American Democracy, Big Government, Unelected Officials: Continued

Big Government: The Primary Stakeholder

Democracy Undefined

Many countries claim to be democracies, but there is no common understanding of what democracy is.

Both the Soviet Union and Communist China defined themselves as People's Republics.

The United States is a democracy and its leaders are said to be responsive to the people.

To understand what government wants, we must examine the efficiency of the electoral process and the demographic composition of the voters.

American Democracy: The Beginning

Alexis de Tocqueville, writing of nineteenth century American culture, predicted that democracy would eventually spread throughout the world.

He also said that majority rule could be as oppressive as the rule of a despot.


America today is much different from America of the Founding Fathers

Indeed, the America of Jefferson is radically different from the America of the Clintons.

The founders hoped that democracy, unlike monarchy, would provide government with interests identical with those of voters.

Flawed Democracies

There are defects in all democracies.

One inescapable flaw is that certain groups soon learn to control voting and thereby assure themselves continuity in power.

Winston Churchill observed,

'Democracy is the worst form of government except for all those others that have been tried.'

He also said,

'The best argument against democracy is a five-minute conversation with the average voter.'

Churchill's experience in democracy was as a privileged member of the upper class who had the money and connections needed to acquire a seat in the House of Commons, by means of votes from a 'rotten borough'.

Big Or Bigger Government?

There is always the danger that the number of government office-holders will someday expand to the point that public servants have more votes than those who must compete in the free market.

In the 1998 Congressional elections, only 41.9 million Americans voted.

This was far less than the number of people who benefited from government checks.

Since those who are economically dependent on government will vote in their own financial interests, there are few foreseeable circumstances, other than nuclear war or a meteor falling on Washington, in which the U.S. government will become smaller.

Perhaps recognizing the futility of the electoral process, the percentage of Americans that bother to vote has declined steadily over the last fifty years.

The political battle about the size of government and taxation is now constrained to a choice between big or bigger government, the groups to whom government money will flow, and the rate at which taxes and regulations will increase.

Our Non-Elected Rulers

Americans like to believe that they live in a democracy, with government, in Lincoln's words, 'of the people, by the people, for the people'.

However, the truth is somewhat different.

Ninety-five percent of people in government never stand for election and can never be fired.

Over ninety-five percent of the people in government are permanent bureaucrats and officeholders that never have had to stand for election, and, in ordinary circumstances, can never be fired.

For those who believe Vox Populi Vox Dei, the non-voters may simply be saying that the franchise is of no concern to those who cannot influence the outcome.

Some Are More Equal Than Others

Some criticize democracy as the tyranny of the majority.

In the United States, Americans might only wish that it were so.

Congress has set up rules that steal the franchise by delivering the mandate of millions into the hands of privileged committees, selected by party and tenure.

A senator from a small state like Vermont or West Virginia can pervert the will of the majority for decades by blocking judicial nominations, laws, and executive appointments – using power to reward special interests at home.

Public works with the name of Robert E. Byrd sprinkle the landscape of West Virginia – evidence of how a grateful senator paid off voters in his state, at the expense of other states.

The worst form of corruption is that which legislators make legal.

Wealth, power, intermarriage, and connections going back for generations have fostered non-democratic, hereditary political dynasties, similar to the nobility of Europe, with such famous names as Kennedy, Bush, Rockefeller, Byrd, Humphrey, Wagner, Gore, Talmidge, Lee, Long, LaFollette, Adams, Dingell, Breckinridge, Rogers, Baker, Brown, Church, Mathias, Roosevelt, and Taft.

American Mandarins

From the time of Andrew Jackson until 1883, the political party that won the election appointed public employees to replace those chosen by the vanquished party.

This Spoils System – although inefficient and unprofessional – at least impeded the rise of a permanent governing class.

It also had the practical effect of keeping the government small.

Today, with twenty million people on government payrolls, it would now be almost impossible to recruit and fill this number of jobs anew every four years.

In 1883, civil service reform, modeled after the Mandarins in despotic China, introduced testing of prospective bureaucrats and promotion by rule.

Civil service reforms introduced an irreversible bias towards ever-larger, undemocratic government.

