Video: F. A. Hayek Distinguishes Rule of Law and Arbitrary Laws

In the following video the great F. A Hayek distinguishes between the rule of law (general rule) vis-a-vis arbitrary laws (source liberty pen, hat tip Prof Peter Boettke)

Hayek quotes from the video:

Any redistributive policy requires a discriminating treatment of different people. You cannot so long as you treat all the people according to the same formal rules—forcing them to act only to observe the same rules—bring about any distribution of incomes. Once you decide that government is entitled to take from some people in order to give it to others, this is automatically discrimination of a kind for which there can be no general rule. They are purely arbitrary.

After long discussion in jurisprudence, it has come out that the essential point about general rule is you cannot predict who will profit from it and who will suffer from it. Any rule where you know beforehand who will be gainers and who will be the suffers is, in that sense, not a general rule

Once you authorize government to act arbitrarily there is no limit to it.

Not acting to a general rule is arbitrary. It is the only way in which you can define arbitrary.

You distinguish between the people whom you want to have more and the people whom you want to have less

The distinction is between (I can only say) a general rule which applies equally to all and a rule which distinguishes between different groups

War on Plastic Bags: How Reusable Unwashed Grocery Bags Can Kill

Regulations must not be seen only by intentions, it has to be viewed from the perspective of incentives they create. 

The war on plastic bags is an example. The public, mesmerized by environmental political hysteria, don’t see people’s responses to such arbitrary proscriptions may end up with undesired consequences.

I discussed or posted about them earlier here and here.

Author, blogger and lecturer Timothy Taylor at the Conversable Economist blog points to a study which shows of the lethal side effects from unwashed reusable grocery bags

One recent local environmental cause, especially popular in California, has been to ban or tax plastic grocery bags. The expressed hope is that shoppers will instead carry reusable grocery bags back and forth to the grocery store, and that plastic bags will be less likely to end up in landfills, or blowing across hillsides, or floating in water. The problem is that almost no one ever washes their reusable grocery bags. Reusuable grocery bags often carry raw meat, unseparated from other foods, and are often stored for convenience in the trunk of cars that sit outside in the sun. In short, reusuable grocery bags can be a friendly breeding environment for E. coli bacteria, which can cause severe illness and even death.

Jonathan Klick and Joshua D. Wright tell this story in "Grocery Bag Bans and Foodborne Illness," published as a research paper by the Institute for Law and Economics at the University of Pennsylvania Law School. As their primary example, they look at E. coli infections in the San Francisco County after it adopted an ordinance severely limiting the use of plastic bags by grocery stores.

Read the rest here

Overciminalization from Environmental Laws

In the US, the rapid escalation of arbitrary environmental regulations has been prompting for growing accounts of needless political persecutions.

From Foxnews.com

The growing web of laws that can land unwitting violators in jail is commonly referred to as "overcriminalization." These are not laws prohibiting fundamentally wrong behavior like murder or rape. Critics say these laws create offenses that violators often don't realize are illegal until it's too late.

Punishment can range from a few hundred dollars in fees to lengthy prison terms. Some say the extraordinary expansion of the criminal code on federal, state and local levels leaves the public exposed to abuse at the hands of officials.

'You take away the incentive for somebody to do something bit by bit by bit. It’s like peeling the layers off an onion. You can only peel so much and then you don’t have any onion left'- FIshing boat Capt. Terrell Gould

When it comes to environmental laws, the states getting hit the hardest are the five that border the Gulf of Mexico -- Texas, Louisiana, Mississippi, Alabama and Florida. Among them, nearly 1,000 laws criminalizing activities along the coast have been put on the books, Texas Public Policy Foundation analyst Vikrant Reddy said. 

While there is no concrete figure, there are an estimated 300,000-400,000 environmental laws, statutes and mandates believed to be in circulation nationally. Many can land a person in prison, regardless of whether another person, plant or animal is harmed.

Gosh 300-400K laws! 

More steps towards the scenario forewarned by the great F. A. Hayek in his classic book, the Road to Serfdom, here is a snippet (p.86).

By giving the government unlimited powers the most arbitrary rule can be made legal: and in this way a democracy may set up the most complete despotism imaginable.

Obama’s Push for Gun Prohibition

US President Obama pushes for a radical overhaul of gun laws.

From Bloomberg,

President Barack Obama unveiled the most ambitious gun-control agenda in decades today, announcing a $500 million package of legislative proposals and executive actions aimed at curbing firearms violence, from mass shootings to street crime.

The president, counting on a shift in public opinion since the shooting rampage at a Connecticut elementary school last month, challenged Congress to mandate background checks for all gun buyers, ban high-capacity ammunition clips, and reinstate a ban on sales of assault weapons

Obama signed 23 executive actions aimed at circumventing congressional opposition to new gun restrictions, including several designed to maximize prosecution of gun crimes and improve access to government data for background checks.

Couched in social morality, Obama’s proposal, which has been psychologically anchored on spur of the moment public impulse (availability heuristic), resonates of his predilection for the expansion of government, and importantly, for a spending $500 million blitz.

