“Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” — H. L. Mencken

Mass democracy and individual liberty do not mix, despite the propaganda. Surely, if a majority can vote against the rights of the minority, the libertarian case against democracy becomes clear enough. This is why so many who favor democracy embed within its definition the concept of certain basic civil liberties of the minority protected against mob rule. Thus 60% of the population voting to exterminate a small minority would be considered “anti-democratic.” Yet if 60% vote merely to loot the minority, it would be considered undemocratic to stand in the way. Who it is who decides which rights are up for majority vote and which are not is always a difficult question to resolve.

In practice, you cannot have true majority rule for everything. The reason is obvious. Everyone would be voting all the time on all matters, no matter how trivial. So who decides what is being voted on? A democratic system cannot help but result in a power elite in practice. Mass democracy must be filtered through some sort of legal and political structure—and what results is essentially a ruling oligarchy.

Nor is the idea of a “republic” as being distinct from a “democracy” nearly as meaningful as is often assumed. Many will protest that the United States is not a democracy. It is a republic—or, it should be. The two words share much in etymology and meaning. A republic is a “state in which supreme power rests in the people.” That’s essentially what a democracy is.

Indeed, the fundamental difference between “representative democracy,” in which the “will of the people” is expressed through and tempered by a structure of delegates, legislators, electors and the like, on the one hand, and a “representative republic,” on the other, seems rather elusive to me. In either case we are conceding that “the public” are not to be trusted too much.

Of course many respond that the answer to the dangers of democracy is a Constitution. But , in the long run, outside marginal instances, a Constitution can limit state power only so long as the people are already predisposed to wanting to see power limited in any event. Where a paper Constitution is necessary it will prove to be insufficient. Where it is effective it will be a redundancy. We can assume that panels of wise and benevolent politicians and judges will keep the public’s thirst for oppression in check. Then once again, we are back to the assumption that something resembling a rule by a few truly is preferable to rule by the mob—straying further from the whole point of democracy.

As troubling as the implicit reliance on oligarchs and committees to “refine” the will of the people might be, what is even worse is the foundational ethical principle in democracy—that the people are the government or, to put it more modestly, that the government is some kind of expression of the people’s will.

Different critics of democracy have raised many objections, based on game theory, natural rights, public choice, time preference, the fact that we can never expect the voters to be quite as noble and vigilant, enlightened and jealous of their own rights, as we would all hope. Yet to me the most compelling case against democracy is the very notion that the state, an inherently coercive and collectivistic monopoly, be somehow associated with the best interests of the greater society. Under monarchy, autocracy, and naked dictatorship, we at least know one thing: the ruling class does not serve its subjects; it parasitically lives off them. In democracy, the idea becomes popular that those with the power of life and death over others are exercising this power on behalf of the common man. All states require a public ideology that either tolerates or supports the state’s existence and depredations on freedom. Democracy, like no other system, dupes the masses into believing that the state really is on their side. It creates the perfect storm for a deep if somewhat temperate oppression, as the state becomes increasingly active and meddlesome, and instead of cowering in fear or resenting the state for ripping them off, subjects become complacent or even celebratory at the sight of their rights and responsibilities co-opted in the name of the good of all. After all, if we are the state, who can complain? To badmouth a state’s treatment of prisoners, taxpayers, or foreign victims of war too vociferously becomes taboo, because “in a democracy, the government is us!” The Divine Right of Kings has nothing on this rationalization for oppression, this masquerading of institutional evil as the greatest public good.

But surely the state is responsive to the people! Consider a couple pieces of evidence to the contrary. About 3/4 of Americans—including over 2/3 of Republicans!—want the federal government’s raids of medical marijuana clinics to end. These raids, inaugurated by Clinton, stepped up by Bush, and vastly expanded by Obama, are thoroughly unpopular. Even a vast majority of law-and-order conservatives want to see the federal government stop its waste of resources cracking down on sick users of this relatively harmless controlled substance. Yet the raids persist and the administration laughs at those who would suggest drug law reform.

