Democracy and markets

To make an extreme example, can western-style democracy function at all if 60% of voting population is both illiterate and innumerate? Under such conditions, what modifications would be necessary to make democracy work?

Oddly enough, a delegate system such as the one used for US presidential election might just work, where those who are illiterate/innumerate could nominate someone literate/numerate that (s)he trusts to vote on his/her behalf, adding his/her vote to that of his/her delegate.

>The tough part is to try and make sure that voters, many of whom are uninterested in politics, are as well informed as possible about the issues being decided.

One of the main reasons why this is tough is that many (perhaps even a majority of) voters DON'T want to be informed... They prefer convenient and comfortable fiction over inconvenient truths, as can be seen in the Climate Change debate...

[continues...moving on from unintended consequences]

this leads on to the question of whether voters are sufficiently well-informed about the decisions they are taking

A number of observations:

(1) I could not tell you who my State Senator is, as quite frankly, I care about policies not personalities (no doubt Buttonwood can not only name is local representative, but tell me exactly how his representative voted across a range of policy issues without even needing to look it up);

(2) the examples cites (1995/2002) are old, and (a) the issues raised were not the fore-front of political environment when taken; (b) where the internet was not so readily available; (c) of course people who had high income were least concerned about crime – that is what happens when you over-centralize decision making !

(3) it ignores the fact voters under (direct) Democracy are more informed (both about their representatives and specific policy issues) than those under representative government (presumably, because regular voting becomes a part of daily life, political culture and public discourse); and

(4) voters’ level of detailed information does not affect decision-making anyway - as cues, proxies mean they can mimic the votes of those who are very well informed or in the alternative, use presumptions and general knowledge to make otherwise “rational” decisions;

(5) on the issue of employment benefits, five percent is five percent too many if you start of on the premise we should be getting people into the workplace rather than locking them up at home, even if they have a disability - it “feels” as if it is “44%” (although the 2002 figure was when UK was in ordinary times, not a recession so the figure could be larger due to discussion from a few years before; I would like to see this survey because if it was a multiple choice with high numbers than of course I am going to pick a large number in any event; it also depends how you define a "pension" – some unemployed people are on a pension due to some purported handicap or disability).

the public may support the slashing of benefits to minority groups, even though the effect on the deficit may be small and the hardship caused may be great

Or you can just avoid hare brained-schemes like the Euro debacle; or decentralize decision making so these concerns are fragmented (a rural Swiss canton is more conservative than Geneva and so on); or it may be that your definition of "hardship" and who is or is not a minority is different to other people!

The tough part is to try and make sure that voters, many of whom are uninterested in politics, are as well informed as possible about the issues being decided

Well, then starting by sacking Andreas Kluth and bringing back Brian Beedham.

There are so many errors in this post it gives rise to the exclamation: “I hope Buttonwood does not vote”. Let us do a line by line analysis.

If you want to borrow money, you have to convince someone - a private sector creditor...to lend you money. They thus need to be confident you can pay it back. This amounts to an implicit, rather than an explicit, veto on budget policies

This, of course, depends on whether you operate in a flexible, fiat regime (where the currency denominates its ‘debts’ in its own domestic currency; sets its own interest rates etc) or whether the debt is in a foreign currency (like the Euro, where Greece is not the monopoly issuer of its official currency). Last time I checked Japanese bond holders were loving the risk-free liability that is government debt (in fact, the only ever default in a fiat currency regime – flexible exchange rate with all debts denominated in a local currency – was Japan in 1945 which defaulted on its US bondholders after the US nuked it). Exceptional dooms-day circumstances aside, when a sovereign government says it is going to back you back it is going to pay you back! This is not the case with the Euro and Greece (or indeed Hungary, who while sovereign, has its debts denominated in $US dollar and Euros). Inflation at present is not an issue given capacity under-utilisation and the fact cash-flows serve to pay down debt. There is a whole school of thought, not mentioned by Buttonwood, which argues printing money and issuing government bonds are really not that different for all practical purposes.

There is an underlying idea that judges can protect the rights of minorities, even if the majority of voters might prefer a different outcome

Giving power to one minority often disadvantages another – be this giving blacks a right to “affirmative action” (often at the expense of Asian minorities who places they take); or the right of homosexuals to be freedom from discrimination (often at the expense of religious or libertarian minorities who support freedom of association) and so on. As Stephen Morris noted, “judges do not protect the rights of anyone, minority or majority. What they do is choose who are to have rights and who – by Coasian Symmetry – are to be denied the equal and opposite rights”.

there has been general acceptance that central banks should make interest rate decisions independently of the whims of politicians

The transcendental merit of giving it to unelected bureaucrats remains far from, well, self-evident.

