Why Liberal Democracies Fail

We are currently witnessing the implosion of Greek society: basic goods and services are becoming scare, essential governmental functions are grossly neglected, and law and order is breaking down. This situation is deeply ironic given that Greece is the birthplace of democracy, and should cause us to wonder how such a thing can occur. This question is especially urgent because Greece is not only a first world, liberal democracy, but almost certainly not a special or isolated case. Rather, most probably, it is the first in a chain of falling dominoes all built on the same social model.

I believe that the answer to this question is simple and clear, but nevertheless not well understood. Greece is failing to meet the basic needs of its population precisely because democracy enables most citizens to live, at least for the moment, well beyond their means. In short, democracy permits the citizenry to indulge in the fantasy that they can escape a simple fact, i.e. that in the long run (over many generations) a society can only consume what it produces.

This basic truth, sometimes referred to as Say’s law (after the late 18th/early 19th century French economist Jean-Baptiste Say) recognizes as a matter of elementary logic that if the members of society wish to eat, someone must grow the food; if they desire housing, someone must build homes and apartments; if they wish to have medical care, someone must construct medical schools and individuals must invest the time required to become physicians, etc. Of course, a society may increase its ability to consume by means of trade; that is, it can exchange what it produces efficiently for goods or services that it finds more difficult to supply.

Nevertheless, the essential principle remains intact because a society must first produce things in order to trade them. And, critically, when politicians enact laws that discourage the supply of goods, they are knowingly or unwittingly also limiting their society’s consumption, i.e. its standard of living.  

While Say’s law applies to society at large, it does not apply to the particular individuals that comprise it.  In a democratic polity individuals are free to use the apparatus of the state to redistribute wealth so that they are able to consume what other people produce.  Even more conveniently, one generation can consume far more than it produces by long-term borrowing, thus running up the national debt, which others are left to repay. In Greece, several generations pursued this strategy, each one increasing the debt burden until the house of cards collapsed. Now, there is no way to pay it off without experiencing enormous and sustained misery.

Thus, in the long-run, unless a country is substantially more productive and economically efficient than its competitors, it is not possible, without catastrophic consequences, for people to retire on full pensions at the age of 55, to get “free” medical care, to be given by government fiat six weeks of annual paid vacation, to receive a college education at a nominal price, etc. These things are not feasible because such a country does not produce the level of wealth required to finance such consumption. It’s that simple.

Democracy facilitates such overreaching because politicians will typically garner votes by telling voters exactly what they wish to hear. They ignore the laws of economics and promise a free lunch, something for nothing, a fantasy world where money grows on trees. A world where incentives don’t matter, where it is possible to levy heavy taxes and place onerous regulations on producers without affecting the quantity of goods supplied. A world where people will work just as hard if they only get to keep 40% of their income as they will if they can keep 80%.

Ultimately, reality rears its ugly head, and a horrible price must be paid for departing too radically from the rule of law, as Hayek conceived it:  //naturalrightslibertarian.com/2012/03/democracy-versus-the-rule-of-law/.  When this happens democracy itself may disintegrate as a desperate citizenry turns to authoritarian figures to dig them out of the mess they have created. Churchill is famous for his adage that democracy’s only virtue is that it is superior to all the alternatives. This is faint praise indeed, and is fully consistent with democracies eventually degenerating into one of those other terrible forms of government.



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11 Responses to Why Liberal Democracies Fail

  1. George S. Karavitis says:

    P. T. Barnum once said that nobody ever went broke underestimating the intelligence of the public. Leaders who practice the B. T. Barnum school of politics are always ready to make the deal with the people that you describe, in exchange for power. Some people willingly make the deal knowing they will not be around when it is time to pay the piper. But I think most people who fall for what is essentially a political Ponzi scheme do so through ignorance. The vacccine against this is a study of history and economics, two subjects no longer taught to the average citizen in public school.

    • Mark Friedman says:

      Thanks for the comment. I couldn’t agree more. Now, if we could just force citizens to become better educated, we would be OK. Oops, I forgot, as a libertarian I am opposed to the use of compulsion even to advance a worthy cause. Darn!

  2. Dan Frahm says:

    A little depressing, but the message sure rings true right now.

