Democracy and Freedom – Mediocrity is a threat

GIS – Comment by Prince Michael of Liechtenstein*

Democracy and Freedom | People in Western democracies are losing trust in government, but that is hardly a surprise. Political mediocrity has caused leaders to make promises they cannot keep while shunning other points of view. Nothing less than freedom itself is at stake.

democracy and freedom
Democracy and freedom. Too often, politicians choose the easy route of promising solutions on which they cannot deliver and denouncing all dissenting voices as “radical” instead of standing for their principles, engaging in healthy debate and solving difficult problems. © GIS

Many forms of government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.” Winston Churchill uttered these words in 1947, and today they remain as true as ever.

In line with this important topic, please mark your calendar: XVI. International Gottfried v. Haberler Conference 'On the Morality of the State and the State of Political Morals' May 20, 2022 in Vaduz (Principality of Liechtenstein)

Since democracy is better than all of the other forms of government we have tried, one might expect that in Western democracies, trust in government and its institutions would be high. This is not the case. For many years, the Edelman Trust Barometer has measured the relationship between people and their governments. Citing the 2022 edition of the measure, Reuters pointed out that it had fallen to “new lows.” However, it also showed rising scores in autocratic states like China.

“The biggest losers of public trust over the last year,” the article continues, “were institutions in Germany, down 7 points to 46, Australia at 53 (-6), the Netherlands at 57 (-6), South Korea at 42 (-5) and the United States at 43 (-5). By contrast, public trust in institutions in China stood at 83 percent, up 11 points, 76 percent in the United Arab Emirates (+9) and 66 percent in Thailand (+5).” Businesses, however, “retained strong levels of trust globally,” due to their role in “developing vaccines and adapting workplace and retail practices.”

These are woeful scores for the “liberal democracies.” But what might be the underlying reason? Like many good things, democracy is susceptible to misuse. Many systems label themselves “democratic” though they have no democratic qualities whatsoever. The former German Democratic Republic or the Democratic People’s Republic of Korea come to mind.

Other places may have leaderships that act in a rather autocratic manner but have nevertheless been selected in a democratic way – Singapore is one example. In yet other places, there are successful democracies based on wide decentralization and the principle of subsidiarity, coupled with a strong element of direct democracy, such as in Switzerland. Most Western countries have systems of representative democracies with different degrees of centralization and federalism.

However, democracy is under constant threat – as is freedom. Just as freedom is a precious public good and must continuously be defended, so must democracy. The challenge for democracy is less autocracy, but rather two other phenomena: populism on one side and excessive bureaucracy (sometimes called “technocracy”) on the other …

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Political Mediocrity

*GIS is a global intelligence service providing independent, analytical, fact-based reports from a team of experts around the world. We also provide bespoke geopolitical consultancy services to businesses to support their international investment decisions. Our clients have access to expert insights in the fields of geopolitics, economics, defense, security and energy. Our experts provide scenarios on significant geopolitical events and trends. They use their knowledge to analyze the big picture and provide valuable recommendations of what is likely to happen next, in a way which informs long-term decision-making. Our experts play active roles in top universities, think-tanks, intelligence services, business and as government advisors. They have a unique blend of backgrounds and experience to deliver the narrative and understanding of global developments. They will help you develop a complete understanding of international affairs because they identify the key players, their motivations and what really matters in a changing world. Our experts examine the challenges and opportunities in economies old and new, identify emerging politicians and analyze and appraise new threats in a fast-changing world. They offer new ideas, fresh perspectives and rigorous study.

Vernon Smith Preis | Pressemitteilung des

vernon smith preis 2021
Vernon Smith Preis 2021 – Gewinner: David A. McMillan, Niels Behrmann, Mateusz Michnik.

Vernon Smith Preis 2021 | Am vergangenen Montag hat Prinz Michael in seiner Funktion als Präsident des in Vaduz ansässigen Thinktanks ECAEF drei Studierende mit dem Vernon Smith Preis ausgezeichnet. Im Vorfeld dieser 14. Ausgabe des Essay-Wettbewerbs wurden laut Mitteilung des ECAEF 49 Essays eingereicht – mehrheitlich aus Europa, Südamerika und den USA. Das Thema lautete: «Die Anmassung von Wissen als Methodik des Regierens (The Pretense of Knowledge as a Method of Governance)».

Drei junge Studenten wurden von der Fachjury zu Gewinnern gekürt: Der 22-jährige David A. McMillan aus Grossbritannien (1. Preis, 4000 Euro), der 24-jährige Niels Behrmann aus Deutschland (2. Preis, 3000 Euro) und der 21-jährige Mateusz Michnik aus Polen (3. Preis, 2000 Euro). Sie hatten laut Mitteilung des ECAEF in ihren Essays überzeugend argumentiert, weshalb bei Entscheidungfindungen die menschliche Neigung, sich auf statistische Modelle und theoretische Vorhersagen zu stützen, eine positive gesellschaftliche Entwicklung gefährden kann.