Again from the same article:

The administration also plans to address legal barriers that may prevent states from sharing relevant medical information, to review standards for gun locks, require federal authorities to trace firearms recovered in criminal investigations and direct the Centers for Disease Control to research the causes of gun violence.

The new spending would go mostly for training and data- collection programs. Obama wants $10 million for the CDC to conduct further research, “including investigating the relationship between video games, media images, and violence.”

Another $20 million would expand a reporting system to gather data when firearms are used in violent deaths, whether homicides or suicides. To encourage states to share criminal and mental health records for the federal background database, Obama proposes spending $20 million this year and $50 million next year.

School districts and police departments would get $150 million to hire school resource officers, psychologists and social workers and another $65 million for teacher training.

Obama again urged lawmakers to approve an existing request for $4 billion to help communities keep 15,000 police officers on duty.

So gun control looks like stimulus camouflaged mostly for the bureaucracy.

Yet like almost all prohibition laws once this gun control comes into effect the likelihood is to bring the assault weapon and sporting rifle ban into the underground (shadow economy).  And along with the other typical consequences: greater fraud, corruption, and higher risks of violence.

This reminds me of a quote attributed to Russian revolutionary and USSR Premier Vladimir I Lenin

A system of licensing and registration is the perfect device to deny gun ownership to the bourgeoisie.

Incidentally, Lenin’s Russian Civil War resulted to a death toll of 8 million people where only 2 million were from combat deaths according to eNotes.com.

Of course, Lenin introduced the infamous concentration camps or the Gulag

So like all aspiring tyrants, gun control has been the traditional recourse for assuming total social control.

Further, Obama’s thrust to use of “mental health” as checks on gun ownership represents the assumption that bureaucrats know better and have better moral standings than the citizenry have been premised on statolatry or the fiction of the puritanical or deifed state.

Additionally, the gun control regulation opens the portals of public censorship via "investigating the relationship between video games, media images, and violence.” 

The psychiatric treatment approach through social policies has been used as a prominent tool to attain total social control—the therapeutic state

Writes Professor Thomas Szasz at the Citizens Commission on Human Rights International: (hat tip Bob Wenzel) [bold and italics original]

“Although we may not know it, we have, in our day, witnessed the birth of the Therapeutic State. This is perhaps the major implication of psychiatry as an institution of social control.”

“When I use the term therapeutic state, I use it ironically, it’s therapeutic for the people who are doing the locking up, who are doing the therapy, it’s not therapeutic for the victims, for the patients.”

“In the therapeutic state, treatment is contingent on, and justified by, the diagnosis of the patient’s illness and the physician’s prescription of the proper remedy for it… Today, the therapeutic state exercises authority and uses force in the name of health.” The Founding Fathers “could not have anticipated…that an alliance between medicine and the state would then threaten personal liberty and responsibility exactly as they had been threatened by an alliance between church and state.”

“Inasmuch as we have words to describe medicine as a healing art, but have none to describe it as a method of social control or political rule, we must first give it a name. I propose that we call it pharmacracy, from the Greek roots pharmakon, for ‘medicine’ or ‘drug,’ and kratein, for ‘to rule’ or ‘to control.’”

“Formerly, people rushed to embrace totalitarian states. Now they rush to embrace the therapeutic state. When they discover that the therapeutic state is about tyranny, not therapy, it will be too late.”

“This phenomenon illustrates what I call the creeping therapeutic state. I see it as insidious, especially given the cooperation between the government and the media. This is allowed on television. But advertising Scotch, a legal drink, is not allowed. This subtly undermines the rule of law, the principle that if something is legal, then it’s legal, and if it’s illegal, then it’s illegal. A prescription drug is illegal; pharmacists cannot sell it to you unless you have a prescription. These are illegal drugs, but nobody calls them illegal drugs. So I see this as pernicious, as an example of what F.A. Hayek and Ludwig von Mises talked about—that the opposite of freedom is not brutal tyranny but capriciousness.”

The US has been in a transition to the land of the UNfree or what I call as the Philippinization of the US, and the consequences that goes along with it.

As I previously noted,

F. A. Hayek once warned that Americans are headed towards the road to serfdom. His admonitions appear as becoming a reality with the deepening of America’s police state aside from snowballing political and economic fascism, signs of which the US could be in a slippery slope towards dictatorship.

Mexico’s Government Declares War on Cash

The war on cash transactions has been gaining traction among governments. Crisis stricken European countries as Italy, Spain and Greece have earlier initiated the curtailment in the use of cash. 

The Mexican government has joined this bandwagon by announcing a ban on “large” cash transactions supposedly to stem money laundering, most likely emanating from the drug war.

From the Washington Post 

Mexican President Felipe Calderon has signed into law a ban on large cash transactions as part of an effort to fight money laundering that experts estimate may amount to around $10 billion per year in Mexico.

