Posts Tagged ‘government’

The debate between fiat and commodity monetary standards is slowly re-entering the mainstream. See here, here and here. To those new to the subject, this is simply a debate as to whether the money in your pocket is backed by nothing other than government mandate and coercion (fiat) or a by a physical commodity that has value beyond it’s use as money (usually gold or silver).

This is a debate which many had considered to be closed, an argument that only existed on the fringes of academia amongst eccentric free marketeers. Succesive rounds of quantitative easing, coupled with negative real interest rates have thrust this debate back into focus.

It is bizarre that it has taken so long for this issue to re-surface. The intellectual superiority enjoyed by paper money is based on a 42 year experiment that has seen the value of all paper monies race each other toward their intrinsic value – ZERO.

The alternative, a commodity standard based on gold or silver (or a combination) is viewed  by the mainstream as atavistic, “a barborous relic”. This completely overlooks the historical track record of commodity money as society’s choice of preferred choice of exchange media.

The majority of coverage will argue against the gold standard, no doubt citing the flawed gold bullion standard (1925-1931) and Bretton Woods system (1946-1971) as representative of the failings of commodity backed monies.  Neatly overlooking that both standards were not the product of the free market but centrally planned and enforced by government.

The establishment has good reason to fear the return of a TRUE gold standard via the free market, beyond the control and manipulation of government and central bank. Such a gold standard would enforce fiscal responsibility, removing the state’s ability to run up unsustainable debt backstopped by the printing press. The current monetary world order is a top down system, designed, implemented and controlled by state bureaucrats and apparatchiks for the benefit of the establishment and it’s chosen favourites. There are plenty of vested interests who are keen to see it remain that way.

I would encourage the reader to look beyond the standard criticisms. One thing is for certain – the gold standard is back on the radar. This can only be a postive thing, especially as the loose monetary policy pursued by central banks world over causes more people  to wake up to the reality of their savings  being stolen through central bank induced inflation.

I’ve been given a book to read by a colleague. I hate it when that happens.

After a month of gathering dust on my windowsill I have started it, with a sense of duty rather than because of any interest in the title itself. The book is “Life’s a Pitch: What the World’s Best Sales People Can Teach Us All”  and is by Philip Delves Broughton. Not my usual cup of tea would be an understatement.

Anyways, I thought I would try and get through the book by speed reading it on the bus to work and back so I could at least return it to its owner knowing broadly what the content is (helps answer any quiz questions!). And then, out of nowhere, the author neatly summarizes the following quote,

 

“” You get these young salesman who think they can sell anything, and in sectors like financial services they’re selling things with a very negative impact on people’s lives. They’re selling a crappy product with no accountability[.]…. I’ve been called  a huckster, a snake oil salesman, everything. But now more than ever, if a product doesn’t work, or people don’t think they’re getting value, they can destroy your reputation online. It’s easy. If that happened to me, I wouldn’t still be in business”.

The strange thing is, he’s right. Sullivan is exposed as s salesman in a  way the salesman of Wall Street are not. Institutions and governments protect the latter when things go wrong. Sullivan may only be dealing in toilet cleaners and mops, but his reputation is constantly exposed to the bleaching sunlight of consumer scrutiny and market response. His professional safety net when selling gadgets is far smaller than for those selling products that can sink an entire economy.”

 

Quite. Perhaps this book won’t be as painful as I first imagined…

I’m becoming more and more interested in the idea of anarcho-capitalism.

We are conditioned to view the world through the paradigm of the nation state, international borders and sovereign power. But just what is the state? Is it relevant? Is it even legitimate?

The more I think about it the more I realize just how arbitrary the state actually is. I certainly don’t think that the state was created to benefit all mankind. More likely it was a cynical power grab by a plutocratic elite who realized that the state could be used to legitimize their use of force to consolidate their privileged position. Some may argue that the state is a means of performing collective action which would not be possible through voluntary interactions between free individuals, such as war. This may be true but how do we actually know? Who is to say that private individuals couldn’t arrange their own defence satisfactorily through private means? If that puts a stop to aggressive war mongering all the better. The record of the state in this regard is well documented, with centuries of war, aggression and killing to stand as testament.

Strike down the state with all of your hatred and your journey towards the anarcho-capitalist side will be complete

The problem I have is this – how can I advocate liberty but at the same time support any kind of state, regardless of how small? How can I decide what the proper remit of the state should be without imposing my own preferences on the rest of society? Nobody can opt out from what the state imposes because it is not a voluntary relationship. I can stop eating at McDonalds, choose to shop at Tesco instead of Asda and wear Nike trainers instead of Adidas. I have no such discretion in matters which involve the state.  The chimera of democracy is offered as a piecemeal sedative to the masses, an illusion that the masses possess some sort of influence over their beneficent masters. But no matter who you vote for, the government always wins. This is the danger when we decide what we think it is appropriate for the state to do – we are forcing others to conform to a way of living which we find desirable but which others do not. Can this ever be justified? Is it not hypocritical to think that state intervention and coercion is morally illegitimate yet only go as far as promoting a “smaller” state?

