What should the social contract  between the rulers and the ruled be? Responses to this single question are the sources of our growing political conflict. As the image above suggests, intolerance between the American Left and Right arising from their different answers makes a reasoned discussion increasingly difficult. What creates this hostility is the conflict between the requirements of social justice and the ideal of human freedom.

Our Social Contract: Social Justice and Human Freedom

The idea of the social contract  was created during the Age of Enlightenment. Its main purpose was to justify the authority of the state over the ruled. Why should such authority be given; when is it legitimate; and what could warrant its withdrawal? The development of social contract theory was kicked off by Thomas Hobbes with the publishing of his book Leviathan in 1651. As with future social contract theorists, he postulated humans “in a state of nature” without the restraint of government would constantly war with each other. In order to protect ourselves from each other, we agree to surrender authority over ourselves to a state. We consent to obey the decrees of a sovereign. In return the sovereign will protect us from each other and from foreign enemies. Otherwise, as Hobbes famously stated, our lives would be “solitary, poor, nasty, brutish and short”. We surrender unlimited natural freedom to do whatever we want for the more practical freedom of a safer social environment.

Later social contract theorists — most notably John Locke — added other codicils to the social contract. Locke asserted it should include the protection of our property as well as our lives. He also strongly advocated religious toleration. The founding fathers of the U.S. Constitution also embraced the protection of enumerated individual rights. In order to protect ourselves from the evolution of a tyranny, the French Baron de Montesquieu advocated the social contract should separate the state’s power into its three major types: legislative, executive, and judicial. Each branch of power could then check the excesses of another.

Any social contract requires the substantial consent of the governed to survive. Ultimately, the sovereign’s power is provided by the people. In fact, in a modern democratic republic the collective electorate is the sovereign. An individual’s consent to the social contract can be either overt or tacit. If a person does not explicitly endorse the contract, he or she tacitly accepts it by simply continuing to live within that country. When can it be terminated? The American Revolution provided the answer: When the sovereign ceases to enforce the contract, the ruled are justified in replacing their ruler.

In a modern democratic republic the sovereign is the electorate. Whatever constitution the republic adopts and the laws enacted under it constitute that republic’s social contract. Clearly, a republic’s social contract is something variable that can be modified through elections. This suggests the most burning political question of our times: Precisely what should the role of government in society be?

Since there are so very few anarchists, virtually everyone will agree we need government to restrict everyone’s individual freedoms to some degree for the benefit of all. Call this the social justice role of government. All people must be protected from racial or religious discrimination, from physical attack, from theft, and from bad drivers. On the other hand, the entire purpose of society is to enhance our individual and collective happiness. This purpose can be served only if each of us possess certain irreducible personal freedoms. How should social justice and personal freedom be balanced in our social contract? Our founding fathers tried to define our most important freedoms in the U.S. Constitution’s Bill of Rights. Nevertheless, the past two and a half centuries of our history shows us even these freedoms are subject to erosion from political forces (see here and here).

The Rulers: The Ideology and Influence of Elites

For most of the time,  a republic is ruled by its elites: political, academic, economic, and cultural. Whatever its nature, an elite is a part of society whose beliefs and views are most widely admired. Since they have the most admired ideas, it is only natural they would predominately control elective offices.

At least since the Woodrow Wilson administration, these elites (particularly academic and political) have been mostly progressive. Wilson’s administration began the construction of the independent government agencies, also known as the administrative state. Over time this administrative state has almost become an independent branch of government. Progressives have consistently increased its powers to regulate the economy and our lives. While doing that, they have also assiduously sought to insulate those independent agencies from the influence of the political branches.

The administrative state experienced explosive growth during the administrations of Franklin Delano Roosevelt and Harry Truman during the 1930s and 1940s. Under the double influences of the Great Depression and World War II, the federal government seized increasing powers over the economy. When the Republican Eisenhower followed Truman, his administration did little to pare back the administrative state. Accelerating government power continued to mushroom under John F. Kennedy and Lyndon Johnson with their “War on Poverty”. Succeeding administrations (even that of Ronald Reagan) could not or would not change this progressive theme.

