandatory Voting: One More Misguided, Coercive State Policy

Dambisa Moyo appeared on Kitco to discuss her recent book and advocate mandatory voting.  She claims that the current American system permits voters' apathetic shirking, with the result that politicians think short-term and pander to the extremes in the two parties.

The question of long-term versus short-term thinking by politicians is related to issues that Madison and Hamilton discuss in The Federalist.  They feared mass democracy because the general public tends to think short-term, so they believed that mob rule would likely result from mass democracy.

Long-term thinking favors free markets; short-term thinking favors coercion and government management. Since America was made more democratic during the Progressive era,  short-term rather than long-term thinking has tended to prevail. When the US was more in the nature of a republic than a democracy, laissez-faire policies that, in the long-term, generated 0.5% to 2.0% annual real wage increases resulted. When the country adopted Progressivism in the late 19th century and adopted the 17th Amendment in 1913, real wages were growing.  Sixty years after the passage of the 17th Amendment, which made election of Senators more democratic by ending their election by the state legislatures, real wages stopped growing.

The reason real wages stopped growing in 1973 was the passage of popular, but ham-handed, regulation in the 1960s.  President Nixon's termination of the gold standard in 1971 did not meet public disapproval, and it led to the ability of sophisticated financial elites to divert wealth to themselves. As well, government beneficiaries, defense  contractors, and other privileged interests have benefited, but the public is mostly unaware that the gains it was earning under free market capitalism ground to a halt after the Great Society regulatory expansion of the 1960s.

More democracy meant shorter-term thinking, just as Madison feared. Republics work better than democracies.

If we look at the 22  countries that have mandatory voting, they are mostly low-GDP or very small countries.  The high-GDP countries that have mandatory voting are small,so the effects of complex lobbying and media manipulation processes, as occurred during the 2008-9 bailout and routinely occur vis-a-vis monetary policy, are also small.  In a small country it is hard to favor policies that favor yourself at others' expense; the country is so small that harm will come to everyone.

As you can see in the chart below, which I copped off PBS,  there is mandatory voting in countries with insane and corrupt legal and monetary policies like Argentina, the Congo, Greece, and Mexico.  The relatively well-run countries with mandatory voting are small.  These include Singapore, Australia,and Luxembourg.

Increasing the number of voters will not change much. It may reduce the time horizon of elected officials.  The cost of voting may reduce marginal voters' time investment in learning about issues.  In small countries costs of voting for misguided policies are quickly borne by everyone, but in large countries  some groups can impose costs onto others.   Thus, voters can be convinced to vote for policies like the minimum wage that harm a small number of people but make themselves feel good. Policies that squash innovation are among these.

Even in a small country like Greece, which only has a population of 11 million, the public wasn't able to foresee that pension underfunding and excessive government wages would soon result in bankruptcy.

Most of the other countries on the list of countries with mandatory voting have not been able to develop because of the sclerotic, big-government bloat that most people believe benefits them. They believe so because they are unable to think long-term.   If anything, forcing more widespread voter participation, which will make the voter base more manipulable because it will force those with the least interest in voting to vote, will appeal  to elite interests that stand to benefit from loose monetary policy and government favoritism.

Country	Age of Eligibility for Mandatory Voting
Argentina	18
Australia	18
Belgium	18
Bolivia	18
Brazil	18
Congo, Democratic Republic of the	18
Costa Rica	18
Dominican Republic	18
Ecuador	18
Egypt	18
Greece	18
Honduras	18
Lebanon	21
Luxembourg	18
Mexico	18
Nauru	20
Panama	18
Paraguay	18
Peru	18
Singapore	21
Thailand	18
Uruguay	18

Source: CIA World Factbook via PBS

Jim Crum on the Greek Welfare State: Civic Not Official Corruption Leads to Decline

I wonder how long it will be before we see similar kinds of riots in our more civilly corrupt states like New York, California and Illinois.  Jim Crum writes:

 

I watched with interest the riots going on in Athens and Thessaloniki this morning.  During interviews there were the typical efforts to blame corrupt politicians. Is this correct?  The answer is both yes and no.Official corruption did not lead to this.  Civic corruption did.

 

Apparently, this unavoidable and quite profound irony is lost on thousands of Greeks and nearly every reporter.The welfare state corrupts both the spirit and the soul.   Left in place long enough and the fires of industry will also slowly die out.  

 

The country is financially exhausted due to bloated public unions that run nearly everything from hospitals, to taxis, to cleaning services.  Such unions punished hard work and rewarded poor behavior.  Left unchecked for over a generation, it has led to enormous misallocation of resources that have literally drained the treasury of money and the national psyche of civic virtue.

 

Now the piper has called the tune that no one wishes to dance to.Sadly there seems to be an accepted concept that there is a right to be supported by someone else.  But we are now seeing what happens when socialism “runs out of other people’s money”.  It’s right there on our TV screens, rampaging through the streets of Athens.

 

So far, those rioting and the political liberals seem willfully ignorant of the forces at work.How long will it be until they wake up?

America in Economic Decline

Erich Deagostino has forwarded a link to a Yahoo! news report that suggests that America is heading down the same road as Greece, which is nearing bankruptcy. The report notes that:

"As with Greece, America's national debt has been growing by leaps and bounds over the past decade, to the point where it threatens to swamp overall economic output. And in the U.S., as in Greece, a large portion of that debt is owed to foreign investors."

The aggressive Democratic health care socialization push will cause us to stumble further down this road.