Or consider the centerpiece of the president’s foreign policy: The Afghanistan war. It is now about as unpopular as the Vietnam war was in the 1970s. Only about one out of four Americans supports the war effort. Not only does the war persist in spite of this; the administration is planning on a significant U.S. presence there through 2024.

At various other times, we see other government programs survive despite being unpopular—bailouts, health care subsidies, and foreign aid. The system is set up so the American people might hate what the government does but, believing that it is in the end speaking on behalf of “the people,” they tolerate its excesses and even atrocities because they believe in the system’s overall legitimacy. The ideology of democracy combined with the structure of the democratic state thus produces results even worse than democracy in a pure form would in many isolated cases.

All in all, however, the people mostly favor most of what government does where it most matters. Most Americans say they resent the federal government, but when particular spending programs are brought up in polls, almost all of them receive majority approval. What’s more, the majority of Americans at times favor all sorts of policies that are even worse than what the power elite want, for our rulers are aware that some policies, even popular ones, would be so disastrous to the economy that they would kill the goose that lays the golden egg. I’m thinking of protectionism and anti-immigration sentiment, in particular—policy areas where the ruling class is statist, but knows that the full-blown controls over society supported by the majority would be too harmful to their tax base.

I suppose we can take some solace in the fact that while in many cases we live under something worse than democracy, in what is likely many more cases, true democracy would be far worse than what we have.

Do the banking panics of the late 19th century prove that a safe and sound financial system requires government oversight of banks? Paul Krugman (and most every pundit) seems to think so. In his New York Times column of May 13, he writes: “Current right-wing mythology has it that bad banking is always the result of government intervention, whether from the Federal Reserve or meddling liberals in Congress. In fact, however, Gilded Age America—a land with minimal government and no Fed—was subject to panics roughly once every six years.”

That volatility would seem like a slam dunk for Team Krugman—except for one thing: the banks of that era did, in fact, face onerous government regulations that weakened the safety and soundness of the financial system. Krugman has picked an example that undermines his case; the Nobel laureate in economics and celebrated commentator has misread U.S. banking history.

As Steven Horwitz notes at Coordination Problem, banks were not allowed to operate branches across state lines, and this prohibition of interstate banking hindered their ability to diversify their portfolios and made them prone to panics. Moreover, federally chartered banks were required to back their currency with government bonds; this regulation made it too costly for them to respond to increases in the demand for money by issuing more bank notes, which in turn led to currency shortages and financial crises, such as the disastrous Panic of 1907.

Horwitz continues:

But Krugman has a much bigger puzzle to explain away: if free markets in banking are the problem, why did Canada, which, during this period, had a far less regulated banking system than the US, not experience the panics we did, and why did no Canadian banks fail during the Great Depression while around 9000 US banks did? If Krugman’s criticism of the “mythology” is correct, the Canadian banking system of that era should have been a basket case, but instead it was a model for the world precisely because it lacked the two most damaging government regulations present in the US. Canadian banks have always been free to operate nationwide and were, before 1934, able to issue their own currency free of bond collateral requirements. The very free market in Canadian banking dramatically out-performed the much more regulated US system.

So Professor Krugman, what say you? If the reason banks fail is because free markets in banking don’t work, how do you explain the lack of the problems you claim plague free markets in the much less regulated pre-1934 Canadian banking industry? The mythology, Professor, is your history, not mine.

Well said.

One of the biggest targets of liberal acrimony in California is Proposition 13, the 1978 ballot initiative that capped property taxes at 1% and requires 2/3 of legislative approval to increase most tax rates. It also caps the reassessment of real estate value by 2% per year, barring new construction or a change in ownership.

During the major last budget crisis many suggested repealing this cap as a solution. “I don’t know how we can talk about reforming the California budget without reforming Prop. 13,” said San Francisco Assessor Phil Ting, who advocated raising rates on commercial properties.

According to the U.S. Census Bureau, as of 2005, California ranked 45th nationwide in property tax rates as a percentage of real estate value. But in terms of per capita income, Californians rated 17th, paying the state an average of 3.17% of their income for the privilege of living in their own homes. Since housing prices were grossly inflated over the last few years—and this author thinks they still are—millions of middle-class Americans with new homes forked over quite a bit. Many landlords barely break even, once they pay tribute for the continued right to own their own property.

