Thursday, September 11, 2008

Democracy the Pyramid Scheme

I’ve always really liked this quote:

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.

Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.

As wonderful as this quote is, I think it’s missing something. The problem is not that people vote themselves largesse from the public treasury, but that they vote themselves largesse from the future’s public treasury, who must then vote themselves even more largesse from a further future public treasury, and on and on.

This sounds suspiciously like a pyramid scheme, or a Ponzi scheme, or the typical MLM. They all have one feature in common, they are destined to fail. They are completely unsustainable for one simple reason: The ability to keep pushing off responsibility onto someone else. Eventually you will run out of “someone else” and the music stops and no one has a chair.

Take a look at MLMs, for example. What is the single biggest difference between those that survive and those that fail? Those that survive have an actual product to sell, those that fail only sell the business itself (though they typically will have a token product which is overpriced and low quality). The problem with only selling the business is that it doesn’t actually generate any value, it can only transfer value from the late comers to the founders. No value (in the form of a quality product) goes the other way, so that the late comers need to extract value from later comers, and the cycle repeats. Eventually the supply of late-late-late comers is exhausted and there’s no value left to transfer up the chain and the whole thing collapses. Sound familiar?

Democracy is the greatest MLM of them all. It provides no real value, it only transfers it from later generations to now. Examples of the Social Security and Medicare crises in America, the pension problem here in Australia, Vajello California, and the weak balance sheets of most European nations are testament to that fact. People are outraged because the promises they voted to themselves aren’t being kept by the people who weren’t even alive when the promises were made. The solution, obviously, is for the current electorate to vote promises out of the as yet unborn. Yes, that’s sure to work, it always has in the past.

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