Two Economies

Posted by your humble correspondent here:

May I suggest that part of the problem is that there are (at least) two economies we should be considering? There is, of course, The Economy: GDP, investments, consumption, production, and so on. This is what we trend to think of when economic discussions take place. There is, however, another economy, which we might designate as the Political Economy. One may safety treat the two as congruent, until there emerges a professional political class. At that point, the two economies diverge. The citizenry continues to labor, produce, consume and save. The political class, meanwhile, strives for the acquisition and retention of power. In a democracy, or a democratic republic, power can be acquired by offering short term benefits to voters. Power may be retained for awhile by providing short term benefits to as many voters as possible, given the existing accumulation of capital from prior generations. As long as that patrimony has not been fully depleted, the politicians can avoid the fundamental problem addressed by The Economy, which is the requirement to make choices. Low taxes and high spending make for lots of contented voters. Once the patrimony is squandered, the politicians can maintain the illusion that choices do not have to be made, by borrowing to fund the level of spending for which they dare not set a commensurate level of taxation. This involves squandering the resources of other nations. Once that source of fund dries up, through depletion either of the others’ resources or patience, the politicians must begin to divide the nation against itself. Their decisions on taxing and spending are disconnected from any considerations of how The Economy is affected, our what is required for proper governance of the nation. All decisions are driven solely by consideration of the next election: will this action cause a net increase in votes for the incumbents? Will this action improve The Economy in time for the election, disregarding whether the improvements are temporary or permanent? The end result, which is perfectly in accord with the Political Economy, is to make subjects of all citizens. Those being taxed must deal constantly with the politicians, bribing them to induce them to ease the burden of taxation. Those receiving benefits must genuflect, to protect themselves from a reduction or suspension of benefits. The final stage is when the producing class has been sufficiently burdened that it collapses, leaving no source of funding for the benefits received by the rest of society. Even in this final stage, the Political Economy will continue to function as before, though the politicians will now have to resort to inciting class warfare among the subjects. The progression from stage to stage is not inexorable. At most points, the voters can reassert themselves as citizens. Of course, this requires a population that has a moral core. One may, perhaps, find hope in the recent Greek elections, won by those advocating austerity; that is, by those telling the voters that choices must be made. One hours hopes the Greek citizens will stay the course. One hopes the citizens of other countries will learn from Greece, and take the necessary steps towards austerity sooner rather than later.

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