Veto Power

 

The Industrial Revolution led to the rise of the middle class and democracy. Increased productivity dramatically increased the supply of goods in the economy and raised purchasing power. The increased supply of goods equaled an increase in assets or savings, and enabled the masses to compete for ownership of the means of production. This forced the very wealthy to negotiate with the common people over the levers of power. Democracy represents the bargaining power of the common people.

 

Politicians are judged by the performance of the economy when they don’t really control it. Central banks have the most impact on the economy because they manipulate the interest rates of money. Central banks are independent from the influence of voters and raise or lower interest rates without warning. New investments in housing and capital goods are artificially stimulated by lowering interest rates. But when it comes time to reap what is sown, the central bank suddenly raises interest rates. Everyone stops spending and puts their money in the bank. The new investments don’t make a return and go bust.