Peter Boettke with support from Danish businessman Lars Christensen explored how we got to where we are with economies in disastrous declines across the western worlds and what to do about it.
Boettke boiled things down to two solutions. The first was to set up constitutional restraints to democratic populism; the second was to educate the electorate to understand how spending must be paid for; incentives usually mean the spending creates new and expanded demands for more spending, while the revenues raised often fall short because the geese seek to avoid being plucked.
The first solution – restraints to spending – are basically restraints on democracy while the second hopes to educate the masses and is again a pessimistic view of democracy. Lars Christensen explained the conundrum of Denmark where lavish “rights” have been created and the small strata of Productive workers are massively outnumbered by those on government programs together with govt employees. The recipients of the public largesse believe they have the rights to continue receiving these and will vote against anyone that they think will extract these – a pHilosophy that Gillard seeks to exploit. His view was that democracy could not correct the disaster because the voters’ incentives were geared against this. This is an issue extensively examined and documented by Theodor Dalyrimple. The matter also featured in the debate on Milton Friedman where his great empirical success was Chile and engineered under a dictatorship.
This iS compounded by the discovery that the gainers from looting the rich can extend this into the future (perhaps for decades) by building up debt – certainly in Australia with our low levels.
In debate Ruth Richardson said she had tried to get people to vote for policies that are income enhancing on a sustained basis and sought guidance as to what is possible.
Victoria Curzon-Price pointed out that there is no certainty that economies cannot commit suicide.
How to turn thinking around so that balanced budgets, debt free governments, efficiency in production are the prevailing Views are the key issues. In many ways it is more important to turn around the populist rights-driven view of government than to devise the best policies. The Keynesian pollution of economics built upon fertile ground on behalf of the electorate with the rights drivenphilosophy. Undoing the popular view that governments can do far more than we know to be possible and to recognise that money taken from one group must come from another and the transfer is destructive of wealth generation.
The constitutional reform needs to be:
1. Directly elect ministers.
2. Ministerial candidates nominate budgets “up front” with their candidacy.
3. If they spend the money before their term finishes, an election is called straight away.
2dogs
4 Sep 12 at 6:56 am
The philosophical reform required is to recognise that government is not God or even a god.
Then we have to return to a world-view that accords with the way the world actually operates. Unfortunately, that means mixing religion with politics.
So one prerequisite is to unravel the stupid (John Lennon) idea that the world is better off without religion. The fact is religion of some kind is unavoidable.
John A
4 Sep 12 at 7:10 am
Either might work. However how do you achieve either of these? And if the answer entails having God like powers or being supreme dictator for a week then it isn’t really an answer.
TerjeP
4 Sep 12 at 7:41 am
Given the fact that ideas matter (as per the Keynesian revolution) it will help when uni students in the relevant subjects get some exposure to the ideas of classical liberalism, especially limited government.
It would be in the school curriulum under a competent (limited) government. I wonder what Barry O’Farrell is doing about this? Memo: write him a letter and ask.
Poor Old Rafe
4 Sep 12 at 7:55 am
Interesting how monetary policy has contributed to this problem. Since governments effectively control both the printing of money and interest rates they can borrow cheaply then inflate the debt away. Or that is the theory (ps: if you think the Fed and RBA are truly independent of government you believe in fairy tales).
But now as sovereign defaults return the markets are forcing effective interest rates up, to reflect the actual risk.
So after the gold standard went we got centralised interest rate setting to an inflation target band. This too is now failing. I have no idea what will replace it, but the rising distrust of government bonds does have one benefit as it forces investors back to the sharemarket, and long term productive investments, since they’re running out of other places to go.
Bruce
4 Sep 12 at 8:32 am
How about a third solution involving the private sector..
What if individuals/ charitable bodies were to provide annual philanthropical gifts to governments on the proviso that the size of government be less than a certain percentage of GDP?
If the gifts were large enough, there would be a strong democratic incentive to restrain the size of government.
I suggest 20% as a starter. We could name these Mont Pelerin gifts.
dm
4 Sep 12 at 9:24 am
If the power resides with the people, then randomly select citizens to power for a fixed time. Select from those that have had experience (over 50). All positions, political, judicial, etc should be filled this way. This avoids the inherently corrupt process of buying votes. It also leaves the majority of the young to get on with their lives.
Joe
4 Sep 12 at 9:38 am
We already know what to do, help get a moderate classical liberal party elected.
http://www.ldp.org.au
It is impossible to get a constitutional amendment suspending the right to vote for people in receipt of Government funds.
Forester
4 Sep 12 at 9:47 am
Being better organised and taking a long march through the institutions are the approaches most likely to succeed. ie adopt the very successful strategy of the enemy. It worked for them. It can work for us. But it will take persistent effort over a long time.
johno
4 Sep 12 at 9:47 am
Problems: The left almost completely owns academia and the media. How will you educate people?
Alan Grey
4 Sep 12 at 10:09 am
We can make a start by working through a grassroots organization like the new Aust Taxpayers Association.
The net and cheap e books provide alternative avenues to the pervious academic monopoly on publishing.
Poor Old Rafe
4 Sep 12 at 10:26 am
Fixed GDP percentages for both federal and State governments that collectively cannot add up to more than 20% at the most. Breach it and you trigger an election in say 60 days. That’ll mean Govts will be careful to stay some distance away from the 20%.
