Wednesday, June 04, 2014

Nobody Wins Elections Promising to Trim Waste/Fraud and Simplify Regulations

The problem in representative democracy is that every instance of waste, graft, fraud and monopolistic racket is somebody's fat paycheck or government contract.

Promising good governance guarantees a losing campaign for public office. The central irony of representative democracy is similar to the central irony of capitalism: the relentless pursuit of narrow self-interest ends up eroding the shared foundations every self-interested participant relies upon.


The problem in representative democracy is that every instance of waste, graft, fraud and monopolistic racket is somebody's fat paycheck or government contract. Those few who see the systemic damage wrought by unproductive skimming, scamming and churn are motivated by a concern for the foundations of the entire system, while those fighting to retain their share of the swag are driven by a fierce cornered-animal desire to keep their share of the loot regardless of the consequences to the system.

Who wins such conflicts? The people fighting tooth and nail to defend their share of the swag, even if it is unproductive, wasteful churn with high opportunity costs for society as a whole: for example, what else could we do with the hundreds of millions of dollars spent on tax preparation and avoidance were the thousands of pages of tax regulations radically simplified?

Nobody wins elections promising to trim waste/fraud/monopolies and simplify the churn of complex regulations because any such good governance threatens somebody's fat paycheck/contract, and those fearing banishment from the state's feeding trough will go to any lengths necessary to defeat the "good governance" candidate.

The winning candidate promises not good governance for the benefit of all but more swag for enough voters to win the election. Grabbing the lucrative reins of power is the ultimate in private aggrandizement within representative democracy, and as a result there will always be a large pool of individuals willing to promise the moon to get elected and a vanishingly small pool of people concerned enough about systemic risks to suffer the slings and arrows of campaign politics for the common good.

Capitalism shares a similar irony: the relentless pursuit of narrow self-interest (personal profit) drives the stripmining of the seas for high-value fish, killing vast numbers of "worthless" sea life in the process. When the ocean ecosystem has been destroyed, the theory is that a substitute will be found, such as farm fishing.

But farm fishing does not replace the lost ecosystem, any more than planting rows of monoculture trees for paper pulping replaces a native forest. Just as markets do not have any mechanisms to value ecosystems, representative democracy has no mechanism to counteract the systemic consequences of individual aggrandizement within the system.

Once the number of participants in the system drawing politically-protected benefits and paychecks exceeds the number of those paying taxes to fund the swag, the system destabilizes. Since the state is ultimately run to benefit the individuals drawing paychecks, benefits and contracts paid by the state, nobody cares about the systemic consequences of this imbalance or the heavy opportunity costs of supporting innumerable skims, scams and unproductive churn.

To avoid the political pain that would result from trimming waste/fraud/ rackets, the state prints money to keep the swag flowing. Since the state can't create real wealth, it prints claims on wealth and passes off the paper as "money."

As long as the state is judicious in its printing, the resulting inflation is modest enough that participants are more than happy to accept a small decline in purchasing power in return for keeping their share of the swag intact.

But this monetary gaming has systemic dynamics and limits. The hubris of the state, regardless of its ideological basis, is that central planners can tweak the monetary gaming to keep the swag flowing without creating any uncontrollable risk.

But risk cannot be eliminated, it can only be transferred. In representative democracy, the risks are transferred from individuals drawing swag to the system and state itself. The state appears so vast and powerful that it can absorb essentially infinite amounts of systemic risk. But the state is like any other system: its ability to sustain monetary games is finite, as is its ability to fund unproductive churn indefinitely and its control of destabilizing risk.

The only thing that is infinite about the state is the hubris of those at the controls and the narrow self-interest of those at its capacious feeding trough.






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