Tuesday, December 06, 2005

One Dollar, One Vote

Even though I have a great respect for the power of free markets, they have their weaknesses. Earlier, I wrote about the problem of "free riders". Certain types of goods -- goods where a person can obtain a benefit regardless of whether one pays the costs -- are under funded in a free market system. Free riders make sure that the good in question does not get the funding it would get if people actually had to pay for the benefit.

Another problem with a market system is that, when it comes to directing the course of society, it is not democratic. A democratic system is one that abides by the principle, "One person, one vote." A free market, on the other hand, functions on the principle of "one dollar, one vote."

If you want to direct the course of society in a particular direction, you use dollars, like magnates, to attract resources into that particular channel. The more dollars one can assemble, the more pull one has in the free market.

Decision Making in the Free Market

The principle of "one dollar, one vote", in a society where it is not the case that everybody has the same number of dollars, is one in which different people do not have the same number of votes. They do not all have the same pull. One person can pull more resources in the direction of his choosing than, in some cases, tens of thousands of people can pull resources in their direction.

In fact, a substantial portion has virtually no economic pull, while others have a great deal of economic pull. In the United States, two percent of the households hold over half of the market votes. If this two percent decide that they want the resources in this country to go in a particular direction, then they can outvote the remaining 98%. Any company that wants to make money – which is virtually any company at all – has to respect the fact that 70% of that money is in the hands of 10% of the households. The remaining 30% of the money is in households where the vast majority of that money needs to be spent on food, housing, clothing, medical care, education, utilities, and other expenses.

This is not always a bad thing. Bill Gates is opting to pull those resources in the direction of research into fighting Malaria and AIDS. Others use their economic votes to pull economic resources into the production of private planes, limousines, yachts, diamonds, and similar industries.

As I said, I am a fan of free markets. Free markets allow information to be processed extremely rapidly. The instant that oil reserves are threatened, the price of gasoline goes up. This is the market’s way way of saying, "Hey, folks, we have a shortage coming. You had better start rationing what we have and we had better start rationing it now." This is a good thing. If we waited for legislators to act, the shortage would hit before we took any meaningful steps to prepare for it, and that would be bad.

However, "one dollar, one vote" has its drawbacks. Imagine an isolated community facing a significant shortage of water. Ten thousand people want the water for drinking. One person wants the water for his beautiful garden. We apply the doctrine of "one dollar, one vote" and discover that this one person has more money than the other 10,000 combined. If we live entirely by free-market principles, the water goes to the garden, and 10,000 people go thirsty. The rich individual has used the economic pull of "one dollar, one vote" to draw the water resources into providing a garden, rather than quenching the thirst of 10,000 residents.

The principle of one dollar, one vote, means that those who have the dollars to purchase SUVs and can afford to pay for the gas that goes into them can draw a disproportionate amount of gasoline out of the supply path. This leaves less for others to use, forcing them to bid up the price as they compete against each other.

Perception Management and the Democratic Process

In my last posting, I wrote about another product on the market these days; "perception management." This industry involves using techniques from marketing to planting stories to "purchase" a state of affairs where people have certain beliefs and values. Our beliefs and values are economic commodities, with 'perception management' or 'public relations' firms using the money that their clients provide to pull our beliefs and desires into certain directions.

If we compare the amount of "perception management" that the wealthy can afford, compared to the amount of "perception management" that the poor can afford, it is not at all difficult to anticipate the direction in which money will draw our beliefs and our values.

Just as one person can draw all of the water away from 10,000 others in our hypothetical village, and the wealthy can draw a disproportionate amount of gasoline into their activities leaving the rest of us to bid up the price of what remains, people with money can afford a great deal more "perception management" than others. Taking into consideration food, clothing, shelter, education, health care, and other expenses, over half of the population can afford very little “perception management”

At this point, we have to ask how much this market in "perception management" affects the other way in which resources get allocated -- the democratic process.

The democratic process is reserved for decisions where "one dollar, one vote" is deemed inappropriate, and “one person, one vote” is used in its place. Theoretically, in the political arena, the individual with $6 in his pocket has as many votes as the person with $6 billion in assets.

However, the ability to purchase "perception management" is the same as the ability to purchase votes. Companies compete against each other for their ability to provide those with money the most “perception management” at the least cost. Competition drives technology and innovation. We can only expect that their skills at “perception management” are getting very good. They prove their worth by bringing about measurable shifts in the “perceptions” of the voters – winning votes for their clients.

As the science of perception management develops, those with money are going to be able to purchase more and more sympathetic public opinion. Over time, and to an increasing degree, we can expect the political arena to become less a realm of “one person, one vote”, and more like the market realm of “one dollar, one vote”. It will all depend on who can afford the best “perception managers”.

The Good and the Bad

In pointing out this particular problem with capitalism, as well as the issue of public goods raised earlier, I am clearly not saying that capitalism is evil and needs to be avoided. There is no way that a government has the capacity to respond nearly as quickly or nearly as accurately to the possibility of a future shortage or surplus. Command economies face huge inefficiencies that truly do make it the case that if everybody is made equal, they will be made equal in their misery and squalor.

