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

The Flaw of Democracy

The fundamental philosophy of democracy insists that people have the right and the capacity to exercise either directly or through representatives’ equal control over the matters which affect their interests.

2000 years ago, democracy governed a society that was isolated, independent and simple, especially economically. Today, democracy governs a complex society that has many social and economic associations with other societies that compete with them in a global community.

Most voters of a democracy don’t understand economies of scale, the fractional reserve system, the difference between deficit and debt and so on. Yet, the only criterion required to vote is minimum age. Therein lays the problem.

The flaw of democracy is that everyone of age can vote

Voters tend to vote for the political representatives whose policies and proposals will monetarily enrich them the most. Greed is a common human trait, especially in a capitalist society. Because of this, prosperous capitalist democracies overtime evolve into indebted socialist democracies.

What to do?

Long term sustainable prosperous democracies could possibly exist if voters were tested to verify they were relevantly knowledgeable enough to vote and governments practiced Pay As You Go Governance by limiting their yearly spending to yearly tax revenues.

How?

Technology – An electronic voting system could prompt voters to answer 5 or more multiple choice questions presented to them. If they correctly answer all the questions, they get to vote. If they don’t correctly answer all questions, they don’t get to vote. The questions would be randomly selected in any order from a database of 50 or more questions.

Balanced Budget Amendments – At all levels of government, would force fiscal discipline and reduce discretionary and wasteful spending.

Is it fair?

The right to vote is considered a fundamental human right. Unfortunately, this right is exploited by political parties, pundits, special interest groups, unions and other collusive organizations and entities.

Article 29, section 2 of the Universal Declaration of Human Rights states that In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society.

By law, a human right can be subjected to a minimum age criterion and other qualifiers. Eliminating votes by people who are not relevantly knowledgeable enough to vote would greatly reduce the exploitation of voters’ rights and provide the people fair and just representation.

Society is better served when knowledgeable people make informed decisions.

Peter Tsirlis

Problem with Democracy

We believe that democracy is the best political system in the world.  However, it has some faults that should be corrected.

One of the reasons that democracy works, is also its fault.  Democracy enables the population to choose the country's leader.  However, the majority of population do not care about politics or do not know how to choose.

When democracy was invented over 2,000 years ago by Greece, life and government were far simpler.  Villages barely traded with each other, let alone trade globally with multitudes of countries.  There was no such thing as Monetary Policy or Inter-Generational Transfer.  There was essentially no Economies of Scale.  Most voters can understand the simple issues, the candidates' simple qualifications and what is needed to solve the problems.  Most people were farmers and society only had a handful of different occupations. Most voters can understand all of the occupations.

2,000 years later, there is an extremely complicated global economy and financial markets.  There are hundreds of thousands of different types of occupations, specialties and skill sets. No one person can understand all of these.  Most voters can only understand one.  The issues/problems and what it takes to solve them, have become vastly more complicated and beyond the scope of the average voter.  Therefore, even though democracy is still the best political system, some aspects of it have become obsolete.

When voters are polled, voters usually say that the most important issue to them is "jobs", "unemployment", "cost of living", "taxes" or "economy".  Ultimately, it's related to money.  Personal wealth is more important to them than abortion, education and even healthcare.  Personal wealth and Jobs are dependent on a healthy economy.  Furthermore, a healthy economy pays for everything in society through salaries and taxes.  Without a healthy economy, a society wouldn't have much in the way of healthcare, education, welfare, etc.  One can easily argue that the economy is the most important thing in any society because it pays for everything else.

Therefore, the best leader is somebody who knows how to manage the economy.  However, most voters do not understand economics.  This is not an indictment on the population.  It is normal for the majority to not understand economics.  Similarly, the majority do not know how to tune up a car, program a computer, fix a laundry machine, prescribe medicine or wire a house.  The majority do not understand the majority of skills in a society.  People are usually skilled in only one field.  This is normal for any country.

With economics, the majority do not understand the difference between debt and deficit, the difference between monetary and fiscal policy, economies of scale and comparative advantage which is the logic behind free trade.  Most people do not know what the Demand and Supply curves look like or how they can move.  In fact, it takes years to understand economics and decades to master.  Yet, we ask the population to vote for the best manager of the economy.

Politicians work for us.  They are our employees.  Essentially voters are the hiring managers who are responsible for hiring the best job applicant (politician) to manage the economy.  However, most voters are ill-qualified to be hiring manager.  If a hiring manager was going to hire a sales rep, the hiring manager should understand sales.  If a hiring manager was going to hire an engineer, the hiring manager should understand engineering.  However, most voters do not understand economics.  Consequently, we usually do not get the best economy managers.