  3. The issue discussed above is a challenge for any representative democracy, political spectrum position be damned.
    Politicians learned many years ago that electors will credulously vote for policies (such as a country living beyond its means) that they would never undertake in their own households. They also discovered that electors have short memories and an astonishing willingness to overlook dissembling, BS and deceit if it is done by “their guys”. Put all of those factors together, and add in the fundamental reality that the current preferred economic governance system (capitalism) works best in times of abundance and continually expanding economic activity, and you have the right conditions for what we have been witnessing for decades – countries spending too much money, expanding governments in all sorts of ways (some good, some debatable. some awful) and, for extended periods of time, borrowing money as if there is no tomorrow.

    • Mark Friedman says:

      Hi Graham,
      Thanks for the comment. I agree with everything you say, with one possible exception, i.e. the part about there being “some good” governmental programs undertaken when times are flush. As you will notice by touring the rest of this site, I (and other minimal state libertarians) contend that any activities of the state beyond it core functions (defending us from internal criminals and external predators, enforcing contracts, and perhaps building infrastructure) are morally impermissible. So, if what you mean by “good” is that they represent a net gain in utility (or something like that), then I am afraid we disagree there.

      • This reply has been delayed, mainly because I forgot that I posted the original comment…I included the phrase “some good” because, unlike some libertarians, I can conceive of useful ways in which governments can serve the collective good. Although I consider myself to be a minarchist, I do not start from the premise that all government is bad, although I think that the major “missing link” in most governance schemes is a check-and-balance that refuses to allow any expansion of government activity without (a) a compelling argument that the expansion is necessary and desirable, (b) a process to measure its effectiveness over time that is not modifiable on a whim by the latest political incumbent, and (c) proof that the expansion is not in conflict with or duplicative of other government function. I would also like (d), an examination of whether some other government activity can be reduced or eliminated to offset the expanded activity. Right now, we tend to allow a “sleep walk” by governments towards greater and greater involvement, activity and spending, for all sorts of obvious political reasons.
        That was a long answer. The short answer version is that we will probably disagree on the”good” limits on government. This is probably because I believe that there is no fixed principle or theory-based argument that I find convincing that allows us to fix the limits of government. Having lived through socialism and then the era of Margaret Thatcher, I also discovered that governance based on fixed principles tends to run into the sand after a few years. You start doing things not because they make sense, but because your ideology says they need to be done. That usually leads to trouble.

        • Mark Friedman says:

          Hi Graham,
          Thanks for the follow-up comment. I am also a minarchist, and not necessarily opposed to all state action beyond the classical protection against foreign and domestic predators, and the enforcement of contracts. My final position would depend on a showing the such involvement is required to prevent something like a moral catastrophe, i.e. large number sof chidlren going without a basic education, for example. Where we may differ is your antipathy to “fixed principles.” Is the alternative to principled decision-making simply acting on our “gut instincts”? I mean even utilitarians act on a fixed principles. I believe this doctrine is wrong-headed, but not unprincipled. So, I’m not sure how you avoid arbitrary policies, i.e. what “seems right” to whomever is in charge.

  4. John says:

    Well you’ve completely neglected to mention the housing bubble which is the fundamental reason why Greece went bankrupt, government entities investing billions into risky mortgage backed derivatives. No matter the cronies who criminally defrauded them into believing they were virtually risk free assets. Grab an economics book, or even staying current with financial news and this would erase this anti-Democrat diatribe piece, but who am I kidding, your blinders are locked in place.

    • Mark Friedman says:

      Hi John:
      I have read quite a bit about the Greek financial meltdown, and have heard nothing about “government entities investing billions into risky mortgage backed derivatives.” I am afraid you have confused Greece with the U.S. Interestingly, you provide no source, citation or any evidence at all for your claim. Here is the Wikipedia entry on the Greek economic collapse, which prominently features exactly the cause I identified, i.e. a huge imbalance between the level of public debt and the means available to repay it: http://en.wikipedia.org/wiki/Greek_government-debt_crisis. If I might be so bold as to make a suggestion: try arguing with facts instead of offering crazy speculation.

    • I am not convinced from my readings to date that Greece went (effectively) bankrupt because of mortgage-backed securities fraud. Everything I have read suggests that Greece has been living beyond its means for decades, a process made rapidly worse by (a) PASOK handing out all manner of social program benefits without a proper mechanism to keep paying for them, and (b) participation by Greece in some fairly dramatic sleight of hand to allow it to enter the Euro (some people would call it “cooking the books”). Once in the Euro, Greece, with its continual budget deficits, was going to be doomed sooner or later, since it had lost one key economic policy lever – the ability to re-value its currency, which is one of the ways in which a country can reduce the real value of its debts.

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