[set taxpolicy]...there was a lot of pressure on Ireland to increase its corporation tax rate in return for EU aid

Not only do voters in Swiss cantons do just that (as discussed by Stephen Morris), but so do the citizens of Liechtenstein (the country with the highest GDP per capita in the world). In Liechtenstein, back in 1945, they capped the income tax to 1% and citizens continue to express their competitive taxation regime to this day. In Switzerland, voters capped the income and corporations taxes to 11.5 and 8.5 respectively. In other cantons there are no taxes. In North and South Dakota (which has one of the lowest unemployment rates in the country), voters have also banned inheritance taxes, while preferring rent-based mineral resource and property taxes. In California, by contrast, their State Supreme Court invalidated the entire state property tax system in order to protect “blacks” and in the process giving rise to Proposition 13. It was not what the majority would have wanted – TWICE before they held the same arrangements people in other, more prosperous parts of the US continue to use California's pre-1978 tax system.

The main problem with central banks is that they can arbitrarily confiscate citizens' stuff without so much as a vote. Our ancestors used a gold standard to protect themselves from bankers (printers), who have repeatedly shown that they cannot resist taking other people's stuff away from them.

Citizens don't get to vote on bankers, and they don't get to vote on how much banks take away from them by printing. How is this compatible with democracy? If the drachma is reinstated, the bank is likely to confiscate half of citizens' wages, pensions, and life savings. There will be no vote on how much the currency is devalued, and citizens are desperately trying to get their life savings out of the country before it is too late. Arbitrary confiscation by bankers of half of citizens' stuff is tyranny, not democracy.

Democracy, or rule by the majority, is an inherently flawed system. It is the source of people's dissatisfaction, which arises from having to accept unacceptable outcomes.

The axiom that this argument is based on is: human beings have a fundamental right to liberty. (This has been stated so often that it has become boring to even say it. But, it is infringed upon so ubiquitously that the infringement is almost invisible and thus almost universally accepted. For example, wealth transfer: an infringement on the right to property - a right derived from the right to liberty - in the name of social justice, collected in the form of taxes.)

The collectivist system that is democracy, which imposes the will of the majority on the individual, has always infringed upon the said right and will continue to do so, because it is in the nature of the system.

Only a system that protects an individual's absolute right to exercise liberty in thought, speech, and action can truly deliver an outcome that is acceptable to all citizens.

Under the system of government-by-politician – and in the absence of Democracy - there is reduced likelihood that people will invest time and effort in acquiring information:

a) there is no incentive for them to do so because they have no role in decision-making anyway; and

b) the adversely selected political agents have every incentive to encourage this continued ignorance.

Quite the opposite is true under Democracy. I refer Buttonwood to Steven Spadijer’s excellent summary of the empirical evidence indicating:

a) that voters under Democracy are more informed than those under the paternalistic system of government-by-politician; and

b) voters’ level of detailed information does not affect decision-making anyway!

Again, this was all presented to Buttonwood two weeks ago. But it would seem that Buttonwood prefers to eat cut glass and walk through fire than acknowledge any evidence or argument contrary to the philosophy of Paternalism.

Anyone with experience of government-by-politician knows that the issue of information assimilation also arises with politicians. They simply do not have the time or the expertise – and in many cases the inclination – to understand all the policies on which they vote.

In practice political parties and legislatures handle this using the committee system, where a small number of people gain expertise in each area and make recommendations to the rest of the party or to the legislature as a whole.

And this is precisely the same system that operates in a properly functioning democracy. For example, Article 139 of the Swiss Federal Constitution specifies that:

An initiative in the form of a formulated draft shall be submitted to the vote of the People and the Cantons. The Federal Parliament shall recommend its approval or its rejection. If it recommends its rejection, it may submit its own counter-draft.

In practice the various parties publish their own recommendations, just as they do under elective government.

Under purely elective government, adversely politicians sitting on policy committees are subject to capture from special interest. The referendum system allows the People to act as final arbiters to prevent such corrupt practices.

My challenge to Buttonwood still stands: provide a logically coherent argument for denying people the freedom to choose the form of government they prefer for their country.