There is a long history of cries about excessive borrowing's leading to economic crisis that have turned out not to be true. The history goes back to the 18th century. But of course, it sometimes does turn out to be true. American has defaulted on its loans before. The nation issued a currency called the Continental to finance the Revolutionary War and after the War the Continental turned out to be worthless. People who held it were defrauded. America invented modern hyper-inflation along with democracy. In response, the 19th century saw the development of hard money attitudes, which were viewed as benevolent and pro-labor. In the twentieth century labor unions' leaders realized that they could advance themselves by advocating inflationary policies that benefit Wall Street and harm their membership. In no small part as a result, labor union membership has consistently fallen. Why should workers pay dues to support leaders who betray them?

The claim that America is too big to fail should seem absurd now that we have witnessed General Motors' failure. For much of my life, GM was the largest corporation in the world and few could have imagined its failure, at least until the mid 1970s. The claim that China and other countries "need us" may be true, but eventually some will wake up to the fact that the Emperor is a pauper and will pull out, leading to a dollar crisis.

Greek labor unions are striking. But one cannot derive water from a stone, and the irrational strikes will only make matters worse.

In response to mounting American and European instability, Marc Faber on Kitco radio recommends gold, US real estate, developing countries' stocks like India and Brazil and cash. Faber says that a crash in China cannot be ruled out so that there is no rush to go into developing countries' stocks. Also, US real estate may not have much further to fall in his opinion. He says up to twenty percent further. I'm not sure of that, but given Congress's commitment to prop up real estate and stock prices, he may be right. I doubt that real estate prices could be maintained were this a market economy. But that is true of all assets.

In the meantime I have begun to have thoughts of an exit strategy as I am concerned that the US will increasingly become totalitarian under Obama and the Democratic Party. Were I slightly wealthier I would buy land in the Bahamas. Unfortunately, on a professor's salary I have to be content with hard asset investments and my house. Without a stable monetary system and with a system of economic redistribution whereby the privileged benefit from Congress's and the states' theories of beneficence, which inevitably loot those who work hard and are criminal in substance, has the American dream died?

No Such Thing as a Safe Currency, Save One

Jon Nadler of Kitco quotes Bloomberg's Ben Levisohn:

“For all the concern over the $1.6 trillion US budget deficit and record debt load, the dollar is as valuable now as 35 years ago. Measured against a basket of currencies from the G-10 nations proportioned against each other, the greenback is up about 3 percent since 1975, according to the Bloomberg Correlation-Weighted Currency Index. That was four years after the Bretton Woods agreement set up in 1944 to link currencies to gold, collapsed.”

At the same time, Nadler bears bad news about the darn euro, quoting The Sydney Morning Herald, which notes that even prostitutes in Greece are threatening strikes because of loss of welfare benefits:

"The stakes are high, not just for Greece but for the entire euro zone, where efforts to forge a common economic identity are threatened. Last week, the panic spread to Portugal and Spain, and the cost of insuring their debt against a default soared to record levels as investors bet that, like Greece, governments in those countries won't be able to rein in bloated budgets."

Nadler points out that the continent's financial problems are linked to Democratic Party-style social welfare programs that have decimated its economic growth. Again quoting the Sydney Morning Herald:

"on a continent where the culture and legitimacy of the mother state are so deeply ingrained - and now in some cases unaffordable - a question remains: can the European Commission say 'no more' to prodigal nations like Greece and, to a lesser extent, Spain and Portugal? And how will the countries themselves confront the political fallout of economic distress?"

Given the failure of Democratic Party-style economics in Europe, it is amazing that anyone reads the European-style New York Times anymore, or that Americans have elected an administration that is committed to instituting Europe's failed tribalist philosophy here in the more civilized, individualist United States.

Also of importance are the implications of the dollar's strength. I just blogged about the effects on employment of a strong dollar and how the US government and the Fed have orchestrated the exit of high wage jobs via monetary policy. No currency is safe because the others will inflate as much as we do. What is amazing about this process of dollar repatriation given risk in Europe, which, quoting Nadler, I predicted a month ago using my coin flip method of investing, is that massive deficits and expansion of the monetary base, have been accompanied by increasing DEMAND for the dollar. When the supply of dollars goes up, cheapening them, demand also goes up? Is this a curious application of Say's Law, that supply creates its own demand?

I think not. There is a chasm between Wall Street's short term thinking and longer term reality. Keynes said that in the long term we're all dead, but Keynes is dead and we won't have to wait that long, hopefully (from a death standpoint).

If, given the high inflation rates of the past 40 years the dollar has held its own against other currencies, there is no such thing as a safe currency, save one. Spell it G-O-L-D. That does not mean that gold is going up next week or next month. But the world is on a welfare addiction habit, and the welfare addiction is destroying the source of the "good faith" of the US government. By raising spending, providing stimulus handouts and increasing the money supply, the US government is telling America's hard working employees: "You are fools. Look at the looters at Goldman Sachs." By taxing incomes, the US government is telling you: "Do not work, live off government." By subsidizing the welfare mothers on Wall Street, the US government is telling any entrepreneur: "Why waste your time? Get a value-destroying job in New York City."

If you trust the current pattern of events, trust the current strength of the dollar. Otherwise, think about alternatives. Stocks are fine, but inflation confuses investment, credit is overextended, lending is on hold and the US economy is a mess, starting with over-investment in real estate. This will result in downward adjustments in consumers' wealth and reductions in access to credit.

How will those problems be cured? Ben Bernanke has already done it. Expand the amount of money. But entrepreneurship has been hammered through decades of high tax rates, regulation and harassment of small business. My local pharmacist says he spends half his day filling out government forms. The same in other businesses. So stocks are not exciting. Too much regulation; too much mismanagement; too much malinvestment that needs to be cleaned up.

That leaves commodities. But in the short run, they will be subject to ongoing attacks from the central banks. But are you willing to trust the federal government and the dollar over the long haul?