A Political Megacycle

[Finster]

At the time our original 13 states adopted their new constitution, in 1787, Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years prior:

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

"The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

1. From bondage to spiritual faith;

2. From spiritual faith to great courage;

3. From courage to liberty;

4. From liberty to abundance;

5. From abundance to complacency;

6. From complacency to apathy;

7. From apathy to dependence;

8. From dependence back into bondage "

[jk]

Re: A Political Megacycle

here's hoping he's wrong.

[Finster]

Re: A Political Megacycle

here's hoping he's wrong.

Fingers crossed! Fortunately, our founders did not give us a pure democracy, but a limited government republic. At the close of the Constitutional Convention in Philadelphia on September 18, 1787, a Mrs. Powel anxiously awaited the results, and as Benjamin Franklin emerged from the long task now finished, asked him directly: "Well Doctor, what have we got, a republic or a monarchy?" "A republic if you can keep it" responded Franklin. http://www.house.gov/paul/congrec/co...0/cr020200.htm. The federal government, with the complicity of the Supreme Court, has been busily chipping away at those limits at least since 1860. To what extent that trend can be reversed or abated remains to be seen.

[EJ]

Re: A Political Megacycle

Fingers crossed! Fortunately, our founders did not give us a pure democracy, but a limited government republic. At the close of the Constitutional Convention in Philadelphia on September 18, 1787, a Mrs. Powel anxiously awaited the results, and as Benjamin Franklin emerged from the long task now finished, asked him directly: "Well Doctor, what have we got, a republic or a monarchy?" "A republic if you can keep it" responded Franklin. http://www.house.gov/paul/congrec/co...0/cr020200.htm. The federal government, with the complicity of the Supreme Court, has been busily chipping away at those limits at least since 1860. To what extent that trend can be reversed or abated remains to be seen.

Fantastic point. We in the US do not live a democracy. We live in a Republic.

It withstood The Great Depression, and it will withstand this next challenge.

There is another megatrend that represents a cycle of history going back many thousands of years, the tendency of political economies to evolve according to EJ's Ten Stages of Political Economic Evolution:

1) Free markets with few controls create economic incentives for production, resulting in the creation of great wealth. Government policies are focused on providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

2) Equality of opportunity does not guarantee equality of result, thus some groups do better than others.

3) Inter-generational factors that wealth enhances, especially education and social relationships, begin to concentrate wealth.

4) A subset of society begins to use educational and social institutions consciously to pass on from one generation to the next a disproportionately large capacity to generate and retain wealth. Equality of opportunity becomes less of a policy focus for government. However, the majority has access to a sufficient portion of total wealth generated to remain politically inactive.

5) Government policies develop to re-enforce the concentration of wealth and privilege. Wealth and income disparity become severe as equality of opportunity is no longer even an objective of government policy.

6) The wealthy minority is able to use money and know-how to manipulate the political system to maintain the status quo, even as the majority begin to organize politically to fight for a larger share of the wealth generated by all, confusing the cause of the problem (lack of equality of opportunity) and the effect (lack of equality of result). The wealthy minority grows arrogant and over-reaches the government's ability to fulfill its economic or military commitments, usually in international affairs.

7) An economic or military crisis occurs due to over-reach. The minority are unable to continue to manipulate the political system to their advantage. A leader emerges to lead the majority. The political collapse of the minority is sudden, sometimes violent.

8) The majority vote for a socialistic economic order that they perceive will more fairly distribute wealth, often promised by a dictator usually posing as a populist.

9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

[jk]

Re: A Political Megacycle

Fantastic point. We in the US do not live a democracy. We live in a Republic.

It withstood The Great Depression, and it will withstand this next challenge.

There is another megatrend that represents a cycle of history going back many thousands of years, the tendency of political economies to evolve according to EJ's Ten Stages of Political Economic Evolution:

1) Free markets with few controls create economic incentives for production, resulting in the creation of great wealth. Government policies are focused on providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

2) Equality of opportunity does not guarantee equality of result, thus some groups do better than others.

3) Inter-generational factors that wealth enhances, especially education and social relationships, begin to concentrate wealth.

4) A subset of society begins to use educational and social institutions consciously to pass on from one generation to the next a disproportionately large capacity to generate and retain wealth. Equality of opportunity becomes less of a policy focus for government. However, the majority has access to a sufficient portion of total wealth generated to remain politically inactive.

5) Government policies develop to re-enforce the concentration of wealth and privilege. Wealth and income disparity become severe as equality of opportunity is no longer even an objective of government policy.

6) The wealthy minority is able to use money and know-how to manipulate the political system to maintain the status quo, even as the majority begin to organize politically to fight for a larger share of the wealth generated by all, confusing the cause of the problem (lack of equality of opportunity) and the effect (lack of equality of result). The wealthy minority grows arrogant and over-reaches the government's ability to fulfill its economic or military commitments, usually in international affairs.