Last time Buttonwood ran away, claiming that it would require too much reading. The logical argument in favour of anti-democratic paternalism may require a lot of reading. Indeed it may require an infinite amount because it does not exist.

In contrast, the case against anti-democratic paternalism is very short, less than 5000 characters of text (here).

So I wait in hope . . . . . . but not in expectation.

Somewhat related to your previous post, I think the public anger at banks (or, even more so, derivatives) is often misplaced and almost entirely misinformed.
It's fine to complain about ignorance of crime rates or the role of central banks, but would you follow that thought all the way to the subject of bankers' pay for example?
It's a troubling thought.

Let’s skip over central banks for a moment (we’ll return to them in a later comment) and examine Buttonwood’s renewed spruiking of Bryan Caplan's irrational book.

Again this might be forgivable, were it not for the fact that the irrationality of Caplan’s argument was brought to Buttonwood’s attention two weeks ago (here and here and here and here) but again Buttonwood has studiously ignored it, preferring instead to go on reciting Articles of Faith that have already been refuted.

Buttonwood claims:

This leads on to the question of whether voters are sufficiently well-informed about the decisions they are taking.

The point is that under the system of government-by-politician, voters are not taking any decisions. The whole point of government-by-politician is to deny voters any real say in what goes on. If one wanted voters to have a say in government, one would support Democracy!!

Moreover – ironically - it is the system of government-by-politician itself which plausibly leads to the very outcomes that Buttonwood professes to deplore:

a) it creates an incentive for political agents to engage in deliberate spreading of misinformation; and

b) it creates a disincentive for people to take any interest in what is going on.

Let’s go through it one more time for Buttonwood’s benefit. Nobel laureate James Buchanan describes the phenomenon thus:

[S]uppose that a monopoly right is to be auctioned; whom will we predict to be the highest bidder? Surely we can presume that the person who intends to exploit the monopoly power most fully, the one for whom the expected profit is highest, will be among the highest bidders for the franchise. In the same way, positions of political power will tend to attract those persons who place higher values on the possession of such power. These persons will tend to be the highest bidders in the allocation of political offices. . . . Is there any presumption that political rent seeking will ultimately allocate offices to the 'best' persons? Is there not the overwhelming presumption that offices will be secured by those who value power most highly and who seek to use such power of discretion in the furtherance of their personal projects, be these moral or otherwise? Genuine public-interest motivations may exist and may even be widespread, but are these motivations sufficiently passionate to stimulate people to fight for political office, to compete with those whose passions include the desire to wield power over others?

[In passing it is amusing to note that Buchanan himself concluded:

In sum, the effects of direct democracy add-ons to existing decision rules surely work toward reducing the range and scope for politicization, a result supported by classical liberals.

But never, ever, ever, ever supported by paternalistic journalists working for The Economist!]

Many of the problems Caplan attributes to “democracy” (a democracy which does not actually exist) are in fact attributable to the phenomenon of adverse selection.

Under such conditions it may be expected that:

a) the system will adversely select megalomaniacs who act in their own interests, with minimal regard for the subjects they rule;

b) these dishonest politicians (and rent-seeking clients) will deliberately misrepresents the state of affairs to the public in their desperate attempts to secure votes;

c) they will pander to special interest groups, trying to buy them off piecemeal; and

d) historically, it is they – not the People - who have been most savage in restricting the liberties of other people as they strive to preserve the system which gives them a monopoly on power.

Four days ago I asked if Buttonwood - or anyone at The Paternalist - could provide a logically coherent argument for why people are denied the freedom to choose the form of government they prefer for their country.

Buttonwood superciliously dismissed that challenge, and now Buttonwood has come up this, a recitation of paternalist Articles of Faith that have already been thoroughly refuted.

[Parenthetically, this is a characteristic of cognitive dissonance. People confronted with evidence or argument that challenges their deeply held prejudices often respond by reciting Articles of Faith. It is one reason why organised religions have creeds. When challenged, the faithful can recite them – and keep on reciting them - until the challenge goes away. It is an anti-intellectual tactic designed to eliminate the pain of dissonant cognitive elements.]

So what are we to make of Buttonwood latest offering?

To begin with Buttonwood disparages “democracy”, but none of the examples discussed by Buttonwood are democracies! They are (so-called) “representative” governments, “government-by-politician”, franchised monopoly government. As discussed below, this is ironic because the problems cited by Buttonwood are a result of franchised monopoly government, not Democracy.

