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Political Decision TreeAll politicians are quick to point out how good of an administrative task they have performed over the last period or how good an administrative task they will be performing if only to clean up the mess of the previous administration. Every election we have to endure this goat manure. Every party in the world has their own version of this spinned fairy tale. And every single one of them is not worth the time you spent listening to it. Today we are going to take a look at what the evidence tell us regarding the administrative (economic) habits of our respective governments.

KEYNESIANISM

Most governments today have switched from the idea of how good the future will be if we only let them "administer" us; to the idea that we need them for "protection" against evil, evil … [insert your own excuse here] issue (see The Consequences Of The Politics Of Fear). Yet underlying this tidal wave of lies, the concept of "good administration" still survives somehow. We guess that voters (i.e. those dummies who still believe in democracy) like to hear fairy tales just before they go to sleep at the voting stations. Who can blame them? If we would be they, we would ask for lollipops and balloons. At least this way we would know it is a party and nothing can be taken seriously. But we digress…

The main idea behind the image of "good administration" is what we all recognize as good economic practices. When times are good, we save. When times are bad, we consume our savings. Nothing earth shattering here, just plain common sense. This common sense was formalized many decades ago by Lord Keynes in his magnum opera "The General Theory of Employment, Interest and Money" in 1936. This is a book we seldom use as a reading material before we go to sleep because it is so entertaining and laughable that we can't ever fall asleep. Somebody in Hollywood (or Bollywood) should make a sitcom out of it; it would be a smashing success! But again, we digress.

The point is that all governments fully embraced the concepts laid out in this book because it says that it is OK to print when times are tough but you must save when times are good. Politicians, being exceedingly good at hearing only what they want to hear, listened to the first part but thoroughly ignored the second. They must do so because spending is the only way to stay in power (see for example Politicians and Bureaucrats Job Security Through Misery or Government Morality).

However, both concepts are good for Public Relations. Most of the "good administration" fairy tale circles around these concepts. We know it. They know it. But most people don't. Most people still believe that those concepts are real. Well... if this is indeed the case we can provide a theoretical model of what we should see and then we can compare it with what we actually see.

SPENDING AND SAVING

As Keynesian theory says, spend when times are though and save when they are good. In terms that we could measure, we can say that times are good when the "Revenue" (i.e. robbery) of the government is larger than the "Expenditure" (i.e. waste). If this is the case and governments are having "surplus" budgets, then they should be using this "surplus" to pay off the debt previously accumulated. This is the easiest way to save because governments can always borrow and this is what the entire world does (with one or two exceptions). But because the decision to pay debt or not to pay debt is always a political one, through such data we can know the decisions politicians made.

PARAMETERS

Before we begin we must explain the parameters we used. We used the same data set previously used in our article The World According To Economic Bureaucrats taken from the IMF publication referenced at the end of this article. Dear reader please remember, it is their data, not ours. Also, all numbers are expressed as a percentage of GDP which makes them grossly unreliable but we are playing according to their rules, not ours.

Our parameters

DRE: Revenue minus Expenditures in any given year (i.e. the difference)

The DRE is the difference between what a government takes in and what a government spends in any given year. If this number is positive this means that a government has more money that what they have spent and therefore they should use this money to pay back debt. The DRE simply describes the economic situation in which a government finds itself (or more precisely managed to get itself into).

DD: Current year debt minus previous year's debt (i.e. the difference)

DDP: number of times the debt was increased among all the countries in the world for a given year. This is, number of times that DD was positive among all the countries in the world for a given year.

DDN: number of times the debt was decreased among all the countries in the world for a given year. This is, number of times that DD was negative among all the countries in the world for a given year.

CHOICES

Now that we have our parameters set up, we can take a look at the choices politicians have.

Condition #1 - DRE is positive

In this case a government is receiving more money than it is spending. As such, it should pay off debt with the excess, but the other choices are to either do nothing or increase debt.

According to Keynesian theory, governments should pay debt off in this scenario. If we translate this to the values of DDP and DDN, DDP (or the number of times that debt was increased) should be zero. On the other hand DDN (or the number of times that debt was decreased) should be a large number.

We can collapse all these three choices in one single value by calculating DDP/DDN.

  1. DDP/DDN should be zero if politicians follow Keynesian theory (i.e. paying debt)
  2. DDP/DDN should be undefined if politicians do nothing (i.e. debt remains the same - this is an extremely unlikely scenario)
  3. DDP/DDN should be a number above zero if politicians went against Keynesian theory and increased debt. The larger the ratio the more they deviate from Keynesian dictum.

Summarizing, if DRE is positive, DDP/DDN should be zero if politicians are following sound policies according to Keynes.

Condition #2 - DRE is negative

In this case a government is receiving less money than it is spending. As such, it should increase debt in order to spend and "stimulate" the economy, but the other choices are to either do nothing or decrease debt.

According to Keynesian theory, governments should get into debt in this scenario. If we translate this to the values of DDP and DDN, DDP (or the number of times that debt was increased) should be a large number. On the other hand DDN (or the number of times that debt was decreased) should be zero.

We can collapse all these three choices in one single value (same as above) by calculating DDP/DDN.

  1. DDP/DDN should be infinite if politicians follow Keynesian theory (i.e. getting into debt)
  2. DDP/DDN should be undefined if politicians do nothing (i.e. debt remains the same - this is an extremely unlikely scenario)
  3. DDP/DDN should be zero if politicians went against Keynesian theory and decreased debt. The closer to zero the more they deviate from Keynesian dictum.

Summarizing, if DRE is negative, DDP/DDN should be as large as possible if politicians are following sound policies according to Keynes.

THE NUMBERS

Let's see what the numbers have to say (and please remember, these are their numbers, not ours).

Condition #1 - DRE is positive

Political Decisions in Good Times

As you can see for yourself, with the exception of places where the ratio cannot be calculated, everywhere else from 1880 onwards (or about 130 years) the ratio of DDP/DDN is positive and not zero. What this means is that when times are good politicians systematically go against Keynes' advice and take the very premeditated decision to increase debt. Basically, when times are good politicians borrow and spend.

Condition #2 - DRE is negative

Political Decisions in Bad Times

Again, as you can see for yourself, with the exception of places where the ratio cannot be calculated, everywhere else from 1880 onwards (or about 130 years) the ratio of DDP/DDN is positive and not zero. What this means is that when times are tough politicians systematically go with Keynes' advice and take the very premeditated decision to increase debt. Basically, when times are tough politicians borrow and spend.

Note: please see the Glossary if you are unfamiliar with certain words.

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