Truly free markets are just that – free, and do not suffer the interventions of the state. The state has always looked on jealously at the innovation and wealth creation made possible by markets, like a burglar peeking through someone’s front window.  The tendency of the state is always to grow larger, a self replicating monolithic bureaucracy that breeds its own army of foot soldiers on a staple diet of dependency and empty promises. This ever expanding monster needs money to sustain its growth. The private sector is easy prey for a state with a big appetite as the state can always rely upon its monopoly on the legal use of force to extract revenue from private individuals and businesses.

The more the state encroaches on the private sector, the more life it sucks out of the economy. Eventually it becomes trapped in a circle of ever diminishing returns. Every malinvested penny spent by the state  is penny that could have been used by the private sector. Sure, not all money spent by the state is wasted. Likewise, not all money spent by the private sector is invested wisely. But the private sector has a key advantage – prices.

Prices are amazing. They convey information between participants in a market. This allows the private sector to efficiently allocate resources based upon people’s real demands. Of course, markets are never perfect and mistakes are often made. But free markets have the ability to assess this misallocation of resources and adjust accordingly because prices will guide the market to correction. For instance, if a rubber duck costs more to make than people are willing to pay for it  then companies producing rubber ducks will lose money. This signals to entrepreneurs that resources are not being used efficiently and should be redirected towards other activities, such as producing yo-yos. The entrepreneurs could also work out more efficient and productive techniques to produce  the ducks. By doing this they may be able to lower the cost of production to a level which allows  the duck to be sold a price acceptable to the consumer and  also create a profit.  This profit tells the entrepreneur to keep doing what he is doing. It rewards the producer for enriching the lives of his customers. It encourages him to do it more. If profits are big it encourages others into the market, thereby increasing supply to satisfy demand and thus normalize profits. This increased level of competition also makes producers work harder to maintain their market share and profit margins (or in other words, their signal that they are using resources efficiently) by coming up with more efficient and productive processes. This competition drives down the cost of the product and society benefits from cheaper goods.

The public sector has no equivalent to prices. For instance, if a entrepreneur in a company hires a new worker to increase productivity and generate more profits he will be able to use the price system as a way of assessing the success of his investment. If he makes more money as a result then the worker keeps his job, maybe even more people get hired. If he loses money then the price system will tell him that he is not utilizing resources efficiently, the likely result being in the worker losing his job.  The same process can not occur in the public sector. The government can not assess demand like the free market can. Society can not accurately inform the government how much it is prepared to pay for bridges, local council art, flower beds or whatever else the state aims to provide. The government tells you how much you pay for it. Think about that. In every private business individuals co-operate to increase their own wealth by trading for things which they value more than the thing they trade the other way. It’s a two way gain. The shop keeper values your 50pence more than he values his one newspaper. You value the newspaper more than the 50pence or else why would you give the 50 pence up for it? A trade is completed and both parties benefit. Both parties will likely thank each other, which neatly symbolizes the mutual benefit of this arrangement. Now try and remember the last time you thanked the government for taking your taxes. Sure, you get things in return. But you don’t necessarily value them more than the money the state took from you by force.  The cost to you in taxes may be clear, but the cost to your liberty is more subtle.

Is that a price worth paying?

Child Benefit Cut in Popular with Public Shock – from http://www.bbc.co.uk/news/uk-politics-17255753

Apparently people earning more than £42,475 having their Child Benefit removed is a popular with about 77% of voters. Perhaps the most shocking thing about this statistic is that only 77% of taxpayers polled backed the scheme. You’ve gotta wonder about the other 23%. Note that isn’t families earning £42,475 but individuals. So in the future if both parents have respective salaries of £42,475 they will still qualify for child benefit. That’s a combined salary of £84,950 – and they will still receive this tax free subsidy. I could wax lyrical about the inherent ludicrousness of such a scheme but I think I’ll restrain my argument to a few salient points. First off, I simply can not believe that almost every family (regardless of income) currently qualifies for Child Benefit under current legislation. Secondly, it would seem to me that these changes plainly do not go far enough. People who do not need this hand out will still qualify to receive it.

What irks me most about this type of government spending however, is the patronizing molly coddling of the welfare state. Not capable of planning for the costs of parenthood themselves, individuals are deemed too incompetent to provide a basic standard of living for their own children. Anybody who earns anything like £42,475 but requires a government hand out to support their children is clearly lacking more than just the £20 a week they will get under the scheme (for the first child). And under the present system there are people earning FAR more than this and still qualifying. Of course, there will be many families with much lower incomes to whom such a benefit has become essential. The fact that such a benefit has become essential to any family raising a child is in some ways the crux of the problem. That a family could only afford to raise a child with a leg up from the state is a truly depressing state of affairs. This is not to say that raising children on low income is in any way an easy task. Far from it. Rising prices and stagnant wages must surely be an intolerable strain on any family struggling to make ends meet. But there are much  better ways of supporting these families (such as raisng the personal allowance on income tax to £12,000) that wouldn’t encourage the same level of dependency.

I think the main point is that people should try to plan for raising a family. Sure, accidents will happen. Some form of limited government assistance may be deemed necessary, charity should also help. But part of the reason why people can afford to be so reckless in these affairs is the knowledge that the government will bear some of the strain. Anyone considering the most important decision of all – to bring a child into the world – would do well to remember that it is their responsibility to plan for, provide for and protect the welfare of this new life.