Democracy can not save you now

From the famous film “Mr. Smith goes to Athens, Subsequently Disappointed by Lack of Governing Coalition in Favor of Austerity Measures”

(I was going to add a “muhahaha” to the end of the title of this post for dramatic effect, but figured that would be overkill.)

One of the excellent news shows on TV here in the US is Fareed Zakaria GPS, which airs on CNN on Sunday mornings. I don’t always agree with Fareed on everything, and a couple of his regular guests make me want to throw the remote at the TV sometimes, but more often than not the show tackles important global issues better than any other on American TV.

Last Sunday Fareed started off the show talking about the European sovereign crisis. One thing he said in particular caught my attention:

This is a sad state of affairs because what many people are worrying about, at root, is whether democracy has become part of the problem. After all, politicians have gotten elected over the last four decades in the West by promising voters more benefits, more pensions and more health care. The question is can they get elected offering less? That’s what stops many Europeans from abandoning austerity and embracing another round of stimulus spending. And I think these worries are shared by many in the United States as well.

This is basically a reaction to the French and Greek elections from a couple of weekends ago. If you’re not up to speed, here’s the gist of what happened: Recently the most seriously indebted European country, Greece, was granted a write-down of its debt financed in large part by the other Eurozone economies, notably Germany and France. In exchange, the Greeks were required to write into their constitution certain painful “austerity” measures, basically aggressive tax hikes and budget cuts that are making the current recession there worse. This is in hope that Greece will be able to, down the line, pay the portion of debt it still owes after the write-down.

So what happened? Earlier this month French President Nicolas Sarkozy, who along with German Chancellor Angela Merkel made up a powerful political duo in favor of keeping the Eurozone together via this sort of austerity-for-bailouts strategy, failed in his reelection campaign against the Socialist challenger, Francois Hollande. Meanwhile, the governing coalition in Greece which originally agreed on the painful austerity measures as part of the debt deal lost a significant number of seats to parties which openly reject the plan, and the coalition in favor of staying on course has fallen apart for now.

This is a long-winded way of explaining what Fareed means: In Western democracies, politicians get elected and stay in office by offering more, not less. So even if harsh austerity measures enacted in hopes of getting a country’s fiscal house in order are the right way to go, they may be politically impossible to see through to the end. (Whether or not such austerity will in fact allow countries like Greece to achieve a sustainable debt path is subject to it’s own debate.)

The broader point about democracy’s inadequacy to deal with these problems is extremely valid, and that’s the whole point of this post. There’s a key flaw in the argument above, however.

Here it is: Greece was pretty much the only Eurozone country where politicians lavishly showered voters with goodies in hopes of getting re-elected, at the cost to the nation’s balance sheet (and hiding the extent of debt with the help of a major US investment bank). The other countries were not in bad shape prior to the 2008 crisis; it was the crisis and the subsequent recession that caused the debts of these countries to explode via lost government revenue, automatic payments to the swelling ranks of the unemployed and the poor, and bank bailouts. I get the point that no politician wants to pull the plug on the party, but the rest of Europe is very different from Greece.

This is an important point, and the reason why is not because, outside of Greece, democracy has functioned well. It’s that what occurred in Greece pre-crisis — dishonest, reckless spending for the purpose of political gain — is not the only type of democratic failure that has gotten us into this mess, and is making the apparent prospects of digging ourselves out of the hole so dismal.

This whole European sovereign saga makes more sense (and is unfortunately more depressing) when you recognize what it really is: a horrible aftershock of the 2008 banking crisis. And that crisis tells us a lot about where democracy went, and is still going, wrong.

The origins of that crisis are often traced back to the repeal of the Glass-Steagall Act in 1999, which paved the way for US banks to take on the sort of massive risks on the housing sector that nearly crashed the financial system nearly ten years later. The repeal of Glass-Steagall didn’t happen by accident; it was the product of tireless, well-funded political efforts on the part of the banking industry to allow it to “lever up” and more freely roll the dice. Most Americans don’t have the time, the energy, or the finance background to understand this story. But the politicians do, and so do their lobbyists. And given the current rules of the game here in the US, with enough money behind your cause you can not only buy the attention of democratic officials, but you can fund a PR campaign to convince a large portion of the electorate that, for instance, any new regulation on the banking sector is an affront to American liberty.