«Politische Entscheidungsträger begegnen der wirtschaftlichen, gesellschaftlichen und politischen Komplexität unserer Zeit, indem sie sich auf statistische Methoden, vergangenheitsbezogene Daten und Computersimulationen stützen», schreibt die ECAEF. «Je mehr Erkenntnisse auf diese Weise generiert werden, so die Denkweise, desto vorhersehbarer wird die Zukunft und desto steuerbarer wird die Gegenwart.» Dieses Vorgehen hätte sich etwa in der Corona-Pandemie gezeigt. «Die Irrationalität des menschlichen Handelns und die notwendige Kenntnis aller Fakten – zwei zentrale Aspekte in diesem Zu- sammenhang – werden dabei zumeist zu wenig oder gar nicht berücksichtigt», so die ECAEF. Das gefährde eine positive gesellschaftliche Entwicklung, aus folgenden Gründen:

– Auch die beste Simulation das soziale und wirtschaftliche Verhalten der Menschen nie exakt erfassen und zentral getroffene politische Entscheidungen berücksichtigen keine lokalen Abweichungen.

– Allgemeingültige Regeln lassen sich nicht aus ökonomischen Daten ableiten, da sie nur die Vergangenheit menschlicher Werturteile abbilden.

– Eine Anmassung von Wissen führt zur Ablehnung von Andersdenkenden und kann mitunter die Popularität von totalitärem Denken begünstigen.

– In der Konklusion verführt eine Anmassung von Wissen zu politischen Entscheidungen, die weniger auf Fakten oder auf Notwendigkeiten beruhen, sondern mehr auf Ideologien oder Wunschdenken.

S.D. Prinz Michael von und zu Liechtenstein hat die drei Preisträger feierlich ausgezeichnet und seinen Dank auch allen anderen Teilnehmenden ausgesprochen, die ihre Essays eingereicht haben. Der nächste Vernon Smith Prize wird im Sommer 2022 ausgeschrieben. Der ECAEF-Stiftungsrat würde sich laut Mitteilung freuen, wenn sich noch mehr Studierende aus der DACHLI-Region daran beteiligen.

Vernon Smith Prize 2021 – Winner Announcement

Vernon Smith Prize 2021 | The winners are:

1st Prize:
David McMillan (UK)
Essay: “Economics Set Free: In Defense of Hayek”

2nd Prize:
Niels Behrmann (D)
Essay: “The Arrogation of Knowledge and its Consequences”

3rd Prize:
Mateusz Michnik (PL)
Essay: “The Pretense of Knowledge as an Unsuccessful Method of Governance: The Polish Case”

The Vernon Smith Prize 2021 was an essay competition for the advancement of Austrian Economics – sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein). Topic:

The Pretense of Knowledge
as a Method of Governance

Vernon Smith Prize 2021
“I am the wisest man alive, for I know one thing, and that is that I know nothing.” Socrates

Due to the fact that it is not immediately obvious why governments should not imitate the methods of the so-called hard sciences to design the perfect policies or practices of governance, politicians and their advisors became captivated with the advancement of science and the enormous processing power of computers.

As a result, they were persuaded to confuse the precision of mathematical models and their collected piles of quantifiable data with their factually rather limited knowledge about how societies work. Fooled into believing that statistics based on stored data are the most critical, governments are busy to rearrange them, compute averages or draw erudite charts in order to propose their solutions. However, as people demand results, politicians eager to satisfy the public often conspicuously announce their ‘scientifically’ looking solutions that often worsen the problems. Overconfidence in the methods of the hard sciences to control society can easily turn democracies into tyrannies and will lead to the destruction of a free society, which is the result of human action, but not of human design.

This ‘Pretense of Knowledge’ is not only a serious threat to individual freedom and democracy as it alludes to a pretended competence to design and execute a centrally planned society. It is also dangerous for both methodological and policy reasons. However, societies of free people are a living, changing, moving web of disparate actions and entities. And as long as individuals remain free every law, every institution and every human action is composed of countless subjective judgments and motivations of independent individuals interacting with one another without coercion.

Vernon Smith Prize 2021

– 1st Prize: €4,000  –
– 2nd Prize: €3,000  –
– 3rd Prize: €2,000 –

Vernon Smith Prize 2021 | An international jury did judge the essays and the three winners are now invited to present their papers at a special virtual event on 7 February, 2022. Due to Corona restrictions, the organisers did again choose the virtual option.

The International Vernon Smith Prize has been established in 2008 by ECAEF for the advancement of Austrian Economics. It is named after Professor Vernon Lomax Smith (born on January 1, 1927). He is professor of economics at Chapman University’s Argyros School of Business and Economics and School of Law in Orange, California, a research scholar at George Mason University Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center, all in Arlington, Virginia. Smith shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman. He is also the founder and president of the International Foundation for Research in Experimental Economics, a Member of the Board of Advisors for The Independent Institute, and a Senior Fellow at the Cato Institute in Washington D.C.

