Democracy and the Good Life: Part 2

Democracy and the good life - the democratic marketplace

The Democratic Marketplace

“To the somber warfare of creeds and sects there succeeded the squalid but far less irrational or uncontrollable strife of parties” Winston Churchill on the aftermath of the English Civil War

If free markets are the arena and engine of capitalism, democracy also involves a free (though sometimes carefully designed) marketplace in which votes determine who gets the power to govern.

It is tempting to consider the dollar as the fundamental currency of the economic market and the vote as the basic unit of the democratic marketplace. Put in these terms, the democratic marketplace is inherently more equitable. Some people have many more dollars than others — but everyone has exactly one vote. This misses the mark on both sides of the equation. Both dollars and votes are measures of power in the marketplace. However, votes and dollars work differently and represent different kinds of things. In the economic realm, dollars are a medium of exchange and a store of value. They can be used to measure success or economic power but their use in that context is secondary and ambiguous. The function of dollars is not to measure success.

A couple of examples will illustrate the point.

1) Person A has made ten million dollars and has spent nine million dollars travelling around the world enjoying life. Person B has made two million dollars and has spent $100K living a frugal life. Person B has more money than Person A — so in terms of current wealth we would classify Person B as richer, but Person A has made far more than Person B. Which of them is more successful? There is no answer to that question. In fact, though we often use stored money (wealth) as a rough proxy for success, it functions not as a marker of the thing itself but as a proxy.

2) Consider Person A who has become the CEO of a mid-size company and is now worth 20 million dollars versus Person B who won the lottery yesterday and went from being worth 25 thousand dollars to being worth 40 million dollars. Would we describe Person B as much successful than Person A?

Because money is a store of value, having it represents real power, success or comparison be damned. Your having 2 million dollars does not make my having 1 million dollars somehow worth less than 1 million dollars. My million dollars is a call on goods and services worth 1 million dollars.[1]

Of course money isn’t just a store of value. It’s also a medium of exchange, used to set the value people place on any potential transaction even of very different goods and services.

Votes simply don’t work this way. It is much harder in a democratic marketplace to establish voter preferences across many different dimensions. Elections represent a single decision that must wrap up judgements across countless different voter preferences and interests into a single outcome.

Nor is it entirely correct to think of money as the fundamental unit of the marketplace — at least with respect to an individual. As decision-makers, our fundamental unit is time. We exchange time (and effort) — money is just the marker that lets us make those exchanges seamlessly in large, complicated marketplaces.

Votes work differently in almost every respect. Votes are neither a store of value nor a medium of exchange. On the other hand, votes ARE a measure of success, determining who gets to do what. Elections are binary in nature. There is a winner and a loser and the loser with one vote fewer than the winner has no stored value and no power (of course, this fact is often ameliorated by having multiple elections in different places and areas that tend produce more balanced judgements).

That balance doesn’t always obtain. The vote of a Republican in San Francisco is meaningless. A Republican voter in SF does not have a millionth say in things — he or she has a zeroeth say in things. A vote is not inherently worth anything — it isn’t a store of value — and its value is importantly determined by how other people behave relative to you.

In a large democracy, individual votes are almost meaningless. It is the ability to harvest votes that matters and power and success in the political arena are measured by that ability. This ability is not tied to anything particularly relevant to governance or representation. Lebron James has far more political power than all but a tiny percentage of people. So to do Kim Kardashian, Tucker Carlson, Oprah Winfrey and Aaron Rogers. If you are famous, rich, sexy, related to fame, a union leader, a party insider, a content maker, or a political consultant you wield considerably more power in the democratic marketplace because you have skills or platforms that can be used to harvest votes. The idea that power in democracy is equally distributed because everyone has one vote is as absurd as the idea that wealth in a free-market system is equally distributed because everyone has the same amount of time in a day.

Modern critics of capitalism harp on the massive inequality in wealth and consequent economic power. Yet it is not obviously the case that power in the democratic marketplace is any less unequal. Quite the contrary. Political power is much harder to measure than dollars, but it seems likely that far less than 1% of the people in the United States (and any modern democracy) control far more than 33% (the share of economic wealth enjoyed by the top 1%) of the political power.

And unlike material wealth where straightforward mechanisms exist for limiting wealth accumulation (e.g., progressive taxation and estate taxes), there are no clear mechanisms for limiting the power of vote harvesters in a democracy. Political reformers have focused on the role of money, but it’s unclear why limiting the power of the wealthy is more important than limiting the power of the famous, the well-connected, the media savvy, the organizationally super-competent, or the overly time-committed. What makes the vastly unequal power of Joe Rogan or Kim Kardashian or Ezra Klein different or less problematic than the vastly unequal power of Charlie Munger?

What’s more, those who control or harness votes wield extraordinary power in our society, far more than any capitalist. People often complain that the outcomes of elections don’t matter (and in a sense they are often right), but they matter a very great deal to the people who win or lose and those in their camp. The winners in democracy control 30–50% of the total GDP of most modern countries, and that direct control is only a modest portion of the power government wields since the winners also get to make the rules of the game. They can legally take money from some people and give it to others (including themselves and their friends). They can eliminate entire classes of human endeavor and they can artificially incent totally different types of activity. They can make some activities illegal (smoking marijuana), others practically impossible (building a condominium in San Francisco), and some merely economically injurious (smoking cigarettes or betting on horse-racing). They can make going to Mars a trillion dollar priority or they can spend that money on climate change or nuclear bombs or helping Nigeria or building walls in a desert.

As with any human endeavor, when that much is at stake, the competition to win will be fearsome. But how do you win in the democratic market?

Winning in the Political Marketplace

You win in a democracy by being able to harvest votes. Naturally, as the democratic marketplace matures and becomes more efficient, those involved in the process get better and better at exploiting niches that allow them to harvest votes efficiently. By doing so, they gain power within the system and can steer governmental decisions to benefit themselves or those who support them (thereby creating additional ways to retain those votes or harvest new ones).

Political stakeholders in a democracy have three basic strategies for getting votes: giving people direct rewards (power or jobs), giving people indirect rewards (regulatory, tax, and welfare policies that benefit specific targeted groups), and ideology (convincing people that some policy is right or morally desirable).

Patronage, the first of these methods, is vital within the community of core stakeholders. The professional infrastructure of political parties, local politicians, and political content producers operate at the level of patronage. Patronage, though, particularly in a low-corruption society, has limited scale. It’s extraordinarily impactful to the people it benefits but the range of people it can work on is very limited. There are only so many positions of power to go around.

Traditionally, that makes indirect rewards the great engine of democratic vote harvesting — particularly at any level above the town or city where patronage can dominate. Democratic governments now claim legal entitlement to every aspect of their citizen’s lives and product. Governments might not CHOOSE to take everything a citizen owns, but they could. In no modern Western democracy is 99.99% taxation or government confiscation of property illegal. In the 2020 Covid-19 pandemic, governments shutdown businesses, forbade public meetings and church services, put in nightly curfews, required masks to be worn, closed public spaces, eliminated the right of free-travel, restricted access to public and private spaces for the unvaccinated, and curtailed speech on internet platforms. It’s unclear what limits there were, if any, on the power of the government when it chose to exert that power.

Even during normal times, governments can tax people and organizations differentially at any rate they choose. Governments have the power to regulate businesses out of or into existence. Governments can print money and spend it on anything deemed important, including the creation of millions of jobs to do whatever it is they want done. They can forcibly conscript any citizen and put them under military discipline. And they can imprison or even kill them if they do not go along. In short, there are no real limits on the potential power of government and, therefore, no limits on their ability to steer indirect rewards to constituencies. Governments have, in effect, the entire lives of every person in the society at their disposal.

When it comes to controlling this kind of power, the stakes are huge. And since so much of that power is the power to give people benefits or saddle them with costs, it’s no surprise that indirect rewards have been the battleground over which most public policy is fought. On the other hand, indirect rewards nearly always come with direct or indirect costs. When governments give money to some people, they must take it from others (even printing money is just a way of taking money from everyone via inflation or borrowing it from future generations). Regulations that benefit some people will likely harm others. In public policy and in the distribution of indirect rewards, there is almost never a free lunch.

That’s why, in a large, well-functioning democracy, power is usually distributed across a vast array of stakeholders: professional politicians, political parties, civil servants of various stripes, unions, corporations, the very wealthy, and countless cross-constituencies that range from flat-out majorities (women) to tiny demographics (Iowa family farmers). This widespread distribution of power helps ensure that specific constituencies don’t dominate the process and steer disproportionate benefits or control to themselves.

Where a nearly free lunch can be found, it is ruthlessly exploited. Book a hotel room in a major city and you will likely find that a significant percentage of the cost is taxes. In San Francisco where I live, there is a 14% city tax, a .2% California tourism tax, and a 2% Tourism Improvement District Tax (a cruel joke to anyone who has visited the “Tourist District”) in addition to all the normal taxes that apply. Anaheim, host to Disneyland, does this one better with a 17% hotel tax. Why are these tax rates so usurious? They are paid by people who cannot vote against the politicians who levied them.