Bob Rae, ex-premier of Ontario, had a finance minister who was a school teacher.  This finance minister was completely under-qualified to manage a multi-billion dollar budget.  Thousands of accountants, business-people and economists in Ontario were multiple times more qualified.  Consequently, the Bob Rae government drove Ontario into serious debt that we are still trying to get out of to this day.

Based on voters' priority, John McCain, Barak Obama, Sarah Palin and Joe Biden are the wrong leaders.  If voters' top priority is winning the war in Iraq, then McCain is the right leader.  If voters' top priority is healthcare, then Clinton is the right leader.  If voters' top priority is anti-war, then Obama is the right leader.  However, the voters' top priority is the economy.  None of these candidates are the best to manage an economy.  They've never run or managed a business before.  They weren't schooled in economics or business. Clinton and Obama are more educated than McCain, but they are lawyers.  Like most politicians, they have never even sold lemonade at the street corner.  Most lawyer-politicians do not understand Supply and Demand curves, Comparative Advantage, Economies of Scale, risk taking, the difficulty of starting a business, raising capital, going bankrupt, Sales, Marketing, Finance, hiring, EBITDA, how to create jobs, ramifications of debt and deficit, etc., etc., etc., etc.  Economics and Business take 1-2 decades to learn and master.

The most qualified candidate is Mitt Romney.  Other better qualified candidates include Ron Paul and Dennis Kucinich, but they will never get elected because they aren't charismatic enough and they cannot give great speeches like Obama.  (Unfortunately, speech-giving skills is more important than knowing how to manage an economy.)  There are thousands of successful business leaders who are thousands of times more qualified than lawyer-politicians.  You probably know, personally, people who are more qualified, who are executives, business-owners, sales/marketing managers, accountants, economists, entrepreneurs, etc.

Since the majority do not understand economics, candidates' qualifications or the different party platforms, we should not urge people to vote, which is one of the common mistakes during every election.  At every election, there are numerous TV messages urging everybody to vote.  When we urge people to vote, we are potentially getting un-informed voters who are uninterested in politics to nullify informed voters.  If an informed voter chooses candidate A, the uninformed voter can nullify the informed vote by choosing candidate B.   Many un-informed voters tend to base their vote on the candidate's speaking skills, charm, good-looks, religion, race or last-name, rather than the qualifications.

Informed voters usually do not need urging to vote.  They want to vote.

We are urging people to do the wrong thing.  Instead of urging people to vote, we should urge people to get informed and to learn economics.  Once that person is informed and educated, he/she will want to vote.

If you need surgery, would you ask the population to choose the best surgeon for you, if the majority of the population is uninformed or uninterested in surgery?  Or, would you ask medical professionals to choose the best surgeon?

If there was an election for the best Pharmacologist, should we urge everybody in the country to vote?  Or, should we urge everybody to understand Pharmacology first?

Some argue that our political leaders have economic advisers.  Would you prefer to have a lawyer perform surgery on you with surgeons advising him?  Why not have a surgeon perform surgery on you?  Why not have a business leader who knows how to manage an economy, with lawyers advising him about legal issues?  Why not have a business leader who has a proven track record on managing and growing a business (which is a micro-economy)?  Even with this scenario with a Business/Economic professional as the leader, one can easily argue that Educators advising on Education issues and Medical professionals advising on Healthcare issues will be much more valuable than Legal advisors.  (More info on why lawyers are the wrong candidates.)

Therefore, we do not believe that it is necessarily a bad thing when a smaller percentage of the population votes.  In the example of the surgeon, the smaller percentage will likely lead to a better outcome.

This should not be confused with taking away the right to vote, which we are not advocating.   We believe that the right should be there for everybody.  We just believe that pushing people to do something that they are not interested in or don't know anything about, will lead to undesired results.

The other problem with democracy is that it is easier for a politician to get votes by buying them, than to manage the country responsibly.  If a politician does a good job of managing the economy, most voters won't know that it was a good job or what he/she did.  An example of this is when Brian Mulroney introduced the GST and signed the Free Trade Agreement (FTA).   Both of these benefited the country tremendously, but most voters do not know this.  Most voters do not know how much the trade surplus/deficit has changed since Mulroney signed the FTA.  Most voters were against the FTA when Mulroney was signing it.  Most voters think that the GST was put in to reduce the debt, which it wasn't.  Most voters do not know the real purpose of the GST.

There are two types of people:

1. those who pay to the government (through taxes)
2. those who receive from the government

Since the most important issue for most voters is economy/jobs (ultimately it is money), it is far easier for a politician to get votes by offering lower taxes to #1 and more payments (welfare, subsidies, free programs, etc.) to #2.  If you pay taxes and I said to you "vote for me and I'll lower your taxes by 10%", you'll likely vote for me.  If you collect welfare and I said to you "vote for me and I'll increase your monthly payments by $300", you'll likely vote for me.  Consequently, most governments run deficits because they are buying votes.  This is why most democratic countries accumulate huge debts, and have fake wealth.