The bill forbids buyers and sellers from giving or accepting cash payments of more than a half million pesos ($38,750) for real-estate purchases. It also forbids cash purchases of more than 200,000 pesos ($15,500) for automobiles or items like jewelry and lottery tickets.

It is kindda odd for governments to pin the blame on the public in the knowledge that for the top 10 lists of most corrupt government officials, many of them have been known to launder pelf acquired during their morally tainted regimes. 

In the financial world they are known as Politically Exposed Person (PEP), which according to Wikipedia.org, “describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person” 

The Wikipedia.org also notes of the relationship between corruption and money laundering… (bold mine)

By virtue of their position and the influence that they may hold, a PEP generally presents a higher risk for potential involvement in bribery and corruption. Most financial institutions view such clients as potential compliance risks and perform enhanced monitoring of accounts that fall within this category….

PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. Since September 11, 2001, more than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a fundamental role. Despite attempts at regulation, certain political leaders like Muammar Gaddafi and Hosni Mubarak have made news for having frozen assets located in US banks that did not follow these processes for these individuals.

So by virtue of the connection of corruption and laundering then Mexico cash ban should also implicate politicians. But this isn’t likely the real score.

In the understanding the politicians typically use noble sounding justifications to camouflage the genuine design to impose social controls, cash bans have mostly been about governments wanting to take control of the public’s savings in order to finance their profligacy.

Except for the quirk this 2012 in terms of government budget as % of GDP—perhaps due to initial reporting, but as of September Mexico’s debt will equal to 42.9% of GDP—generally speaking, Mexico’s fiscal position (mostly supported by oil revenues) has been in marked deterioration. (chart from tradingeconomics.com) 

With oil production falling from declining reserves, and where oil revenues account for 40% of Mexico's national budget…

…we now get a better picture or understanding of the seeming desperation exhibited by the Mexican government which impels them to corral public’s savings through currency restrictions.

Of course ban on cash would do little to control supposed “money laundering” which in reality represents an offshoot to corrupt arbitrary laws.

In the US, the war on drugs, for instance, has prompted drug trades to migrate to other marketable commodities as the Tide liquid detergents as means of payment. Instead of dealing with failure of the war on drugs, governments typically resort to attacking symptoms. This has been no less than political showmanship or the pretense of doing something. 

Economic and financial restrictions or blockade against Iran by the US has prompted Iran to use gold as money. So essentially, the US government has taken steps to underwrite the decline of the US dollar standard by incentivizing emerging markets to trade using other mediums as gold. 

As I previously wrote, 

As governments stifle people’s social and commercial activities through tyrannical laws, expect the use of more cash, local currencies or commodities (such as Tide) as alternative medium of exchanges, as the informal or shadow economies grow. 

Most importantly, real assets will become more valuable and may become an integral part of money, as sustained policies of inflationism, as Voltaire once said, will bring fiat money back to its intrinsic value—zero. 

The Mexican government’s war on cash will do little to help what truly has been the problem of political greed.

World Competitiveness: Philippines Jumps to 65th Place

The World Economic Forum (WEF) recently released, The Global Competitiveness Report for 2012-2013 which attempts to measure relative competitiveness among 144 nations that provides “insight into the drivers of their productivity and prosperity”

It is important to highlight that the competitive ranking have been defined by the WEF as

as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy. The productivity level also determines the rates of return obtained by investments in an economy, which in turn are the fundamental drivers of its growth rates. In other words, a more competitive economy is one that is likely to sustain growth.

Here is the roster of the top 30 most competitive nations.

Notice that the WEF says the ranking is about productivity, and not about “cheap labor”.

If competitiveness is about the “cheap labor” then the Philippines and Africa will be on top of the list. Unfortunately mainstream demagoguery has obstinately been focused on this, so as to justify the inflationist-interventionists doctrines.

Also notice that the most competitive nations have been developed economies. The GCI rankings have been closely aligned with the list of most economically free nations (Heritage Foundation: 2012 Index of Economic Freedom).

It is important to note that the above rankings are comparative or relatively based. This implies that changes in standings may not necessarily translate to advancement or deterioration in domestic policies but about quantified comparative measures.

First the good news.

According to the report, the Philippines leapt from 75^th to 65^th

Yet despite the huge gains, which obviously will be construed and used by the mainstream and political forces to grab credit as “achievement” for the administration, the Philippines trails vastly behind the ASEAN peers.

Curiously Africa’s Rwanda has even been ahead.

The bad news is that despite the remarkable gains, the gap in the per capita GDP figures has been widening relative to our developing Asian peers.

This means that yes the Philippines has shown material progress but such gains has not been enough to cope up with the scale of advancement in the region.

Lastly, the reason for the lag in productivity has been about over politicization of the domestic economy which has been manifested through a bloated bureaucracy, lack of infrastructure (which has been politically determined—see below), tax and labor regulations and high tax rates.

Of course corruption has still been the biggest deterrent to business. But, in truth, corruption signifies as symptoms of interventionism expressed through arbitrary policies and regulations, the bureaucracy, welfare-warfare state and state determined allocation of resources.

