Government and Time Preference

Reading Ryan Gilroy’s post reminds me of an insight from what might be the greatest book ever: Hans-Hermann Hoppe’s Democracy: The God That Failed.

Ryan wrote, “Given how out of control government spending is, it isn’t really so surprising that many citizens have equally little fiscal discipline.”

Indeed, Hoppe expounds on the concept of time preference: a person’s preference for immediate as opposed to postponed gratification. Low time preference — the willingness to forego immediate gratification for a better future — is the basis of capitalism and civilization; to create a business, to invest in the arts, or to provide for retirement require people to have saved a certain amount of capital, which could have been spent on immediate wants like an XBox.

Hoppe’s key point is that government, especially democratic government, has the effect of raising a society’s time preference. Inflation and national debt obviously place a premium on present as opposed to future consumption; likewise, higher taxes force people to spend a larger proportion of their income on basic necessities as opposed to saving for the future. And fiat money forces turns saving into a gamble, by forcing people into the stock market for tangible investments.

This is all made worse by democracy, writes Hoppe. Libertarians should agree that private ownership is better than public ownership. But few extend the principle to government itself. Democracy is publicly owned government. The people who make political decisions do not own the government — they are only temporary place-holders — so they have no long term interest in keeping the government fiscally stable and secure. In fact, they will necessarily have extremely high time preference. All that matters is to get re-elected and to keep their constituents happy for as long as their careers last. So inducing a housing bubble (cough, cough) or jacking up the national debt (cough, cough) will naturally follow, which of course have a huge impact on individual spending habits.

This is food for thought as we consider the shockingly stupid decisions people in our high time preference society will make.

Published in

Post a comment