Azrael wrote: Kisama wrote: Shahriyar wrote:
something completely stupid like allocate more money than the government has actually raised in revenue...
Actually governments actually do that: it's called deficit.
And it is actually completely stupid.
Actually, it's not. Just ask any expert who truly understands economics. The general concept is that your economy can grow more than the interest payments. The easiest real-world household example is how one can actually profit by not over-paying on low interest loans: The money that would have used to pay them off early can be invested elsewhere at a higher return. That being said, there are plenty of risks, limits and caveats that many (most?) governments haven't been managing appropriately.
I understand that borrowing can yield significant investment advantages, because you can (in general) use that money more profitably than saving a low interest-rate expense. Indeed, typical target ARR's for engineering firms range from 20-50%, which is obviously a better use of money than a six-percent bond. (Some of that margin is taken up in poor estimation of return rates, but that doesn't really matter; the point stands.) Corporations do this all the time with great success.
Nevertheless, I must concur that this is bad for a representative democracy, and probably for the half-direct democracy proposed by the OP. The trouble is that neither corporations nor governments can be effectively treated as a black box on issues like this; individual policy-makers have their own incentives and disincentives for making choices. To a first-order approximation, their decisions will be in their own best interest, and only in the interest of the greater whole when circumstances cause their interest to align with the whole.
In general there is a much better set of constraints imposed on your average CEO than on your average congressman. Both of them have the same basic accountability mechanism: all debt, revenue, etc. figures are published to the stock holders, who ultimately hold them accountable for poor judgement. However there are several advantages for the stock holders of the corporate leader. Most of those stockholders (by population) do not directly choose whether to hold that stock. Instead they rely on experts (mutual funds, trusted stock advisors, etc.) to determine whether the CEO is doing his job right. The remaining stockholders are almost all either experts in their own right, or have experts on staff (like investment banks.) It takes a lot of doing to fool that much knowledgeable oversight into accepting a short-term solution. Furthermore, if such a plan should fail, there are very few places for the blame to fall. Due o a corporations typical oligarchical structure, it is usually clear who was responsible for a decision, an it is relatively easy to bring them to account. Overall it is not impossible for the system to fail (see Enron) but it is rare.
On the other hand, a congressman is judged largely by economically unskilled people. That means that wise decisions are easily overlooked, while unwise decisions with short-term gains (see Bush tax cuts, Obama-care, etc. for (controversial) US examples) have immediately obvious, positive effects. So a congressman has an incentive to do things that bring short-term gain to his constituents, without much of an incentive to be concerned about long-term economic problems. Sure, racking up too much debt may mean the interest rate goes up on future borrowing. But how many voters will care? Not as many as will care if you raise the income tax, or decrease elderly medical benefits. When those long-term problems do show up (like the latest US housing bust) it is incredibly hard to identify exactly who was to blame, which greatly limits accountability. All of this is exacerbated by incumbency-favoring election systems, of course.
And I submit that this incentive weakness would be strengthened in a half-direct democracy such as proposed by the OP. Then there would be no way of experts holding the people who make foolish decisions in check. Everyone (or at least a majority of voters) must become sufficiently fluent in economics to understand when going into debt is wise and unwise. I think this is highly unlikely, to say the least.
One way of avoiding this problem is to introduce a hard debt cap. The national debt must be no more than $x billion (or for a more scalable system, x% GDP.) Any hard debt cap is still vulnerable to creative interpretation of course. (Well, this isn't really
debt; it's just a quid pro quo with a delay
term in it...) Nevertheless, this might well be a reasonable trade-off of a fixed inefficiency (the inability to increase debt as makes economic sense) for a corrupting influence which might (I think, does) cause a larger inefficiency in the long term.
To bring this back to the issue of zero-debt, I submit that any hard debt cap will look like a zero-debt cap in any given budget. The afore-mentioned incentives will cause the government of a democratic (either indirect or half-direct) country to expand the debt to be nearly always at the cap, rather than actually using that buffer sensibly. That further implies that every yearly budget will have practically zero deficit no mater what the cap is. So zero is as good of a place as any in theory. In practice, maybe a country should set it to whatever the current debt is to avoid nasty transient effects.
tl;dr: A hard debt ceiling is one way of curbing irrational spending and vote-buying, which in practice won't be much different from a zero debt ceiling. The inefficiency may be worth the reduced corruption.
Also, thanks for the link to nation-states. I needed Yet Another Addicting Game...