The informal economy, which is also a symptom of interventionism, takes up a huge chunk of economic activities. This is a clear manifestation of the failures of interventionism and of the incumbent political institutions.

Ironically the salutary conditions of the shadow economy could be suggestive of the alternative positive aspects of corruption, where people pay bribe money to authorities in order to do productive endeavors. This in spite of the major negative attribution on the survey.

The burgeoning informal gold mining sector, which comes mostly in response to recently imposed higher taxes should serve as a wonderful anecdotal example.

Yet the media and the social desirability bias afflicted pop culture cheers about the Php 407 billion proposed infrastructure or so-called “investment” spending without the realization that productive money will be diverted to the pockets of cronies (who will get the contracts), bureaucrats (who will pick the winners) and politicians (which most likely will be the source of electoral finance for the upcoming 2013 national elections).

chart from US Global Investors

All these supposed stimulus will only translate to greater inequality (enrichment of the political class and of the politically connected enterprises), more debts, higher taxes (for the middle class and the politically unconnected), more PRICE inflation (which will be blamed on the private sector) and importantly adds to the ballooning bubble dynamics driven by current easy money policies.

These so-called public work policies are a chimera, as the great Professor Ludwig von Mises explained.

The fundamental error of the interventionists consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people's propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment. They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent. They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.

For media and the dumb downed (“madlang people”) electorate which sees this as good news hardly understands that effects of so-called government stimulus would be based on the illusions of statistics [mainstream economic statistics are based on Keynesian formula constructs] and not from real growth.

Thus, temporary good news will eventually become long term bad news.

However, despite such realities, the relatively better competitive standings today will likely continue to improve. Again, this is hardly because of internal ‘business friendly’ improvements but because of positional standings which will mostly be determined by the political responses to the unfolding crisis abroad.

Again the WEF’s GCI

The global economy faces a number of significant and interrelated challenges that could hamper a genuine upturn after an economic crisis half a decade long in much of the world, especially in the most advanced economies. The persisting financial difficulties in the periphery of the euro zone have led to a long-lasting and unresolved sovereign debt crisis that has now reached the boiling point. The possibility of Greece and perhaps other countries leaving the euro is now a distinct prospect, with potentially devastating consequences for the region and beyond. This development is coupled with the risk of a weak recovery in several other advanced economies outside of Europe—notably in the United States, where political gridlock on fiscal tightening could dampen the growth outlook. Furthermore, given the expected slowdown in economic growth in China, India, and other emerging markets, reinforced by a potential decline in global trade and volatile capital flows, it is not clear which regions can drive growth and employment creation in the short to medium term

The big picture gives us an objective dimension of the real developments rather than fall for trap to political demagoguery

Updated to add:

I was unaware when I wrote a few hours back that the competitiveness issue accounts for today's main headline story.

Corrupt Indian Politicians Loot $14.5 billion in Food

From Bloomberg,

as much as $14.5 billion in food was looted by corrupt politicians and their criminal syndicates over the past decade in Kishen’s home state of Uttar Pradesh alone, according to data compiled by Bloomberg. The theft blunted the country’s only weapon against widespread starvation -- a five-decade-old public distribution system that has failed to deliver record harvests to the plates of India’s hungriest.

“This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society,” said Naresh Saxena, who, as a commissioner to the nation’s Supreme Court, monitors hunger-based programs across the country. “What I find even more shocking is the lack of willingness in trying to stop it.”

In every instance of corruption, the public’s attention have mechanically been directed at the immorality of the culpable political leaders. Yet media fails to investigate or even attempt to understand the incentives that encourages such nefarious acts. Thus the easy implied solution has always been to seek the appointment of persons of supposed “virtue”. But in reality, politics has never been about virtue but of the preservation of power.

Looking at the symptom than the disease won’t really lead to comprehensive solution.

More from the same article

This scam, like many others involving politicians in India, remains unpunished. A state police force beholden to corrupt lawmakers, an underfunded federal anti-graft agency and a sluggish court system have resulted in five overlapping investigations over seven years -- and zero convictions.

India has run the world’s largest public food distribution system for the poor since the failure of two successive monsoons led to the creation of the Food Corporation of India in 1965. The government last year spent a record $13 billion buying and storing commodities such as wheat and rice, and expects that figure to grow this year.

Yet 21 percent of all adults and almost half of India’s children under 5 years old are still malnourished. About 900 million Indians already eat less than government-recommended minimums. As local food prices climbed more than 70 percent over the past five years, dependence on subsidies has grown.

In reality, political distribution of resources tends to create two classes of people: particularly the powerful politicians—bureaucrats and the helpless public. With God like powers from legal mandates to determine the beneficiaries (winners and losers), many will try to influence or win the favor of the political class through various means, including bribery or through coopting or gaming the system.

On the other hand, the political class will always act in accordance to their self interest, particularly personal values and preferences, ideology, personal networks (family friends and etc..), career, social status and even financial interests. After all, political class are humans too.

