Democracy is the exception, not the rule

Watching Mr. Trump trying to overturn a democratic election with the enthusiastic support of many Republicans has surprised many because the United States is supposed to be the democratic country that all other countries aspire to.

If you are one of these people who is surprised you should not be. Authoritarian rule has been the predominant form of government since humans formed civilizations. It is said that humans began to become civilized when we settled down into agrarian settlements and societies. It is also mentioned that when this happened the more egalitarian governing arrangements of hunter/gatherer societies gave way to rule by one person or a small group of people.

If you then look through that history, which spans about 10,000 years, you will note that less than a thousand years of that history featured any form of democratic government. The Athenians had a form of democracy for a short while. Rome was a republic for several centuries before descending into a dictatorship. Then there is the United States, which introduced democracy to the modern world, almost 2000 years after the Roman Republic became the Roman Empire. Some would have us look at the Magna Carta but we need to remember that it was about limiting the powers of the Crown of England in relation to that country's nobility. It was not a democratic constitution.

Further, even though the Athenians, the Romans and the Americans all had democratic looking forms of government, the Athenians and the Romans were the only examples of such, during their eras, and US has only been joined by about two dozen other democracies in the past 200 years or so, with most of them joining in the last 70-80 years. Otherwise, authoritarian governments have been the norm.

The simple fact is democracy is not the natural system of governance of our species. In all cases where democracy has flourished it has collapsed into authoritarianism within a few short centuries or less.

To expect the US to be different is flat wrong. It does look like the US is slowly descending into authoritarianism and maybe it can be reversed but it is an open question. Certainly, this week the Supreme Court of the United States legally squashed the attempts by the Texas Attorney General to overturn a democratic election but in that same week, in Florida, someone very critical of the Florida government's handling of the COVID crisis had their home raided by armed police for a reason that is still unclear to me. Maybe it will turn out she did do something illegal or maybe this will be an indication that the authoritarians in the US were prevented from destroying the American democracy in one fell swoop but that they can still continue to gradually undermine it away from the spotlight in Washington.

What does this mean for the rest of the democracies of the world? Who knows. We are certainly seeing authoritarians pop up in the other democracies of the world, including those which we can say have very stable democracies. It could very well be that the latest experiment in democracy will suffer the same fate as the previous ones. We will have to wait and see to be certain.

The Canadian Deficit, Vaccines and what it could mean for the economic recovery

On November 30 the Minister of Finance of the Government of Canada delivered a Fall Economic Statement. Among many pieces of information in that document was the news that the federal deficit for fiscal year 2019/20 will probably be $381 billion to $400 billion.

That is a tremendous amount of money and the sheer sticker shock of that figure is enough to get anybody's attention. Of course, it is much more nuanced that that. All of that debt has been locked in, long term, at interests rates that should make servicing that debt well within the capabilities of the Federal government. In short, it should not be a problem.

There is one caveat. Many commentators have indicated that the pandemic is creating a great deal of pent up demand. They are indicating that there is a risk that when the pandemic is finally manageable enough people may increase their spending so that it exceeds the spending patterns that existed before the pandemic was declare, potentially causing a spike in inflation. Said spike would then compel the Bank of Canada to increase interest rates, which would increase the yields of government bonds, which would increase the debt servicing costs of the government. That is a real risk and if it comes to pass then the government might find itself in a position where it cannot service its debt obligations and meet its program obligations at the same time. In situations like that governments reduce spending and/or raise taxes which may have negative impacts on Canadians.

That is the worst case scenario and many believe it will not come to pass. Many commentators actually believe that the economic recovery after the pandemic will be much more gradual leading to a gradual re-inflation of the economy where the Bank of Canada can raise interest rates at a gradual rate.

The key situation that will determine how quickly inflation will increase is how quickly Canadians begin spending again. That is where vaccines may play a role. Seeing that COVID-19 is a new virus and the vaccine that is being developed for it is also new that vaccine is not going to be delivered quickly. The vaccination of Canadians (and everybody else for that matter) will be a gradual process. 

This could create the situation where the economic recovery will also be gradual. As people are vaccinated they will begin doing things like they did before last March. They will begin spending again. They will begin traveling again. They will begin gathering with friends and family greater numbers again. The economy will open up again. However, if that happens at a reasonably slow pace because the manufacturers of the vaccine cannot produce it that quickly and the vaccine delivery requirement slows things down (two doses three weeks apart) then the economic recovery might be just as gradual. This is not an argument to slow down delivery of the vaccine. It should be delivered as quickly as possible as manufacturers produce and deliver it. This is just a post on what could be the impact of a gradual vaccination process.

There is one more caveat. As more people are vaccinated it could create the sense that the pandemic is coming to an end, even among those who have not yet been vaccinated. If that takes hold too early it would probably have the impact of a surge in cases of the virus and it could create an unsustainable surge in the economy and inflation. It will be up to governments to encourage Canadians not to get too far ahead of themselves as vaccines are delivered.

Our immediate concern is to defeat the pandemic. However, we do need to look to the future and what the economy will look like once the pandemic is defeated. The very nature of the delivery of the vaccine could create the conditions for a gradual economic recovery, reducing the risk of runaway inflation and the higher interest rates that would come with it. However, governments should be planning for the situation where the delivery of vaccines and pandemic fatigue create the opposite situation.