This reform was supposed to provide the nation with highly qualified public servants that would be above politics.

Instead, civil service reforms introduced an irreversible bias towards ever-larger, undemocratic government.

Today, a tangle of laws protects public servants from the will of the people.

Neither Congress nor the President finds it easy to manage this vast irremovable bureaucracy.

Civil service procedures have created a powerful, permanent block of voters with strong motives to tax ordinary citizens.

War Loves Big Government

Liberals saw bureaucratic expansion as a way to create jobs for themselves during the Great Depression.

Franklin Roosevelt boosted Big Government during the 1930s to create employment.

Further expansion of the public sector was the natural outcome of building the administration needed to win World War II.

Tax revenues increased twenty percent a year in the decade of the 1940s.

Although soldiers and dollar-a-year patriotic administrators went home after the conflict, the bureaucrats stayed on in Washington.

Wars end, but the bureaucrats stay on.

The end of World War II, the Korean War, the War in Vietnam, and the Cold War did not cause the growth of government to falter or retreat.

There was no beating of bureaucratic swords into plowshares and no return to smaller government.

Instead, there were different ways to spend public money.

Annual growth of federal, state, and local government revenues averaged about eight percent from 1950 to 2000 – faster than the growth of the population and Gross Domestic Product.

Ever Greater Inefficiency

Without a way to measure the usefulness of public employees or the power to fire the incompetent or the unnecessary, the size of government increases and productivity declines.

The depressing outcome of the permanent hegemony of these American Mandarins has been increasing inefficiency, despite ever-higher salaries and public facilities that are progressively more sumptuous.

Teachers' salaries and cost per student have increased, with a steady fall in reading skills and math test scores.

In the schools, although teachers' salaries and cost per student have relentlessly increased, there has been a steady fall in reading skills and math test scores over five decades.

President Reagan vowed to eliminate the Department of Education, and failed.

A generation later, President Bush, accepting the federal education bureaucracy as inevitable, hoped to use school vouchers so children could take advantage of more effective private schools.

Whether even this moderate reform succeeds will depend on American families – those that are not compromised by being on the receiving end of government funding – having enough understanding of the issues to overcome the slick propaganda campaigns of well-financed, unionized teachers that control millions of votes.

A Critical Voting Block

In took about one hundred years after setting up the Civil Service Commission to create a class of public servants with enough votes to be decisive in elections.

By the 1990s, the most important voting block consisted of federal, state, and local public servants, employees of public authorities, their dependents, and other beneficiaries of tax money, similarly motivated, such as university professors, government contractors, and those receiving government loans and subsidies.

Over the years, politicians and government officials have corrupted the civil service system as people rushed to get on the public payroll.

The ACLU opposes competency tests in court.

Administrators routinely manipulate test scores to benefit certain pseudo-scientific racial groups, in the name of affirmative action and other political considerations.

The ACLU brings competency tests into court whenever it feels that the criteria are too difficult for its favored clientele.

By 2001, more than one-third of government employees were union members, sometimes with connections to organized crime, degrading the system of promotion for merit.

The Sweet Side Of The Tax Dollar

In 1998, there were almost twenty million Americans on federal, state, and local government payrolls.

This permanent, non-democratic bureaucracy is the elite force that decides what government wants.

A permanent, non-democratic bureaucracy decides what government wants.

The bureaucrats' power to write rules and selectively enforce a vast, unknowable mass of regulations and interpretations is the veiled authoritarian force that controls American lives.

Although no one can be sure, a reasonable estimate would be that over seventy million Americans derive their sustenance from salaries and wages directly paid by government, or as dependents of someone paid by government.

In addition, there are over thirteen million Americans employed under federal grants, contracts, and mandates.

Millions more receive government welfare checks and transfer payments for which they provide no services.

Bureaucratic Majority; Capitalist Minority

As voting bureaucrats make up more and more of the American electorate, can the remaining voters ever be an effective counter force?

They might be if, as in the nineteenth century, most voters were still self-employed – owners of their own farms and small businesses.

Unfortunately, the hard, practical sense of economic reality that goes with running a business is often lacking in those whose outlook is that of third-generation hired hands.