7) An economic or military crisis occurs due to over-reach. The minority are unable to continue to manipulate the political system to their advantage. A leader emerges to lead the majority. The political collapse of the minority is sudden, sometimes violent.

8) The majority vote for a socialistic economic order that they perceive will more fairly distribute wealth, often promised by a dictator usually posing as a populist.

9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

i'm having a lot of trouble applying this model. it looks like a description of laissez-faire and gilded age to roaring 20's to crash and depression, but fdr wasn't exactly a socialist [closer to the european model of social democrat], nor was he a dictator. those later steps in the model sound like a description of what happened in russia post 1917, but the earlier stages of the model don't apply at all to russia's earlier history. i suppose we could try weimar germany, but that history doesn't work either. so i guess i need more explication.

[Finster]

Re: A Political Megacycle

i'm having a lot of trouble applying this model. it looks like a description of laissez-faire and gilded age to roaring 20's to crash and depression, but fdr wasn't exactly a socialist [closer to the european model of social democrat], nor was he a dictator. those later steps in the model sound like a description of what happened in russia post 1917, but the earlier stages of the model don't apply at all to russia's earlier history. i suppose we could try weimar germany, but that history doesn't work either. so i guess i need more explication.

This might be splitting hairs, but if FDR wasn't a socialist, he did a darn good impression of one. He was head and shoulders more socialist than anything the US had seen up to that point at least. And I would hardly be alone in calling what you term the European social democrat just plain socialist.

We could start getting pedantic though and argue that the US isn't even a capitalist or social economy, but mercantilist. Some economists, such as Thomas J. DiLorenzo, prefer that appellation for the post Civil War US. Not to get bogged down in semantics, though; regardless in Europe there is a substantially greater element of central planning in economic structure.

[jk]

Re: A Political Megacycle

This might be splitting hairs, but if FDR wasn't a socialist, he did a darn good impression of one. He was head and shoulders more socialist than anything the US had seen up to that point at least. And I would hardly be alone in calling what you term the European social democrat just plain socialist.

We could start getting pedantic though and argue that the US isn't even a capitalist or social economy, but mercantilist. Some economists, such as Thomas J. DiLorenzo, prefer that appellation for the post Civil War US. Not to get bogged down in semantics, though; regardless in Europe there is a substantially greater element of central planning in economic structure.

even if you say fdr was a socialist, how do you map the following onto u.s. history?

9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

[Finster]

Re: A Political Megacycle

even if you say fdr was a socialist, how do you map the following onto u.s. history?

9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

I'm not sure EJ intended it to apply with mathematical precision, but IMO the depression would have been over much sooner had it not been for FDR's socialist New Deal. It eventually took a major war and victory to shake the economy out of the depression. We got a nice reprieve during the Eisenhower and Kennedy era, then the second wave of New Deal socialism with Johnson's Great Society program. By the end of the 1970's the majority got sick of the poverty, and in 1980 threw out the socialists and put in a more free market oriented Reagan administration.

[jk]

Re: A Political Megacycle

I'm not sure EJ intended it to apply with mathematical precision, but IMO the depression would have been over much sooner had it not been for FDR's socialist New Deal. It eventually took a major war and victory to shake the economy out of the depression. We got a nice reprieve during the Eisenhower and Kennedy era, then the second wave of New Deal socialism with Johnson's Great Society program. By the end of the 1970's the majority got sick of the poverty, and in 1980 threw out the socialists and put in a more free market oriented Reagan administration.

please explain how you see fdr's policies working to prolong the depression. and if the fed had been significantly more stimulative at the time, do you think that fdr's policies would still have retarded recovery?

[Finster]

Re: A Political Megacycle

please explain how you see fdr's policies working to prolong the depression. and if the fed had been significantly more stimulative at the time, do you think that fdr's policies would still have retarded recovery?

Almost any incursion of government force into the private economy retards it virtually by tautology. Free people economically act in such a way as to maximixe their own material well-being. So when the government in any way forcibly intervenes, it must result in less material well-being for individuals.

It is what caused the depression in the first place. The Federal Reserve was established in 1913 to create artificial credit. At the same time, the dollar was still officially backed by gold. Since the supply of dollars was expanded far beyond the supply of gold, the government's actions created a massive game of musical chairs. When the music stopped and people went to collect on debts, they found they couldn't all be paid. The inflation the Fed had fostered since 1913 all unwound within the space of three years, resulting in massive and very painful deflation.

If the Fed had been any more stimulative after 1933, it could only have made things worse. In fact the economy suffered rampant inflation once the constraint of official gold backing was removed. This, like FDR's policies, also exacerbated the depression.

A number of writers have explained the particulars. Christopher Westley, for example, writes:

FDR embraced policies that aimed to stop prices and wages from correcting and embarked on the boldest federal intrusion of the private sector in the history of the U.S.—all justified by a crisis made worse by previous attempts to stop prices and wages from correcting. And when his policies didn't cause the promised happy days to return again, the golden tongued-FDR could be counted on to shift the blame—to Hoover, the Republicans, greedy businessmen, flaws in the free enterprise system.

