Are economies of democratically elected governments stable?

Some speculation on the German bond auction:

http://www.counterpunch.org/2011/11/24/the-roads-to-war-and-economic-collapse/

Remark: I am a bit confused here. For Germany, is the EU beneficial or harmful? I have read opinions which state both. :bugeye:

 

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There really is little doubt. Germany, sometimes world's greatest exporter, greatly benefits by having the Euro instead of its old Mark.

The frugal, hard-working, relatively low paid, burnt-once by run-away-inflation, Germans would not be able to export even half what they do if still using the Mark. It would be much more valuable than the Euro, which has relatively low value thanks to the Borrow, spend-now, pay-later PIIGS.

You can see this in the Swiss Frank. - Its value was climbing so fast, hurting exports so much, that even though Switzerland is not on the euro, they effectively joined - I.e. pegged the SF to the euro.

 

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The problem with democracy is that the people standing get their funds from people who want repayment in Government policy once they get elected.
Unless there is a means for a party to get into Government without effectively being bribed by sponsors, Democracy is dead.

 

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Euro nations are like a sports car maker who promised potential buyers and investors that it would average 100 mph in his current demonstration on ordinary roads. At this point, 60 minutes into the demo, it has covered 70 miles.

I.e. in the past the euro nations, especially those of "club med," mortgaged all their assets to live beyond their means and there is no way now they can go back in time to undo that or buy back (pay off) the mortgages with their current falling incomes (dropping GDPs). The more they try via "austerity" the faster their GDP drops.

Just like the sports car maker who in the recent past used up 60 minutes so now it is impossible to average 100mph, it is impossible for Euro nations to pay off the debts in Euros which still have value. Despite its experience with German run-a-way inflation, and promises to keep the Euro sound, etc. soon, I bet*, the ECB will fire up the printing presses and destroy the Euro - much like the US treasury and FED are doing.

China determines when these houses of cards collapse. I.e. China has won WWIII.

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* I will lose this bet if Mario Draghi, head of the ECB, thinks in the long run a set of surviving, stronger, euro nations will be better off if the PIIGS do default, go back to their pre-euro currencies, and leave a smaller, viable, set of Northern European nations as the reduced "Euro zone." Seldom in man’s history has what one man believes controlled the future as it does now.

 

Indeed, a lot of us individual consumers realize that we don't want to borrow money unless it can return itself, plus some extra to compensate for the risk involved, in reasonable time. The southern European countries being smothered under debt forgot about financial prudence.

Tourism isn't a trustworthy thing to base a future of economic growth on, IMO. Generally, growth requires natural resources to exploit, and those countries are relatively resource poor. The way they could still have economically succeeded might have involved massive education in the scientific fields, since technology is the hope for future prosperity. Also, they ought to drop their native language if they want the best chance at prosperity, and adopt the mainstream language of the world.

 

A current example:

"... We are not fooling anyone among the generation under 50. Of course they’ll be inclined to vote for politicians who give them a “payroll tax cut extension.” **It’s paycheck money they can spend now —not unfunded promises for the future. That math is so simple that despite our educational system, today’s young people get it. ...

All the generous titles in the world, including the “Middle Class Tax Relief and Job Creation Act of 2012,” cannot hide the fact that our politicians on both sides of the aisle are spending our money to buy our votes—and destroying our future in the process. And that’s The Savage Truth! ..."

From: http://www.moneyshow.com/investing/article/11/Blog-26674/The-Latest-Social-Security-Shell-Game/

** Extension of lower Social Security deduction from paycheck passed a few days ago with strong support from both parties.

 

The question of whether the economies of democratically elected governments are stable should be answered "compared with what?".

That's way too simple, and its pretense of "both sides" equivalency is rightwing propaganda framing.

In the Social Security mess, for example, the Republican Party is spending rightwing corporate money to grift and con votes from middle class people. Whose money is involved in the Social Security shell game depends on who eventually pays - in the setup now coming to its moment of truth (Reagan's deal) the rich borrowed from the poor (at very favorable rates, the kind that indicate complete faith in the borrower) and were to pay back with interest via income taxes starting about now. They are now attempting to default on that obligation, and bribing their Congresscritters to enable the default.

The notion that this is "our" money simply presumes the rich will not be taxed. Otherwise it's ordinary Keynesian stimulus - the rich get poorer, the poor get richer, the average is a net gain, and the economy settles down at a fairly high - certainly higher - equilibrium.

Of course that is difficult under democratic government, because the rich have great influence on community will and favor - but it is close to impossible under other forms of government, because the rich don't need to bother with community will and favor.