It speaks volumes for the legitimacy of anti-democratic government and the mindset of those who try to defend it that they feel compelled to describe as “democracy” something that is not. Indeed, in some cases – as in the United States – the system of government described by modern-day apologists as “democracy” was expressly designed not to be so. One may disagree with Hamilton and his friends but at least they had the personal integrity to speak plainly. Their successors are weasels in comparison.

Let’s look at some of Buttonwood’s arguments in more detail.

There is an underlying idea that judges can protect the rights of minorities, even if the majority of voters might prefer a different outcome.

This statement might be forgivable, were it not for the fact that its illogicality was brought to Buttonwood’s attention a mere four days ago (here), and Buttonwood (predictably) ignored it.

Judges do not “protect” the rights of anyone, minority or majority. What they do is choose who are to have rights and who – by Coasian Symmetry – are to be denied the equal and opposite rights. [Judges don’t even enforce their choices. Others do it for them.]

Moreover, they choose according to their own individual preferences. As the famous US judge Learned Hand observed after a lifetime on the bench:

They [the judges] wrap up their veto in a protective veil of adjectives such as 'arbitrary', 'artificial', 'normal', 'reasonable', 'inherent', 'fundamental', or 'essential', whose office usually, though quite innocently, is to disguise what they are doing and impute to it a derivation far more impressive than their personal preferences, which are all that in fact lie behind the decision. . . . .

If we do need a third chamber it should appear for what it is, and not as the interpreter of inscrutable principles.

Once we have torn down Buttonwood’s rhetorical window dressing, the obvious questions arise:

a) which minorities are to be thus privileged? The minority of murderers perhaps? The minority of train-spotters? The minority of white-collar criminals? The minority of poodle-lovers? The minority of people more than six feet tall? Everybody is in a minority of some kind. In fact, everybody is in multiple minorities;

b) by what principle has it been determined that these decisions – essentially political decisions – ought to be made by a “judicial oligarchy”, a tiny clique of unelected lawyers from elite universities? There is absolutely nothing in the study of law that privileges one’s individual political preferences over the preferences of other people.

Thus the Tea Party. As they discover that, in order to balance the budget, their Republican masters intend to gut the Federal benefits going to White, middle-class Americans, their enthusiasm will wane. And forcing them to face that fact will be the jolly work of every Democratic candidate in 2012.

In wealthy, developed countries, "uninformed" people are not so because they have not been informed or lack access to information. They don't make the effort to acquire authoritative knowledge because they view it with contempt. They either mistrust it or question its relevance. "Why the bloody hell should I care what the official crime rate is?," a pleb in a pub might ask, "I can see them asbos everywhere!" In light of the riots last summer, I'm inclined to think that those who were anxious about crime were right all along.

"Democracy is the worst form of government, except for all those others.." Winston Churchill
I think the problem hinges more on voter apathy than on ignorance. The two are obviously related, but I would guess that the majority of individual voters do not bother to inform themselves fully on topics such as international finance. Though these can be a challenge to educate oneself on, thier importance is extreme in many situations (such as the Euro zone crisis). This problem is only exasperated by the rational voter issue mentioned in the previous post. There is little incentive to educate oneself on voting issues.
Do most US voters understand the influence of the dollar as a reserve currency and its impact on our ability to run a deficit on a continuous basis. Probaby not. Should this information influence your (rational) opinion on spending on such things as defence and social security? Probably.

"The tough part is to try and make sure that voters, many of whom are uninterested in politics, are as well informed as possible about the issues being decided."

I am not sure this is really possible. Voters should really be better educated in regard to their own interests, not political issues in general. Democracy is very far from perfect, but at least it ensures that no-one gets to hold onto the reins of power indefinitely.

EU bureaucrats hate referendums, claiming that they are never decided on the issue at hand. The EU treaty currently under consideration is explicitly drafted to avoid a referendum in Ireland. However I disagree with this attitude. When the Irish rejected and subsequently accepted the treaties of Nice and Lisbon, genuine debates were held to consider what the values of the EU were.
Would that such debates had been held in other countries, such as the UK and Germany. Now we see the backlash of not having such debates. The UK has lurched towards outright exit of the EU; if Germany had had a referendum on Euro-membership, it would have failed.

Regarding misinformation -

In the US, it's common for those on the Right to say such things as "government never created one job".

