Why Democracies Will Always Go Bankrupt

Thu, Jan 13, 2011 - 3:53pm

When I was growing up, finance was mother’s milk to me, especially as I was a bit of a math geek. But for my formal education, I was trained—rather rigorously, and in spite of my laziness—as a philosopher and a historian. This odd combination is why I have such a jaundiced view of economics: I don’t find economics particularly intimidating, or even particularly challenging—it’s just finance’s snooty but poor (and slightly daft) older cousin. History’s surprisingly ignorant and blinkered accountant. Philosophy and Math’s lightly retarded, Puritanically rigid, and altogether rather embarrassing spawn.

Now, it’s all good and fine for me to rant about how useless economics is—but these aren’t empty complaints on my part: I can point to a single, specific, monumental failing of economics—a failure in the discipline which pretty much proves my point:

The United States is going bankrupt—and economics cannot explain why.

In fact, a surprisingly large number of economists choose to ignore the problem of America’s looming bankruptcy altogether; or claim there is something called a “structural deficit” (a highfalutin way of pretending that it cannot be fixed, and therefore doesn’t need fixing); or else—as is the case of the fools backing Modern Monetary Theory—they make the claim that all deficits are just debts the government owes itself, so therefore the American government cannot go broke, so therefore—and let’s ring out the QED—the fiscal over-indebtedness is actually not a problem because it doesn’t even actually exist!

They really do claim that. And no, they are not high.

Of course, sovereign over-indebtedness does exist, and it is a problem—a terrible, life-or-death problem: As a lot of historians have pointed out, sovereign bankruptcy presages and ushers the collapse of great nations—often violent collapse. And this is something we want to avoid, no?

Some schools of economic thought recognize that deficits are bad because they lead to bankruptcy, and that therefore fiscal budgets should be balanced so as to avoid them. But they do not explain why this is the case—they have no argument to explain why deficits happen in the first place. That these clever Austrians point to something that has happened before, and therefore infer that it will happen again if similar conditions are met is not an argument—it is an observation, like saying that the sun has risen countless times in the east, so it will likely rise again in the east tomorrow morning.

This is a true observation—but it doesn’t explain why the sun will rise tomorrow in the east. Since the Austrians cannot explain why deficits happen and eventually lead to national bankruptcy, they are simply positing them, much like tenets of a religion. These arguments might appeal more to our experiences in the real world—especially when compared to the a priori drivel of Neo-Keynesians, Monetarists, MMT weenies, and their ilk: Peddlers of arguments as unsound as atonal clamor. But a posteriori arguments based on intuition and “common sense”—gussied up in German though they may be, and attractive though we may find them—are of no help, because they are based on faith, not reason.

If anything has to be taken on faith—if it can’t be analyzed, its premises scrutinized, and the overall argument judged to be sound or unsound—then it’s really no argument at all.

I have the argument that explains why fiscal deficits happen. Moreover, I can explain why fiscal deficits occur in a democracy in a manner which is different from any other sort of regime. My theory can explain why fiscal debts in a democracy grow once they start, and I can explain why this growth in debt inevitably, inexorably leads to the bankruptcy of the democratic regime. Further, I can prove—by sound and valid argumentation—that the United States is going bankrupt right now because of this process.

It’s an overall concept I’ve designated as the Democratic Bankruptcy Paradox: The paradox by which every democracy eventually goes bankrupt—regardless of the people’s will and intention of keeping it from going bankrupt.

That’s why it’s a paradox: The citizens of a democratic state are supposed to control its destiny. They obviously do not want their nation to suffer bankruptcy—yet in spite of their will and intent, democratic states always go bankrupt. Always.

This post will outline my proof of why this is so.

I will first explain the logic of my Democratic Bankruptcy Paradox theory, and how it is derived from a rather recently articulated problem in philosophy called the discursive dilemma, or sometimes the doctrinal dilemma; an aspect of group agency that has been used primarily in legal theory, but which I’ve realized has some fairly interesting—and radical—applications to macro-economics and public finance in representative democracies.

I will then explain how the discursive dilemma, when applied to macro-economics and fiscal policy in a democratic regime, leads to the Democratic Bankruptcy Paradox. It is here that I will prove two general conclusions:

• One: Democracies always act in a fiscally incoherent manner.
• Two: Democracies always go bankrupt—without exception.
Finally, I will show how my Democratic Bankruptcy Paradox theory applies to the American case, and explain why the U.S. governments at the local, State and Federal level spend more than they bring in—even as their citizens uniformly oppose this state of affairs.

So, let’s begin:

The discursive dilemma is a recently formulated paradox in philosophy about how a group’s decisions can be contradictory with the aims of the individual members of the group, to the point of incoherence. Phillip Pettit, Franz Dietrich and Christian List have done a lot of work on the issue of group agency, where the discursive dilemma is discussed; see here for a fairly complete reading list.

As with all paradoxes, an example is the easiest way to understand it—so here’s one:

Suppose there are three of us—you, me and Mary—standing around in the kitchen. Suppose that you and I believe that p is true, while Mary is sure down to her very bones that p is most definitely not true.

Mary is just one person—you and I are two. Therefore, a majority of this group believes p is true.

As I said, Mary doesn’t believe for a second that p is true—instead, she argues very convincingly that r is true. For the purposes of this example, p is completely incompatible with r; not contradictory—rather, incompatible: Symbolically, ¬(pr).

Since Mary believes r is true, and p and r are incompatible, you therefore fervently argue with Mary about why r is most definitely not true—if r is true, then p cannot be the case. And you believe that p.

But as I listen to Mary, I come to the conclusion that r might well be true. I don’t believe that p and r are both true—because they are incompatible. I simply believe that r might be the case.

Therefore, a majority of this group believes r is true.

Which allows us to arrive at our paradox: A majority of the group believes p is true, a majority believe that r is true—but none of us as individuals believes that both p and r are true, because as I said before, p and r are incompatible.

However, as a democratic group, we believe that p and r are both true—which is incoherent.

This is the discursive dilemma.

Let me make the example more concrete: I said earlier that you, me and Mary were standing around in the kitchen? Suppose, then, that we have a cup of flour in a bowl on the kitchen table: You think we should add yeast and salt in order to make bread—to which I agree. But Mary thinks we should add eggs and sugar, to make a cake—to which I also agree, as that too sounds yummy.

As a group, the majority is in favor of adding salt and yeast to the flour, while another majority is in favor of adding eggs and sugar to the flour. But even though no individual would conceivably be in favor of adding yeast and salt as well as eggs and sugar to the flour, that is what the group as a whole is in favor of: A majority wants to add yeast and salt to the flour, while simultaneously, a majority wants to add eggs and sugar to the flour.

And that’s just a big old mess. That’s an incoherence in the democratic decision-making process.

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Novelist, Filmmaker, Economic Commentator