Ironically, at the same time as Fareed Zakaria’s show was on, Meet the Press was airing David Gregory’s interview with Reince Priebus, the chairman of the Republican National Committee. The topic of the day was last Friday’s announcement that JP Morgan had incurred a $2bn loss on credit derivatives trading, in what frighteningly seemed to show how little the major banks had learned from the 2008 debacle. Here’s the amazing exchange:

DAVID GREGORY: Let me ask you a very important economic question. You listened to Jamie Dimon on the program earlier. Talk about regulation, talk about the mistake that was made by this trading debt and huge loss. Governor Romney and the Republican party position is to repeal Dodd-Frank, which is financial reform. In light of the losses on Wall Street this week do you think we need less financial regulation rather than more?

REINCE PRIEBUS: I think we need less.

In fairness, this makes it look like Priebus’s answer was an arrogant, unapologetic one-liner. It wasn’t. The truth is that he carried on explaining his answer, but it was essentially a bunch of political fluff and media-trained bullet points that had little to do with the original question (after all, he’s the chairperson for a major political party), to the point that it would have been useless to post the rest. Nor is my intention to take a shot at the Republican party. The Democrats also take loads of money from the banking industry, and there are plenty in that party engaged in the art of defending bank misbehavior.

But the sad reality is that this statement basically represents one more nail in the coffin of the median voter theorem.  How did things get this bad? There are multiple possible explanations. One is that the major political parties shifted how they competed with one another, putting much greater emphasis on attracting big campaign donations from corporate interest groups (and to a smaller extent, unions) in exchange for being flexible on the policies they espoused. (Lots of authors have written on this topic, but a great book that touches upon this is Winner Take All Politics by Jacob Hacker and Paul Pierson.) Concurrently, in my view there have been certain advances in PR techniques by which skilled proponents of a particular policy can make their case captivatingly and quickly to the public on TV and radio, regardless of the merits of those policies. Meanwhile, I think the digital age may have made the task of sorting out lies from actual information even more difficult than before, by sheer virtue of the fact that there’s such an overwhelming amount of stuff floating out there, and liars can even more easily confuse the listener/viewer. (NPR’s recent bit entitled Death of the Fact nailed this.)

So is democracy hopeless? Winston Churchill famously quipped that “Democracy is the worst form of government, except for all those other forms that have been tried from time to time”. But the world in which Churchill lived was far different from ours, and I wonder what he would have said about today’s challenges to democracy.

To be clear, the Baha’i Faith is not anti-democratic. It’s important to note that this is a faith with no clergy, which asserts that no religious figure can grant access to the Divine or absolution from sin. Amazingly (I think people who have been Baha’is for a long time may take for granted how remarkable this is), there is no single individual within the worldwide Baha’i community who has authority over any other individual. There are only democratically-elected councils tasked with the responsibility of managing the community’s affairs, made up of individuals who have no authority on their own.

Moreover, in ‘Abdu’l-Baha’s Secret of Divine Civilization, a book written with eye towards solving the malaise of the Persian nation of the 19th century but whose wisdom can be applied much further, he lauds the concept of representative democracy. But there’s an important qualifier to ‘Abdu’l-Baha’is praise; he also suggests that if democratic officials lack integrity, the whole exercise is pointless.

It is unquestionable that the object in establishing parliaments is to bring about justice and righteousness, but everything hinges on the efforts of the elected representatives. If their intention is sincere, desirable results and unforeseen improvements will be forthcoming; if not, it is certain that the whole thing will be meaningless, the country will come to a standstill and public affairs will continuously deteriorate.

Sound familiar? ‘Abdu’l-Baha was wise enough to recognize that no matter the structure of government, if the political building blocks were corrupt, then opportunities for mischief (for instance, concentrated private interests spending huge sums to influence voter behavior) will be exploited to the fullest extent. The pillars of democracy can not stand on flimsy moral ground.

So when you hear someone say we’re dealing with a crisis of democracy in Europe, know that the problem goes much further than whether or not the Greeks can form a pro-austerity parliamentary coalition. When historians look back on this chapter in our collective economic lives, I’m willing to bet a key explanation for the whole mess will be a much broader failure of Western democracy. I just hope someone has the foresight and guts to recognize the role that the human heart played in the whole thing.

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One thought on “Democracy can not save you now

  1. Pingback: Does the election matter? «

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