What Practical Measures Can be Taken to Improve Policy Outcomes in Democracies?

By Winton Bates, on September 4th, 2009

There seems to be increasing skepticism these days about the worth of democracy. The following quote from a post by John Humphreys on the “Thoughts on Freedom” blog provides a good example of what I mean:

“Democracy has become a new faith. Simply saying the word supposedly makes an argument stronger, as though there is some inherent morality in two wolves and a sheep voting on what to have for dinner. Democracy has it’s uses — it allows you to change government without any killing and it puts downward pressure on corruption. But I doubt that it leads to better policy, and indeed I think it has a built-in bias towards ever more totalitarian policy controlled by special interest groups …”

In my view Humphreys is wrong. There is an inherent morality in democracy when it is perceived appropriately as a system in which all members of the polity have equal potential to influence the construction and operation of the political order. The problem is that it is often seen to be legitimate for some groups to use democratic politics as a means to obtain benefits at the expense of others. Such attitudes should be denounced as immoral for the same reason that the attitude that the market economy exists to enable some people to benefit through opportunistic exploitation of others is widely denounced as immoral. As James Buchanan has emphasised, the viability of a market economy and a democratic political system both depend on norms of mutual respect and reciprocity.

The political system in most democratic countries does not have huge problems in dealing with blatant attempts by some people to benefit at the expense of others. Democratic politics can be effective in dealing with corruption (as John Humphreys acknowledges). It is worth noting, however, that corruption often goes undetected for long periods where dedicated institutional arrangements do not exist to detect it.

I think that democratic politics are also reasonably effective in dealing with unsubtle attempts at vote buying, for example where a governing party promises additional benefits to residents of marginal seats in a desperate attempt to hold onto or win office. Parties initiating such tactics risk being perceived by voters as acting unfairly – and hence unworthy of being elected to government.

It is much more difficult for voters to deal appropriately with complex issues such as those involved in trade protectionism. A recent policy brief prepared for the Lowy Institute by Bill Carmichael, Saul Eslake and Mark Thirlwell describes the nature of the problem as follows:

“Most of us have a limited understanding of what is at issue in decisions about protection. Our response to the prospect of opening domestic markets is influenced by the information available to us about the domestic consequences. In the absence of public information about the economy-wide gains at issue for the community as a whole, and in view of the more visible costs to prospective losers, the latter have naturally found support at home. As a result, governments have had difficulty mobilising a domestic commitment to open domestic markets to international competition” (“Message to the G20: defeating protectionism begins at home” p 7-8).

The solution advocated by the authors is “a domestic discipline on national decision-making that promotes wide domestic awareness of its economy-wide costs.” Rather than attempt to summarise the proposals here I recommend that people should read them in the context in which they are presented in the paper.

The thought that I would like to leave you with here is that there is scope for policy outcomes in democracies to be improved if more intellectual effort is put into constructive efforts of the kind presented in the Lowry paper.



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Is the Quality of Life in New Zealand Overrated?

By Winton Bates, on May 29th, 2009

Some New Zealanders might say that this is a question that only an Australian could ask, but it seems to me to be a good way to raise the issue that I want to discuss. (I hope that when I look back on this in a few days time it will still seem like a good idea!)

The ratings that I am writing about are the ladder of life ratings from the Gallup World Poll – the top step of the ladder represents the best possible life and the bottom step represents the worst possible life. But I could be referring to any of a range of surveys that ask people to place a numerical rating on how happy they are or on how satisfied they are with their lives.

I do not intend to argue that New Zealanders have a peculiar propensity to over-rate their satisfaction with their lives. The issue I want to discuss is what it means when surveys show that New Zealanders are just as satisfied with their lives as people in the U.S. even though average incomes in NZ are only about two-thirds of the U.S. level. I propose to compare the impact of income differences and other factors on the survey measures of subjective well-being in order to enable readers to consider whether the impacts attributable to income differences provide an accurate measure of its impact on the quality of lives.

It is now possible to make fairly accurate comparisons of the impact of income and other factors on average ratings of subjective well-being at a national level. Recent research by John Helliwell, Christopher Barrington-Leigh, Anthony Harris and Haifang Huang has shown that a high proportion of differences in average life evaluations between countries can be explained statistically by differences in a relatively small number of variables reflecting social, institutional and economic circumstances of life (See Table 3, ‘International Evidence on the Social Context of Well-being’, Working paper 14720, NBER, 2009). The most important variables are income (log of per capita GDP), friends (the proportion of survey participants who have relatives or friends they can count on for help when they are in trouble), freedom (the proportion who satisfied with their freedom to choose what they do with their lives) and corruption ( responses to questions relating to whether corruption is widespread throughout government and business).

In the Figure below I have used these research results to show reasons why average survey measures of subjective well-being in several countries differ from the U.S. ratings.

The net differences from U.S. ratings are shown next to the label for each country. If you focus on New Zealand you can see that the perception of NZers that their country is relatively free of corruption outweighs the negative impact on survey responses of the fact that average incomes in NZ are substantially lower than the U.S. average.

If you consider that corruption is as big a problem in the U.S as, for example, in Greece, you might think that this provides an accurate depiction of the relative impacts of income differences and corruption on the quality of life in New Zealand and the U.S. However, when I look at the expert ratings of corruption levels in Transparency International’s corruption index, the U.S. doesn’t look too bad. The rating of the U.S. in this index (7.3) is lower than Denmark and NZ (both on 9.3) and Australia (8.7) but well above Italy (4.8) and Greece (4.7). (It is also interesting that Greeks do not perceive that their corruption problem to be any worse than that in he U.S. and that NZers do not perceive themselves to be as free of corruption as the Danes).

