News and Society Blog-Economics: Politics Versus Economic ...

In the West there is quite obviously a battle between the politics and the economics. It is clearest is Europe where - all most as one - the economists are saying the Euro is condemning many to long term austerity and inevitable poverty and is therefore unworkable - but somehow the politicians don't seem to get it: or do they think the alternative is worse? And the reason for this problem is above all else the commitment to excessive government spending primarily driven by the welfare state. And in the USA, that great bastion of free enterprise and the American dream, is in the middle of a battle to bring the very same welfare state to those shores whilst ignoring escalating public debt.

In Democracy in America (published in 1835 in France), Alexis de Tocqueville wrote "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money." And that seems to be happening today. De Tocqueville is interesting because at that time France, and indeed the rest of Europe had primarily aristocratic rule and he was a liberal who supported the idea of democracy. But he was worried about the long term effect of that democracy on sensible economics: "From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy."

An interesting development in that the EU - in a desperate attempt to save the Euro - has decreed that member states must have a balanced budget. Of course the reason they did not have a balanced budget was because politicians wanted to bribe their voters and or their financiers (these day almost exclusively big corporate).

However the EU is fulfilling De Tocqueville prophecy by trying to sideline democracy - in both Greece and Italy an attempt by democratically elected leaders to even consider the possibility of leaving the Euro led to their instant removal by scheming EU apparatchiks and their replacement by so-called Technocrats. If the EU has its way I suspect the Greek election due soon will be postponed as will any other election that threatens a vote that will destabilise the union.

Of course the total absurdity of the EU is whilst it clamps down heavy heavily on rising budgets in EU members states its own budget expands exponentially with screams of protests if anybody suggests otherwise.

But the simple issue is this - can democratically elected governments really cut the money they are paying out to the voters and ever hope to be elected again? Clearly the first prerequisite is that the politicians are willing and then are able to make the argument - and win it - with their voters. These days, with politicians who use opinion polls rather than conviction as their guiding light, that seems a big ask. Or is it conviction of the wrong kind - a conviction to the liberal democratic model that believes the state should 'take care' from cradle to grave. The situation in the US appears to be the most peculiar - with Europe as an example of what happens when too much is spent of social largesse it is extraordinary the US seems to be following the same model. You don't need to be a member of the Tea Party to see something needs to be done about US government spending - and surely the priority should be getting the budget balanced before adding to it!

The UK's electorates obsession with the NHS (free healthcare) is an example of the problems of trying to change something that is sacred cow - yet most accept it is not efficient. Even talking about NHS reform has government pollsters in a lather of despair.

So in the west the politics is ruling the roost: maybe we should say the little head is ruling the big head because as we all know that economics is like a river: it can be dammed, diverted and siphoned but it keeps coming and in the end those trying to stop it must be overwhelmed.

The question is when will economics win? I lived in Eastern Europe after economics eventually won the Cold War. That suggests to me Europeans will eventually all be living in some form of protected enclave where those outside have all the latest gadgets and they will be stuck with an old ipad: buildings will not be repaired and infrastructure will creak and barely work. The inevitability of economics suggests that is where the EU is heading: a failing totalitarian state.

The reality is if we are to have state spending - we need to generate enough wealth to finance that spending. That is the economics of it. Furthermore that wealth must also must grow and be readily available to reinvest in new projects to create more wealth to keep paying the bills. In the socialist/communist system the need to invest is ignored and inefficiencies sidelined in the need to maintain the system.

In the UK the Blair/Brown years saw a vast numbers shuffled onto welfare dependency often called disability. This was no different to the communist regime allocating every new member of the workforce a job - regardless of whether a new employee was needed. It made Communist business hopelessly inefficient in terms of manpower: whilst pushing people into welfare dependency just transfers to cost to the tax payer - net effect is the same - less and less money for investment and therefore fewer, and eventually no new jobs.

It looks horrible like the ultimate survival of the West will depend on the voters finally accepting that welfare must be earned. That of course demands that we find some politicians who understand economics as well as opinion polls. But either way economics will win in the end!

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Source: http://newsandsocietyblog-economics.blogspot.com/2012/07/politics-versus-economic-reality-we.html

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