States without a cap on property assessments have suffered skyrocketing taxes with the housing boom. Rates have gone up 100% in some Florida markets. Along Lake Tahoe in Nevada, property taxes went up 135% in a period of four years. For those on fixed incomes or retirees with little more than their home to their name, Proposition 13 has been a lifesaver in today’s volatile housing market.

Despite Prop 13, Sacramento’s property tax revenue ballooned during the housing bubble—increasing 22.11% from 2000 to 2005, about the same rate that general per capita revenue increased over the same time, even as per capita income only increased 13.8%, according to the Center for Governmental Analysis. Indeed, property tax revenue rose 30 years in a row after Prop 13’s passage and has now declined for only one year.

With the housing bust, property tax revenues declined, to the consternation of Prop 13 critics. They believe that as houses have been immensely discounted, they will now change hands and be capped in their reassessed value, meaning that “even after the economy recovers, state and local government budgets will not recover fully,” as Jean Ross of the California Budget Project wrote. But this presupposed that real estate will reenter a bull market and continue to climb. It has hardly done so. And given that government has been growing faster than the economy, couldn’t it be time for that trend to reverse?

Moreover, how much money are we really talking about? The San Francisco Chronicle lamented that declining property taxes means a $1.5 billion cut in education spending. That sounds like a lot, but given the huge changes in the housing market and the size of the budget, $1.5 billion is almost rounding error—smaller than the disparity between the true budget shortfall and the shortfall finally closed after months of heated debate.

While California rakes in about 20 billion yearly in property revenue, it is one of the highest taxed states in America overall. The problem is too much spending, not that taxes are too low.

California’s state budget is now facing a $16 billion shortfall, much larger than it appeared in a January forecast. In a recent post I compared California’s recent budget growth with Florida’s, and noted that while California’s budget has grown by 5.6% since 2006, Florida’s state budget shrank by 5.3%. If California’s budget shrank during the recession like Florida’s did, it would be $14.2 billion lower today, or just $1.8 billion out of balance.

The article I linked to mentions spending cuts without saying what spending would be cut, but also specifically mentions higher income tax rates and a higher sales tax rate as ways to address the cuts. Comparing California’s budget with Florida’s, where taxes have not been increased, shows that California’s problem is not too little revenue coming in, but too much spending.

Over the long haul, higher taxes in California will just chase California taxpayers to other states — like Florida. California is already a high-tax state, and even higher taxes will further hurt California’s long-term economic prospects.

On May 8th, five economists, including our Research Fellow Peter Klein, appeared in testimony before the U.S. House Committee on Financial Services Domestic Monetary Policy and Technology Subcommittee, chaired by Congressman Ron Paul. The panelists included two economists from the Austrian School, two Keynesians, and one monetarist:

• Peter G. Klein, Research Fellow, The Independent Institute; Associate Professor of Applied Social Sciences and Director, McQuinn Center for Entrepreneurial Leadership, University of Missouri (Austrian)
• James K. Galbraith, Lloyd M. Bentsen, Jr., Chair in Government/Business Relations and Professor of Government, University of Texas (Keynesian)
• Jeffrey M. Herbener, Professor of Economics, Grove City College (Austrian)
• Alice M. Rivlin, Senior Fellow, Economic Studies, Brookings Institution (Keynesian)
• John B. Taylor, George P. Shultz Senior Fellow in Economics, Hoover Institution; Raymond Professor of Economics, Stanford University (monetarist)

Here is Dr. Klein’s written testimony, “Federal Reserve Folly and the Great Recession,” and the full panel can viewed below:

For further information on the harmful effects of central banking, including the Federal Reserve, please see the following:

Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, by Robert Higgs

Financing Failure: A Century of Bailouts, by Vern P. McKinley

Money and the Nation State: The Financial Revolution, Government and the World Monetary System, edited by Kevin Dowd and Richard H. Timberlake, Jr.

