Deepish Thought

Inspired by reading a review of Bryan Caplan’s book, “The Myth of the Rational Voter: Why Democracies Choose Bad Politics“, I have decided to take on the herculean task of attempting to justify democracy (I am such a hero).

Mr Caplan has apparently taken a careful look at the voters who form the bedrock of the democratic system and come to the (some would say obvious) conclusion that democracy is built on very shaky ground. This is not an entirely new idea. Winston Churchill clearly anticipated Mr Caplan’s case when he observed that, “The best argument against democracy is a five minute conversation with the average voter.”

The problem with Mr Caplan’s argument is the implied assumption that we should expect good government from democracy. Good government, whatever that may be, is far too lofty a goal for any political system. Certainly, I’m not aware of any such system that has consistently provided it.

Flawed as it obviously is, democracy does have two very important benefits that justify Mr Churchill’s other famous observation, “It has been said that democracy is the worst form of government except for all the others that have been tried.”

Firstly, while it does not by any means guarantee good government, functional democracies are reasonably effective at moderating bad government. The worst governments tend to be those in which one narrow section of society is able to seize control and relentlessly pursue their own interests. In a working democracy, the need to capture majority support means that the government is always a coalition of interest groups (although these interest groups may all belong to one “broad church” political party). These interest groups may all want to pursue dubious policies, but they don’t ever all want the same dubious policies. The resulting tension between interest groups within the ruling coalition tends to prevent the government from careening off the rails in obedience to the desires of one narrow section of society.

Secondly, democracy provides a means of transferring power between different groups without resorting to firearms. Whether for demographic, economic, social or technological reasons all societies from time to time experience shifts in the balance of power. In non-democratic countries these shifts are often accompanied by violence, as new power structures forcibly supplant the old. In functional democracies however voting provides a signal to the existing regime that it is time to go. The quid pro quo for a government that accepts the will of the voters is not being subject to retribution from the new regime, and in fact having the opportunity to regain its former perks at some later date.

Since the consequence of losing power in democracy is merely a period of opposition followed by a probable return to power, there is very little incentive for the ruling group to resist being dumped out of office. For this reason there tends to be very little political violence in genuine democracies, an observation that is sadly not true for most non-democratic states.

So while democracy may be a decidedly mediocre system of government dependent on the will of disinterested, ill informed and often wildly irrational voters, it at least avoids the worst pitfalls of the known alternatives.

Recently the political climate in the United States has tilted towards protectionism. Politicians on both sides of the aisle (and more than a few economists) have been loudly proclaiming that the national interest of the United States would be best served by restricting trade. Or at least, in true mercantilist fashion, by restricting imports.

This raises the interesting question of what exactly constitutes the national interest. If the national interest would be best served by maximizing the wealth of the United States then the best policy would be the elimination of trade barriers (a point about which there has no doubt whatsoever since the ‘logic’ of mercantilism was blown out of the water 200 years ago).

But what if wealth maximization is not the primary determinant of the national interest. There are at least three feasible alternative explanations of what our political leaders mean when they refer to the national interest.

(1) The Cynical View:

Our political leaders may simply equate the national interest with the narrow sectional interests of politically important special interest groups. From a politician’s perspective this is entirely logical.

For example, in 2002 it was clearly in the best interests of the nation that President Bush be re-elected (at least in the mind of President Bush), which is why the supposedly free trade supporting President suddenly found it necessary to impose economically asinine tariffs on imported steel (At the time steel producing Ohio, Pennsylvania and West Virginia were expected to be key swing states in the 2004 election).

(2) The Greater Wisdom View:

Wealth is in many ways a rather crude measure of wellbeing. In attempting to maximize the overall wellbeing of the nation, our political leaders may be taking into consideration factors not included in financial calculations. For example, it is plausible to argue that the nation would be better off with fewer goods and a cleaner environment, which is why it might make sense to attach environmental conditions to trade deals.

It may well be that this is how politicians actually think about trade. However, a cynic might point out that there seems to be a surprisingly high correlation between the trade policies that politicians believe will maximize national wellbeing and those that happen to be politically expedient.

(3) The Relative Power View:

It could be that what really matters is relative wealth. Our political leaders may be less interested in the absolute wealth of the United States, than they are in its wealth relative to potential strategic competitors.

While free trade would certainly enhance the wealth of the United States, it would likely benefit other trading nations even more, reducing the economic differential between the United States and the rest of the world. Since military power is highly dependant on economic strength it might be considered better for the United States if its trading partners, in particular China, remained relatively poor, even if this meant failing to maximize the economic potential of the United States.

From a relative power perspective the United States has every incentive to discourage free trade. If you are in the lead there is little incentive to do anything that might help the other guys catch up. Of course it is unlikely that this view would ever be publicly expressed since suggesting that the United States should restrict trade so as to maintain its relative military and economic advantages might be viewed as more than a little mean spirited.