Are Broke Democracies an Eventual Given?

polifrog


I don't often post links in back to back posts, but there are exceptions to self imposed rules on laziness. Gonzalo Lira forces one of those exceptions today.

Within the comments section he calls his Why Democracies Will Always Go Bankrupt post his most important. I agree.

In his post he offers a proof that explains the genesis of a current conundrum facing the US today. The conundrum? Why do Americans say they want lower taxes while simultaneously wanting more services? He then extends this contradiction to our current debt situation in which politicians, rather than reconciling this difficulty, solve "fiscal incoherence" with debt.

This is entirely readable piece by anyone, as Gonzalo Lira does not seem enamored with the loose-your-audience self flattery normally associated with those overly proud of their educations.

Of course, I have issues with some minor points but they are just quibbles with pinning the start of this in 1975 rather than the 1930's and other tax issues.

A pull:

A democratic regime has to resolve its fiscal incoherence every time it happens—that is, every year a new budget is proposed. If it doesn’t, it will not be able to operate the following year, as it will not have the money to do so. (This of course is assuming an independent Central Bank that will not money-print away the dilemma.)

If the democracy’s government can only spend such revenue as it actually receives (and there is no Central Bank funkiness), then the electorate will be forced to come to grips with the incoherence of its decisions in the chambers of its parliament or congress: The democratic representatives of the electorate, be they MP’s or Congressmesn, will slug it out—proponents of cutting taxes fighting proponents of more government services—until eventually, a service is cut or a tax is raised, so that the budget is fully covered: This way, the democratic fiscal incoherence is solved, year after year.

The only way a democratic regime can avoid having to resolve its fiscal incoherence is by issuing debt.

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