I submit the simple game theory explanation of why democracies fail: the relative perceived importance of a targeted transfer of resources to a small subset of voters is usually much higher than the perceived importance to "everybody" of the average (over the whole taxpayer base) cost of that transfer. So it's only at the very special moments in history like now, when the ship is sinking, that people wake up to the cumulative cost of all those transfers. It also "helps" when the times get so desperate that the targeted transfers go to relatively large groups.

Victor Niederhoffer shares this with Tyler Cowen:

A non-economic analysis by a chip designer.

Tyler Cowen replies:

I fear, however, that it is too late, there is a status quo bias to government expenditure, plus population…





Speak your mind

4 Comments so far

  1. Curmudgeon 1341 on September 29, 2010 4:15 pm

    A Scottish lawyer named Tytler said the same thing in a much more amusing way: “A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury.”

  2. Gary Rogan on September 30, 2010 12:21 am

    I’m well aware of Tytler’s argument. My point was actually different: a small MINORITY that receives a large benefit cares about it a lot more than the MAJORITY that pays relatively little on the average for that benefit. As a result the MINORITY works very hard to elect those who provide the benefits as opposed to the MAJORITY that really doesn’t care. That’s under normal circumstances.

  3. douglas roberts dimick on September 30, 2010 2:55 am

    We all Live in a Yellow Submarine?

    Is the ship sinking or the submarine submerging?

    “Game theory attempts to mathematically capture behavior in strategic situations, or games, in which an individual’s success in making choices depends on the choices of others.”

    In the study of political science, one of the first precepts that a student may learn is that notions of “everybody” and “target transfer of resources” and “cumulative cost” and “relatively large groups” may be defined by math and logic to provide only segmented correlations of cooperative and uncooperative (or noncooperative) constructs — as what theorists may devise into games.

    Why? Politics of a body politic is neither concentric, unified, nor symmetrical for purposes of calculation or reasoning.

    As Plato observed about knowledge, certainly one may locate such concepts (e.g., (a) symmetry of Republican Party primary outcomes a la Tea Party candidacies or (b) concentrations of federal election contributions a la allocations among banks receiving federal bailout funds) operating within the political systematics at state and federal levels of government. However, such particulars do not per se evidence the truth of the nature of the (democratic or republic) state in of itself.

    In terms of knowledge, Plato’s World of Generalities distinguishes such perceptions within a context of knowing the difference between what a thing is doing (or a republic, whereby representatives are elected and so govern, as a representative democracy) and the nature of the thing itself (or a republic, whereby the process of governing is accomplished by a legislative system of committee, based on democratic principles).

    Accordingly, given Gary’s article, I am most curious how he views the leadership matrix effecting such “targeted transfers” relative to the proportionate scaling of the allocations of resources to respective small or large groups.

    Considering the actions of the current administration to date, how may one quantify success and failure of the federal system of governance as practiced in the US post New Deal Era?

    Considering both market and regulatory events post Glass-Steagall, what consilience(s) may be found to either confirm or deny the identities of private, public, and quasi concerns and interests that benefited from targeted transfers within that ten-year time frame?

    Can we assume that such targeted transfers are being effected for results occurring within this past ten years or any other given time frame?

    If we cannot quantify the time frame for realization of the intended results from such targeted transfers, then how can we quantify the relative equilibrium for purposes of game theory applications?

    One may see where this line of questioning leads us.

    Defining failure and success relative to any given political system is a process of subjective evaluation based on perception and realization of power (or nonequilibrium), not mathematical equivocation.

    Certainly it (game theory) helps to ascribe circumstance relative to probability, but we may only do so within a set of predefined states that distinguish political and mathematical certainties. Case in point…

    My prior article, Silver Rather Than Led, from Douglas R. Dimick, correlates how government leaders “usually opt for silver rather than led when presented with crisis or conflict.”

    Translated: politics of governing is not about winning or losing but staying in power.

    How does this modus operandi correlate to game theory design?

    To the extent that game theory is designed to equivocate strategies that “win or lose” with given scenarios, how may one determine whether a democracy fails or succeeds?


    If a democracy is (non)violently replaced by a dictatorship, did the democracy fail?

    Alternatively, consider the United States House Committee on Ways and Means, to wit: “The U.S. Constitution requires that all bills regarding taxation must originate in the House of Representatives. Since House procedure is that all bills regarding taxation must go through this committee, the committee is very influential…”

    Within the context of a nation populous at 330 million citizens and some 20 years into the (Internet) Age of Information, does this process sound democratic given current federal election laws to include campaign financing standards and practices?

    My take?

    I presume the Chair would require quantification and correlation. See Polity IV data series…

    If that chart was a stock, what would be the logical and mathematical summations so defining the success/failure trending of democracy in the world from 1800 to 2003?

    “And our friends are all aboard,
    Many more of them live next door,
    And the band begins to play…”

    Enough said…


  4. Gary Rogan on October 1, 2010 12:38 am

    Douglas, I was merely pointing out a dynamic that will lead the performance of the system away from what a “reasonable” “average” person would expect, in my view. If an airplane vibrates unexpectedly during an otherwise uneventful flight this indicates a kind of failure even if it doesn’t disintegrate. Similarly when public sector unions channel money to some politicians reelection campaigns and in return these same politicians direct public money to the unions in ever increasing amounts eventually bankrupting the state, this represents a failure even though it has been achieved in a fully democratic fashion. Even if people eventually rise up against this state of affairs it still represents a design instability in the sense that this is not what the majority of the people want while for a prolonged period of time they are effectively powerless to change the situation.


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