About the time our original thirteen states adopted their new Constitution in 1787, Alexander Tyler, a Scottish history professor at the University of Edinburgh, had this to say about the fall of the Athenian Republic some 2,000 years earlier:
“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always vote for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world’s greatest civilizations from the beginning of history, has been about 200 years. During those 200 years, those nations always progressed through the following sequence:
1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back into bondage”
Alexander DeToqueville said about the same thing fifty years later after visiting the USA. More recently, Joseph Schumpeter, the famous Austrian economist, saw the same cycle in another way.. In his Capitalism, Socialism, and Democracy he recognized that in advanced capitalist economies, once a wave of industrial expansion is over, entrepreneurship will cease to exist and will come to be replaced by socialism. His reasoning: In advanced economies, when innovation and entrepreneurship have led to massive wealth creation, the less fortunate begin to despise the wealthier classes (even though the wealthy may have created the jobs that helped drive the economy forward). In other words, class warfare eventually emerges. Capitalism’s collapse, argued Schumpeter, would come from within as social democratic forces usher in a welfare state … a heavy regulatory environment … and restrictions on entrepreneurship that burden and destroy the capitalist structure. This would eventually flatten both society and the economy.
It’s not too difficult to see class warfare on the way when the President excites audiences with the charge that the Banks and the Insurance Companies have exploited people long enough. ABC News this week has a special on the Middle Class who see their hope for a better life for their children disappearing. Who’s to blame? ABC suggests the rich and corporate folks are! Look, the bottom 50% of income earners now pay only 3% of the income tax, while the rich are penalized for their efforts. The top 5% pay 57% of the taxes. And You can bet taxes are going to go up to cover the spending.
Today, what is the biggest single expenditure in the Federal Budget, barely ahead of interest on past deficits? Entitlements! The transfer payments to individuals who feel the government owes them a welfare check, food stamps, unemployment payments, subsidized housing, and now maybe even free medical care. Congress learned long ago that they can stay in power, with enormous benefits and perks, if they make sure earmarks and pork barrel projects can bring federal money and jobs to their districts. How long can we keep “raising the ante”? How long can we keep borrowing from our children’s future to pay these voters off? The February deficit was $221 billion, the largest on record. Even if America taxed 100% of all household wealth, it would not be enough to put its balance sheet in the black. And Professors Rogoff and Reinhart show that when external debt passes 73% of GDP or 239% of exports, the result is default, hyperinflation, or both. IMF data show the US already too far gone on both scores, with external debt at 96% of GDP and 748% of exports.” While it seems that higher taxes and excessive inflation are likely, it’s still possible that the saner people will call a stop to the government madness. For now there are more people in the streets demonstrating for government restraints than government hand-outs. May their tribe increase.