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Saturday, August 13, 2011

Democracy: Cause of Debt Problems

According to this report, USA Inc., America's debt and future obligations total $47 trillion, or $395,000 per household.

Our debt problems did not happen overnight.  They started long before the 2008-2009 recession.  Governments in most democratic countries around the world have been running deficits and debts for decades to fuel fake economies and fake wealth.  According to the above report, the U.S. has been running deficits for every year since 1965 with the exception of five years.

Other nations are not much different.  (Europe's debt crisis is decades in the making.  Canadians tend to feel that they are in a much better position.  However according to that report, the U.S. has a gross debt of 83% of GDP and Canada has a gross debt of 82% of GDP.)

Most people claim that it is the politicians' fault.  It is not.

Why do politicians persistently run deficits?

The simple answer:  If they don't, voters will fire them and replace them with politicians who will.

It's not that the voters want deficits (most voters do not know the difference between deficit and debt anyways).  Voters simply want money, as explained here.

Politicians know this.  Therefore, they are pressured to spend and to keep taxes low.  Spending too much and taxing too little, causes deficits.  Politicians are humans like voters, which means they are motivated to preserve their income or jobs.  Hence, they run budget deficits, year in and year out, to keep their jobs.  Ultimately, voters control what politicians do and get what they want.

Therefore, politicians are behaving as expected, given the "rules of the game".

So, one can argue that it is the voters' fault for these persistent deficits.

Not necessarily.  Every human has a couple of common traits.  Every human wants to:
  • Maximize income or wealth
  • Minimize expenses
Therefore, voters want politicians to:
  • provide many socialist programs:
    • free healthcare
    • pension
    • subsidized education
    • welfare
    • unemployment insurance
    • etc., etc., etc.
  • reduce taxes
Therefore, voters are behaving as expected, given the "rules of the game".

However, these voter-demands cause deficits.

According to the above "USA Inc." report, 80% of Americans are concerned about rising deficit and debt, but 60-80% of them are concerned about cutbacks.  In other words, voters are concerned about the debt problem but do not want to help pay to solve the problem.  Hence, the deficits persist.

So, what are the "rules of the game"?  It's democracy.  It's the system.  There are thousands of different types of systems in this world.  Each system shapes and motivates behaviour in different ways.  If you want your sales rep to sell more, you increase his/her commission.  If you do not want people to park on the street, you hand out parking tickets.  The capitalist system motivates people to take risks and start businesses.  The communist system eliminates that motivation.  The democratic system enables voters to maximize their immediate well-being at the expense of the future.  Most people in the democratic system are behaving as expected.

As explained in problem with democracy, we still think democracy is the best system in the world.  This is because it is the most effective in minimizing or replacing corrupt officials in government.

However, the first problem we have is that we urge everybody to vote when many do not care about politics and do not know:
  • the difference between deficit and debt,
  • how much deficit and debt we have,
  • the difference between fiscal and monetary policy,
  • how we are making our country poorer in the long run, or
  • that we are stealing from children.
We do not allow people to drive a car unless they take lessons, pass tests and get licensed.  We do not allow people to sell stocks unless they take lessons, pass tests and get licensed.  We do not allow people to prescribe medicine, give legal advice or do a lot of things unless they take lessons, pass tests and get licensed.  We do not allow teenagers to drink.  We make senior citizens take driving tests to confirm that they can keep their license.  Yet, we allow any citizen over 18 to vote.  We may not be able to be so draconian as to force voters to take tests before they are allowed to vote, but we should urge voters to get a minimum level of understanding of our finances, fiscal situation, economics and how we are stealing from children, before we urge them to vote.  This should be the first and minimal step that we take to fix the problem with democracy.  Read more about the problem with democracy.

Read more:

Housing, the most manipulated market in the world

Stealing from Children

Fake Economy

Fake Wealth

Socialism versus Capitalism


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