As the great Professor Ludwig von Mises wrote in his magnum opus Human Action,

Unfortunately the office-holders and their staffs are not angelic. They learn very soon that their decisions mean for the businessmen either considerable losses or—sometimes—considerable gains. Certainly there are also bureaucrats who do not take bribes; but there are others who are anxious to take advantage of any “safe” opportunity of “sharing” with those whom their decisions favor.

In many fields of the administration of interventionist measures, favoritism simply cannot be avoided. Take, for example, the case of export or import licenses. Such a license has for the licensee a definite cash value. To whom ought the government grant a license and to whom should it be denied? There is no neutral or objective yardstick available to make the decision free from bias and favoritism. Whether or not money changes hands in the affair does not matter. The scandal is the same when the license is given to people who have rendered or are expected to render other kinds of valuable services (e.g., in casting their votes) to the people upon whom the decision depends.

Corruption is a regular effect of interventionism. It may be left to the historians and to the lawyers to deal with the problems involved.

Since interventionism are coursed through laws, laws create corruption and corruption engenders laws.

This striking quote from the same Bloomberg article is very much revealing of the true nature of the state and of the importance or of the superiority of the market: (bold highlights mine)

“If you can buy a Pepsi in every village in India, why can’t the government get us our rations?” asked Vaish, who lives in Satnapur. “The reason we don’t is because the government doesn’t want us to -- they all get a cut.”

Graphic of the Day: Red Tape and Small Business

In the mainstream, hardly has there been any meaningful discussions about how red tape, costs of regulatory compliance and the costs of leviathan bureaucracy contributes to unemployment or how politicization of the economy via the bureaucracy and arbitrary rules (regime uncertainty) takes its toll on the economy, particularly on small business, which have been the major source of the employment in the US (and elsewhere).

The chart from the Joint Economic Committee Republicans exhibits the astounding maze of regulations.

So when the politicians deceivingly assert that the success of entrepreneurs has been due to the government, in truth this relationship has been in reverse: many business failures, stillborn and or unrealized businesses have been products of government interference in various forms.

Cato’s Dan Mitchell (where the chart above has been sourced) gives us some numbers on the onus of the bureaucracy to the US economy:

Americans spend 8.8 billion hours every year filling out government forms.

The economy-wide cost of regulation is now $1.75 trillion.

For every bureaucrat at a regulatory agency, one study estimated that100 jobs are destroyed in the economy’s productive sector.

As the great Ludwig von Mises pointed out,

The trend toward bureaucratic rigidity is not inherent in the evolution of business. It is an outcome of government meddling with business. It is a result of the policies designed to eliminate the profit motive from its role in the framework of society’s economic organization.

Elimination of the profit motive means a declining trend in a society’s standard of living.

The Economist has an article about “The parable of the four-engined planes” which nicely demonstrates of the failure of bureaucratic rigidity.

Updated to add:

Another worthwhile example is this article about a 13 year old aspiring entrepreneur whose business got shut down by local regulators. (pointer to Professor Gary North)

America’s Growing Informal Economy?

The US government’s deepening embrace of statism particularly economic and political fascism and the fast expanding unsustainable welfare state, financial repression and the burgeoning police state will likely not only fuel a diaspora for the wealthy but likewise drive the average Americans to operate on the informal or shadow economy.

Professor Gary North explains why, (bold emphasis added, hat tip Bob Wenzel)

Americans are learning how to beat the system, cheat the system, and outfox the system. As the bureaucrats tighten their many nooses, Americans are finding ways to slip the noose.

An article in Forbes offers examples. They are everywhere. Businesses are just ignoring the rules. They hire lawyers to help them avoid the law. They are fed up with the federal squid. They are not cooperating.

This is significant for the future. The heart of every legal system is legitimacy. If the government — family, church, or civil — is viewed as legitimate, people who are under its jurisdiction cooperate. They add self-government to external systems of sanctions. If they refuse to do this, the government’s enforcement system cannot force them to obey consistently. The system does not have enough resources to enforce compliance.

At some point, the government loses its ability to gain its goals. Collecting more taxes in Greece is not possible. The Greek government can promise austerity, but it can gain this only by reducing spending, not by collective more taxes. The same is true of Spain. The same is true of Italy.

If the people who live under the regime think the regime is corrupt, they cheat. They feel no guilt. If they think a law is immoral or stupid, they refuse to cooperate. The government can do little to change this outlook, other than shrink. No government does this voluntarily.

The federal government is now at the limit of enforcement. The bureaucrats write 83,000 pages of new rules every year, yet the country changes only slowly. The bureaucrats think they are in charge. They are not.

In reality, the informal sector is a manifestation of government failure. The more the arbitrary laws the lesser chances of enforcement, the susceptibility to corruption and of the gaming of the system by the politically connected all at the expense of society.

Yet if this dynamic should become a reality then this would signify as the Philippinization of the US.

Interesting signs of times.

ECB Eases Collateral Rules as Banking System Runs out of Assets

From the Wall Street Journal,

The European Central Bank said Friday it will widen the range of securities it will accept from euro-zone banks in exchange for its loans with the aim of helping boost lending to companies and households.