Blackboard Economics: On the Root of Public Interest Evil

Blackboard Economics: On the Root of Public Interest Evil. Essay by Terry L. Anderson*

Anyone who has taken an economics course has been dazzled by the graphs that professors like to draw on the blackboard (or whiteboard in more modern times). There is no more dazzling example of these graphs than an article published in the American Economic Review (March 1957) by Francis Bator titled “Simple Analytics of Social Welfare Maximization” (thought it did not seem “simple” to me when I was a graduate student). In it he provides a “rigorous” graphical rendition of how neo-classical principles could lead to maximizing social welfare and justifies his analytics saying, “It appears, curiously enough, that there is nowhere in the literature a complete and concise nonmathematical treatment of the problem of welfare maximization in its ‘new welfare economics’ aspects.

It is the purpose of this exposition to fill this gap for the simplest statistical and stationary situation.” Bator describes the analysis as “a rigorous diagrammatic determination of the ‘best’ configuration of inputs, outputs, and commodity distribution for a two- input, two-output, two-person situation, where furthermore all functions are of smooth curvature and where neoclassical generalized diminishing returns obtain in all but one dimension-returns to scale are assumed constant” (p. 22).

The article begins with the “efficiency locus” of isoquants (seem simple?), transits to a “production possibility frontier,” then to a “grand utility possibility frontier,” which assumes knowledge of individual preferences, then to a “welfare function,” for which “ultimate ethical valuations are involved,” and finally to “Ω,” the “constrained bliss point.” What could be more enticing than understanding how to take society to its bliss point, and what could lead more to public interest evil?

The “root” of public interest evil, however, goes back much farther than Bator to A.C. Pigou’s The Economics of Welfare in 1920. Therein he leads economics down the pernicious road of externalities by distinguishing between “two varieties of marginal net product” which he named respectively social and private. The marginal social net product is the total net product of physical things or objective services due to the marginal increment of resources in any given use or place, no matter to whom any part of this product may accrue. It might happen, for example, , , , that costs are thrown upon people not directly concerned, through, say, uncompensated damage done to surrounding woods by sparks from railway engines. All such effects must be included – some of them will be positive, others negative elements – in reckoning up the social net product of the marginal increment of any volume of resources turned into any use or place. (134)

The upshot of his argument is that individuals acting on the private costs and private benefits they face will over-produce products with negative externalities and under produce those with positive externalities …

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Blackboard Economics (PDF)

* Terry L. Anderson has been a senior fellow at the Hoover Institution since 1998 and is currently the John and Jean De Nault Senior Fellow. He is the past president of the Property and Environment Research Center in Bozeman, MT, and a Professor Emeritus at Montana State University where he won many teaching awards during his 25 year career. Anderson is one of the founders of “Free Market Environmentalism,” the idea of using markets and property rights to solve environmental problems, and in 2015 published the third edition of his co-authored book by that title.

Inflation, High Debt and the Public Interest

Inflation, High Debt and the Public Interest – Essay by Veronique de Rugy*

Veronique de RugyA growing number of economists hold the view that the U.S. government’s growing debt should not worry us. Real interest rates are not only much lower than in the past but are also forecast to stay at current low levels for a long time. As such, the government can carry much higher debt levels without worrying about debt sustainability. In addition, some economists argue that in countries where real interest rates and the interest rate-minus-growth differential is sustained over time, the government can increase primary deficits without worrying about future costs.

While this new fiscal paradigm is interesting, it rests on assumptions that don’t apply to the fiscal issues facing the US. It also requires immense faith in the willingness of legislators to spend money in ways that produce high and consistent economic growth. Yet a review of the literature on the impact of government spending on growth reveals that, generally, such spending crowds out private-sector spending. The same is true of the relationship of debt to growth. In other words, even if interest rates stay low forever, growth could slow so much as to make the starting assumption moot. Finally, it is simply imprudent to count on low interest rates lasting forever.

However, there is a deeper fact that should worry economists more than it now does – namely, it is hard to have good policies when government swells to be so large that it has little practical choice but to depend on annual deficit financing. In particular, if inflation ever gets out of control, it’s more difficult to deal with in a high rather than low debt environment. Furthermore, most of the discussion about the risk of inflation focuses on the risk posed by the Federal …

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Inflation, High Debt and the Public Interest

*Veronique de Rugy is George Gibbs Chair in Political Economy and a senior research fellow with the Mercatus Center at George Mason University. Her essay ‘Superstitions, Conjectures and Refutations: Inflation, High Debt and the Public Interest’ she gave as a speech at the 2021 CEPROM/ECAEF Conference in Monaco.