September 19, 2012
The Heart of the US Elections 2012
by Raghuram Rajan*
Young Americans for Barack Obama
A REAL debate is emerging in America’s presidential election campaign. It is superficially about healthcare and taxes. More fundamentally, it is about democracy and free enterprise.
It is hard to think of any flourishing democracy that is not a market economy. While a number of nominally socialist economies have embraced free enterprise, it seems to be only a matter of time before they are forced to become more democratic.
Yet it is not clear a priori why democracy and free enterprise should be mutually supportive. After all, democracy implies regarding individuals as equal and treating them as such, with every adult getting an equal vote, whereas free enterprise empowers individuals based on how much economic value they create and how much property they own.
What prevents the median voter in a democracy from voting to dispossess the rich and successful? And why do the latter not erode the political power of the former?
Echoes of such a tension are playing out as President Barack Obama tries to tap into middle-class anger, while former Massachusetts governor Mitt Romney appeals to disgruntled businesspeople.
One reason that the median voter rationally agrees to protect the property of the rich may be that she sees the rich as more efficient managers of that property. So, to the extent that the rich are self-made, and have come out winners in a fair, competitive, and transparent market, society may be better off allowing them to own and manage their wealth, while getting a reasonable share as taxes.
The more, however, that the rich are seen as idle or crooked — as having simply inherited or, worse, gained their wealth nefariously — the more the median voter should be willing to vote for tough regulations and punitive taxes on them.
In today’s Russia, for example, property rights do not enjoy widespread popular support, because so many of the country’s fabulously wealthy oligarchs are seen as having acquired their wealth through dubious means.
When the government goes after a rich oil tycoon like Mikhail Khodorkovsky, few voices are raised in protest. And, as the rich kowtow to the authorities to protect their wealth, a strong check on official arbitrariness disappears.
A competitive free-enterprise system with a level playing field for all generally tends to permit the most efficient to acquire wealth. The fairness of the competition improves perceptions of legitimacy.
Moreover, under conditions of fair competition, the process of creative destruction tends to pull down badly managed inherited wealth, replacing it with new and dynamic wealth. Great inequality, built up over generations, does not become a source of great popular resentment.
On the contrary, everyone can dream that they, too, will become rich.When such aspirations seem plausible, the system gains added democratic support. The rich, confidant of popular legitimacy, can then use the independence that accompanies wealth to limit arbitrary government and protect democracy.
There is a popular belief that democratic systems support property and enterprise because votes and legislators can be bought, and the capitalists have the money. But that view is probably wrong.
As Russia suggests, without popular support, wealth is protected only by increasingly coercive measures. Ultimately, such a system loses any vestige of either democracy or free enterprise.
Back, then, to America’s presidential election. The recent crisis, followed by huge bailouts of financial institutions, has raised questions about how at least one segment of business — the bankers — make their money. As the misdeeds of “banksters” come to light, the system no longer seems fair.
Moreover, the American Dream seems to be slipping out of reach, in part 
because a good education, which seems to be the passport to prosperity, is increasingly unaffordable for many in the middle class. This erodes support for the free-enterprise system.
Obama understands this, which explains his appeal to, and focus on, the middle class. He is the standard bearer for democracy.
On the other hand, successful professionals and entrepreneurs believe that they have come by their wealth legitimately. They are the working rich, and dislike the growing burden of regulations and the prospect of higher taxes.
They feel like they are being blamed for their success, and they resent it. Romney understands that America’s strength relies heavily on free enterprise.
Ordinarily, there would be no contest here. The weight of votes in the middle class would carry the day.
The middle class, however, is divided: some want to protect whatever entitlements and property they already have, while others want the government to give them a fairer chance. Moreover, the Supreme Court’s Citizens United decision in 2010, which allows unlimited independent political expenditure by organisations like corporations or unions, has helped Romney more than Obama.
Whatever the outcome of the election, the tension between democracy and free enterprise that is central to it does not bode well for either. A free-enterprise system that is sustained only by the moneyed power of the successful is not stable and unlikely to remain vibrant for long.
The United States needs to restore the possibility of achieving the American Dream for its middle class, even while it reaffirms the historically light regulation and relatively low tax burden that have allowed enterprise to flourish.
The virtue of democracy is that debate may lead to just such a consensus. We can only hope.
Raghuram Rajan is a former chief economist of the International Monetary Fund and is Professor of Finance at the University Of Chicago
I give you the next President of the United States.
President Barack Hussein Obama is my man !
Mr Mutt Romney said that there are “47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing,,,” etc, etc.
Isn’t this reminiscent, twisted a little, of those diehard yahoos who believe that UMNO is their savior, the protector of their bangsa, agama dan negara? No matter how much they get screwed, they will still turn up at public functions ejaculating at the opportunity for a photo op with their favourite BN politician/crook. Saw the pics of Cow gal and her legions of supporters so thrilled to be seen with her at some raya do recently? Never mind that she gives them cake while enjoying a whole banquet herself? To the tune of RM250 million?
Or that Tok Pa (and others) pocketed 100milion FGV shares, while leaving scraps for the wargas Felda who toiled and tilled the land?
Such sheep.
1. Talk by Cambridge University economist Ha-Joon Chang
http://keentalks.com/23-things-they-dont-tell-you-about-capitalism/
2. Check out the “World Economics Association”. Free membership.
Mr. Fickle Romney just said 47% of the american public are freeloaders who don’t pay taxes, who’ll definitely vote Obama. our umno goons are insissting that 47% of the malaysian public have the right to freeload and they couldn’t care less what happens to the other 53%. Mitt would be good partner for Najib & Co.
These folks once given to feeding off their hands for years are now in a feeding frenzy and now want to smell the asses of their masters. Have they no shame??
Yup reeper. Mitt will be a blessing for Jibs. He represents the ugly American where health and wealth are doctrines of White Trash Power. Similar world-views of the rich and entitled Bishopric, except that Mitt’s more sensitive to minority rights. However, i doubt very much he’s even heard of Malaysia and have never seen what a Malay noble looks like. However, Jibs will go out of the way to invite LDS to build a megachurch in Pekan, next to the sheep shearing facility.
Obama doesn’t really care 2 hoots for Jibs and his cartoonish ways. What more this administration has seen it fit to have a buffoon bottom pinching ‘Roaming’ Ambassador with no diplomatic heft.
What REAL debate?… there is no real debate going on… if there was, the issues would be not about democracy and free enterprise but about how a workable system has been systematically hijacked and practically destroyed by unelected groups while politicians on both sides stood by and, according to many, were part of the fraud.
The 99 percent will not go away and any attempt to deflect the real issues faced by the people who have been asked to fork out for the fraud (on top of everything else they have been paying) will be nothing but an irresponsible kicking of the can down the road.
Neither Obama nor Romney and their parties are equipped to tackle the issues facing the US.
“Neither Obama nor Romney and their parties are equipped to tackle the issues facing the US.” Isa Manteqi
Ann Romney would disagree with you about her husband having small equipment. Between them they have six kids. Obama has only two.
Regarding Romeny latest blunder captured on a secret tape.
An old adage. “If your opponent is stumbling, you need to step aside and let him fall”. That’s Obama’s response at Letterman last night ….. lol.
The Romney camp is so desperate that they are now taking out an old tape about redistributing wealth in 1998 when Obama was a senator.
Instead of wasting everyone’s time on useless debates on their ideologies, both Democrats and Republicans would do better to tackle questions such as :
What has happened that the country uses borrowed money to wage war on four corners of the world yet leaves millions of its own citizens to fend for themselves?