The economies of undemocratic regimes get their stability from being at low equilibrium levels, in other terms.

 

Compared to non-democratically elected government is the obvious answere to your "compared with what? For example compared to the Chinese government. Their leaders ship is not selected by very expensive national popularity contests that require large (huge now that "Super Pacs" are legal) financial contributions from the very wealthy etc.

There is a lot in your post that at best, I don´t understand (at worst seems simply false) but lets ask about this only for now, especially part I made bold below:

I understand that the some what fictional "Social Security Trust Fund" has given funds to the government in exchange for Treasury bonds - paying interest rates like others sold to China, life insurance companies, other investors, etc.

Currently those rates are very low for all buyers - as part of QEx etc. stimulus plans. What do you mean by "favorable rates"? SS get the same rate as others do buying bonds at that time.

I am not arguing that SS is sound long term, just that your payrole SS tax money is being spent by the glovernment equally well (or equally foolishly depending on your POV) as the money being borrowed from China etc. It is not any more of a transfer of weath between classes than the other government programs, so I have no idea what you are trying to say with the now bold text above.

Please clarify.

 

The stability of the Chinese economy has not been tested. The US economy has handled several serious wars, a couple of economic crises, at least one major change in technology, and so forth. The post-Reagan erosion at its base may yet bring it down, but it's had a very good run.

If China can manage to remain stable while increasing general prosperity and economic production to some obviously vulnerable level - that is, maintain a stable equilibrium that is not simply bottomed out or nearly so - for 75 years, we can revisit the issue. My guess is that the rulers of China have the human flaws of such men everywhere, my observation is that they are cryptic and insulated from informed criticism, and have very little in the way of institutional checks and balances - just saying. The setup of standard tragedy is visible.

No deep matter - just that if you step back and look at what happened with SS, you see money in excess of transfer needs subtracted from poor people's paychecks, and in a variety of several step processes ending up as cheap money and/or safe investment returns available to wealthy people (tax breaks, low prime rates, Treasury bonds, etc), the exchange supposed to end with the poor people's stash being replenished by taxing income and capital gains receipts from the employment of that money (which mostly from rich people). It's this last step which has run into trouble.

 

So to carry the point a point further: the question is not whether the economies of democratic governments are stable

- they have proven to be at least as stable as the economies of monarchies, oligarchies, dictatorships, tyrannies, theocracies, and so forth (the collapse of Spain's monarchy governed economy under the weight of mismanaged New World wealth infusions is more than a lesson in the fragility of backing one's currency with gold, the collapse of the Soviet "politburo" governed economy under the weight of mismanaged industrial development is more than a lesson in the inappropriate rigidity of "Five Year Plans", etc)

the question is whether democratically elected government is stable in the face of large and rapid accumulations of wealth.

 

I think large concentrations of wealth probably increase the stability - make life bad for all but the "1%" who control everything, especially elections via TV , SuperPAC etc., I.e. basically that is like a return to the middle ages - the lord and a few friends in his court control everything.

Many government hold "elections" that are shams. The US is fast approaching that. Money now buys elections. Long ago, US elections were more than beauty contests, they were about ideas. For example the often reprinted and discussed Lincoln/ Douglass debates. Now they are mainly 30 second negative sound bites.

As far as China being stable I think it is. Non-democratic China has 2,500+ years of history and for >1,800 years had the world´s greatest GDP.

The thread´s question is about the stability of truly democratic nations. I think they can be stable but all the population that votes, must be well educated, as is the case in the Scandinavian countries - They have at least 500 years of stability under democracy with women having the same rights as men for longer than the US has existed. I expect the US to collapse before becoming 300 years old because it’s ill educated population votes for what it can not afford. The US is the Mother of all "kick the can down the roaders" - Apologies to Saddam, for stealing his "Mother of all ...” phrase.

 

So not stable as actually democratic governments.

They erode, or disintegrate, into plutocracies or dictatorships or various other forms of authoritarian government.

Wars, famines, revolutions, coups, frequently shifting borders, hyperinflations, depressions, - - - stable economy?

Wet rice subsistence farming may have been the most productive subsistence farming regime ever established, but an economy that is "stable" at the level of subsistence farming (a kind that required almost 50% more working hours per subsisting farmer than subsistence farming elsewhere) gets no points for having a high GDP compared with other subsistence farming economies of lower population density, less labor requirement, and less amenable geography - that's not "economic" stability at a level higher than subsistence.

http://en.wikipedia.org/wiki/Yuan_Dynasty

 

Just to clarify, are you including the Yuan Dynasty as an example of an average Chinese Imperial Dynasty to substaniate your claims above?

