Friday, March 28, 2003

I've been thinking about this very point. Of course, as it appears that both The New Republic and Ramesh Ponnuru have been thinking about it too, there seems to be no point in commenting on it, except to note this:

Ramesh notes:

It also seems to be true that even where an oil-heavy economy has co-existed with some form of democracy, the oil has weakened the democracy. Consider the example of Venezuela (to go beyond Judis's article): There oil appears to have encouraged an illiberal politics based on the economics of fantasy.
That, however, is only half the story. Venezuela is one of the oldest democracies in South America, and up until its oil reserves were found, and exploited, it was a healthy civil and economic society. Oil does not merely corrupt the government and separate it from the people; it allows the government to offer bread and circuses to the citizenry -- to reduce, in other words, the economic incentives to small-scale social and economic activity that are vital to capital formation in particular, and macroeconomic health in general, through enormous, cushy state welfare handouts -- which thereby removes the citizenry from its proper place in relationship to the government.

By way of simplification, think of it like this: Initially, to make $45,000 a year (a decent, if not incredible, salary in most parts of this country), you had to work hard, save over time, and socially and economically interact with your neighbors on a near-daily basis. Then, the American government came across and sold some fantastic resource, keeping all of the profits to itself. Those profits were then used, in large part, to establish and fund a government arm entirely dedicated to giving everyone in the country $42,000, for doing precisely nothing. (Yes, I know, this is the welfare argument again, but it's on a much larger scale.) Your incentive for all of that hard work and socio-economic interaction is now $3,000, assuming you wanted to be where you were before.

Ah ha, you say. No one wants only $45,000! People would work as hard, so they could get a total of $87,000.

Not so. The value of each dollar, in opportunity costs, decreases as you pass a certain threshold of comfort -- where you can eat, live, and clothe yourself and your family comfortably. You have less incentive to "waste" your time working for each extra (marginal) dollar, and more incentive (or less disincentive) to spend your time with your friends and family, or playing Space Harrier II, or just plain ol' foolin' around.

And anyway, assume a lot of people are inclined to work hard for each additional dollar. Not everyone will be. If you lose just 15% of your workforce to sloth, I assure you, there will be economic ramifications.

That's most of what happened in Venezuela. State oil led an otherwise impressive group of people down a path to, well, Hugo Chavez. You don't engage in an "illiberal politics based on the economics of fantasy" unless either (a) there's no cost to do so, (b) there is a cost attached to not doing so, or (c) some combination of the two. Venezuela is case (c). And it's heading down the crapper for it.

Like I said, I've been dreading this happening to Iraq for a little while, now.

No comments: