Schumpeter was spot on

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There was never a trickle down effect

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Joseph Schumpeter on The Great Enrichment

A Schumpeterian explanation of the recent rejection of the centre-left in Europe

Kiwiblog put me onto the story in the Guardian about how only one third of Europe’s population is governed by the centre-left and the left is lost all but one of the last 13 elections in Europe. The exception was Greece, which they may regret.

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Austria, Croatia, the Czech Republic, France, Italy, Malta, Slovakia and Sweden are the only EU members that are on the centre-left. In 2011, only 14.5% of the 28 countries’ total population was led by the centre-left. In 2007, it was nearly 45%.

The reason for the shift to the right can be explained by Joseph Schumpeter’s theory of democracy. Schumpeter disputed the widely held view that democracy was a process by which the electorate identified the common good, and that politicians carried this out:

  • The people’s ignorance and superficiality meant that they were manipulated by politicians who set the agenda.
  • Although periodic votes legitimise governments and keep them accountable, their policy programmes are very much seen as their own and not that of the people, and the participatory role for individuals is limited.

Schumpeter’s theory of democratic participation is that voters have the ability to replace political leaders through periodic elections.

Citizens do have sufficient knowledge and sophistication to vote out leaders who are performing poorly or contrary to their wishes. The power of the electorate to turn elected officials out of office at the next election gives elected officials an incentive to adopt policies that do not outrage public opinion and administer the policies with some minimum honesty and competence.

Power rotates in the Schumpeterian sense. Governments were voted out when they disappointed voters with the replacement not necessarily having very different policies. Greece is the exception to this.

@MaxRashbrooke The top 1% in New Zealand are lazy and incompetent as a ruling class

The top 1% in New Zealand really have been dropping the class war ball for at least a generation.

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Source: The World Top Incomes Database.

Not only have the New Zealand top 1% been pretty miserable at increasing their share of incomes, hardly any change since 1990 and not much before that, the top 1% allowed inequality in both consumption and disposable income to actually fall since 1990 as shown by Treasury analysis published today.

Joan Robinson was on to this in the 1940s when she said the battle cry of Marxists would have to change from the 1848 version “rise up ye workers, rise up for you have nothing to lose but your chains” to “rise up ye workers, rise up for you have nothing to lose but the prospect of a suburban home and a motorcar”.

Today that battle cry of the Marxist revolution would have to be “rise up ye workers rise up for you have nothing to lose but your iPhone and your air points”. As Joan Robinson observed in the 1940s, that’s not much of a basis for a revolutionary movement.

The first citizen initiated binding referenda will be on…

The Conservative Party of New Zealand in the 2014 general election was very much formed around the notion of introducing citizen initiated binding referendums in a country with the Parliament is sovereign. The first referendum is likely to be on one of the following:

· decriminalising marijuana,

· banning smoking,

· voluntary euthanasia,

· a living wage,

· life means life in prison,

· same-sex marriages,

· marriage is between a man and a woman,

· entrenching the Treaty of Waitangi,

· abolishing the Maori seats,

· entrenching the Maori seats,

· stop school closures, and

· capital punishment; and

· future referendums not be binding

Binding referenda are unworkable. Parliament can’t amend them later as we learn from the implementation of the law and unintended consequences arise. Every new law is riddled with unintended consequences and blow-backs.

Do you really want to have to have another referendum to undo a binding referendum that turned out to be a bit of a mistake? One of the few redeeming features of the Parliament that is sovereign – a parliament for can make or unmake any law whatsoever – is it can repeal its mistakes quickly.

The first citizens initiated referendum was held on 2 December 1995. The question was

Should the number of professional fire-fighters employed full-time in the New Zealand Fire Service be reduced below the number employed in 1 January 1995?

Turnout was low as the referendum was not held in conjunction with a general election, and the measure was voted down easily, with just over 12% voting “Yes” and almost 88% voting “No”.

The key to constitutional design is not empowering you and yours – it is how to restrain those crazies to the Left or the Right of you, as the case may be, when they get their hands on the levers of power, as they surely will in three, six or nine years’ time.

The one inevitability of democracy is power rotates – unbridled power and binding referenda lose their shine when you must share that power with the opposing side of politics who put up their own referendum question.

Constitutions are brakes, not accelerators. Much of constitutional design is about checks and balances and the division of power to slow the impassioned majority down.

Constitutional constraints are basically messages from the past to the present that you must think really hard, and go through extra hurdles before you do certain things.

The 18th and 19th century classical liberals were highly sceptical about the capability and willingness of politics and politicians to further the interests of the ordinary citizen, and were of the view that the political direction of resource allocation retards rather than facilitates economic progress.

Governments were considered to be institutions to be protected from but made necessary by the elementary fact that all persons are not angels. Constitutions were to constrain collective authority.

The problem of constitutional design was ensuring that government powers would be effectively limited. The constitutions were designed and put in place by the classical liberals to check or constrain the power of the state over individuals.

The motivating force of the classical liberals was never one of making government work better or even of insuring that all interests were more fully represented. Built in conflict and institutional tensions were to act as constraints on the power and the size of government.

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Representative democracy is a division of labour in the face of information overload. John Stuart Mill had sympathy for parliaments as best suited to be places of public debate on the various opinions held by the population and as a watchdog of the professionals who create and administer laws and policy:

Their part is to indicate wants, to be an organ for popular demands, and a place of adverse discussion for all opinions relating to public matters, both great and small; and, along with this, to check by criticism, and eventually by withdrawing their support, those high public officers who really conduct the public business, or who appoint those by whom it is conducted.

Representative democracy has the advantage of allowing the community to rely in its decision-making on the contributions of individuals with special qualifications of intelligence or character. Representative democracy makes a more effective use of resources within the citizenry to advance the common good.

Members of parliament are trustees who follow their own understanding of the best action to pursue in another view. As Edmund Burke wrote:

Parliament is not a congress of ambassadors from different and hostile interests; which interests each must maintain, as an agent and advocate, against other agents and advocates; but parliament is a deliberative assembly of one nation, with one interest, that of the whole; where, not local purposes, not local prejudices ought to guide, but the general good, resulting from the general reason of the whole.

You choose a member indeed; but when you have chosen him, he is not a member of Bristol, but he is a member of parliament. … Our representative owes you, not his industry only, but his judgment; and he betrays instead of serving you if he sacrifices it to your opinion.

Modern democracy is government subject to electoral checks. Citizens do have sufficient knowledge and sophistication to vote out leaders who are performing poorly or contrary to their wishes. Modern democracy is the power to replace governments at periodic elections.

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The power of the electorate to turn elected officials out of office at the next election gives elected officials an incentive to adopt policies that do not outrage public opinion and administer the policies with some minimum honesty and competence.

Richard Posner argued that a representative democracy enables the adult population, at very little cost in time, money or distraction from private pursuits commercial or otherwise:

  1. to punish at least the flagrant mistakes and misfeasance of officialdom,

  2. to assure an orderly succession of at least minimally competent officials,

  3. to generate feedback to the officials concerning the consequences of their policies,

  4. to prevent officials from (or punish them for) entirely ignoring the interests of the governed, and

  5. to prevent serious misalignments between government action and public opinion.

Enough of politics and elections, I have a life to lead. Don’t you? Too many want to remake democracy with the faculty workshop as their model.

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Such deliberation has demanding requirements for popular participation in the democratic process, including a high level of knowledge and analytical sophistication and an absence, or at least severe curtailment, of self-interested motive. The same goes for citizen initiated binding referendums.

Labour Party betrays working class again: nanny state obligations to enrol to vote

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Extraordinary. Political junkies don’t realise that there are people out there that have better things to do with their lives than take an interest in politics.

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It’s a free society. They are free not to listen, not engage and not vote for anyone. Free speech includes a right not to speak and not to participate. If you disappointed with that political apathy, put forward a party platform that excites them enough to vote. Get out the vote by being worth voting for.

What is more extraordinary is a party that claims to speak for the working class first opposed obligations on welfare benefit receipt regarding looking more intensively for work and paying court fines and so forth, but it is happy to use the same provisions for their own political advantage because they are on the ropes. The New Zealand Labour Party’s party vote at the last election was at record low levels. It is still at the same level in the opinion polls.

As for voter registration drives in working-class electorates, the New Zealand Labour Party has no large donors apart from unions. The reason for this is as their former president, Mike Williams says " if you don’t ask, you don’t get ".

Voter registration is voluntary in the USA and for all its flaws, and I think there are far fewer than people say, Richard Posner could still give an excellent defence of political participation in the USA:

American democracy enables the adult population, at very little cost in time, money or distraction from private pursuits commercial or otherwise, to punish at least the flagrant mistakes and misfeasances of officialdom, to assure an orderly succession of at least minimally competent officials, to generate feedback to the officials concerning the consequences of their policies, to prevent officials from (or punish them for) entirely ignoring the interests of the governed, and to prevent serious misalignments between government action and public opinion.

Too many as Richard Posner has argued well in his writing want to remake democracy with the faculty workshop as their model. Such deliberation has demanding requirements for popular participation in the democratic process, including a high level of knowledge and analytical sophistication and an absence, or at least severe curtailment, of self-interested motives.