He was good at it too, but when the excuses grew tired, Roosevelt dependably grew the state. Unemployment rates still high? Then pass my Social Security program to get those old-timers to give up their jobs for the younger workers. Dairy prices still falling? Then order the USDA to pour milk into sewers until prices rise again. The Supreme Court against me? Then let's add a few members. The economy in worse shape seven years into the New Deal? Then get out those war drums and let's get involved in the mess in Europe.

http://www.mises.org/story/1816

And we also have a description of the genesis of the Great Depression in the words of one Alan Greenspan:

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

http://www.321gold.com/fed/greenspan/1966.html

[jk]

Re: A Political Megacycle

finster- i'm too tired at the moment to go through your whole response- i'll get to it tomorrow. but i just wanted to respond to this"

Almost any incursion of government force into the private economy retards it virtually by tautology. Free people economically act in such a way as to maximixe their own material well-being. So when the government in any way forcibly intervenes, it must result in less material well-being for individuals.

use the search function to find and read my post about "wellbutrin."

i'll wait...........




markets can fail, and one role of government is to address market failures. [this is not to justify all the crazy things done by our or any other government - farm price supports, bridges to nowhere, $600 toilet seats, donald rumsfeld's salary]

[bart]

Re: A Political Megacycle

even if you say fdr was a socialist, how do you map the following onto u.s. history?

Originally Posted by ej
9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

ej would be the right one to answer this, but my take is that its not U.S. history but rather something in the U.S. future... and also tracks well Tyler's views.

[Finster]

Re: A Political Megacycle

finster- i'm too tired at the moment to go through your whole response- i'll get to it tomorrow. but i just wanted to respond to this"



use the search function to find and read my post about "wellbutrin."

i'll wait...........

I hope you are not holding up our mess of a health care system as an example of how well things work when government doesn't interfere.

markets can fail, and one role of government is to address market failures. [this is not to justify all the crazy things done by our or any other government - farm price supports, bridges to nowhere, $600 toilet seats, donald rumsfeld's salary]

"Markets can fail." Sounds like a dodge to me. Nowhere here do you actually address what you purport to: my statement "Almost any incursion of government force into the private economy retards it virtually by tautology. Free people economically act in such a way as to maximixe their own material well-being. So when the government in any way forcibly intervenes, it must result in less material well-being for individuals." Much less with such a broad-brush platitude as "markets can fail'. If do you decide to address it, please do so fully considering the context in which it was stated. Perhaps you could explain, for example, how if Party A and Party B want to enter into a mutual exchange that each believes benefits himself, provided there is no force or fraud, how a forcible intervention from me or you or someone else in a distant city can improve on it.

This is exactly what Westley was talking about in the above quote. The government's attempt to forcibly regulate wages and prices, under FDR's leadership, frustrated the attempts of a free people in a free economy to recover and prolonged the misery.

[aweber]

Re: A Political Megacycle

Fantastic point. We in the US do not live a democracy. We live in a Republic.

It withstood The Great Depression, and it will withstand this next challenge.

There is another megatrend that represents a cycle of history going back many thousands of years, the tendency of political economies to evolve according to EJ's Ten Stages of Political Economic Evolution:

1) Free markets with few controls create economic incentives for production, resulting in the creation of great wealth. Government policies are focused on providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

2) Equality of opportunity does not guarantee equality of result, thus some groups do better than others.

3) Inter-generational factors that wealth enhances, especially education and social relationships, begin to concentrate wealth.

4) A subset of society begins to use educational and social institutions consciously to pass on from one generation to the next a disproportionately large capacity to generate and retain wealth. Equality of opportunity becomes less of a policy focus for government. However, the majority has access to a sufficient portion of total wealth generated to remain politically inactive.

5) Government policies develop to re-enforce the concentration of wealth and privilege. Wealth and income disparity become severe as equality of opportunity is no longer even an objective of government policy.

6) The wealthy minority is able to use money and know-how to manipulate the political system to maintain the status quo, even as the majority begin to organize politically to fight for a larger share of the wealth generated by all, confusing the cause of the problem (lack of equality of opportunity) and the effect (lack of equality of result). The wealthy minority grows arrogant and over-reaches the government's ability to fulfill its economic or military commitments, usually in international affairs.

7) An economic or military crisis occurs due to over-reach. The minority are unable to continue to manipulate the political system to their advantage. A leader emerges to lead the majority. The political collapse of the minority is sudden, sometimes violent.

8) The majority vote for a socialistic economic order that they perceive will more fairly distribute wealth, often promised by a dictator usually posing as a populist.

9) Socialistic policies create economic disincentives for production, resulting in mass poverty, except for the political party leadership.

10) The majority get sick of the poverty, throw out the socialists and demand free capitalist markets with few controls and government policies that are aimed at providing the greatest equality of opportunity for the majority in order to tap the greatest human potential of the society.

Just curious to know where did you introduced the fake money ? What to do with the evil guys that invented it ?