2.2 Economics and democracy

From a historical point of view, democracy is an idea that needs a long time to get the public sympathy. People agreed very often in their struggle against an authoritarian potentate, monarchy, dictator whatever, but after got rid of him, they allowed another potentate to get to power or, even more strange, they voted for him in democratic elections.

Actually, in Europe only after World War II democracy is universally accepted.

There are endless examples, where one dictator is overthrown, Shah Reza Pahlewi, Gaddafi, Mubarak, etc. and in democratic elections substituted by another.

It seems that people have some problems to understand the joke. By overthrowing a dictator they hope to improve their living conditions immediately, something that obviously never happens and they vote for the charismatic leader who proposes them the paradise on earth.

A beautiful example for that was the first elections in Germany after the fall of the wall in 1989. The selections was won by the political party who made the biggest promises, see flourishing landscapes.

If a democracy can't proof that this political system leads, at least in the long run, to a higher living standard, it is unstable.

Let's hope that Afghanistan is different and that the Afghans are tired of wars and more inclined to look for compromises, even if they don't assume that their economic conditions will change quickly. There is a tiny ray of hope, since the turnout at the elections was high.

But in general, a democracy has to prove quickly that it guarantees a higher living standard. The perspective of Hayek and Friedman is wrong.First of all, the living standard guarantes freedom. For most people, if they are not philosophers, very few people are philosophers, freedom has to do with living standard.

This is something very obvious. When it became apparent after the fall of the wall in Berlin, in 1989, that freedom, the possibility of voyage, the freedom to work everywhere, the freedom to demonstrate, etc. existed only in theory, because without money, nobody can go nowhere and in case of high unemployment there are no jobs nowhere, the mood changed quickly, and nothing remained from the enthusiasm of the beginning. If there had not been a transfer of 1.5 trillion from West-Germany to former East-Germany, we would have seen a second revolution.

Hayek and Friedman assume that any kind of governmental intervention is an attack on freedom. We will discuss this topic later on when talking about Hayek and Friedman.

The logic is wrong. The logic is not that free market guarantees freedom. The logic is, at least in the long run, that free market leads to a higher living standard and the higher living standard leads to more freedom. If an authoritarian regime leads to a higher living standard, it will allow more freedom and people will not care about freedom, because freedom in practice is a very vague concept.

Implicitly, although they tell the opposite, Hayek and Friedman admits that. Both are in favour of authoritarian regimes if these regimes are the guarantor of free market. Friedman supported the Pinochet regime and was even proud of it, see Milton Friedman - Pinochet And Chile. (What he is telling in the video is less than half of the truth, but that's another story.)

The logic behind is that both Hayek and Friedman knew that it is not sure that a market economy of the laissez-faire type, the system they prefer, leads to more economic growth. Actually, this kind of system exists nowhere. The ratio of public spending to GNP is almost 50 per cent in all highly industrialised countries. It is therefore not enough to argue with efficiency if one wants to proof the superiority of a market economy of the laissez-faire type. Something they want to proof for ideological reasons.

Therefore, they changed the debate. The question is no more about efficiency, free market efficient <=> any kind of socialism inefficient, but about freedom, free market free <=> any kind of socialism not free. We get a completely different picture this way. By arguing this way, the free market would be even preferable if it is less efficient from an economic point of view because it guarantees more freedom.

Following the logic of Milton Friedman, Afghanistan would be a very free society. There is no governmental intervention because in large parts of the country a government not even exist. At the same time, Afghanistan is the most unfree country one can imagine. In practice, the ideas of Milton Friedman, free cooperation through markets resolves all problems, is just idiotic.

As we have already discussed in the previous chapters, see journalists and economics, the fascinated and fascinating public of economics, internet and economics etc. there is no doubt that gouvernmental intervention presents a risk. But we can't resolve the problem arguing that everything that have to be decided can be decided by the market and if something cannot be decided through the market there is no need to decide it.

The question is how to introduce in governmental activities mechanisms which work as strong, objective and clear as the mechanisms that control the market economy.