Much empirical research demonstrates that citizens have astonishingly low levels of political knowledge. Most lack very basic knowledge of political parties, candidates and issues, much less the sophisticated knowledge necessary to meet the demands of a deliberative democracy.

One reason for these low levels of political knowledge is a large number of people are simply not interested in politics even if they have the time to take an interest.

Because of this political ignorance and apathy, Posner championed Schumpeter’s view of democracy. Schumpeter disputed the widely held view that democracy was a process by which the electorate identified the common good, and that politicians carried this out:

  • The people’s ignorance and superficiality meant that they were manipulated by politicians who set the agenda.
  • Although periodic votes legitimise governments and keep them accountable, their policy programmes are very much seen as their own and not that of the people, and the participatory role for individuals is limited.

Schumpeter’s theory of democratic participation is that voters have the ability to replace political leaders through periodic elections. Citizens do have sufficient knowledge and sophistication to vote out leaders who are performing poorly or contrary to their wishes.

The power of the electorate to turn elected officials out of office at the next election gives elected officials an incentive to adopt policies that do not outrage public opinion and administer the policies with some minimum honesty and competence.

The outcome of Schumpeterian democracy in the 20th century, where governments are voted out rather than voted in, is that most of modern public spending is income transfers that grew to the levels they are because of support from the average voter.

Political parties on the Left and Right that delivered efficient increments and stream-linings in the size and shape of government were elected, and then thrown out from time to time, in turn, because they became tired and flabby or just plain out of touch.

I wouldn’t revel too much on the higher voter turnout  as as yet another saviour on the horizon to bring the Left over Left back from the political wilderness. The most votes ever won by a political party in the UK was 14 million by John Major’s Tory party in 1992 when the shy Tories came out in force to re-elected the incumbent government much the surprise of the opinion polls.

Higher voter turnout is not necessarily always a good thing in terms of good governance. William Shughart found that voter participation increases in gubernatorial elections in the USA when evidence of corruption mounts. Candidates, political parties, and interest groups have incentives to invest in mobilising support on Election Day.

Those who stand to gain from being office through their corruption invest considerable resources in mobilising voter turnout that is in their favour. Corruption increase the value of winning public office and strengthens the demand-side efforts to build winning coalitions.

In a prophetic article at the dawn of the Internet, Robert Tollison, William F. Shughart II, and Robert McCormick wrote in 1999 about how voting is not the only way in which people express their political preferences effectively.

Observers of American democracy complain that voter turnout and voter registration are low and had been low from 50 years. Tollison, Shughart, and  McCormick reminded these critics that:

Voters now have more political information available to them than ever before, and they are no longer confined to expressing their political preferences at the polls once every two or four years.

Newly available technologies have lowered voters’ costs of becoming informed about political issues and of communicating with their political representatives.

Voter registration and voter turnout is lowest among young people who also happen to be the most Internet savvy. This is not surprising considered the prophetic observation of Tollison, Shughart, and  McCormick in 1999 that:

What is more important, the opinions voters form on the basis of the information available to them can be communicated to policy makers rapidly and effectively.

E-mails, faxes, and phone calls are substitutes for ballots. By the time an election rolls around, politicians and policy makers already know what the voters think and, hence, their wishes have already been incorporated into laws and policies.

Tollison, Shughart, and  McCormick asked why vote when you have already influenced political outcomes through alternative means between elections such as social media:

Having affected policy outcomes, voters are naturally less interested in voting on candidates. Low turnout rates on election day may paradoxically be evidence of greater voter participation in the political process.

In fact, we are fast approaching a return to the town meeting, where individuals register their preferences on specific policy proposals and politicians can assess the intensities of those preferences by reading their e-mail. Indeed, voters can vote as much and as often as they want in the information age.

It is not surprising therefore in this prophetic article that Tollison, Shughart, and  McCormick predicted that politicians would pay close regard to social media, and if they did, democracy works:

As long as politicians are good agents who read their faxes and e-mails correctly, voters will correspondingly have less need to go to the polls.

Voters will vote only when their representatives ignore their electronic opinions. Indeed, that is the implicit threat.

And because voters don’t have to go to the barricades to voice those opinions, political discourse should become more civil and political protests less frequent and disruptive.

HT: Nick Kearney

Saving jobs thwarts the emergence of better paid new jobs

Creative destruction in 3-D printers

Creative destruction in the US technology sector since 1980

Creative destruction defined

Has any brave souls actually read Schumpeter’s “History of Economic Analysis?

HT: https://twitter.com/dandolfa/status/552321737376145408?s=09

Joseph Schumpeter on The Wealth of Nations

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Deirdre McCloskey compares John Kenneth Galbraith with Joseph Schumpeter

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Joseph Schumpeter’s Adam Smith

 

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