The ECB will now accept certain mortgage-backed securities, car loans and loans to small and medium-size firms.

The measure is seen as an attempt by the ECB to provide much needed liquidity to Spanish banks, which possess a large quantity of mortgage-backed securities after its real-estate bubble burst. Spain's government is expected to submit a formal request Monday to the European Union for a bailout of up to €100 billion ($125.4 billion) to help recapitalize its distressed banks. On Thursday, two independent consulting firms submitted results of stress tests conducted on 14 Spanish lenders, which put total capital need for the banking sector of Spain at up to €62 billion.

The ECB's step will reignite worries over a deterioration of the ECB's balance sheet, which is already at an all-time high after the ECB injected more than €1 trillion into the region's banking system in December and February to avert a credit crunch.

The German central bank, the Bundesbank, which has repeatedly criticized the ECB for the continued easing of its collateral rules as the euro-zone's debt crisis deepened over the past two years, was quick to respond.

This practically is an admission of the depletion of assets as collateral for loans in the Euro’s banking system.

And this also implies that ECB has been stuffed with ‘toxic’ assets and how rules has been easily changed or altered to accommodate interests of the political class and of the economic interests of the privileged politically protected few.

Eventually, the ECB may resort to directly accepting equities (or even commodities) as collateral.

Also, collateral rule adjustments may be a precursor to a coming 'shock and awe' policy coming from the ECB that would likely have a short lived 'buy another day' outcome.

All these reveals of the extent of desperation by EU officials, and more importantly, the current heavy state of distortions in the global financial markets.

Chart of the Day: Greece’s ‘Macaroni’ Bureaucracy

From Bloomberg, (bold emphasis mine) [hat tip P. Ella]

Panagiotis Karkatsoulis, who works in the Greek Ministry of Administrative Reform and e-Governance and teaches at the National School of Public Administration, has some well founded theories about where Greece went wrong. One long-standing habit of government that helped the country become almost unmanageable, according to Karkatsoulis, is its disdain for parliament: new rules and regulations in Greece have long been created by ministerial order and presidential decree rather than through parliamentary process.

About 70 percent of regulations were approved directly by ministers between 1975 and 2005, and just 2 percent were the result of parliamentary actions, Karkatsoulis says in this OECD presentation. Regions, prefectures and the president account for the remaining rule changes. More than 30 years of scant coordination has resulted in a morass of contradictory rules and a lack of legal clarity.

A profile of Karkatsoulis in Le Monde explains how the first government of George Papandreou in 2009 had 15 ministers, 9 vice-ministers and 21 adjunct ministers, along with 78 general or special secretaries, 1,200 counselors, 149 directorate generals and 886 directorates — this for a population of just over 11 million, or the same number of people as those living in Cuba. The resulting mesh of interdependencies for decision making has made governing Greece increasingly difficult.

The chart above from Mr. Karkatsoulis has been labeled as the ‘Macaroni’ chart.

This serves as a great example of how the Gordian Knot of arbitrary rules and regulations, which has been emblematic of a political economy built on an unsustainable parasitical relationship, ultimately ends up in a crisis.

Printing money via devaluation, as prescribed by the mainstream, will not solve the issue of excessive regulations, red tape and bureaucratic barnacles, as well as property rights, free markets and the rule of law.

Quote of the Day: Rules versus Discretion

We talk about "regulation," but the real issue is rules vs. discretion. Regulating by simple clear rules is much better than regulation by discretion, or by rules so complex they amount to discretion. When a zoning inspector can come in after the fact and always find something wrong, it's in invitation to corruption. We are increasingly a country in which "regulation" means that regulators can tell people what to do on a whim, not one in which clear objective rules are imposed.

That’s from University of Chicago Professor John H. Cochrane. It’s really rule of law versus arbitrary edicts, legislation or regulations. Again corruption is an offshoot to the latter.

Quote of the Day: The Volcker Rule is a Bad Idea

what the Volcker Rule does is drive banking from the private sector and toward the government sector. Thus, this rule, rather than limiting credit, simply pushes banks to use funds to invest in and provide more liquidity for the government sector.

If credit is to be created by the Fed, I would rather have those funds directed to the private sector, or see banks blow themselves up with synthetic instruments, than have the funds directed toward more investments in the government sector, which will do nothing but allow the state to grow. Thus, the Volcker Rule is a bad idea.

That’s from Austrian economist Bob Wenzel.

Like the Basel regulations, banks are being directed by statute to channel private sector savings to finance the government than to the private sector.

This legislation seems to be a component of the unholy grand scheme of financial repression—the plunder of private sector’s resources for the use of politicians through the banking system. [yeah and politicians and their sycophants have the effrontery to call out on “inequality” when much of the private sector resources have already been absorbed by them.]

And this is why banks end up in cohabitation with governments, as well as, why central banks have been there to provide a backstop on them when private sector resources have been squeezed dry.

Corruption is indeed rooted on arbitrary and repressive laws.