If we put "Educating for democracy" in Google, we get thousand of articles about the topic. Most of these articles deal with the problem on how to improve participation in political processes. The author would say that this kind of thinking leads nowhere.

Demand for information is a problem, no doubt, see can this nut be cracked?. The impact of a single political decision on the subject is very low, and therefore, the effort to be made to get better informed is not worth the benefit. Therefore, there are more and more people who don't vote at all. Sometimes only a small group is concerned and in this case, people are interested in the topic neither. Nevertheless, the whole bunch of decisions can have a massive impact on the individual.

Another reason that explains the widespread disinterest for politics is the fact that even if people don't agree with a political decision, they don't see a better alternative. In this case, as well they find participation in elections useless.

The next problem is that elections are about some topics and it is not even sure that these are the relevant once. The mass media can put any topic on the agenda, and they decide as well the perspective under which these topics are discussed, see just opinions?.

No doubt that there is a problem on the demand side of information and the public education system can be improved concerning this issue. Some extra hours on economics can be useful. Basic ideas, as described in the little book about Keynes downloadable from the start of this website, should be clear.

However, the basic problems are on the supply side of information. Anthony Downs in An Economic Theory of Democracy gives an explanation for the little interest in politics. The majority is little concerned about certain political measures while for the minority a certain issue can have a massive impact. The individual consumer, for instance, doesn't care about customs on sugar, but the sugar industry is very interested because foreign competitors get eliminated this way. (At the cost of the consumer, obviously.) Anthony Down comes therefore to the opposite conclusion than the Friedman/Hayek duo. Minorities have more influence than the majority. However, this is not the point.

Based on this and similar statements Down elaborates a theory of how a democracy works, but pay no attention to the question how it should work. This is wrong for two reasons. First, a typical error we find everywhere in economic thinking, he takes some things for granted, unequal access to information, and second the notion of democracy becomes meaningless.

Even if it is true that access to information is unequal nowadays, there is no evidence that this is true in the future. Nowadays it might be, for other reasons than the reasons mentioned by Down, see culture industry, but the access to information can be simplified, as we have already seen in the last twenty years. We are more interested in making the system more transparent, than in knowing what happens if it remains intransparent.

Second the basic idea of democracy, democracy as a learning process, is missing in the purely economic view of Downs.

It is hard to test the "theories" of Hayek and Friedman against reality because they are somehow philosophical. The general idea is that democracies tend to oppress minorities. This is plausible if the majority gets an advantage. For instance, it would be interesting for the majority to vote for a party who advocates in favour of a strong redistribution of income. The problem is that this never happened in reality. People want some leveling of income, but very far from a total levelling. Tax reduction that leads to an unequal income distribution, for instance, was the big topic of Reagan, and he won the elections two times.

Concerning issues where the majority is not affected, it is hard to see why it would restrict liberties. It is more logical to believe that in this case it simply doesn't care. We have seen in history that the majority restricted, in different ways, the liberties of minorities, see John Stuart Mill, On liberty, but it did so without any governmental intervention. From a more historical point of view, we would say that democracies lead to more liberty.

At the other side, we have seen a lot of free market economies with an authoritarian regime where liberties has been severely restricted.

Philosophical theories of the Friedman/Hayek type about democracies are not really helpful. The question is not what can be possible, but what has actually happened throughout history and the philosophical theories of Friedman/Hayek are not compliant with the historical facts.

The basic problem is that something like a majority thought as a homogenous group, doesn't exist and, therefore, something like a minority doesn't exist either. People belong in some aspects to the majority and in some other aspects of the minority at a certain moment but in the course of time the relevant aspects changes as well as the composition of the minority/majority concerning these aspects.

To illustrate it with an example. A relevant aspect for a long time was the affiliation to a certain religion. That changed in the course of history and was substituted by the class someone belonged to. Nowadays that has become irrelevant as well, because qualified workers earn more than some "capitalists". It is therefore difficult to see how the majority can supress the minority.

But even at a certain moment something like a majority, thought as a homogenous group, doesn't exist. That's the reason why the programs of the political parties become more and more similar. It it were easy to find majorities, in other words to find some issues allowing to built a majority, political parties will do it.

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