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Democracy? Surely not!

Summary:
From Peter Radford Let’s stir things up for the New Year by continuing with one of my recent themes. A quote from an opinion piece in the NYT this morning [January 3rd]: “James Madison boasted that the Constitution achieved “the total exclusion of the people, in their collective capacity.” Its elaborate political mechanics reflect the elite dislike and mistrust of majority rule that Madison voiced when he wrote, “Had every Athenian citizen been a Socrates, every Athenian assembly would still have been a mob.” Madison’s condescension has never gone away. Walter Lippmann, perhaps the most prominent intellectual of the short American Century, reckoned that citizens were ignorant, confused and emotional. Democracy brought “an intensification of feeling and a degradation of significance”

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from Peter Radford

Let’s stir things up for the New Year by continuing with one of my recent themes.

A quote from an opinion piece in the NYT this morning [January 3rd]:

“James Madison boasted that the Constitution achieved “the total exclusion of the people, in their collective capacity.” Its elaborate political mechanics reflect the elite dislike and mistrust of majority rule that Madison voiced when he wrote, “Had every Athenian citizen been a Socrates, every Athenian assembly would still have been a mob.” Madison’s condescension has never gone away. Walter Lippmann, perhaps the most prominent intellectual of the short American Century, reckoned that citizens were ignorant, confused and emotional. Democracy brought “an intensification of feeling and a degradation of significance” to whatever it touched.” 

I love that phrase: “the total exclusion of the people, in their collective capacity”.  What other capacity can the people have, other than collective?  Madison was hedging.  He wanted to be aristocratic with a popular twist.  And there was that awful reference to “we the people” in the background that needed proper definition.  So the people were invited in.  Just not collectively.  They were let in selectively instead.

To this day the threat of democracy is a real and present danger in America.  The bedrock of the constitution remains firmly anti-democratic.  Various bolt-ons have attempted to bring it into the democratic era, but they have failed.  America is not a democracy.  So there is no existential threat to it.  You can’t lose something you don’t have.  Our project for the New Year ought not to be dedicated to fixing the governance system.  It ought to be dedicated to reforming it.  Making it democratic would be a good start.  Just think: had America been a democracy Trump would not have been elected.  He lost the 2016 election by three million votes.  He lost in 2020 by seven million.  Due to the undemocratic nature of the constitution, switching a mere 46,000 of those seven million — in the right states — would have secured a win for Trump and his attempted coup would have been unnecessary.  No wonder he’s upset.

Still, it’s an uphill fight against a hero like Madison.

Another quote, this time in the context of economic policy:

“The past 20 years, the very rise of independent central banks, is all about getting priorities right, getting rid of democratic money which is always short-sighted, bad money”

That’s Rudiger Dornbusch of MIT talking in 2000.  I get the quote from Adam Tooze’s recent book “Shutdown: How COVID Shook the World’s Economy”.  Dornbusch was praising the Reagan/Thatcher adoption of neoliberal political economy in an effort to rebalance the public and private sectors firmly in the latter’s favor.  Key was the insulation of monetary policy from democratic politics, which in true Madisonian style, was assumed to be rotten to the core.

Since the 1980s it has been commonplace in the Anglo-Saxon world to treat democratic urges as leading, inevitably, to the degradation of the economy and the debasement of the currency.  So policy has been constructed consistently to act as bulwark to protect “the system”.   Preserving the economic status-quo has been of paramount importance.  So we expended vast energy to preserve the banks in 2008, but ignored the people.  We shifted too rapidly to austerity and slowed the haul back to normality in order to avoid inflation.  But that didn’t matter because the labor force needed to be disciplined.  Neoliberalism, at its core, has always been about privatizing gains and socializing losses.  It is, as Hayek et al would argue, stubbornly opposed to the people who simply cannot be trusted to run their own lives.

Which is odd, as I have observed before, since orthodox economics treats customers as supremely rational when they act as economic agents.  This rationality is critical to the preservation of market supremacy as a vehicle of resource allocation.  Yet those same consumers are hopelessly reckless when they vote, which is why Madisonians everywhere treat the people with such disdain.  No wonder the world is such a mess.  The people either suffer from excessive rationality or excessive self-interest.  Oh wait.  Maybe they’re the same thing?  Maybe they vote in their self interest?  Perhaps they’re rational after all in politics?  Perhaps it’s just that our Madisonian leaders don’t like the result?

And yet …

In the past two years we have seen a complete reversal.  Neoliberalism has been tossed overboard by the institutions most dedicated to its propagation.  The IMF, for instance, has berated the left-of-center Mexican government for not running a large enough budget deficit.  Yes, you read that correctly.  The IMF was urging what was previously thought of as reckless policy.  What happened?

Reality happened.

Neoliberal orthodoxy ran headlong into a crisis that no market could self-fix.  The markets themselves needed fixing.  So we had a burst of democracy.  We monetized the debt in an astonishing reversal of orthodoxy.  We succumbed to the realities of the mob.  We could collapse or we could democratize policy.

The question now, and for 2022 as a whole, is: do we go back?  Do we revert to preserving the system alone?  Or do we continue with our democratic experiment?  Should policy makers take workers into account, or right them off once more as an expensive input prone to destabilizing equilibrium and, gasp, asset prices?

Democratic [small “d”] economic policy has been an astounding success only because the interests of the people were aligned temporarily with those of the financial markets.  When the dust settles who will we care about more?

My money is on reversion.  The specter of inflation will be used to suppress the democratic uprising.  The shadow of Madison is a long one.  We must avoid the mob disrupting the genteel and profitable life of the system.  We must make democracy safe for capitalism.

By stifling it.

I think I can hear our “independent” central banks working on that project already.

What a shame.

Peter Radford
Peter Radford is publisher of The Radford Free Press, worked as an analyst for banks over fifteen years and has degrees from the London School of Economics and Harvard Business School.

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