There is no longer a significant capitalist voting block in the United States.

For practical purposes, there is no longer a significant capitalist voting block in the United States.

There are many passive 401(k) investors interested in capital gains and inflated stock prices, but this is hardly the healthy view of capitalism that fosters economic development and progress.

Most Americans do not realize that their material well-being is more dependent upon foreigners holding dollar reserves to finance the trade deficit (and consumers' debt), than on the ability of American industry to produce goods that might be sold to the rest of the world.

A Nation Of Shop Clerks

The voting habits of a nation of shop clerks are quite different from Adam Smith's nation of shopkeepers.

Hereditary employees are interested in short-term issues, such as keeping their jobs, expanding their health benefits, or being able to buy cheap imported goods at the store.

American elections now hinge on the rate of unemployment and non-economic cultural matters.

By the millennium, the results in American elections hinged on the rate of unemployment and non-economic cultural matters such as abortion, gay rights, affirmative action, and gun control.

In 2004, no candidate campaigned on issues of protecting domestic industry or stimulating savings and investment in new enterprise.

The large 'business interests' to which the press refers are made up primarily of corporations controlled by hired executives, rather than by traditional owner-managers.

The point of view of these 'business interests' is generally short-term and is focused on things that favorably affect stock prices over the next quarter.

Actions that increase the value of the stock options of these pseudo-capitalists are different from policies that improve the long-term wealth and economic well-being of the nation.

Elections And Economic Change

In the U.S., elections effect economic change only gradually, over decades and generations.

It took fifty years for the argument between Jefferson and Hamilton on free trade and protectionism to be resolved by a Civil War.

It took another one-hundred years for protection of domestic industries to be replaced by internationalism and GATT.

The composition of the electorate evolves slowly.

Woodrow Wilson established the Federal Reserve System, vanquishing Andrew Jackson's opposition to a national bank after four generations.

The reason for resistance to change is that the composition of the electorate evolves slowly.

Nevertheless, change does occur and is important in Capital Flow Analysis.

The American electorate today is composed primarily of employees, whereas two hundred years ago, most voters were self-employed owners of businesses and farms.

Elections during the nineteenth century turned on capitalist issues (property rights, protectionism, and business credit) while in the twenty-first century, the issues were those of workers – employment, job benefits, and matters of culture and lifestyle.

The Majority Is Out To Lunch

Most Americans no longer take democracy seriously.

In 1998, only forty-two percent of Americans with the right to vote exercised this right in the Congressional elections. This was down from fifty-five percent in 1966. There has been a steady, long-term decline in voter participation.

One explanation for the lack of voter participation may be that people are too lazy, ignorant, or absorbed in other things to bother voting.

Another explanation might be that voters are simply sensible, having come to understand that however they vote makes little difference.

If one is not particularly concerned about the rights of homosexuals, the special privileges of 'minorities' (that are now in the majority), or the right to carry a shotgun in one's pickup truck, why bother to vote?

If not concerned about the rights of homosexuals, why bother to vote?

When political pundits say, 'It's the economy, stupid!' they refer to issues such as unemployment, the cost of health care, or social security – topics of interest to wage earners.

Roosevelt's New Deal ushered in a workers' society and the beginning of a long decline in entrepreneurial spirit.

Johnson's Great Society sanctified the Welfare State and racial politics, opening a cultural rift in some ways as profound as divisions in Northern Ireland and the Mid-East.

TV programs such as Crossfire show the quality of current civic debate, where pasteboard caricatures of extreme views face off in screaming matches.

In these cultural wars, there is no civil discourse, nor room for thoughtful economic consideration.

However, most Americans are indifferent whether they work for Uncle Sam or General Motors.

The question is only who pays the most and offers better job security and benefits.

The fierce independence and self-reliance of nineteenth century America has faded into history.

A Two Party System

In American democracy, two political parties control the nomination of candidates for public office and manage the elections.

For purposes of Capital Flow Analysis, we note that both parties have similar views on corporate behavior.

Both parties favor Big Government, high taxes, and power sharing between government and business bureaucrats.