"This book is essential reading for those wishing to understand water markets and advance more sensible public policies." —LEE J. ALSTON, University of Colorado

Water shortages and poor water quality are looming threats in many developing countries. By contrast, water supplies and water quality have increased in much of the United States due to a specific policy innovation: water markets and market-like exchanges. The growing participation of wildlife agencies and conservationists in water markets and exchanges is especially fascinating, considering that many hardcore environmentalists disdain markets. This trend is examined in detail in the new Independent Institute book, Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T. Simmons.

How big a deal are water markets for wildlife agencies and conservationists? From 1987 to 2007, more than 2,500 transactions involving so-called “instream rights” were completed in Arizona, Colorado, Idaho, Nevada, Oregon, and Wyoming, with total expenditures exceeding $530 million. Clearly, these groups see benefits to buying rights to ensure water flows that support healthy ecosystems. And yet although these trends are encouraging, the contributors to Aquanomics explain that water markets face serious challenges: changes to federal and state laws, the expanding public-trust doctrine in the courts, and the assertions of new stakeholder rights—these are weakening the enforcement of contracts and property rights in water. For water markets to live up to their full potential, more regulators and conservationists must learn how a market-based system of water rights can reduce waste and pollution, and enhance water flow, water quality, and ecosystem management.

Aquanomics also examines other emerging topics in water policy, such as dam removal. It offers a framework to rationally evaluate proposals to decommission the estimated 79,000 dams in the United States deemed to pose “high” or “significant” risks in the event of failure. It also offers several valuable lessons regarding California water issues, such as the conflict over the Sacramento–San Joaquin River Delta and the encouraging history of groundwater management in the Los Angeles Basin; these are lessons applicable outside the Golden State.

Aquanomics offers both descriptive and prescriptive analyses that support the case for water markets and property rights. Filled with fresh insights, it will quench the thirst of readers interested in the world’s most vital natural resource.

Purchase Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T. Simmons

Read the book summary.

[This post first appeared in the May 8, 2012, issue of The Lighthouse, the Independent Institute's weekly newsletter. To receive The Lighthouse and other email notices from the Independent Institute, enter your email address here.]

When over the weekend the media began breathlessly repeating claims from unnamed intelligence officials that the CIA had foiled a deadly terrorist plot, I immediately suspected this would turn out like all the other cases, in which the episode is at least partly manufactured by some intelligence agency then used to demonstrate the need for the War on Terror. Most homegrown “terror” suspects are loners recruited by FBI informants and encouraged to engage in terrorists acts, supplied with equipment and instructions, then dramatically stopped at the last minute and with great fanfare by the FBI.

Sure enough, we now learn that underwear bomber #2 was a Yemeni double agent, most likely working for the CIA. How many times must we repeat this little bit of political theater before the public wises up?

It’s not enough, apparently, that the TSA has a well-established record for humiliating, degrading, stealing from, bullying, and terrifying the traveling public. Its agents’ arrogance is now moving into the realm of actually life-threatening.

A Type-1 diabetic teen’s insulin pump was broken by a TSA scanner, despite her showing a TSA agent her pump and providing her doctor’s documentation that she not be put through the screening machine:

Having thus caused her $10,000 pump to cease operating properly, TSA agents compounded their total ignorance:

She says TSA agents then made the situation worse when they didn’t know what to do about her juice and insulin. “She said, because we don’t have the machines to scan the juice to make sure this is not an explosive we do have to do a full body pat down and search your through your bags.” Of course, that’s what she wanted in the first place, but it was too late.

Born May 8, 1899, F. A. Hayek made landmark contributions to more subjects than most social scientists are even conversant in: economic theory, social-science methodology, political and legal theory, intellectual history—he had something valuable to say about all of these and more.

Because so many great pieces about Hayek’s life and work have been written over the years (see, for example, this brief eulogy written by late Julian Simon or any of these articles from The Independent Review), I see no need for me to add to them here.