Scrap the PAYGW system for employees, if they have to write out an actual cheque each quarter for their tax their attitudes to govt spending will completely transform very very quickly. Won’t be as administratively efficient for ATO and Treasury but the long term benefits to reining in Govt expenditure will dwarf this “inconvenience” to Treasury.
kingsley
4 Sep 12 at 10:57 am
I actually like the idea of a constitutional restraint. If no form of welfare was available to anyone who earned over half the average wage then a large part of the spending problem would just disappear. The idea could be marketed as a personal choice issue: Take your money back as tax cuts and spend it as you want. Emphasis could be placed cutting out the bureaucrat middleman, ie: take a big tax cut, pay for your kid’s education with it and keep the left over bit that went to the public servant.
I know it goes against the freebie mentality but has anyone even tried it? Howard was never as popular as when he was giving away those small tax cuts. It might work.
The Hunted Mind
4 Sep 12 at 11:12 am
I understand the attaction of constitutional limits and know it provides a great wall against the forces of barbarity.
Given that, if the electorate believe it is ok for a politician to spend, spend, spend for the short term, what good are constitutional limits?
“National Emergencies” are called throughout history – from Rome to US in the 30′s – to legitimise the setting aside and/or re-writing of the constitution to suit the events of the day.
You have to change the culture and viewpoint of the voters as well.
Token
4 Sep 12 at 11:21 am
I agree with this and believe that limiting the scope of government to a small concise list and then keeping tax low is the best way to tackle the problem. That is the constitutional changes.
How do we get rid of the Foreign Powers and Companies super exemptions that enable centralisation to occur without checks?
Token
4 Sep 12 at 11:25 am
“Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.”
John Adams
“Bad men cannot make good citizens. It is when a people forget God that tyrants forge their chains. A vitiated state of morals, a corrupted public conscience, is incompatible with freedom. No free government, or the blessings of liberty, can be preserved to any people but by a firm adherence to justice, moderation, temperance, frugality, and virtue; and by a frequent recurrence to fundamental principles.”
Patrick Henry
Ellen of Tasmania
4 Sep 12 at 12:19 pm
“The aim of every political Constitution, is or ought to be first to obtain for rulers men who possess most wisdom to discern, and most virtue to pursue, the common good of society; and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust.”
James Madison
Ellen of Tasmania
4 Sep 12 at 12:22 pm
“Men are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their appetites; in proportion as their love of justice is above their rapacity; in proportion as their soundness and sobriety of understanding is above their vanity and presumption; in proportion as they are more disposed to listen to the counsel of the wise and good, in preference to the flattery of knaves. Society cannot exist unless a controlling power upon will and appetite be placed somewhere, and the less of it there is within, the more there must be without. It is ordained in the eternal constitution of things, that men of intemperate minds cannot be free. Their passions forge their fetters.”
Edmund Burke
… Just sayin’ …
Ellen of Tasmania
4 Sep 12 at 12:33 pm
“A Consititution concerns the basic legal and political framework of a nation.
It is not there to smuggle in partisan policies such as either environmental or welfare reform.” – Julius
I agree to a point that the purpose of a a constitution is to provide a general framework of rules and guidelines in which the processes of government should take place. It is not the purpose of the constitution to be overly prescriptive or restrictive as to what types of policies should be put in place.
But the purpose of a constitution is also to safeguard certain rights and freedoms, and to place certain rights and freedoms above and beyond the democratic processes (to protect the liberal aspect of liberal democracy). That is, to put a brake on the excesses of unfettered majority rule.
Economic freedom and property rights are effectively meaningless unless there is some limit on the size of government, or the extent to which governments can levy confiscatory levels of taxation, or the extent to which individuals or groups can help themselves to other people’s property through the ballot box.
Do you support a bill of rights, or do you believe that certain rights and freedoms should be enshrined in the constitution? If so, do you just believe that property rights or economic freedom should be left out?
Monkey's Uncle
4 Sep 12 at 12:35 pm
Let’s not forget that Democracy, unlike its alternatives, is partly based on the assumption that humans cannot be trusted with power – hence the need for a systematic way for the public to be able to remove individuals in power from their positions.
—–
I doubt that many would disagree that Governments should have balanced budgets over the course of the economic cycle. Borrow during hard times, and repay that debt using budget surpluses during the boom times.
Anyone want to hazard a guess as to how many budget surpluses (never mind the quantum) the US government has run over the 40-odd years since 1970 – 2012?
http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php
hmmm.
I have to completely agree: the unfortunate reality of the democratic system is that if
peoplethe swinging voters are rational and vote based on what is best for them, financially, then democratically elected governments have a huge incentive to “live beyond their means”. Nowhere is that more painfully obvious, looking at the data, than in the US.Boettke’s suggestion of putting in place constitutional restraints on Government spending might well be what we need when we get out of this mess. As for how to get out of the mess … hmmmmmmmmm
DLT
4 Sep 12 at 2:42 pm
A hundred odd years ago, the Federalist Papers covered this topic pretty well. Nice to see Europe and Australia are catching up.
Scott
4 Sep 12 at 10:23 pm
Getting close to the point of no return (50% of population on benefits).
Rafe
4 Sep 12 at 10:33 pm
Realistically, what chance is there of implementing constitutional limits? Or educating and engaging each generation sufficiently?
However, if there is a generously large pot of private money available as a gift to government that keeps to (say) 20% of GDP, that may provide rational swing voters with enough financial incentive to vote for parties that restrain spending. Any government that breached the limit would need a good explanation.
A private solution that would just need enough people to contribute.
So, who else would be willing to write this into their will? What better way to contribute to the welfare of future generations?
dm
5 Sep 12 at 8:18 am