Thank God for the French. At a recent meeting of the world’s most high minded public servants, the French refused to go along with the gag.

Madeleine Albright and the American delegation were shocked. They didn’t expect any resistance to the idea that democracy should be promoted worldwide as panacea for any and all political ailments.

But the French delegates, by virtue of their sheer gallic contrariness, stumbled upon an insight. Not so fast, they said: “You can’t impose democratic institutions,” on countries that are not ready for them, they said. “Democracy must arise naturally among people, not be forced upon them.”

Democracy is misunderstood by almost everyone. It is used, loosely, to describe the gradualist, consensual political systems of countries such as the U.S. The word describes the complex machinery of politics – in which there is such broad participation by so many interest groups and so many different checks and balances in the system, that extreme positions are hard to maintain and radical changes are very difficult to make. The machinery of the system tends to favor moderation and centrist positions. We still become slaves of the state, but little by little. So little, we hardly notice.

Behind all the committees, special interest groups, political parties, and bureaucracies there is also the more literal aspect of democracy – the ballot box and the awful arithmetic of democracy. The average piddling regulation is of no concern to the average voter. The average pettifogging bureaucrat is no nuisance to him. Nor is he the one who pays his salary; the average dollar does not come from the average voter.

The arithmetic gives the whole system a bias against the very thing it is supposed to protect: liberty. The voter, through the ballot box, has the power to exploit Pareto’s Law. Eighty percent of the people typically own 20% of the wealth. The other 80% of the people own the other 20%. So, the majority uses the ballot box to take wealth away from those who have it and give it to themselves. The rich are exploited.

Ultimately, as Phil Burnham wrote in the Financial Post in April, reprised by Jim Davidson in Strategic Investment:

“[T]he gift that government bestows on the rich by not killing them and selling of their bodies for parts is another tax expenditure of billions of dollars that could otherwise be used to create jobs for the poor.” (

Democracy gives us all an interest in the government. As Hillary Clinton put it, “the government is all of us.” The government, grown immensely powerful on the logic of democratic arithmetic, demands all that we have and all that we are in return. Anything that we are allowed to keep is considered a “tax expenditure.” Even body parts.

Without the vote, we would naturally distrust our rulers. Throughout most of history, kings, emperors and local potentates ruled. It was difficult for them to impose high rates of taxation. The population would revolt. The American colonists revolted against England over tax rates of less than 3% and trade restrictions that seem trivial in comparison to the multitude of constraints and regulations under which the average American toils today. But democracy gives the would-be revolutionary a stake in the system. He can now sit at the king’s table and enjoy the bounty of the tax farmers too.

The history of the last two hundred years in America is a history of the spread of democracy. The first people to vote were the rich landowners. But as the franchise broadened, the fatal flaw in the system, logical consequences of democratic arithmetic, began to assert themselves. As more and more people voted, the bigger and more oppressive government power became.

People now understand how the system works. They know that the system has a mind of its own. As a consequence, they no longer see the point of voting! Fewer than one voter in 4 turned up to cast a ballot in Alabama’s presidential primary. In New Mexico it was less than 30%.

The ruling class is worried. Is the trend of the last two centuries finally coming to a close?

As always…more to come

Bill Bonner

Paris, France July 7, 2000

*** I’m on my way back to Baltimore this morning so this will be short.

*** Stocks moved without much direction or conviction yesterday. The Dow ended the day down 2 points. The S&P 500 managed to rise 10 points.

*** But the Nasdaq seemed to get excited about something and rose 97 points.

*** Mr. Bear is at the beach for a few weeks in the summer. This would probably be a good time to get rid of overpriced stocks, before he gets back on the job. He’s likely to be tanned and fit…and ready for some serious work.

*** High on your list of things to sell should be the Big Techs. These ‘must own’ stocks of the new era are probably the least likely – apart from the dopey dot.coms – to make an investor any money.

*** William Fleckenstein cites the example of Micron. The company has been so popular that it is now selling at a 40% premium to GM, despite the fact that it has made no money in the last two years. GM has revenues more than 40 times those of Micron. Or compare it with Merrill Lynch which has a similar market cap. Where Micron had only $4 billion in sales in the last twelve months and a big zero of earnings – Merrill earned $2.5 billion.

*** The Big Techs are overpriced because they are popular with TV commentators and investors who believe in the efficient market hypothesis. They think they don’t have to study the stocks carefully – because the market has already factored all the relevant information into the price. But if investors don’t pay attention to the important information…or know what it means…prices no longer reflect what stocks should sell for, but what investors want them to sell for. The market is efficient at separating fools from their money – even elegant at doing so – but not at pricing stocks.

*** Bonds fell back. The dollar rose. Gold fell 70 cents. And platinum rose $7.60.

*** Investors are still pumping money into mutual funds. Almost $17 billion of new money flowed into equity funds in May, down from the $34 billion of April, but more than the amount from May ’99. It is a bad sign that this money can’t seem to lift stock prices appreciably.

*** I’m glad poor old David Ogilvy is no longer paying a mortgage. The celebrated ad man and distant neighbor of mine in France shuffled off this mortal coil last fall, after suffering from Alzheimer’s disease. The trouble with us copywriters is that it’s hard to diagnose mental disorders. I mean, how can you tell?

*** But at least Ogilvy has been spared having to read those ads for a company called Archipelago. All I know about the company is that it has money to waste on silly ads. I spent quite a while trying to figure out the point of its amusing ads – which take up the first two pages of this week’s Barrons. The ads break all Ogilvy’s rules. Even the rules of grammar.

*** A recent survey of adult Americans revealed that 82% had never heard of the New Economy.

The Daily Reckoning