Ponzi Politics and Public Choice

by G. Murphy Donovan (February 2012)

“Somehow liberals have been unable to acquire a healthy skepticism of the powers of government agencies to do good.” – Daniel Patrick Moynihan (D-NY)

Social theory and political philosophy are now shot through with paternalism – the belief that successful individuals and nations are somehow responsible, literally and figuratively, for the “less advantaged.” The modern moral collective was probably an outgrowth of Marxism. Nonetheless, the communitarian world-view prevails in spite of the Communist collapse – a grand economic and social experiment that was clearly a victim of promissory default.

By the time social utopia crashed with the Warsaw Pact, the “vanguard of the proletariat” cared less for the masses than did capitalist oligarchs. Today, even China has abandoned the communist economic model. How well the unique fusion of communist politics and capital economics works in China remains to be seen. Europe and North America, however, still harbor legacy states where cynical communal manipulation, in the name of social justice, is less obvious, but just as corrosive – and expensive. Serial political and economic crisis in America and Europe may be symptoms of the same hubris and hypocrisy that undid the Communist empire.

Intelligent politicians on both sides of the democratic ideological divide probably know what needs to be done. What they don’t know is how to do the right thing and still get reelected. This dilemma may be at the heart of American and European economic inertia. Since the mid-20th Century, the social democracies, including the United States, have been making public promises they can not possibly keep. Democracy in the West has devolved to a kind of Ponzi politics where elections and high office are bought with promissory notes, a mortgaged future. Social “justice” and political fraud now seem to be partners in crime.

Similar paternalism also infects foreign policy. A public school system in Washington, D.C. or London might be an abject failure, yet NATO servicemen return from places like Iraq and Afghanistan bragging about how many schools they built. Programs like “nation building” in the Muslim world are mirror images of domestic social engineering projects; social leveling gone global.  

A significant portion of post-Communist social dogma in America can be traced to the late John Rawls (1921-2002), political and moral theorist at Harvard University. Rawlsianism is a speculation that argues for “distributive justice,” an ideal which suggests that if we could don a “veil of ignorance” (sic), and ignore the inequalities of nature, birth, and achievement; society could be organized around a set of principles where the point of departure is equality – and the end game is a consensus political system where the advantages of successful individuals work to the benefit of the “least advantaged.” The bottom line for Rawls is a kind of bumper sticker wisdom; “Justice equals fairness!” The fairness thread has become the weft of contemporary liberal cloth. President Barrack Obama’s most recent 2012 campaign rhetoric, for example, is ripe with appeals for justice and “fairness.”

Unfortunately, there is little consensus on the precise meaning of grand abstractions like justice and fairness. Like “hope” and “change,” such generalities are too vague to be social strategies or political destinations. Fairness is case specific and good luck with political principles that might insure justice. If politicians could reason their way to justice, the judiciary might be eliminated – and all the lawyers might be shot tomorrow. And if citizens could reason their way to fairness, logic would have them agitate to end costly programs that clearly do not work. In the real world, continued funding of failed social and strategic programs is “unfair” to the future – and today’s taxpayers.

The obvious flaw of utopian propositions, like those of Rawls, is that they appeal to the heart and not the head. Expressive choices seldom lead to logical outcomes or desired results. Public Choice theory provides a reality check for the emotional romanticism of distributive “justice.”

Public Choice advocates argue that voters, lobbyists, and politicians seldom vote for the common good – and least of all for justice. Such conclusions are based on three common sense observations. Few citizens in a Democracy have the necessary information to make logical policy choices. Most are likely to vote for narrow self-identities and even narrower self-interest. Lobbyists are motivated by whatever special interest pays best. And politicians are inspired to vote for whatever gets them reelected.

Predictably, these public players often make poor collective policy choices. The common outcome of this matrix is expensive programs, good and bad, that get cast in cement. The knee jerk answer to any program failure is every politician’s favorite asserted conclusion – spend more! Unfortunately, with social programs, “more” never seems to be enough.

Occasionally, an honest politician surfaces on the “distributive” side of the political spectrum. Ronald Reagan, Patrick Moynihan, and Adrian Fenty are examples. Reagan was originally a Hollywood Democrat and a union official. The Left never forgave him for changing parties and his dogged opposition to Communist ideology and big government. Senator Moynihan, a New York liberal, was vilified as a “racist” for criticizing failed social programs, many of which were doing more harm than good. The most recent casualty was Fenty, an atypical urban mayor who tried to reform the worst and most expensive public school system in America. The enlightened voters of Washington, DC promptly gave the mayor and his education chancellor, Michelle Rhee, one-term pink slips.