When only 42% of Americans vote, public servants and their dependents decide many contests.

By 1998, when only forty-two percent of Americans voted, the votes of public servants and their dependents decided many contests.

About one-third of the electoral always votes Democrat, another third always votes Republican, and the final third switches its vote from election to election, thereby deciding the outcome.

By the 1990s, the party system had solidified into a tangle of complex rules that assured a lifetime in office for a powerful few, encouraging the rise of an arrogant, political royalty, and impeding change.

While a critical election, like the cliffhanger in Florida in 2000, may be important to the politicians, it is not always clear how elections affect capital flows.

Economics Politicized

Problems in American society are masked by officials dealing in misleading statistics, boasting of a Virtuous Circle of wise policies.

Confusion is sown in a fog of benchmarks that purport progress in employment, productivity, control of inflation, and national output.

There are serious flaws in measures of inflation and productivity.

There are similar difficulties with claims of employment and economic growth.

As the primary stakeholder in corporations, government actions are influenced by the outlook of the economists that set policy.

In some countries and occasionally in the United States, popular elections signal important changes in economic policy.

As capital flow analysts, we need to ask whether an election is likely to alter investment supply and demand.

Will a new government influence a shift in corporate motivation?

In the United States, in most years, the answer has been no.

Character Still Matters

However, the character, ethics, social philosophy, and leadership skills of those elected do matter.

The election of the U.S. President is still enormously important, not because a president has the power to enact laws and allocate funds, but because of a president's power to selectively enforce the laws that are already on the books.

A president can selectively enforce laws already on the books.

Over the last century, Congress and non-elected regulators have issued tens of millions of pages of restrictions on human behavior, almost always associated with greater or lesser sanctions.

Almost every American, except for the youngest children, are potentially subject to sanctions for violation of this or that obscure article in an unknowable library of regulations.

The president can order the Internal Revenue Service to make life difficult for political enemies, while issuing pardons to friends and financial contributors.

One president may shut down industries for violation of environmental laws, while another will turn a blind eye.

The civil service, although exempt for dismissal, certainly knows the meaning of the phrase 'career-stopper'.

The virulent hate campaign that liberals waged against President George W. Bush in the 2004 campaign, branding him as 'the worst president ever', was based not so much on anything that he had done, but on their perception of how selective enforcement of the laws was effecting interests of their supporters.

Furthermore, the president has control of the 'nuclear football' and foreign policy, which in a global economy is significant.

Elections do matter, although most Americans do not act as if they did.

Politics And Capital Flows

Although clashes between political parties make headlines, it is difficult to predict the impact of most American elections on capital flows.

Even the classic contest between Herbert Hoover and Franklin Roosevelt in 1932 was not about whether Big Government was a good thing (both were high-tax interventionists) – it was about who would have the power to meddle in the lives of citizens.

The parties have similar positions on matters that influence corporations and investors.

No party has the will to introduce fundamental reform or the ability to control non-elected bureaucrats who, by drafting and enforcing minutely detailed rules, exert the real power.

Americans see the same political incumbents on television, year after year, mouthing the same lines, making the same promises – discouraging an increasing number of citizens from voting.

Democrats And Their Party

The Democrat Party, the more opportunistic of the two, recognized the political potential of expanding public payrolls in the 1930s and associated itself with organized labor and Big Government.

Later, as crime and deindustrialization demoralized labor unions, the Democrats shifted focus from industrial workers towards the more permanent base of unionized public employees.

This strategy was so effective, that in the four decades from 1955 to 1995, the Republican Party controlled Congress in only six years.

In the presidential election of 2000, the Democrat Party won the popular vote, although losing in the Electoral College.

Public employee unions and well-organized interest groups support the Democrat Party, forming a powerful coalition of groups with widely disparate goals:

Government Jobholders: Most government employees are Democrats and many are unionized. Big Government policy earns their vote. They want to ensure their jobs and increase their pay, which means that they are amenable to higher taxes and new government programs.

Labor Unions: Industrial unions have supported the Democrat Party for generations. The Democrats have not strenuously opposed deindustrialization; union bosses are willing to exchange domestic industrial jobs for more reliable membership dues from government employees. Teachers' unions are now the largest segment of organized labor. Ten percent of the delegates in the 2004 Democratic convention were members of teachers' unions.