The Obama administration perpetrated the last big progressive grabs for power. These included his attempt to begin nationalization of healthcare (“Obamacare”), his clean energy program, and the Dodd-Frank Act. The Dodd-Frank Act was a particularly egregious example that attempted to seize government control of the private financial industry. One independent government agency set up by Dodd-Frank, the Consumer Financial Protection Bureau (CPFB), was designed to be almost completely insulated from the government’s political branches. As a result it became an authoritarian, out-of-control rogue agency.

Similar comments can be made about Europe. American progressivism is the American version of dirigisme, which is the dominant economic ideology in Western Europe and Russia. Dirigisme is a slightly larger category that includes socialism (communism and fascism) along with highly regulated capitalist regimes. It posits that government must be the fundamental tool used to solve economic and social problems.

For approximately a century Western elites have asserted they are the ones who should determine how social and economic problems are to be attacked. After all, they reason, they are the ones possessing the necessary expertise. What happens when the mistakes they make begin to accumulate? What are the consequences when the search for social justice under dirigisme severely limits human freedom?

The Ruled: Populist Revolt and Growing Political Polarization

Over decades of time,  Western governments have piled up economic regulation on top of ossifying regulation. After a while, government regulation becomes onerous enough to discourage economic investments. Reduction in investments then causes a decline in economic growth. This can be seen by looking at the changes in countries’ secular GDP growth rates. Secular, i.e. long-term, growth rates can be separated from short-term fluctuations in a couple of ways. The easiest is to perform a moving time-average over a period long enough to average over the business cycle. Below are three plots of such averages over ten year time periods from 1970 to 2016. The first is for major North European countries, the second for the Scandinavian countries, and the third for southern European countries. In all three plots, the U.S. secular growth rate is included for comparison purposes as a black line with points on the data points.

As you can see from these graphs, all Western countries (with the conspicuous exception of Ireland) have decaying secular growth rates. Some secular growth rates have come perilously close to zero. Not surprisingly, this has led to a large amount of European economic and social discontent. In France, the economic distress has become great enough to fuel weekly protests that sometimes grow violent.

Yet it is not just economic distress unsettling Western populations. In both Western Europe and the United States, virtually unrestricted illegal immigration threatens local cultures at the same time that it burdens local government resources. The dirigiste elites have always promoted multiculturalism to encourage both mercantile and cultural international ties. Multicultural ideals have led European leaders to encourage immigration, particularly from their one-time colonies. Also, mass immigration to Europe from the Middle East and North Africa, and to the U.S. from Central and South America, provides Europe and the U.S. a ready supply of cheap labor. Crony capitalism has reinforced the idealism of dirigiste elites.

The combination of economic discontent with the problems of mass immigration has led common people in Western countries to surmise their problems are not uppermost in the minds of their leaders. They suspect, quite rightly, that the system has been rigged against them. Movements based on this view are called populist, and populist movements have shaken the political establishments of both Europe and the U.S. Neither European nor American elites appear to have come to terms with their populist rebellions.

The basic problem appears to be the following. Western elites believe in the competence of governments to solve economic and social problems. Attempting to improve social welfare, the political leaders have made many mistakes. Instead of eliminating or ameliorating problems, a great many times they have made them worse. Since they believe government should be the main means for solving problems, government programs for enhancing social justice were favored over citizens’ human freedom. That is a fatal mistake.

What Reality Allows: Chaotic Social Systems

How can we balance  government programs for social justice with the needs of human freedom? If we strengthen one, most often we must weaken the other. This is not necessarily always true, but there are systemic reasons why that is often the case. In addition, almost always government programs will create unexpected and often unpleasant results. This happens so often it has been given the name of the Law of Unintended Consequences.

These unfortunate results occur because the elites so often ignore what social reality allows them to do. The very complexity of social systems causes chaotic behavior. In any chaotic system, perturbations are transmitted through it in often unpredictable ways. This explains how the Law of Unintended Consequences comes to be.

