Democracy, debt and disorder. Towards the end of political 'generosity' (1).

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Democracy, debt and disorder. Towards the end of political 'generosity' (1).

ABSTRACT

Unquestionably, the existing welfare state, as has evolved in a four-decade span, is destined to collapse unless redistribution enters a new constitutional contract to smooth the intergenerational conflicts that grew out of the presuppositions of Harvey Road. A key insight is that under the spell of intergenerational solidarity, fiscal illusion has perpetrated a violation of the intergenerational equal treatment. The paper, in its initial part, highlights how concentration of expenditures and intertemporal dilution of costs by means of debt creation have provided the ambiance to turn democratic order into intergenerational disorder. It goes on to analyze the evolution of the Italian public debt and the background of the elements that have generated intergenerational disorder. While the data on the Italian public finances during a one hundred fifty-year span show that governments have widely resorted to public debt, there are marked differences between public debt policies before and after the 1970s. The paper suggests that intergenerational order has collapsed ever since the Italian governments embraced the presuppositions of Harvey Road.

What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.

A. Smith, The Wealth of Nations, Book IV, Chapter II.

1. INTRODUCTION

Of all faces of the economists' values the three "Es", efficiency, efficacy and equity, rank high among economic analyses while the three "Ds" in the title, representing democracy, debt and disorder, are not considered at all. If we are able to demonstrate that democracy, debt and disorder have as much economic value as the three "Es", that they are interrelated and that in perspective this interrelation has an increasing value, then we shall have justified the writing of this paper.

The three "Es" of the economists are descriptive of three end states where Paretian efficiency, productive efficacy and distributive equity surreptitiously are made coincidental. They are, instead, the result of at least two different technologies: (i) a theory of production, based on perfect competitive markets; (ii) a theory of redistribution --whose foundations are of political or, perhaps, ethical order (Wagner 1958)--aiming at the modification of market results. That said, it is easy to conceive of efficiency and equity as being in conflict. Indeed, the dimension of the conflict largely depends on the political evaluation of market processes (2). Yet, one cannot help observing that politics is external to market processes, and it is not in a position to be helpful to the making of market democratization. The supremacy of politics over markets in insuring equal results may be explained in terms of an aristocratic vision of politics, as an articulation of the idea of politicians as "the best men" or oi aris...

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