Blacks: More than ninety percent African-Americans vote for Democrats. Blacks are so well organized as to be decisive when voter turnout is low. Democrats have paid unwavering lip-service for civil rights, racial quotas, and preferential hiring of Blacks. Democrats are the primary promoters of American racism, insisting on a census and bureaucratic controls that divide the population into racial groups, using pseudoscientific methods reminiscent of the Nazis. Some racial classifications, such as Hispanics, although written into law, do not pass even superficial scientific scrutiny.

The Poor and Uneducated: This part of the population views the Democrat Party as the champion of the Welfare state. In 1998, twenty-nine million voters were not in the labor force or were unemployed. Eight million voters had not completed high school. The bottom half of the bell curve is the fertile field that produces many Democratic votes.

Abortionists, Oddballs, and Outcasts: Radical feminists, pseudo-intellectuals, homosexuals, unwed mothers, and proponents of alternate lifestyles find economic and emotional support in the Democrat Party. The civil rights movement, associated with the Democrats, displayed the power of well-organized voting blocks of special interest groups that see themselves as victims.

The Liberal Media: This wealthy elitist oligarchy is solidly behind the Democrat Party and controls the major television networks, movie producers, magazines, and newspapers. This small group uses the First Amendment and freedom from antitrust prosecution to turn mass media into as effective a propaganda machine as in any dictatorship. Until the late 1990s, a small group of media barons controlled the accepted truth that was fed to the American people. Their true opinion on 'Freedom of Speech' is seen in their censorship of talk that is not 'politically correct' and their attacks on Fox News, an interloper which, in trying to present a fair and balance view, allows spokespersons for the opposition to have a say.

Academia: Most American universities benefit from and depend heavily upon government jobs, projects, and funding. Since Franklin Roosevelt invited professors to Washington, the universities have been grateful and dogged supporters of the Democrat Party. The support of fawning, mercenary academics provides the authoritative cover for Big Government programs.

Environmentalists: Dwellers of the inner cities suffer from smog and pollution and long for vacations in public parks and nature preserves. This group supports environmental measures, even if this results in unemployment, deindustrialization, and dependence on foreign suppliers. The Democrats back the environmentalists and oppose a national Industrial Policy and exploitation of timber, oil, coal reserves, and nuclear energy on U.S. land.

Lawyers: Big Government, environmentalism, civil liberties, gay rights, feminism, and entitlement programs result in rules, regulations, and more work for lawyers. Wealthy trial lawyers have economic incentives to support the Democrats in barring tort reform. In 2004, both Democratic candidates were lawyers.

The Religious Left: Most Jews, Black evangelicals, and many left-wing Protestant denominations support the Democrat party. These groups are tied to the party in other ways, using religious affiliations to enforce political aims. The ACLU and the Democratic party does not call for separation of church and state when applied to the religious left.

Although the Democratic Party parades as representing workers against the interests of Big Business, this is a fairy tale for the ignorant.

Many multi-millionaires, such as Jack and Teddy Kennedy, Franklin Roosevelt, Jay Rockefeller, Jon Corzine, John Kerry, Herbert Kohl, Warren Buffett, and George Soros have been associated with the Democratic Party.

Rich trial lawyers, media moguls, and millionaire Hollywood stars, comedians, and rock singers are almost all Democrats.

When pandering to the ignorant and gullible to get power, the end justifies the means.

What matters is power.

If one must pander to the ignorant and gullible to get power, many would say that the end justifies the means.

By sucking up to academics and the liberal media, Democrats have created a propaganda machine that would thrill the autocratic regimes they profess to abhor.

Democrats use this machine to rewrite history, brainwash the public, and censure contrary opinion.

By playing to the economic interests of public servants and their allies, the Democrats have formed solid voting blocks backed by effective propaganda and may possibly dominate America for many years.

Republican Issues

In the election of 2000, Republicans took heart when their party won the majority of counties nationwide, representing the fastest growing and largest part of the population.

Republicans also won most state governorships.