Philippines Moves to Ban Coin Collection

The Philippine government has expanded her version of financial repression

Using flimsy scapegoats, a bill has been filed to criminalize coin hoarding.

From Yahoo.com

Coin collectors beware.

Senator Manuel Lapid has filed a bill to penalize the hoarding of coins to avoid coin shortage.

Citing figures from the Bangko Sentral ng Pilipinas (BSP), Lapid said there should be around 17.34 billion coins--worth around P18.94 billion--in circulation. He said that would mean around 184 coins per Filipino.

"To enterprising crooks, this volume of coins in circulation is a goldmine. Recent valuation of the worth of the country's coinage suggests four of the coins are worth more than their face value if melted," he said in his explanatory note.

Lapid warned that melting down coins "along with the common practice of keeping coins in piggy banks, commercial undertakings such as the Automatic Tubig Machines which use coins for operation, video games machines and illegal numbers games, may threaten the sound circulation of coins in the country."

His bill defines coin hoarding as possessing coins of legal tender "beyond the requirements of his regular business as may be determined by the BSP."…

More from the same article,

Although coin collecting is allowed, the BSP can demand that people turn in all their coins within a month of declaring a coin shortage. Under the Lapid bill, "failure to make the surrender within the required period shall constitute coin hoarding."

The bill proposes a penalty of one year in prison and a fine of P100,000 "for every one thousand pieces of coins hoarded or a fraction thereof."

If passed into law, the bill allows the government to confiscate the coins for its own use.

Finally the admission…

The bill also proposes to allow BSP, in case of a coin shortage, to require all business transactions to be done in coins. "Any transaction to the contrary shall be considered coin hoarding," his bill reads.

"Though the day may be far when we may legally accept being given candies for change instead of coins, such a problem may not be remote as indicated by reports in other jurisdictions. It is thus imperative that preventive measures be put in place," Lapid said.

BSP has had a coin recirculation program since 2005 to address perceived coin shortages in some areas in the Philippines and to save money because the “intrinsic value of the coin is greater than its nominal value especially for the lower-denominated coins.”

First, government issues you the money to use, and then wants to dictate to you how much, and what medium, you should keep and use. If this isn’t an example of despotism, then I don’t know what else is.

Next, the Philippine government finally admits that “intrinsic value of the coin is greater than its nominal value especially for the lower-denominated coins” which means the government has been inflating the purchasing power of the local currency, the paper Peso, away.

Yet instead of maintaining monetary discipline, they chose to pin the blame, threaten to criminalize and perhaps actualize confiscation of the savings owned by the innocent citizenry. This should be a noteworthy example of arbitrary immoral laws.

Also, as predicted, inflationism’s alter ego has always been price control. The proposed banning of the hoarding of coins extrapolates to forcing people to keep coins in circulation, for imagined hobgoblins.

This also means forcing people to accept the coins at face value, which ironically they admit, has been worth more. So in essence, the Philippine government wants you and me to forget about prices and values or economics.

[Updated to add: I forgot to mention that what the government fears is that when the value of coins immensely widens from its face value, out of the effects of inflation, the tendency is for the public to hoard them. This is Gresham's Law at work which I mentioned earlier when Ron Paul talked about modern day coin debasement]

Yet setting up a strawman to justify the attack on the citizenry, through price controls, has long been a pattern of desperate politicians, as the great Ludwig von Mises explained,

in futile and hopeless attempts to fight the inevitable consequences of inflation — the rise in prices — are masquerading their endeavors as a fight against inflation. While fighting the symptoms, they pretend to fight the root causes of the evil. And because they do not comprehend the causal relation between the increase in money in circulation and credit expansion on the one hand and the rise in prices on the other, they practically make things worse.

Moreover, this represents an assault to the informal economy which operates mostly on cash (paper money and coins). This means that such law will become an instrument of subjugation and repression of mostly the poor (who don’t have bank accounts and who are most likely the major users of coins), the middle class, and importantly the political opposition.

Lastly, I am inclined to think that some vested interest groups have been pushing to keep these coins for themselves, of course, by forcing the public cough up on these coins through legislation.

The great Frédéric Bastiat in “The Law” warned

It is impossible to introduce into society a greater change and a greater evil than this: the conversion of the law into an instrument of plunder.

Confiscation of coins will not remove the effects of monetary inflation.

Yet by disallowing people to save through their preferred means and by confiscation of their savings means that such policy have the latent intent to destroy people's wealth.

The Disadvantage of having an American Citizenship

The US government seems to be applying a pincer movement—or a military maneuver where the flanks of the opponent are attacked simultaneously in a pinching motion after the opponent has advanced towards the center of an army which is responding by moving its outside forces to the enemy's flanks, in order to surround it (Wikipedia.org)—to its own citizens, by imposing repressive tax laws that restricts capital movements outside the US.

Now even wealth management firms are advocating wealthy Americans to FLEE the US.

From Bloomberg,

Go away, American millionaires.

That’s what some of the world’s largest wealth-management firms are saying ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business.

