by Sydney Williams Armed insurrection, as Egypt is experiencing, is […]

Democracy Tankby Sydney Williams

Armed insurrection, as Egypt is experiencing, is unlikely in America. But there are threats to democracy, many of which are more subtle. As much as anything, the founding fathers feared that too much power might accrue to any one individual or segment of society. They had, as an example, Britain. While the idea of Parliament imposing taxes without representation became a catalyst for revolution, the founders were well aware that, at the same time, England was the most liberal nation in the world. It was a country which upheld property rights and where the rule of law prevailed.

Yet, even after the Glorious Revolution of 1688, which strengthened Parliament’s role, they had seen King George III attempt to seize power back from Parliament. To counter the threat of power becoming embedded within one person or one group, the founding fathers composed a government intricate in its complexities, while simple in its fundamental precepts, and deliberately contentious in its function, yet designed for collegiality.

 Power is divided between states and federal governments. Each is further divided between three branches – executive, judicial and legislative. And the legislature consists of lower and upper houses – the first, directly representatives of the people; the second (at the federal level) to be [originally] elected by states’ legislatures. Other safeguards included electoral terms that were staggered, to life-time appointments for members of the Supreme Court. The purposes were to provide a democratic republic, while ensuring continuity of society, and, significantly, to make it difficult for one person or one group to amass too much power. It was based on the concept of property rights and that government would always be one of laws, not men.

Certainly external threats, such as Islamic extremists in the form of al Qaeda or the Muslim Brotherhood, are real concerns. After all, protecting its people is the greatest responsibility of any government. With the exception of Israel and possibly Jordan, Saudi Arabia and Dubai, the entire Middle East has descended into a new dark age. Such is the consequence of radical Islamism, with the Muslim Brotherhood as its bullhorn. Further, as our defense spending is being reduced at the fastest rate since the collapse of the Berlin Wall, there is a risk that disputes between China and Japan could escalate, threatening our position in the Pacific. As we dismember our missile defense operations, the ownership of nuclear weapons by rogue nations like Iran and North Korea have become more threatening, In a world of rising Morlocks, we risk becoming a nation of Eloi.

But it is the internal, more subliminal threats that need concern us as well. Dependency, debt and cronyism imperil our nation just as much as terrorists operating in Drone-free zones. That troika of hazards risks rendering the fabric of our democratic republic. It leads, ultimately to a decline in economic strength and, ultimately, to a rise in totalitarianism. With government consuming an ever-larger percent of GDP, economic growth becomes more difficult. Every day we witness signs of executive usurpation in Washington. While care for the poor, the disadvantaged and the elderly is noble (and necessary in many cases), we must be wary that government does not become overly paternalistic; for dependency weakens the moral fiber of society. Debt is insidious; it creeps up on little cat feet, especially in an environment of artificially low interest rates. And cronyism is the consequence of bigness – in government, banks, corporations, media/entertainment and unions. Theirs’ is a symbiotic world, each feeding off the other.

Dependency is dangerous no matter the form it takes; it is antithetical to nature. The protective instinct of new parents gives way to the equally natural instinctive knowledge that long-term survivability depends, in some measure, on self-sufficiency. In the wild, animals understand that survivorship of their species means their off-spring must become self-reliant. Birds nudge fledglings from nests high above the ground. While man is societal, he recognizes his responsibility to himself and those who depend on him. The simplicity of this axiom is manifested in the ancient Chinese adage that says give a man a fish and he will eat for a day, but teach him to fish and he will eat for a lifetime. Yet Western governments are outliers in this regard. They move against nature in encouraging dependency, knowing full well the harm they cause, yet convinced that contented recipients will reciprocate on Election Day. It is a short-sighted view that will end badly.

Debt is addictive, or, rather, it is not debt – which is the consequence – that is addictive, but the spending, which is its cause. We all must live in the present, without being consumed with Epicurean delights. Individually, we must prepare for tomorrow. That goes for the state as well. When government funds today’s consumption with money’s earmarked for tomorrow, we rob our children and grandchildren. When we underfund entitlement programs that is what we are doing. Seventy percent of the federal budget goes to mandatory spending (64%) and interest (6%). Eighty-seven percent of mandatory spending is consumed with Social Security, Medicare and Medicaid benefits. (The balance consists of Veteran’s benefits, Transportation and Food and Agriculture transfers.) Interest costs will almost certainly rise in the years ahead, as interest rates revert to more normal levels – roughly double current rates. Because tax revenues do not cover expenditures, our debt grows each year, today amounting to about $16.7 trillion. Should we experience another attack like 9/11, our response would be conditioned on our ability to borrow even more money. Should banks “too big to fail,” in fact fail, as they threatened in 2008, there is a real question as to whether we could muster the resources today to save the financial system, as we did then. We live in an age in which consumerism rules. It is a condition warned about by Edmund Burke – a danger of collective egoism in which whole generations no longer feel bound by the basic trust which unites past, present and future generations.