 

There seems to be some confusion. I have suggested that "democratic govenments" like the US are not stable. I´m NOT claiming anything about non-democratic governments - but only noted that several have lasted much longer than the US government will. I also noted that if the population is very well educated, even democratic governement may be stable as that appears to be the case in Scandinavia.

thanks for this link. There I learned why Chinese currency is called the Yuan and that it was the world´s fist fiat currency:

"... Paper currency had been issued and used in China before Yuan time; by 960, the Song Dynasty, short of copper for striking coins, issued the first generally circulating notes. However, during the Song Dynasty, paper money was used alongside the coins. On the other hand, Yuan was the first dynasty {1271 until 1368} in China to use paper currency as the predominant circulating medium. The Yuan bureaucrats made paper bills from the mulberry bark paper. ..."

Printing on mulberry bark probably limited inflation so in the early days the Yaun was not "fully fiat." It would be interesting to know who much more rapidly the dollar has lost value as there is no shortage of paper to print them on.

 

To educate the US population on currency devaluation would require an honest assessment of its history.

This is currently NOT possible because educators believe children should be taught that their government is basically altruistic and has their best interests at heart.

Western populations have more education available to them on these matters than at any other time in history...and still the same old problems persist.

Unconditional democracies are inherently mediocre and elect mediocre governments. This is why I prefer a conditional democracy where voting rights are earned by passing an aptitude test on constitutional law.

 

No, not the US or many EU versions. Germany may be until all are dead who can still remember when 99% of the value of a wheel barrel heaping full of Marks, was in the wheel barrel, not in the money. Here are some facts about US´s debt (which China can stop financing at will and will stop financing in a few years. Already, the FED´s printing presses are the main financer of the US deficits, not China any more.):

"... The following are 34 shocking facts about U.S. debt that should set America on fire with anger....
Billy T now comments on #8, as you may not read that far:If I am correct that the dollar collapses by Halloween 2014, then paying face value of bonds totally 23 Trillion dollars only three years from now is not much of a problem, for the government (Only for those trying to live on the pay out). In fact having the dollar collapse is the plan - the ONLY way that debt can be re-paid.

#1 During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.

#2 When Ronald Reagan took office, the U.S. national debt was less than 1 trillion dollars. Today, the U.S. national debt is over 15.2 trillion dollars.

#3 During 2011, U.S. debt surpassed 100 percent of GDP for the first time ever.

#4 According to Wikipedia, the monetary base "consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank." Currently the U.S. monetary base is sitting somewhere around 2.7 trillion dollars. So if you went out and gathered all of that money up it would only make a small dent in our national debt.

#5 The U.S. government spent over 454 billion dollars just on interest on the national debt during fiscal 2011.

#6 The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. The liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.

#7 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office.

#8 It is being projected that the U.S. national debt will surpass 23 trillion dollars in 2015.

#9 According to the GAO, the U.S. government is facing 34 trillion dollars in unfunded liabilities for social insurance programs such as Social Security and Medicare. These are obligations that we have already committed ourselves to but that we do not have any money for.

#10 Others estimate that the unfunded liabilities of the U.S. government now total over 117 trillion dollars.

#11 According to the GAO, the ratio of debt held by the public to GDP is projected to reach 287 percent of GDP by 2086.

#12 Others are much less optimistic. A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#13 The United States government is responsible for more than a third of all the government debt in the entire world.

#14 If you divide up the national debt equally among all U.S. taxpayers, each taxpayer would owe approximately $134,685.

#15 Mandatory federal spending surpassed total federal revenue for the first time ever in fiscal 2011. That was not supposed to happen until 50 years from now.

#16 Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

#17 During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

#18 When you add up all spending by the federal government, state governments and local governments, it comes to 46.6% of GDP.

#19 Our nation is more addicted to government checks than ever before. In 1980, government transfer payments accounted for just 11.7% of all income. Today, government transfer payments account for 18.4% of all income. ..."

You get the idea but for the next 15 read here:
http://www.stateofthemarkets.com/re.../1/0/3f06ad325ebb8d2fdd5636cf60b546cf2b330225

 

An example (and news) from the UK:

"... UK Q1 preliminary GDP was reported to have fallen -0.2%, which was below the consensus expectations for a gain of +0.1%. Industrial Output fell -3.0% on a year-over-year basis and -0.4% from last quarter. Manufacturing Output fell -0.9% year-over-year while Services rose +1.0%.

The report confirms that the UK has officially entered a recession as this was the second consecutive quarterly decline in GDP. ..."
From: http://www.stateofthemarkets.com/re.../1/0/c20b18cb98b56d5569b917598810673f9f067d63

 

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