“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the U.S. to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all U.S. citizens living abroad, which could affect their ability to generate returns.

“In the long run, if Americans have less and less opportunities to invest overseas, it would be a disadvantage,” Marc Faber, the fund manager and publisher of the Gloom, Boom and Doom report, said last month in Singapore.

The almost 400 pages of proposed rules issued by the U.S. Internal Revenue Service in February create “unnecessary burdens and costs,” the Institute of International Bankers and the European Banking Federation said in an April 30 letter to the IRS, one of more than 200 submitted to the agency. The IRS plans to hold a hearing May 15 and could amend how and when some aspects of the rules are implemented. It can’t rescind the law.

Obviously the Obama administration’s ploy has been to coercively capture resources of Americans through more policies of financial repression channeled through inflationism (negative real rates and QE), taxes, bank regulations, anti money laundering laws and capital controls

More from the same article…

“Bank accounts, investment accounts, mortgages and insurance policies are being refused to American clients, and those with accounts are seeing them closed or have been threatened with closure,” Marylouise Serrato, executive director of American Citizens Abroad, a Geneva-based organization, wrote in an e-mail.

U.S. citizens who live in countries that aren’t served by U.S. banks may find themselves unable to bank at all, and implementation of the law in its current form could cause collateral damage to American businesses abroad, she said.

“Americans either will not be allowed to enter into international partnerships or live and work overseas, and will be replaced by foreign nationals who do not have these limitations,” Serrato wrote. “The extensive reporting requirements of Fatca will be destructive to those who wish to do business internationally as well as to those Americans who are legitimately living and working overseas.”…

While that may be easy for Americans in Singapore, those who live elsewhere face obstacles. Before Fatca, U.S. citizens in Bangkok or Manila could find investment opportunities through non-U.S. banks such as HSBC. Now their only option is to fly to cities where U.S. firms operate.

Limited Choices

If Americans choose to bank with a non-U.S. firm such as HSBC, their investment choices are limited. At the HSBC branch in the bank’s Asia regional headquarters in Hong Kong, Americans can hold only savings deposits. They’re prohibited from opening accounts to trade local stocks or buy products available to non- U.S. customers, including 45 equity funds investing in China or other geographies and industries. There’s only one comparable emerging-markets equity option available on HSBC’s U.S.-based investors’ website.

Financial institutions that choose not to accept American customers still must determine whether new or existing clients are so-called U.S. persons in order to comply with Fatca, according to Michael Brevetta, director of U.S. tax consulting at PricewaterhouseCoopers LLP in Singapore.

The definition includes citizens, green-card holders and non-Americans deemed U.S. residents by being present in the country for at least 183 days over a three-year period, which makes them subject to U.S. tax on their worldwide income, according to the IRS.

Compliance Costs

The compliance costs for banks, asset managers and insurance companies “could stretch into the billions of dollars,” Brevetta said. Private-banking firms in Hong Kong and Singapore already have operating costs between 88 percent and 90 percent of their revenue, compared with 70 percent at Swiss banks, PricewaterhouseCoopers estimated in a September report.

Penalties for not complying will be stiff. Non-U.S. firms that don’t make required disclosures will be subject to 30 percent withholding of certain dividends, interest or proceeds from the sale of assets they or their customers receive from U.S. sources, according to Baker & McKenzie’s Weisman, who has conducted workshops and seminars on the proposed rules for current and potential clients in Hong Kong and Singapore.

Wow. The above essentially signifies as the proverbial “writing on the wall” of the growing desperation by the US government over her unwieldy state of finances due to a bloated and unsustainable welfare-warfare economy.

Not only will US citizens be restricted access to foreign financial institutions, such tax laws are subtle manifestation of protectionism as overseas investments from US investors will be severely limited. [As one would note, foreign banks have been in retaliation to the encroaching protectionist US tax laws by denying Americans access]

President Obama’s nationalist-protectionist rhetoric over BPOs is apparently being realized via arbitrary tax laws. Yet protectionism will only compound to the nation's fragile economic conditions.

F. A. Hayek once warned that Americans are headed towards the road to serfdom. His admonitions appear as becoming a reality with the deepening of America’s police state aside from snowballing political and economic fascism, signs of which the US could be in a slippery slope towards dictatorship.

Yet such laws will have adverse consequences. This should incentivize, not only more tax avoidance measures, but also prompt wealthy Americans to consider giving up on their citizenship.

True, US government has made the exit option a burden. There have been reported incidences where the US government has denied applications by Americans wishing to renounce their citizenship (Sovereign Man).

Limiting people's actions increases political destabilization. Again all these seem to square with record gun sales, polls where gold seen as the best investment option, ballooning sales of home safe and even a report where the US government has been preparing for a “civil war”.

Political risks has certainly been mounting in the US as political and economic repression suggest that the US has been increasingly at war with their citizens.

I recall that after college graduation, a relative who is a resident of the US encouraged me to emigrate to the US and apply for American citizenship. Now I realize that this decision of mine to say NO may have seemed worthwhile or the right decision.