How Politicians think

The reason why I started this blog is to highlight the current flaws in a modern democracy. I have argued in my earlier articles that the personal interests of votrepreneurs (politicians) do not always coincide with the long term interests of the country. The voters may be forgiven for thinking that votrepreneurs will do what is in the best interests of the country. But that is false.

The personal interest of the politician is to gain and keep power. This may or may not be in the best interests of the country as a whole. So I felt my opinion to be validated when I saw a comment made by former Clinton advisor, Dick Morris, in a recent article:

And Obama will move to change permanently the partisan balance in America. He will move quickly to legalize all those who have been in America for five years, albeit illegally, and to smooth their paths to citizenship and voting. He will weaken border controls in an attempt to hike the Latino vote as high as he can in order to make red states like Texas into blue states like California. By the time he is finished, Latinos and African-Americans will cast a combined 30 percent of the vote. If they go by top-heavy margins for the Democrats, as they did in 2008, it will assure Democratic domination -- until they move up the economic ladder and become good Republicans.

Dick Morris is an old hand who has a good insight into the minds of politicians. The reason why the Democrats are interested in giving amnesty is to get themselves elected. This would endear themselves with the Hispanic minority by portraying Republicans as racists. They don't care if immigration policies make sense. These illegal immigrants are not well educated. Surely a policy of allowing better educated immigrants would enrich the country more than barely educated illegals.

While some businessmen are happy with the cheap labor, low wage workers will find their wagers depressed because of competition from illegals. The children of these illegals also attend schools which are paid for by taxpayers. This could be one reason why California is going broke. Illegals also account for a disproportionate amount of crime.

While some politicians salivate about a loyal new bloc of voters but the costs in higher crime, higher state spending, depressed wages are shouldered by the rest of the population.

There is also a high risk that many of these new immigrants may refuse to assimilate. The votrepreneurs (politicians) could be planting the seeds of a break-up of the USA in 20 or 30 years' time. But of course, they won't be in office by then and so they don't care.

Furthermore, President Barack Obama has said that he wants to create 3 million jobs by borrowing and spending $1 trillion. Why spend that borrowed money when he can create 12 or 13 million jobs by sending home the illegals? All he has to do is to pass laws heavily penalizing landlords and employers for housing and employing illegals.

How come the votrepreneurs can get away with it? I believe its because while the benefits to a minority are large and immediate, the costs to the majority is diffused over a bigger number of people and stretched out over a longer period of time.

Who benefits from giving amnesty to illegals? Well for one, politicans (mostly Democrats) who advocate amnesty will benefit from a bloc of newly minted citizens. The Hispanic community will be happy because they will have more of their fellow ethnic group as fellow citizens. Employers who can get cheaper labor will be happy. For them, the benefits are large and immediate.

Who bears the costs? The rest of the population (the majority) will bear the cost. But the cost - in terms of higher crime, higher taxes, risk of a break-up of the USA etc is not so apparent because it will be spread out over a larger number of people and paid over a longer period of time. So it does not pay the rest to get too agitated over it. That's why politicians can get away with doing wrong things.

How do we reform the system such that the political elite's personal interests coincide with the long term welfare of the country they profess to care for? America had such a system in the 18th and 19th century.

At that time, only those with property (and hence paid most of the taxes) could vote. With stakes in the country, these voters would take a long term view of the country. So they voted in politicians whose interests coincided with the long term interests of the country. What America had at that time was in fact a quasi-aristocracy. It worked better. But of course, we can't go back to those days.

It is unfair if you deprive people of the right to vote. The only way to reform the system was a proposal I first brought up in my essay, "Democracy needs a Reformation."

I proposed that votes be transferable. Each citizen will start out with one vote each. But he or she can sell his vote or buy more votes up to a maximum of say 5 votes. In this way, we tilt the balance towards those who think more for the long term, those who pay more taxes and those who care more about the issues. At the same time, we do away from the middlemen - the politicians who get elected by buying votes with taxpayers' money.

The trillion $ bailout of Obama's Presidency

In a few days' time, Obama will be sworn in as President and his Presidency is already in need of a bail-out. He knows that the economy is in the dog-house. If he does not turn it around in four years' time, he will not be re-elected.

So this $1 trillion stimulus plan is also the Obama Presidency bail-out plan. What does he intend to do with the money. Other than the $300 billion tax cuts, its spend, spend and spend.

The Keynesian theory goes that spending money will stimulate the economy. Spend money on infrastructure will create jobs in the construction industry. Obama wants to create 3 million jobs.

If job creation is the reason for the $1 trillion spending extravaganza, there are far cheaper and better ways of doing it.

The best ways to lay solid foundations for America's future prosperity and hence job createion are things he (or any other President) does not dare to do.

Firstly, he can send the illegal immigrants home by penalizing employers and landlords who hire and house them. This is a no go because he would offend Hispanic voters. He would also offend employers who want to hire them because of their cheap labor. Yet if he is willing to be unpopular, he can create maybe 12 million jobs at a tiny fraction of the cost. Instead he is going to borrow and spend $1 trillion to lift the economy a little bit and saddle you and your kids with debt.

Secondly, he can repeal the Community Reinvestment Act which forced banks to lend to people who got no money to buy housing. This was what got the housing bubble started. No go either. He was for it when he was a senator. A repeal is too unpopular with his voters.

Thirdly, he can reform public education. Education is the key to prosperity. This one is really long term in nature. But that means tackling the teachers' union who are his voters. No go either.

Fourthly, don't bail out any more companies - especially the auto companies. There will be enormous pain for the next 4 years but in the long run, new firms will come forth and the economy will be in a stronger footing in the future. No go here either. The unions are his workers and now its pay back time.

The chief flaw in democracy is its short term nature. You can't get leaders who plan 10 years ahead because he is up for elections four years from now. I am sure you have heard the saying, "No pain, no gain."

Sometimes you have to deliver pain in the short term (like 3 or four years) to give gain in the long term (like the next 10 years after the pain). Unfortunately, no President can do that because he would be booted out after 4 years and his successor will take the credit. So you end up with short term gain and long term pain.

So Obama comes up with a trillion dollar plan to boost the economy. It will stimulate some spending but at what price? The huge debt will be a drag on the economy for the next thirty years, assuming he is going to at least partially fund it with long term 30 year bonds. This generation and the next generation of voters will pay for it. But of course, if it stimulates the economy enough to make Americans feel good by the end of the 4th year, he gets re-elected.

Therefore, it won't help the economy in the long run but will definitely help Obama's re-election prospects if all that spending can lift the economy enough for him to be re-elected. That is why I said at the begining that the $1 trillion dollar stimulus plan is really the Obama Presidency bail-out plan.

So, all the right things are things that no politician can do. The problem is systemic. You can't do the right thing and get elected. As what Luxumberg's PM said, "We all know what we need to do, but we don´t know how to win elections after we have done it."

That is why I think democracy may not surive another 100 years unless you can reform the system. We need to devise a system that rewards votrepreneurs (politicians) for doing the right things, not the wrong things.