Investing in the Age of Sovereign Defaults: How to Preserve your Wealth in the Coming Crisis

Chapter 1

Democracies’ Fatal Attraction of Populism

When national debts have been accumulated to a certain degree, there is scarce, I believe, single incidence of their having been fairly and completely paid.

—Adam Smith, The Wealth of Nations, 1776

Democracy is two wolves and a lamb voting on what to have for lunch.

When the people find that they can vote themselves money, that will herald the end of the republic.

—Benjamin Franklin

The United States shall guarantee to every State in this Union a Republican form of government.

—United States Constitution, Article 4, Section 4, Paragraph 1

I think when you spread the wealth around it’s good for everybody.

—Barack Obama

The central theme of this book is that the so-called advanced nations are rapidly moving toward a broadly defined “default” on the many obligations they have accrued over the last hundred years. This defaulting is not some kind of historical accident but results from the underlying fatal attraction of populism in democracies with universal suffrage. This broadly defined default along with supply-side/structural reforms will be necessary for the advanced nations to reestablish themselves on the path of human progress.

Let’s start with a definition of populism. Look it up and you will find a variety of definitions. The majority defines the word as policies benefiting the common people at the expense of the rich or the elite. But as a free market economist, I have my own definition, which is the meaning of the word ...