It would be nice to have easy answers to the questions of how best to organize society. Some people may be tempted to the view of "all free market or none at all" by the deceptive simplicity of this position. However, reality simply is not organized this way.

I will continue to speak in glowing terms about the power of the free market, and continue to complain when government officials interrupt its workings in ways that are a detriment to us all.

However, as I do so, I will remain mindful of the two big problems with free-market solutions. Public goods will be under funded, unless governments require that those who would benefit from a public good pay for it, and "one dollar, one vote" gives people the power to vote resources away even from those who need it to survive.


Anonymous said...

Seems like the real-world situation this applies to is whether money is speech. Someone argued in front of the Supreme Court recently that money IS speech. In your phrase, dollars = perception management. If we let that be the case, then we're basically admitting that yes, the rich get more votes than the poor, which is harmful to democracy. Can we infer, then, that you would argue that the first amendment guarantee of free speech should not be equated to dollars, when it comes to politics? And therefore, campaign financing laws ought to be, not only legal, but encouraged?

Michael Bains said...

I would say that a "Yes" answer to Martin's question is as close to a moral absolute as our species can currently discern.

Economically, I can't imagine a more moral and effective means of material progress and interaction than Capitalism. It is utterly fair in deciding the free exchange of goods; often including artistic goods or ideas.

When it comes to governance, "one dollar, one vote" completely subsumes democratic practice to the most powerful or mightiest voter; the one(s) with the most dollars. Since Might does not now, and has never, made an idea "right", it follows that such a means (more dollars, more votes) is incompatible with democracy.

Will more people choose a financially poor moron over a wealthy genius (2 extremes... ) by virtue of those choice's ideas? "Occasionally" seems the likely answer. As Election activity in the US currently stands, all it takes to convince the electorate of a candidate's worthiness of the position is enough money to make their platform appear good. The reality is covered in expensive Theatrics; the more expensive the more effective.

This is hardly honest or efficacious democracy.

Alonzo Fyfe said...

I have problems with campaign finance laws. (That will probably be a blog entry some day.) It seems clear to me that if you limit a person's right to use his money to promote an idea, you are limiting speech.

Imagine that the government passed a law that said that people with a particular view could say whatever they wanted, only they could never speak above 20 decibles and could never use anything to augment their voice. The people who pass this law state, "We are not limiting free speech, because these people can still say whatever they please." The fact is, such a law would lessen free speech.

One option would be equal-time laws whereby an advertisement for a particular candidate or view has to be matched with free equal time for an opposing view. So, should an evolution show on PBS require an intelligent show lasting just as long to be broadcast as well? Should a holocaust documentary require a show on holocaust denial? Should a show on global warming require a show that denies global warming? Clearly not.

Also, "perception management" involves far more than just election campaign ads. The Narnia movie is an instance of perception management -- as is the movie "Brokeback Mountain" for yet a different view.

So, we have problems with practicality.

I would argue for a different set of limitations. I would argue for better education in recognizing formal and informal fallacies and other forms of "perception management" for what they are. This will allow people to more easily recognize them, which will weaken their power.

More importantly, we need to broaden the concept of a lie to include any statement intending to cause somebody to believe something that is not true. Bush's campaign statement that Kerry would give other countries a veto power over American national defense is an example of one of these lies.

We need to teach people to better recognize these lies, and to react to them more harshly.

That is one of the major objectives that I have in writing this blog, to contribute to a culture that gives these types of statements the recognition and condemnation they deserve.

Kristopher said...

i know you were using this an example of a bad idea but...

"Imagine that the government passed a law that said that people with a particular view could say whatever they wanted, only they could never speak above 20 decibles and could never use anything to augment their voice. The people who pass this law state, "We are not limiting free speech, because these people can still say whatever they please." The fact is, such a law would lessen free speech."

imagine instead that the government passed a law that said all people could only speak at 20 decibles.

or better yet that no individual can contribute more than $10 to a particular candidate.

if it was only a select group that could only contribute $10 then indeed it would hinder speech. but if all groups can only give $10 would that not enhance the speech by leveling the playing field.

if one vote is one dollar you essentially have freedom of speech but some are disproportionately loud. where the voice of one is so loud it can drown out the voices of the many. if everyone had to speak at the same volume the loudest voice would be the side with the most people.

sorry if i am posting on discussions that have long since been closed but i just discovered your site recently and am reading through previous posts, becuase i find them absolutely compelling.

i am getting e-mails for replies so i will notice if you choose to reply.

thanks for all the great posts. and thank you to all the other commenters as well. you often have already done such a good job that i am left will little to add.

Kristopher said...

ah, i have your post about how easy it is to circumvent election financing regulations like a water flowing around a hand. and you right it would seem my above suggestion was niave at best.