America's Unique Democracy

By Armstrong Williams
Tuesday, July 12, 2011

As we approach D-Day for the show down on the National Debt Ceiling, many in America are taking time to consider what makes America a truly exceptional place. Some point to our world-leading economy. Others revere our beautiful expanse of rivers, lakes, mountains, forests and plains. For some, it's the diversity of the American people that stands out; we are a place where people come from all over the world to make their stamp on a uniquely American culture. But to me, what makes America truly great is our system of government.

It's not just that we are a democracy. That's nothing special. Democracy has been around since the ancient Greeks. Many other countries today have democracies. But not like ours. Ours is unique because at the outset of the country, the founding fathers decided that our government would be limited in its authority over the people. There were specific and enumerated responsibilities for government in the Constitution, all subject to the God-given and inalienable rights of the individual. Unlike in other countries, the government does not bestow rights upon the people. Rather, the people bestow power to the government, power which they are free to revoke at any time.

In insisting that our government be limited, the founding fathers were reacting to the persecution they faced in Europe. Almost all the land was owned by the King and a few rich aristocrats, while the peasants, the people who actually worked the land and produced goods, had to pay an exorbitant amount in tribute. To make matters worse, they had no right to challenge their leaders, since in most cases, Kingship was considered a divine, inherited right. It would be preposterous for a person of humble birth to even dream of challenging the status quo, much less one day ruling the land.

We set out to change all that. We were wary of an imbalance of power - whether political or economic - concentrated in the hands of a few. Still, at the birth of our country, the temptation to revert back to monarchy, even a constitutional monarchy was strong. George Washington was in fact offered the opportunity to become King of America: an honor he wisely rejected. Instead, a system of limited, divided government was put in place. The three branches had, in theory, co-equal power, so that they could check excesses in each other.

But I am somewhat concerned about what I see in America today. I see an America today in which the elites are increasingly distanced from the masses. I'm concerned about the trend towards concentrating wealth in the hands of a few. And I am most concerned with the alarming growth and complexity of our government. Never before has the government controlled such a large part of the economy. This trend was prevalent long before the most recent recession, but has become drastically worse since then.

With all the government bailouts of large banks, the government now controls the mechanisms by which the economic system functions. Of course the politicians will all say that massive government investment was necessary to avert an even deeper depression. And they will argue that since the government stepped in, it obviously deserves a say in the business operations of these banks. But all that misses the point.

The reason why banks got so big in the first place is because of the disproportionate power they began to wield over the political system. The influence has had pernicious effect on both major parties, and all branches of Government. There had been laws in place that limited bank growth, and constrained their lending and investment activities. Especially after the great depression, the regulations prevented banks from taking excessive risks with their depositors' money. But over time, we forgot those lessons and eased restrictions on bank size and investment activities. As a result, you had a few banks controlling the vast majority of economic activity in this country - and they grew to the point that they became 'too big to fail'.

Financial industry leaders have chafed under the government's recent efforts to reign in the banks - calling them heavy handed, and even alleging that the government is rigging banks by forcing them to invest in U.S. treasuries at a time when government debt may be one of the riskiest assets out there. Government, on the other hand, is desperately trying to ramp up its capacity to regulate these increasingly complex and impossibly large institutions. It is trying to do so at a time when government expenditures are coming under increasing pressure from the American people, who feel burdened by a ballooning national debt. Add to that our inherent, God-given distrust of government, and you see we have crisis brewing.

The truth is: governments can no better run banks than bankers can hold national elections. And yet, this is what seems to be happening. To wit, the Obama administration's recent wrangling over how to approach the financial community for a hand out without giving away the store - again. The solution seems pretty clear. Banks need to be regulated in a way that makes them either less big or less risky, or both. If, to use the banking regulators euphemism, some institutions are "systemically important", then they should be regulated like public utilities have been: they are allowed to earn a certain enumerated profit margin over cost, and submit to local political control. That will make them less sexy and banking less prestigious. But there is a solution for those who want to innovate. Private individuals and institutions can lend each other money on an arms-length basis, without the use of government leverage or Federal guarantees to depositors. This is true capitalism, when the risks are fully born by the parties to the transaction and not the broader society.

To reclaim America, we have to return both political and economic power to the people - as envisioned by the framers of the constitution. Only when big government and big finance get out of the way will there be any hope for renewed prosperity in this country.