Democracy--The New Communism Pt. 2

In my last post, I discussed the uses of a "vote market" as a means of increasing economic efficiency. However, what I purposely did not mention is that this kind of "vote market" would not work under the current methods of voting.

As I mentioned, free voting can produce inefficient market outcomes by either providing a specific public good that decreases society's wealth or by preventing the providing of a good that increases society's wealth. Now, if you read that last sentence closely, the problem becomes immediately obvious. How many times do we vote on specific issues? Never! (Well, you sometimes do for issues at the local level, but most of the time you vote for a representative to represent you.)

For example, look at the presidential elections. Instead of voting on each individual issue separately, we instead must vote on a combination of issues, taking the good with the bad. In this case, the inability of voting to prevent the passage a useless good or to insure the passage of a useful good even with the existence of a vote market is yet another source of inefficiency for the economy.

The practice of forcing people to take the good with the bad is not a new one. It is known as bundling in the economic world, and is often used by firms to make a larger profit. Ever seen the video games section at Costco? They sell a video game system and 5 games at a much lower price than the price you'd pay if you were to get these games separately. However, one of the games is usually a complete dud, boring and useless. Yet, because consumers cannot get the entire package for much cheaper elsewhere, many choose to buy these packages because they can "take the good with the bad," at the same time thinking about how great of a deal they got.

How wrong they are. Bundling is a tool used for higher profits, and is un-intuitively bad for consumers.

The same principal holds for voting. Having to choose between two people in a presidential race is in fact giving the consumers (voters and receivers of the public good) the short end of the stick. By forcing people to choose between two bundles of mixed public goods, we are effectively allowing for wasteful spending and economic inefficiency.

Indeed, it is clear that there is much inefficiency inherent in the democratic system that we proud ourselves upon. The concepts of "representative government" and "fair elections" are all alibis for one thing: "economic inefficiency." However, there is a solution, albeit one that requires much reform. I already mentioned the market for votes. But also, we must allow specific issues to be voted upon by the general public.

Now, obviously, this last part produces problems. Up until this point we have been assuming perfect information, that is, the voters know everything about every aspect of the proposed public good. This is, of course, not true in our society. For this plan to work, we need the ability to educate society about the public goods that they are voting on. However, this is not necessarily a bad thing. Education breeds human capital, and human capital breeds efficiency. So investing in education could not only make the political system more efficient, but also make our economy stronger.

The point of all this is not to criticize democracy, per se. It is, instead, to point out the fundamental flaws of a system in which we all promote in our everyday lives. Perhaps democracy in itself is not as inefficient as communism, but our current system certainly has the potential to be just that. However, it is also important to note that potential is not reality, and that America currently is nowhere near as inefficient economically than Soviet Russia or Communist China. But sometimes, it's good to keep yourself humble.