New Rule for Modern Democracy?

The political debate in both Europe and the USA today really centers on an issue that the framers of our constitution and those who framed the rules by which the democracies in Europe operate never considered including because the issue never occurred to them.

In the 1930s a new modern economic theory was used to help the USA (and the world) mitigate the effects of the world wide recession/depression.  Keynesian economic theory advocates a mixed economy — predominantly private sector, but with a moderate role of government and public sector.  This mixture envisions times when the government borrows from its citizens (and today the whole world) to stimulate the economy and implicitly also envisions good times when these loans are paid back.

In practice this happened pretty well from the 1930s to perhaps the 1970s but sometime after that things began to fall apart.  Here is a graph that shows that history (admittedly, it is unfair as it is not show with respect to GDP nor on a log scale) –

USA deficit 1930 - 2010  Click to Enlarge

USA deficit 1930 – 2010
Click to Enlarge


The question that I pose today is whether this is the central failure of modern democracies?

Since that is intentionally provocative, let me explain and limit it as best I can.

Any economic entity that borrows sometimes and pays back others has been common for a very long time.  What is different today in the USA and has happened other places and at other times is the strong borrowing without really a commitment or understanding about what it means to pay this borrowed money back.

Now to the core of what concerns me.

Modern democracies elect representatives on the basis of their ability to adjust broad expenditures and policies to help the people that elected them.  Sometimes they do this on an even broader basis and help all of the citizens or even all of the people in the world  (e.g. national defense or support for the United Nations are examples of each).  But more often the legislatures operate more “partisan” than altruistic.

Today the USA constitution has no provision to protect the economic rights of generations to come.  It is possible to borrow money today and require that people who are not yet born to pay back these loans that allow people today to live better by forcing (implied) burden on those who have no representation.

In the past, I am sure if you asked Jefferson, Hamilton, Franklin, Adams or Washington if this seems fair they would say no.  My intuition is that they would not even understand the question without some extensive explanation of what was implied and what was envisioned.

So the question now is … Do we need to add another rule to modern democracies?

And if so, how do we do this in a way that leaves us with some financial flexibility in the short term, while requiring fairness to future generations in the long term?

By the way, the same thinking applies to all arguments surrounding CO2, global warming, environmental sustainability.

All of these are very thorny questions.  There are even some people who argue that humans as a species are not evolved to be able to make good decisions along these lines!

Posted in Essays, Green Perspectives, Investing, Spiritual Threads