The Great Conceit of Democracy

Another of the great conceits of the Western civilization, circa 2005, is that democracy makes people more peaceful and more prosperous. The evidence for the peaceful part is blemished by the history of the 20th century — in which nations that were democratic (at least at the beginning) fought the bloodiest wars in history. But how about prosperity? Does voting really make people wealthier?

A new study done by a pair of Stanford professors seemed intended to prove the point. The professors spend many pages explaining how democratic openness leads to market reforms, which then lead to greater output. But the actual evidence is inconclusive. According to the report in the International Herald Tribune, about as many countries lost ground, thanks to democracy, as gained it.

The professors looked at GDP rates in countries that have gotten people to line up at voting booths in the last 30 years. Then they compare growth rates in the 10 years before democracy to rates of growth in the 10 years following. Looking down the list, we see several marginal “winners” and only one big one — Chile, where GDP growth rose from 1.6% in the 10 years prior to democratization to 5.8% in the years after. On the other hand, what strikes our eye is a couple of big losers. Portugal’s growth rate fell from 7% before democratization in 1974 to 1.2% after. Spain’s growth rate dropped to 0.3% from 5.4% and Ecuador practically went broke; it’s growth rate fell from 6.8% to minus 0.4!

• An interesting report in Barron’s tells us that the rich have their problems too. A survey of private banking clients revealed that almost all felt that they could barely get along on their money — no matter how much they had. Very few thought they had “enough.” Most thought they needed twice as much as they had. And almost all worried that their children and grandchildren would be spoiled by wealth.

We’ve noticed similar attitudes in our own family. Jules, 17, gets five euros a week allowance. Ten, if he works with his father on the weekend. Henry gets three euros per week. Edward gets two and a half. All report that their friends get far more. Even their mother thinks Dad is a cheapskate.

On the other hand, the children get paid by the hour when they work on an especially big project. Painting the new library, for example, Henry made an additional $50.

“Look,” the Cheapskate responds. “It’s good to be short of money when you’re young…then, you’re less likely to be short of money when you’re old.”

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.