Government, abetted by low interest rates, has forgiven millions of Americans of some or all of their mortgage debt and, if proposals are to be believed, of substantial levels of student loan debt as well. This apparent willingness of government to protect borrowers has made consumers less wary of the debilitating effect of debt. The housing crisis that nearly brought the Nation to its knees in 2008 was not solely the fault of banks; though they played an important role. Its genesis began in Washington when the Clinton Administration began easing rules for home-ownership, allowing and encouraging those who could not afford the cost to buy. It was further aggravated by Senator Chris Dodd and Representative Barney Frank and their mutually beneficial relationships with Freddie Mac and Fannie Mae. Yet, the Wall Street Reform and Consumer Protection Act, which has done nothing to reform Wall Street and little to protect consumers, was named after these two members of what Mark Twain so aptly called the only “distinctly American criminal class” – Congress. In the past two years, student loan debt has grown 20%, now topping a trillion dollars. It has distorted the price of college and damaged the precept of living within one’s means. The ease with which it can be dismissed harms the character of the borrower, as well as the pocketbook of the lender – and the taxpayer has become the lender of last resort.

Cronyism is all about us. We see it in the open doors between Washington administrations’ and Congress, and K Street and Wall Street. It incorporates big labor and big business. As an example, Richard Gephardt, after serving 28 years in Congress, formed a lobbying company, Gephardt Government Affairs, reportedly earning him $7 million last year. Harry Truman believed he should never lend himself to any transaction, however respectable, that would commercialize on the prestige and dignity of the office of the President. When we see President Clinton making between $250,000 to $750,000 per speech we know the world has changed – and not for the better. It is not just the revolving doors between the hallways of government and K Street, as detailed in Mark Leibovich’s book, Our Town; it is the too-cozy collegiality that exists between powerful members of government and those whose well-being is dependent on Congressional legislation and administrative regulations. A perfidious example of how far down cronyism reaches is reflected in the decision by U.S. authorities to not charge either Jamie Dimon or Bruno Iksil in the J.P Morgan “Whale” episode. Instead, they charged two junior traders. Are we supposed to believe that senior management was unaware of a trade that cost the bank $6 billion? If they did know, they should be charged with complicity and fired. If they did not, they should be charged with negligence and fired. Taxpayers, as bank’s management surely knows, remain the backstop to their indiscretions. Union members’ dues are used for political gain, with little or no say-so by individual union members. Hollywood has long been a mill for propaganda. During the War years they were overtly patriotic. But more recently, their messages have been more subtle. A pretence of disinterestedness masks underlying political favoritism. I have no problem with a decision to support particular candidates or issues, but I do object to the claim of impartiality. In a world that has become uneducated as to issues, the medium, as Marshall McLuhan warned, has become the message. 

The perpetuation of these threats leads to a decline of a moral sense and the possible transformation of a country that has served us and the world well. As Glenn Hubbard and Tim Kane note in their new book, Balance: The Economics of Great Powers, nations and empires rise and fall. It is a risk to which attention must be paid. In promoting dependency, we give up personal responsibility. As a society we encourage consumerism and discourage saving and investment. As Madonna sang, we have come to believe that “the boy with the cold hard cash is always Mister Right.” A cult of hedonism leads to an attitude of carpe diem. In living for today, we assume tomorrow will take care of itself. And cronyism turns the electorate cynical, providing a sense that the system is rigged, making prophetic the headline in Jacob Weisberg’s column two weeks ago in the Financial Times: “They came for the politics, but stay for the money.”

None of the domestic threats enumerated above are wrong when experienced in moderation, not even cronyism; nor, in citing them, do I mean to diminish the threat of Islamic terrorism – America’s and the West’s greatest international challenge. A moral society watches out for those in need, without creating dependency. Debt allows us to enjoy comforts today that we might not otherwise be able to afford. In terms of cronyism, one must expect old friendships to be maintained as people advance through their careers and that new ones will be made. Last Thursday, writing in the New York Times, David Barboza noted that the SEC is investigating the Wall Street practice of hiring children of officials of state-controlled companies [specifically in China]. They are concerned that such hirings “cross a line.” Why not, in addition, investigate the practice of former Congressmen and women who routinely trade on their relationships when starting consultancies, or ex-Presidents who use the fame of their office to make millions in speaking engagements? Like Cincinnatus, retiring politicians should leave politics behind. Good politicians serving the public interest must guard against “influence,” putting the needs of the people above self-interest. Can we revert to such a place? I am sure we can, but will we? The threats are clear and present.

 “The thought of the day” by Sydney Williams


The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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