Instead, I thought it more fitting to quote one my favorite paragraphs by him:

We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a programme which seems neither a mere defence of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical and which does not confine itself to what appears today as politically possible…. Those who have concerned themselves exclusively with what seemed practicable in the existing state of opinion have constantly found that even this has rapidly become politically impossible as the result of changes in a public opinion which they have done nothing to guide. Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in the power of ideas which was the mark of liberalism at its best, the battle is not lost.

From Studies in Philosophy, Politics and Economics (1967)

The blind Chinese activist Chen Guangcheng’s hopefully being able to take refuge (with his family) as a visiting scholar at NYU would indeed be a happy outcome of his ordeal. His documentation of forced late-term abortions and sterilizations has led to more than four years in prison; followed by his, his wife’s, and children’s being held under house arrest for a year and a half, that included his wife’s being beaten; and ending with a harrowing cross-country escape to the U.S. Embassy, during which he broke or sprained his leg. Uncertainty continues, as he remains in a Chinese hospital with promises made, but no passport or details for his move to the U.S. provided, though the Chinese government is certainly expressing its desire to see him obtain refuge in academe.

What a far cry from the drama I witnessed as a student 30 years ago at Stanford, when another documentarian of Chinese forced abortions found himself expelled from academe under pressure from the Chinese government.

At that time, Stephen Mosher was a Ph.D. candidate at Stanford, and the first American student allowed to conduct anthropological research in rural China after the Cultural Revolution. What he discovered there, and made very public, was the practice by the Chinese government of enforcing its one-child policy through involuntary, often very late-term, abortions. Following Mr. Mosher’s making his findings public, the Chinese government protested to Stanford University—threatening the school with never being able to send another researcher to China—which expelled him.

Mr. Mosher subsequently published his findings in the widely-acclaimed book Broken Earth: The Rural Chinese, and now serves a president of the Population Research Institute. He describes his turn from being a vaguely pro-choice academic to pro-life activist, beginning with his witnessing the women undergoing forced abortions:

“They were crying, begging for mercy and praying for their dying children. It’s one thing to think about abortion in the abstract, but when you see a baby at seven-months gestation, it’s a baby — truly one of us.”

In hindsight, he says that visit to the Chinese abortion facility forced him to abandon his casual, untested adherence to moral relativism and embark on an uncharted spiritual pilgrimage.

“On a scale of evil from 1 to 10, this was a 10. And if there is absolute evil, I concluded that there also must be a counterbalancing absolute good — or the universe would be truly mad.”

And thus he became a Christian.

There are conflicting reports on whether or not Chen Guangcheng is a Christian, but Christian activists have been assisting him, both in his escape from house arrest and in helping shine the bright and public light on his plight that provides his best hope for escaping further government persecution.

Yet Chen Guangcheng as anti-abortion activist has received very little play—in almost none of the incredible amount of press he has been receiving is he identified as other than a generic “dissident.”

So, is the difference between Mr. Mosher’s and Mr. Chen’s treatment the downplaying of the “abortion” angle in Mr. Chen’s case; or is it rather China’s increased comfort with the world’s knowing that this is how its one-child policy is enforced?

After all, in a “developed” world moving increasingly towards a neo-Malthusian view of humans as “useless eaters,” and away from our Judeo-Christian foundational view of every human as a sacred creation equally endowed with inalienable rights, China’s policy is looking almost mainstream.

We can but hope that as China liberalizes its economic policies, it will see rewards as those reaped during previous centuries in Christendom—with quality of life rising concurrent with explosive population growth—and as a consequence abandon its cruel methods of population control. For when humans are allowed to exercise and capture the benefits of our ability to innovate, resources expand, lifestyles are raised, and life expectancies increase across the board. Malthus was wrong, Ehrlich was wrong, and the thinking underlying China’s one-child policy is wrong. Yet as Julian Simon observed long after he had won his bet against Paul Ehrlich’s Population Bomb predictions, these arguments are won not on facts or utilitarian arguments, but in the basic philosophical war now being waged: are we simply members of a group whose numbers must be “managed” by a central authority, or are we autonomous, sacrosanct individuals whose rights—beginning with our right to life—are inviolate?