Michelle Rhee

All of the political rewards or payoffs in social democracies are associated with creating new programs or sustaining old ones. National security failures like nation building or domestic ciphers like public education and public housing are examples. Sailors do not get to be admirals by building fewer warships. Unfortunately, efficiency and effectiveness are minor considerations in contemporary policy debates. And unintended consequences, the harm a program might do, seldom factor into programmatic decisions.

Front-line failing states in Europe are called PIGS. Indeed, the acronym captures the hazards of social paternalism writ large. The pigs of social democracy don’t just eat anything; eventually, they eat everything.

The logical extensions of the Rawls arguments are statutes and levies that would level the playing field – such laws and taxes are coercive, not moral. Mandated philanthropy or redistribution of wealth is not any fairer than a coerced confession at a murder trial. The John Rawls model of fairness, with all its emotional appeal, may be just another echo or avatar of Communism. And too often, the silent partner for too many “equality” schemes is force, not persuasion.

Conservatives are not without fault in the fairness debate. They complain that bailouts and stimuli for industry remove moral hazards from the risk of doing business. Yet the absence of moral hazards is more of a problem for government than industry. When was the last time a major failed government program was dismantled? Indeed, the worst examples of modern governmental dissipation, foreign aid and nation building come to mind, have bipartisan support. Bipartisan good intentions now trump any measures of effectiveness.

Successful private enterprise is a study in contrast. When Apple Corporation fell on hard times, Steve Jobs came back to ruthlessly cut unprofitable and superfluous functions – including corporate philanthropy. Apple quickly refocused on its creative core and returned to profitability. In contrast, governments, especially federal governments, cannot stop doing that which does not work. It is government programs, not commercial enterprises, which are too big to fail. Long before the Apple success story, Daniel Patrick Moynihan wrote an epitaph for men like Jobs:

“The great corporations of this country were not founded by ordinary people. They were founded by people with extraordinary intelligence, ambition, and aggressiveness.”

Government policy can and does influence the world of commerce. Yet the influence is too often a one-way street. Governments have a congenital inability to stop, change, or end failed enterprises.

Inert government programs and associated civil “servants” may be greater hazards than robber barons, welfare cheats, or deadbeats. Indeed, the problem with the accolade “civil servant” is that only half the phrase is usually true. Bureaucrats and bipartisan social democrats are now ends in themselves and they just can’t say no to ever expensive and ever expansive civic largesse.  

A frugal taxpayer is thus caught by the short hairs; squeezed on the one hand by venal bureaucrats, where livelihood depends on government programs, and squeezed with on the other hand by the recipients of government largesse, dependents with a vote.

A quarter of the American population is living on the dole – a dole, at the federal level, that must borrow more than four of ten dollars spent. If all government employees (including public schools) at all levels are included, the figure is closer to 50 percent. The central truth of American culture today is that many social programs, public education included, are vote buying schemes where pathologies are subsidized for cynical political purposes. And failed programs are underwritten by implied threats from entitlement thugs. “No justice, no peace!” is the favored mantra.

A just society for any capital democracy might be something as simple as a balanced budget. If sovereign bankruptcy is the price of social justice, then eventually nobody gets paid. Even from Moscow, former IMF guru Martin Gilman understands the pickle: “The private sector, not the state, is the engine of prosperity.”

The problem with the “least advantaged” is that they may be too comfortable with their government subsidies and checks. America has the only obese underclass in the world, fed by a set of “political principles” and statutes where dependencies, as Patrick Moynihan argued are generational. Adding insult to civic injury, public housing and public schools, for example, provide too much grist for an overburdened judicial mill.

The American and European dilemma brings that shopworn lawyer’s joke to mind; “Justice, justice! I demand justice,” cried the plaintiff. To which the judge replied; “Sit down and shut up, sir. This is a court of law.”

If “justice is fairness” and fairness is a function of government “distributive” mandates, then that equation is a formula for collapse. Voters and politicians no longer distinguish between wants and needs. Democracy itself and economic sanity is now hostage to the romance of social leveling. A more practical or utilitarian vector might save the day. We may not have a complete recipe for universal social success, but what doesn’t work has been obvious for decades. No society can expect prosperity, or justice, by subsidizing domestic or foreign policy failures. Less is more.


G. Murphy Donovan is a former Intelligence officer who writes for frequently about politics and national security.

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