The point is that the influence of various factors on the survey ratings of quality of life depends on the way they are perceived. Americans are sensitive to corruption in their society and they don’t like it. The ratings are more like emotional responses than dispassionate evaluations. It seems to me that self-reports of how people feel about their lives tell us about their emotional state, which is an important influence on well-being but is not identical to it.

One way to test survey ratings is to ask ourselves to what extent we would be prepared to rely on them in making decisions affecting our own well-being. It seems to me that income may be more important to people when they make decisions affecting their our well-being than when they answer questionnaires about the quality of their lives. If you were in Europe contemplating a choice between moving your family to either the U.S. or NZ, would you consider the importance of differences in average income levels to be adequately reflected in survey ratings of the quality of life?

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Illinois Governor Rod Blagojevich: A Rare Breed of Politician

By J.D. Seagraves, on March 5th, 2009

When Illinois Governor Rod Blagojevich was arrested by the FBI on charges of corruption, he was allegedly seeking to sell Barack Obama’s soon-to-be-vacated U.S. Senate seat. Although the Constitution requires that special elections be held in the case of a vacant House of Representatives seat, it vests the power of appointing fill-in senators to the governor of the given state. Unfortunately for Blagojevich, there are federal laws prohibiting the outright sale of these gubernatorial tickets to D.C.

The response to Blagojevich’s arrest was universal shock and dismay—or feigned versions thereof. After all, is it really that surprising that a politician would put his own self interests ahead of his constituents’? Isn’t that what congressmen and senators do every day in Washington? In fact, there’s a case to be made that Blagojevich is truly a rare breed: an honest politician.

The Sad Reality

FBI tapes allegedly catch Blagojevich saying how “valuable” a U.S. Senate seat is. A senator has more resources available to him than even a large-state governor, Blagojevich said, and if someone didn’t want to give him something “of value” in exchange for the appointment, he was going to just take it for himself.

In response to these caught-on-tape comments, U.S. Attorney Patrick Fitzgerald said this was a “sad day for government.” Sad, indeed, for the true believers in civics-class propaganda, for the true nature of the state was exposed. Now they’ll be quick to “make an example” of Blagojevich and return to business as usual: doing exactly what he was trying to do, just more covertly.

Why Are Senate Seats so Valuable?

But why is a U.S. Senate seat so “valuable?” Senators are paid $169,300 a year, but this is not the “value” to which Blagojevich was referring. No, the true “value” of a senate seat is measured in the millions—maybe tens or even hundreds of millions—of dollars; and that’s because senators routinely engage in the selling of favors. They call it something else, of course, but make no mistake about it: extortion and receiving bribes are a senator’s primary activities.

Remember how the $700 billion bailout was defeated in the House of Representatives only to be passed, overwhelmingly, by the Senate just a few days later? Why is it that congressmen were so much more willing to listen to the will of the people than U.S. Senators were? Could it be because senators’ statewide campaigns attract bigger money that has to be repaid in the form of votes? Only by bribing a senator can a few thousand dollars be turned into millions—after all, the Senate isn’t spending its own money…it’s spending yours!

Is What Blagojevich (Allegedly) Did Really That Bad?

So we’ve established that the mock horror at Blagojevich’s indiscretion is unwarranted. His only “crime” was being blasé about the true nature of government. In fact, maybe it would be better if politicians were, like Blagojevich, more out in the open with their buying and selling of favors.

In his classic book, Democracy: The God That Failed, Austrian economist Hans Herman Hoppe makes the case that monarchy is a better form of government than democracy. Although Professor Hoppe himself is an anarcho-capitalist, he sees monarchy as preferable to democracy because kings took pride in the “ownership” of their countries. Since they were able to pass on their kingdoms to their heirs, they didn’t loot as aggressively as democratic rulers—who, by comparison, “rent” their kingdoms—do today. Blagojevich was simply trying to collect a rental fee.

Just a Symptom of a Greater Illness

“This conduct would make [Abraham] Lincoln roll in his grave.” That was another whopper from Attorney Fitzgerald. Lincoln, of course, was a corporate lawyer who believed strongly in Henry Clay’s “American System” of central banking, protective tariffs, and corporate welfare—the system of looting that now makes senate seats so valuable. And it was Lincoln’s invasion of the South that led to the abolition of state sovereignty, a fait accompli with the passage of the 17th Amendment, which ushered in the direct election of U.S. Senators. I hardly think “Honest” Abe—who illegally suspended habeas corpus, jailed Northern dissidents, shut down opposition newspapers, and unconstitutionally assessed an income tax and printed the nation’s first fiat money to fund his war—would be half as outraged as the modern punditocracy pretends to be.

Indeed, in all of the feigned horror misses the point: U.S. Senate seats are too valuable. The way to fight corruption is to make them less valuable, and the way to do that is to take power from the federal government and give it back to the states and the people. A good start would be the repeal of the 17th amendment, which would return the election of senators to the state legislatures. This way, senatorial candidates would serve in their original role as “ambassadors of the states,” and would be looking out for state interests, not always seeking to expand federal power (and thus, bribery income). Blagojevich is a corrupt politician, to be certain, but his corruption is just a symptom of the larger problem: an unconstitutional and overreaching federal government.



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