Saturday, April 9, 2011

Marc Faber on Democracy

Economist Marc Faber appeared on CNBC to talk about financial markets. But along the way he launched into a devastating analysis of class relations in a democracy. Here is my paraphrasing of Marc Faber,

It’s a question of entitlements. The majority of people are not very well to do. They want entitlements so they can work less. The people who have money and work hard are outnumbered by the poor people. The rich are very few in number so they have no vote. One way to get back at masses is to print money and outsource production, say to China. So you disenfranchise the working class and your asset prices increase dramatically. If you are affluent you have the same vote as somebody who was born illegitimate and poor. More than half of American children are born illegitimate and most of them are poor and they have the same vote as someone who is affluent. So the well to-do people will cheat the system as well.

It reminds me of what I wrote about democracy more than a year ago. Democracy according to Bertrand de Jouvenel "because of its centralizing, pattern-making, absolutist drive, can easily become an incubator of tyranny". Democratic society undergoes four stages before it becomes totalitarian.

1.In a democracy, the poor outnumber the rich so they vote to take away the property of the rich through policies like progressive taxation.

2. The rich, formerly gaining wealth through honest means, are encouraged to lobby and bribe politicians to protect their wealth. Honest entrepreneurs are placed at a permanent disadvantage while those with the skills of bribery and deception at an advantage.

3. The poor are further impoverished and dehumanized by the endless conflict in politics. While those who remain rich are those with very good political connections and are more likely parasites than producers (which makes the masses blame capitalism even more)

4. The political class conflict of rich versus poor wipe out the middle class, whom are entrepreneurial or high skilled workers, and thus the oligarchy is realized.

In a democracy, there is always a manufactured class conflict to keep the political machine running. The masses have to be incited and provoked so politicians' policies can be justified and their power strengthened. Politics creates what Jose Ortega y Gasset calls the mass-man, livestock for the state. The mass-man does not have independent thought, but a product of the state propaganda apparatus. A mentality of going(or voting) with the crowd is engendered and what left of independent thought and action is eroded. All democracies today are undergoing the same process. Democracy, is most destructive, governing large geographical areas. India, the largest democracy in the world, has less than half the per capita GDP of China and is politically unstable precisely because India is a democracy and China is not. The destructive effects of democracy, however, are restrained in states of small geographical areas like Switzerland. Rousseau, the great preacher of equality, believed democracy only works in states covering small territories because people will vote on their feet. Rousseau would find the current arrangement rather idiotic.

But such an analysis is not new. Frederic Bastiat observed the inherent problem with democracy as early as in the 19th century. He called it legal plunder or the perversion of the law by turning it into a means of taking another’s property. A major contributing factor to the decline of civilization in a democracy is the corruption of the wealthy class. As government and political pull are increasingly being used to gain wealth, traditional bourgeoisie values of hard work, frugality and bravery are replaced with opportunism, deception and bribery. The result is that wealth is no longer a symbol of virtue but of vice. There is also the issue of inheritance where the poor look at the rich as undeserving due to inherited wealth. But if an inheritor is really undeserving of his inheritance, then that inheritance would quickly dissipate on consumption and frivolous activity. It is only in a statist society where the inheritor uses political pull to pass legislation creating barriers to entry in order to unjustly enrich himself at the expense of the consumer.

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