We can learn a lot about this by a close analogy with fluid systems studied in physics. These systems are composed from a very large number of interacting components, each one of which has a number of degrees of freedom. A degree of freedom is a quantity associated with a system component that can change by interaction with other system components. In a fluid system such as a planet’s atmosphere, the system components are molecules of nitrogen, oxygen, carbon dioxide, suspended particulates, etc., etc. Each atmospheric molecule and particulate has degrees of freedom such as three components of position and three components of velocity.

In any social system, the interacting components are (of course!) individual human beings. In addition, groups of human beings acting together can be considered system components. Examples include private companies, charitable foundations, political parties, and governments at all levels  Each system component has degrees of freedom such as the types of goods and services people desire, together with the amounts they would buy at a particular price. Political preferences, skill levels, wealth, goals, and a vast number of other differences all count as degrees of freedom. Clearly, human social systems are considerably more complex, and therefore much more chaotic, than physical fluid systems.

Another aspect that contributes to the chaotic nature of physical fluid systems and of social systems is the following: The predominant interactions between system components are between pairs of components. In a planetary atmosphere most interactions between molecules are local collisions between pairs of molecules. In a social system, most interactions are between pairs of components: pairs of individuals, a seller with a buyer, a government with a citizen, and so on. This means any perturbation on system variables (all of which are degrees of freedom) can propagate through the system in unpredictable ways. Think of gossip being transmitted from person to person.

The implication of these observations is that government programs quite often make things worse rather than better. Government bureaucrats and politicians can never predict all the consequences of their laws, regulations, policies, and programs. In 1928 the Federal Reserve thought it was doing a good thing by switching from a quantity of money theory of price stability to a real bills doctrine. In reality, the new monetary doctrine caused the money supply to drop by about one-third between 1929 and 1933. This loss of system liquidity was the primary cause of the Great Depression of the 1930s. The Democrats during Lyndon Baines Johnson’s administration thought their War on Poverty would bring prosperity to the poor. The actual result was severe damage to many black, white, and Hispanic families. During the Clinton administration Democrats thought they were opening home ownership to poorer people by amending the Community Redevelopment Act of 1977. The amendment required that at least 30% of mortgages purchased from originating banks be made to people at or below the median income level in their communities. This goal was subsequently increased to 56% by the department of Housing and Urban Development (See reference [E4, chapter 1]). Unwittingly, they were mandating the junk mortgages that were the cause of the Great Recession of 2008-2009. These are only a few of the government induced disasters that could be cited.

There is yet another reason to be very careful about increasing the societal roles of government. Every time government power is increased to solve problems, the human freedom of individuals to solve their own problems and direct their own lives is necessarily reduced. Citizens’ assets are appropriated through taxes, decreasing their capacity to accomplish anything. In addition, new government policies often restrict what individual citizens are allowed to do. For example, the Obama administration extended water way regulations in 2015 to apply to small bodies of water on private lands. This subjected individuals like farmers and developers to costly federal permitting for very common activities, such as filling or creating ponds or moving soil.

Almost a century ago, an Austrian economist by the name of Friedrich Hayek observed how increased accumulations of government

power could cause a democratic government like the Weimar Republic to collapse into a fascist state. In 1944 he published his observations in his seminal book The Road to Serfdom. According to Hayek the beginning of the road to serfdom is found when some social problem causes people to demand the government do something, anything to relieve the distress. Then, especially if the beginning government efforts to solve the problem are less than efficacious, politicians will take more and more power to reduce the social troubles. This process can quickly result in fascism.

One can see this phenomenon in the United States today. Many in the Democratic Party are calling for changing the U.S. into a socialist state.

So if we do not follow the progressive way to promote social justice, what should we do? If we can not use the government, we must find more ways in which we can help ourselves. Some ways in which this can be done are explored in my post A New Paradigm for Democratic Government Coming? . There is no disputing we will always need government to protect and defend society. However, the reflections above strongly suggest we keep that government role to an absolute minimum. Social justice is most optimally advanced by enhancing human freedom.

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