Lawyers

Most government leaders are lawyers by background, including Elizabeth May, leader of the Green Party. People have argued that in most countries, it is normal for lawyers to be leaders and for business people to advise the lawyers on business/economic matters. Yes, this is the norm. This is because for the past 100-200 years, it was natural and it was the best fit for lawyers to run government because countries needed people who can enact laws. However, it was also the norm 100-200 years ago for economies to be extremely simple. Towns did not trade with other towns, let alone other countries. It was also the norm for 95% of the population to be farmers, and for women to stay at home. Things change...all the time. Many ways of doing things have become obsolete in the past 10 years, let alone 100. We now have global economies. Economies have become extremely complex, so much so that even most Business grads are not masters of the economy or business until after many years of work experience. Having Lawyers manage the economy is analogous to having Engineers manage law firms with Lawyers advising the Engineer.

There are two disciplines of intelligence: Qualitative and Quantitative. Subjects such as literature, languages, sociology, law, etc., are Qualitative. Subjects such as math, science, economics, etc., are Quantitative. There are some people who are intelligent in both disciplines. However, many who are intelligent qualitatively are not quantitatively, and vice-versa. We have all known students who can write endless essays but cannot divide two numbers, and students who can calculate logarithms or program computers but cannot write a short story. To get into Law School, you must write the LSAT (Law School Aptitude Test), which consists of mainly qualitative questions. To get into Medical School, you must write the MCAT (Medical College Aptitude Test), which consists of mainly quantitative questions. To get into some MBA Schools, you must write the GMAT (Graduate Management Aptitude Test), which consists of 40% quantitative questions and 60% qualitative questions.

Lawyers are very intelligent people, but we have an uneven balance of Qualitative leaders. Consequently, our Quantitative matters are grossly mismanaged, such as Budgets, Deficits, Debts and Fiscal Policy.

When voters are polled, voters usually say that the most important issue to them is money, or something related to money: "jobs", "economy", "cost of living", "taxes", "inflation", etc., not law. Money is more important to voters than abortion, education and even healthcare. Money is dependent on a healthy economy, which is dependent on well managed businesses. Therefore, we need business-people or economists to manage the country, not lawyers. Some argue that the lawyers will have economic advisors. We do not understand the logic in this. If the economy is the most important thing to manage in the country, because of money, then why have people who don't understand the economy to manage the country? If you need surgery, would you have a lawyer cut you open while some doctors are standing on the side advising the lawyer?

People have argued that we need generalists as leaders, and that these generalists need to know how to pick the right specialists. CEOs, Chairmen, Entrepreneurs and successful business leaders are generalists as well. They know how to pick the right specialists: CFO, CIO, COO, CMO, VP of Operations, VP of Production, VP of Human Resources, VP of Legal, etc. What executive experience do lawyers have? What experience do lawyers have in picking VPs?

Some CEOs have managed 400,000+ employees. How many employees have lawyers managed before becoming a Senator, MP or leader of the country?

Also, Business Leaders understand the issue that is most important to voters, better than lawyers. They can get specialists to advise them on Legal issues, Healthcare, Education, Welfare, Military, etc. Not only do CEO's have experience in picking specialists, they have experience in getting new customers/partners and increasing revenue, profit and employees (JOB CREATION).

In any business, whether you are selling lemonade or complex consulting, the two most important functions are:

• making the product or service
• selling the product or service (some argue that this is the most important)

Every other function is considered Support, such as Legal, Human Resources, IT, Finance, Operations, etc. In most large businesses (which are micro-economies), the leaders are not lawyers. Lawyers perform a support function. They draft and review contracts. The leaders are business-people who know how to generate revenue, profit and wealth for the business (micro-economy).

In large companies, the CEOs usually come from Sales or Marketing, not Legal or Human Resources. (Even so, CEO's still pick a CMO or VP of Sales.) If the country wants economic leaders/managers, why have lawyers do this job when they should be part of a support function?

Take the CEO of GE as an example. He has dozens of advisors: Vice Chairmen, CFO, SVP, CMO, General Counsel (Legal), Human Resources, Healthcare, Business Development, CIO (Information Technology), VPs, Directors, etc., etc. GE is in about 100 different industries/businesses and in 100 countries around the world. The CEO manages 327,000 employees. He (and his management team) would've worked in or travelled to dozens of countries.

