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The real nature of politics


The rise of Donald Trump in the US Presidential candidacy is a result of the failure of other American politicians to come to grips with the electorate’s problems, says InDaily columnist Richard Blandy. Could it happen on our patch?

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Economists invented many of the intellectual ideas that have justified the growth of strong, large and interventionist government – the ideas of public goods, externalities, merit goods, imperfect information, redistribution, stabilisation and so on.

But we have come to discover through experience that the social usefulness of these ideas depends entirely on the public sector operating according to “the general interest of the society”.

South Australians, being optimistic and good-hearted people, would generally subscribe to the idea that that is how the public sector operates, because we citizens control the Government at elections, and we have a Parliamentary Opposition, a Parliamentary House of Review, an independent legal system, a free press and so on.

The fact that a large array of checks and balances on government power is needed if we are to be confident that the Government will act in our general interest should have warned us to the fact that far from being a group of altruistic policymakers, ministers of the Crown and their public servants are seeking to do the best for themselves.

Everywhere. Always. Experience of political arrangements without such checks and balances, of both left and right-wing regimes, has demonstrated this over and over again.

It is more useful, therefore, to consider Governments as comprised of self-regarding individuals and groups seeking to do the best for themselves and their principal special-interest clients. The South Australian Government, for example, will not necessarily improve the welfare of we, fellow South Australians, unless it is in its interest to do so.

It is in the interest of those who believe in strong government in South Australia to propagate the belief among the South Australian citizenry that without Tarzan looking after them, most of them would not stand a chance in the jungle of life. The truth is to the contrary, however: never did so many owe so little to so few. We are conned by the powerful and the cronies of big government to believe that they are operating in our interest when they are operating only in their own ideological and other interests.

It is one of the great advantages of the liberal democracy in which South Australians live that the interests of the State Government and the welfare of South Australian citizens coincide more often than in other kinds of regimes. Yet even here, “they” only do what “we” want and need if it is in “their” interest to do so.

Readers of my articles in InDaily will know that I believe South Australians would generally fare much better if the South Australian Government was economically smaller and intervened less in the economy.

In my opinion, we can expect, in due course, governments all around the world, of every ideological stripe, to start to pursue the sort of economic liberalisation that I am advocating for South Australia.

The reason for this change is not because of some conversion to liberal economic principles by policymakers all around the world who have come to see the error of their controlling ways, but because it is in the interests of governments all around the world.

Around the world, democratic governments are floundering after years of increasing regulation, planning and government spending, and restriction on private economic manoeuvre.

The bizarrely successful (so far) Donald Trump US Presidential candidacy is testimony to the American electorate recognising the failure of “normal” US politicians to come to grips with the electorate’s problems.

The major cause of what I expect to be a liberalising policy shift by policymakers around the globe is an attempt by them to regain control over economies which seem less and less amenable to the usual means of control.

Around the world, especially in the economically advanced countries, we are seeing recessionary rates of economic growth that appear to have become entrenched, despite significant strong government and central bank efforts at economic stimulus.

As I noted last week, the latest World Bank Report on global economic prospects forecasts global economic growth not exceeding 3.1 per cent p.a. for the next three years, with the advice that its forecasts are “subject to substantial downside risks”.

The trend (normal) rate of growth of the world economy exceeds 4 per cent p.a. So this rate of growth is very sub-par, and has been for a number of years. The bank has persistently been too optimistic about world economic growth in the past, also. High-income countries are forecast to have economic growth less than 2.1 per cent p.a.

The most important symptom of this malaise is a creeping fiscal crisis (excessive government debt) combined with historically low (and even negative) bank interest rates. (When I was a student we were taught that negative interest rates were impossible, because people and businesses would put their money in their own safes – or under the bed –  rather than pay banks to look after it for them).

The origins of this fiscal and monetary crisis lie in the creation of politically-determined entitlements to current and future income streams for various groups in the world’s advanced economies – the deserving poor, industrial workers, particular regions, pensioners, uncompetitive industries, and so on.

These politically-determined entitlements have to be paid for. So the gradual expansion of entitlements is accompanied by an expanding tax burden which leads to slower rates of economic growth and to generalised tax resistance, avoidance, evasion and growth in the underground economy. Fiscal deficits then become chronic and can be financed only by borrowing. Eventually the loans dry up.

This borrowing crisis severely curtails the scope for new spending initiatives by Government – and it is new spending that enables governments to exercise real power and to leave their mark. Without scope for new initiatives, governments are reduced to administering expenditure commitments inherited from their predecessors – and they may not even be able to sustain those. The power of the state to do things at its own discretion withers away.

Governments all round the world are facing crises like this. They are (or, in due course, will be) taking the axe to the inherited burden of regulation and tax for the same reason, everywhere: to give themselves renewed scope for the free exercise of power.

The vested interests which gain from the existing public expenditure and regulations will be confronted everywhere, in due course, and a more free-wheeling economy allowed to evolve, generating the reductions in debt and increases in tax revenues that will enable the cycle of government intrusion to start over again, and allow governments to “place their stamp” on their countries, and to be “strong”, yet again.

This is why we can expect a period of less-regulated, more lightly taxed, free markets to succeed our current poorly-performing, government-dominated state economy. It is in our state politicians’ self-interest for such a shift to occur. After a decade or more, this shift will restore our economy to vigorous growth, rising incomes and full employment. In due course, a new set of claimants for government economic and legislative support will emerge. They will be large and strong enough to be seen as tipping the political balance in elections. Strong government will re-emerge from the shadows where it has been hiding.

Richard Blandy is an Adjunct Professor in the Business School at the University of South Australia and a weekly contributor to InDaily.

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