As if the positions of soldier, police officer, teacher, flight controller, and congressman aren't jobs.

Or, that countries such as China haven't done well with companies owned by the state.

A second is that "guns don't kill people, people kill people".

But if you then suggest that Iran should have nuclear weapons (which the logic implies also don't kill people), they get a funny look on their face.

Anyway, in fairness to the American public, much of the misinformation provided appears to have been discarded by a significant portion of the population which does in fact think such things through.

Not to be too negative, but this is the norm. Work has shown people from across the US political spectrum choose an ideal income distribution that is similar to Sweden. When asked what our actual income distribution is, they get it completely wrong, thinking the poor have many, many times more money they do and that the rich have much, much less than they do. It is in this light that I view the "inequality" debates in the US: they aren't about inequality as much as attempts to inform on one side being countered by attempts to keep people ignorant on the other. If people knew, they'd be ticked off but they don't know and a main goal is to keep them from knowing. You do that by creating noise as distraction, by throwing up side issues like socialism, by claiming the demand is for "equal outcomes" when it is not, etc.

People are ignorant. It is nearly always the job of at least one side to keep people ignorant because knowledge would turn those people against them.

This can be taken to insane extremes. Noam Chomsky, for example, takes the idea of "manufactured consent" and runs with it into the far reaches of the solar system. (And by warping facts and constructing weird arguments, he tries to substitute his manufactured version of truth.)

The Germans have been incredibly stupid and insensitive about this.
They seem to have forgotten the history between Germany and Greece has not been pleasant. Saying out loud (in parliament) that you want to send a commissioner to run Greece's affairs is guaranteed to provoke a reaction.

As things stand, in Ireland, there already is an EU pro-consul installed in the Irish finance department - Ivan Szekely. Day to day, this causes no big drama. However when the Irish budget was leaked in the Bundestag, there was huge controversy.

Germany aspires to lead the EU. If they continue to about it in this way it will tear itself apart.

Trying to change the public's opinion on issues which are interesting for the media is a nigh on impossible task. The electorate has never been able to grasp the real issues behind talking points and never will. This is both because they simply aren't in the opportunity to invest the time and resources to do so and because they are misinformed by the sorts of media they choose to consume. The majority of people don't read the economist, don't want to read it and never will read it. Trying to fight this fact of life is completely pointless.

This is why representative democracy was invented. But our ridiculous quest to bridge the supposed 'gap between politician and voter' (at least that's what they call it in my home country, the Netherlands) has lead us to steer too much towards direct democracy or at least taking into account current opinion on every issue, which is completely at odds with modern policy making. The EU's proposal are probably a bridge too far at the moment but our system demands a certain amount of reliance on technocrats and the constant fight against this fact is another reason why the eurocrisis, and for that matter the crisis of modern democracy, is still raging.

Nice post, I shall endeavour to read Dean’s book.

Is the bias in the press against reporting that the majority of social spending goes on pensioner benefits due to the demographic of newspaper subscribers?

Are articles pointing out that current and future pressures on government budgets are largely due to demographic changes rather than the unemployed or foreigners are much more likely to displease subscribers, who are older than average.

Suppose articles pointing out these demographic issues cause subscribers to send letters to the editor along the lines of:

“I been a subscriber to the Guardian/Telegraph/Mail for four decades, but I am unhappy you are blaming grannies for the UKs budgetary problems, so I cancelling my subscription.”

How many more “truthful” articles will the editor allow to be published? Or will the editor tell the journalist to find another banker/asylum seeker/benefit scrounger/journalist/politician/public sector worker to use as an entertaining pinata?

Will the dynamic be different, once printed papers disappear? On the web, the audience is younger, and it is much easier to check facts?

Oh and I wonder if those who are most informed about social spending are most anxious about how their retirement will be funded?

As the size and scope of government expands, it becomes less likely that a citizen will understand in detail any of its parts. As government employees allocate greater resources toward narrower objectives, they stray farther from accountability to voters and closer to the influence of interested parties. It probably doesn't matter very much to a citizen the details of how vast social security spending is allocated, nor the companies to which particular industrial grants or loans are awarded, nor most decisions of unelected regulators affecting large parts of the economy. In a prisoners’ dilemma, each voter focus on the few parts of a large government that might affect him or her, while voters as a whole could all be better off by instead voting to bring the government back to its smaller necessary size and scope. Citizens’ better understanding of the actions of government would be one of many benefits.