However, gerrymandering, the Electoral College, media partisanship, distorted election rules, incumbency, low voter turnout, and fickle 'independent' voters are likely to continue to produce close elections.

Unlike the Democrats, the Republican Party has unfocused aims and a lack of political discipline that comes from a romantic belief that morals and ethics matter.

Republicans bring together those who share a common disgust for the Democrats, plus some special non-economic interests like the Right-To-Life faction, the American Rifle Association, and the Religious Right.

There are no U.S. postage stamps honoring any of these causes.

(There is a stamp recognizing Ayn Rand, hardly a defender of Big Government. In her book, 'Atlas Shrugged', she suggests that productive people and individualists would do better leaving behind America's false altruists to set up a secret refuge in 'Galt Gulch'.

As she peers from behind the Art Deco buildings on the stamp, one expects her to ask the question, 'Who is John Galt?'

However, Ayn Rand was an atheist and proponent of a weird brand on non-altruistic, selfish capitalism.

Hers was definitely not the moral capitalism of Andrew Carnegie or other examples of the Protestant Ethic that have been derided by intellectuals and parlor pinks since the early 20th century.

Nor was she a capitalist herself, but rather the founder of an odd cult.

We might ignore Ayn Rand, except for the fact that Alan Greenspan, the Chairman of the Federal Reserve that presided over the Great Bubble of the 1990s, is said to have been in her "inner circle".)

No Longer The Party Of The Rich

At one time, Republicans represented business, entrepreneurs, and the wealthy, but this has changed.

Although Democrats play to the ignorant by accusing Republicans of being the Party of the Rich, this characterization is hardly accurate.

A wealthy person that appears in the liberal news today is more likely to be a Democrat than a Republican.

Most wealthy people understand there is little chance for repeal of income or inheritance taxes. With enough money, one can buy experts – often ex-government officials – who know of obscure passages in the infinitely complex regulatory mountain, through which income and assets can be channeled and protected.

Furthermore, the income does not really tax wealth, but income, falling less on the truly rich than on those who merely aspire to be wealthy.

Republican nominees for president do not recommend abolition of the the income tax, the only proposal that might favor business entrepreneurs.

For Reagan, it was easier to tear down the Berlin Wall than reduce the size of government.

Nor have they presented a coherent plan of how government bureaucracy might be reduced.

When Republicans hold office, they consistently fail to make significant reductions in either the size of government or taxation.

President George H. W. Bush broke his pledge of 'No new taxes'.

His son, George W. Bush, signed a tax bill that was so mild as to have little permanent effect on the economy.

President Reagan, the Republican hero of the generation, was able to defeat the Soviet Empire and tear down the Berlin Wall, but failed to significantly reduce the size of the American government.

A Divided Republican Party

Factions divide the Republican Party into narrow non-economic interests such as abortion, guns, and school prayer.

The political advantage the Republicans might have with traditional family values has gradually slipped away with the decline of two-parent homes, divorce, and the rise of moral relativism.

Most importantly, party discipline among the Republicans is flabby.

Republican legislators, unlike the Democrats, may vote according to their conscience, rather than the party line.

The Republicans have become the Party of Nostalgia – people joined by wistful longing for the America of Norman Rockwell – a Grand Old Party homesick for the Good Old Days.

The Republican 'Contract with America' under the leadership of Newt Gingrich has faded into history without having made a dent on the size of government.

While Democrats blatantly promote programs that deliver economic benefits to their supporters, the Republican Party has no clear economic policy that appeals to the rest of the population.

The Republicans foolishly split on controversial, non-economic causes, while offering fuzzy, but scary, free market theories that cannot persuade a population that has lost the spirit of self-reliance.

The Protestant Ethic is dead.

Facing an organized block of voting public servants, Republicans blink and support Big Government.

Control of government teeters between Democrats and Republicans and partisan fighting prevents formation of coherent national policy.

Although Democrats talk against Big Business and Republicans hiss Big Government, both huddle in the cloakrooms of Congress to agree on ways to keep themselves in power indefinitely.

Meanwhile, the unelected government – the real power – is safe and unchallenged.

Essay: continued >

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