How much executive experience do most lawyer-politicians have prior to becoming leaders of the country? How many advisors have they had? How many employees have they managed? How much foreign experience did they have? How many countries have they worked in or even travelled to?

GE's CEO has an MBA and came from Sales and Marketing. He knows how to grow a business (micro-economy), create wealth and CREATE JOBS. It's unthinkable to put a lawyer in charge of GE. How many jobs have lawyers created before becoming leaders of the country? What micro-economy have they grown?

It's equally unthinkable to make a lawyer be CEO of almost any other company in the world, other than law firms. And, the legal industry is tiny compared to hundreds of other industries, such as Telecommunications, Banking, Technology, Transportation, Manufacturing, Media, etc.

	GE CEO	Most Lawyer-Politicians before becoming Leader of the party or country
Proven that he can lead	Yes	No
Proven that he can be a generalist	Yes	No
Executive Experience	15-20 years	0
# of employees managed	327,000	? handful?
# of advisors	dozens	0
Proven that he knows how to pick the right advisors	Yes	No
Proven that he knows how to pick the right advice	Yes	No
Proven Qualitative Intelligence	Yes (GMAT)	Yes (LSAT)
Proven Quantitative Intelligence	Yes (GMAT)	No
Educated in growing a micro-economy	Yes (MBA)	No
Proven that he can grow a micro-economy	Yes	No
Proven that he can create jobs	Yes	No
Proven that he can create wealth	Yes	No
Proven that he can do all of the above without borrowing and driving the entity into debt	Yes	Will have to pay for his promises by borrowing from future generations
Proof that he doesn't listen to the right advice	No	No lawyer-politician has listened to US top accountant about the huge debt problem: 60 Minutes episode

Economists on TV, including Nobel Prize winner Krugman, have criticized vehemently about McCain's and Obama's promises (tax breaks, increased spending and debt) and how they are unsustainable. Do you think they are going to listen to this economic advice? Of course not. They don't understand or care about the ramifications of debt. If you ran a company like GE, you can never have a negative net worth. Most economic advisors have told lawyer-politicians to cure the debt problem. Most lawyer-politicians do not listen. Watch the 60 Minutes episode. The US Comptroller is the top accountant, is quantitative and screaming about the debt. No lawyer-politician is listening. Why they are not listening is a good question. We can guess that they are not listening because lawyers are not quantitative, or because they know that it is easier to win elections by buying votes than to be fiscally responsible. Ross Perot, a business leader, listened, but he never got elected, partly because he was an independent.

Which of the following is better?

"Obama… met… with a group of economic experts that included several from President Bill Clinton's administration in the 1990s." "As he talked to reporters he was flanked by Robert Rubin and Larry Summers, former treasury secretaries under President Bill Clinton. Obama also met with former Federal Reserve Chairman Paul Volcker and Laura Tyson, former chairwoman of Clinton's Council of Economic Advisers."

"ex-CEO of GE… met… with a group of economic experts that included several from President Bill Clinton's administration in the 1990s." "As he talked to reporters he was flanked by Robert Rubin and Larry Summers, former treasury secretaries under President Bill Clinton. Obama also met with former Federal Reserve Chairman Paul Volcker and Laura Tyson, former chairwoman of Clinton's Council of Economic Advisers."

GE's CEO is not the best leader if voters' top priority is Environment, Welfare, War, etc. He is a better choice if their top priority is the Economy.

However, the challenge is getting people like GE's CEO to run for public office. He makes $19 Million per year. President of US makes $250,000. GE's CEO doesn't have to deal with reporters scrutinizing his daughters and personal life. He doesn't have to impose on his family and parade them on stage. He doesn't have to have his school photos shown on CNN. He doesn't have to explain why he smoked drugs in school. He doesn't have to be ridiculed by the opposition and comedy shows. He doesn't create any enemies as every politician would. He doesn't have to have a public life. He can have privacy and live luxuriously.

On October 29th, 2008, Bill Clinton tried to explain why Obama was silent during the financial meltdown. He said that Obama phoned about 6 people including Bill and Hilary to understand what was happening in the financial markets, before he came up with a plan. He said "Obama can understand."

Translation: Obama does not understand economics and finance. You cannot understand economics and finance from 6 phone calls. It takes years to understand and decades to master. People with degrees in Economics don't fully understand. Nevertheless, Ron Paul, Mitt Romney and thousands of others wouldn't need to phone 6 people to get tutorials on Economics 101. At least McCain has admitted that he doesn't understand Economics. Obama (and Clinton) should also admit that he does not understand. Obama won lots of votes with his energetic speeches about scrapping Free Trade with Canada. Unfortunately, speech-giving skills is more important than knowing how to manage an economy. This is related to the problem with democracy.