Every citizen in SF and Anaheim is happy to rapaciously exploit the tourists who come to our cities. That’s the way democracy works.

Fortunately, free lunches of this sort are hard to find. And the fact that benefits create losses helps ensure that public policy stays in some kind of balance. If any group gets too disadvantaged, they will fight harder and spend more in the political arena until some balance is restored or the group is destroyed.

Governmental share of GDP has been growing for centuries and it’s hard to know if that share will ever stop or if it will eventually swallow the entire scope of human endeavor. If this seems hyperbolic consider than in the two-plus centuries of the United States, governmental share of GDP has grown from something like a hundredth of GDP to nearly half. The current situation would have been unimaginable for any government, organized on any lines, anywhere in the world, just two centuries ago.

It’s likely that large modern democracies would be safer with more built-in restrictions on what the government can do. But a strong civic culture combined with tremendous diversity of interest have worked surprisingly well. In the last century, most Western democracies have existed with theoretically unlimited governmental power. Yet despite this vast control over indirect rewards, not a single major Western democracy has yet come to grief. Inevitably, some or all will founder, but they have proven that with the right culture, such a model can work over a considerable length of time (which is really all you can ask of any political system).

As Churchill remarks, this fight over benefits can seem sordid, but it is both rational and controllable. Voters (and politicians) always talk about the public good, but the pressure to confuse self-interest and public interest is considerable and until recently professional vote harvesters assumed that pocketbook issues (self-interest) dominate ideas (group interest). When that stops being true, things get far more dangerous, and it is in the realm of packaging ideas (ideology) for use in the political marketplace that the most dangerous fruits of modern democracy are being sown.

Why is ideology a growth industry and what makes it dangerous?

From a professional political perspective, getting voters to buy a package of ideas is an incredibly efficient way to harvest votes. Unlike patronage or indirect awards, ideas cost nothing, they are easily marketed, don’t involve trade-offs or costs to others, and don’t require any understanding of policy or government. Ideology scales.

The result is that most of the effort political stakeholders have made in the last half-century to improve their vote-harvesting has been in the realm of ideology. Democratic systems have seen declines in the mechanics of direct patronage and the importance of indirect benefits on voting. Where local politics was once dominated by “machines”, it’s now a blend of ideology (I live in a nuclear free zone — just in case the 20th AF wants to locate missile silos just north of San Francisco) and indirect rewards. And while national policy was once dominated by fights over taxation and welfare benefits, it’s now dominated by arguments about culture that have no actual impact on people’s livelihood or material well-being. Society has been re-worked into armed camps built around a giant package of ideas and sustained by a vast marketing machine.

People who have no trouble at all understanding how economic markets exploit our fundamental desires to shift preferences, use our cognitive limitations to their advantage, and deploy sophisticated marketing to create unwanted preference change, sometimes miss the obvious point that democratic marketplaces must — inexorably — do exactly the same thing to the fullest extent that they can.

How could they not? Why would they not?

Democracies create the same ruthless incentives to exploitation in the political marketplace that capitalism creates in the economic marketplace. The rewards are even larger and unlike markets, whose power is limited by government, the limitations and regulations of the political marketplace are often set at the whims of the victorious.

The key points are these. Democracy creates a marketplace for votes. That marketplace is different than the marketplace for goods and services, and the vote works quite differently than the dollar. Yet there is nothing in the democratic marketplace that guarantees equality or regulation of an uncontrolled market. Indeed, there is good reason to think that the nature of votes vs. dollars combined with winner-take-all elections makes political markets potentially more exploitative and almost certainly more unequal than economic ones. Democratic systems must be very carefully designed to combat these tendencies — and the more direct the democracy, the less likely such design is to exist.

There are three ways to harvest votes in a democracy: patronage, indirect rewards, and ideology. All are important, but ideology has become much more important than it once was. There’s a tendency to think that voters should vote based on what they believe is best, not on what rewards they can reap. But self-interest in a democracy tends to distribute widely and create amorphous interests that keep power from becoming centralized. Ideology has no such limitations. It’s a far more dangerous political instrument.

Of course, I’ve merely asserted this increasing role for ideology. In Part 3 of this series, I’ll deep dive into why the current political marketplace is so favorable to ideological marketing. Then, in Part 4, I’ll explain why that’s a problem not just for the functioning of democratic societies, but for each of us, as individuals.

[1] The case of inflation complicates but should not obscure the basic premise. At any given moment a dollar is worth whatever a dollar is worth and its value to the holder is not changed by whether someone else has more.

[Read Part 1 for a defense of the value of Democracy for the Good Life]

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