Video: Ludwig von Mises on "Are Workers In Conflict with Employers?"

When asked to respond on the issue “Are the interests of the American wage earners in conflict with those of their employers, or are the two in agreement?" 

Here is the reply of the great Austrian economist Ludwig von Mises (via Mises Blog)

French President Hollande’s Class Warfare Politics: Do as I say, not as I do

In politics, one should watch what political agents do rather than simply believe on what they say.

From the Economist

“I DON’T like rich people,” François Hollande once said. When campaigning for the French presidency in 2012, he promised an end to bling, a top income-tax rate of 75% on the rich, and a modest, “normal” presidency in touch with the people. Now the Socialist president’s new disclosure rules reveal that seven of his ministers, including his prime minister, Jean-Marc Ayrault, are millionaires. Laurent Fabius, the foreign minister, who comes from a family of art dealers, duly declared over €6m ($7.9m) of assets, including a flat in Paris worth €2.7m and two country houses. Michèle Delaunay, minister for the elderly, reported €5.2m of assets, including two properties in Bordeaux and two houses in different south-west resorts. Until now, only the president had to publish his wealth. Mr Hollande’s 2012 declaration included two flats in Cannes and a villa nearby, valued in all at nearly €1.2m, just under the threshold at which France’s annual wealth tax kicks in.

To rephrase Mr. Hollande’s campaign slogan “I don’t like rich people competing with me, so I’ll tax them to oblivion”.

How the Welfare State Bankrupts: French Edition

It is widely or popularly held that “safety nets” provide “social justice” and “compassion” to underprivileged people.  On the surface this looks valid. 

But in reality or by looking deeper, the welfare system provides perverse incentives that accomplishes the opposite. 

Such includes dependency, sloth, reduction of the incentive to save, promotes reckless behavior via the moral hazard, incites social conflict via class warfare policies brought about by envy and the entitlement “something for nothing” mentality and fosters economic instability which raises the risks of crises via chronic deficits, huge debts and inflationism. 

All these undermines productivity, prosperity, peace and social harmony, and most importantly, civil liberties.

GoldMoney’s Alasdair Macleod  talks about the decadent French welfare state as example (bold mine)

However, the financial press is less familiar with the enormous future commitments of European governments, which are truly alarming. And these figures do not even fully expose the difficulties for governments to deliver their welfare obligations.

Eurozone unemployment is over 10% on average. This means that 10% of tax contributors are out of the picture and become a welfare burden, so Spain and Greece where unemployment is at 26% are in immediate trouble with their welfare budgets. Another unfavourable factor is the dominance of the state.

Take France, whose general government is 57% of GDP. Her working population is 28 million out of a total population of 66 million; 3 million are unemployed, which leaves 25 million, of which 8 million are employed by government. We can disregard government employees, since they are a net government liability, not a source of revenue.

That leaves only 17 million productive taxpayers who have to pay for the welfare and pensions for 66 million in a heavily state-controlled economy. Furthermore, a significant proportion of private sector employees are working in nationalised or government-supported industries, so the true figure of real taxpayers is significantly less than 17 million.

We can draw two conclusions about the European states: their welfare, health and social service liabilities are, unless they ditch the majority of their welfare commitments, going to bankrupt them; and because their true taxpaying base to fund this largess is smaller than generally realised, taxes are going to have to rise to the point where it is not worth genuinely productive people working.

When unproductive sectors takes more from what the productive sectors can give, such parasitical nature of relationship only means one thing: bankruptcy, as the Santa Claus (free lunch) principle eventually liquidates itself, and a coming social chaos. In short, feel good short term economically unfeasible policies eventually unravels.

Yet the seduction of welfare systems emanates from the lies founded and peddled for by politicians. As the great libertarian author Henry Hazlitt warned (Man versus the Welfare State p.34).

THE WELFARE STATE CAN ARISE AND PERSIST ONLY by cultivating and living on a set of economic delusions in the minds of the voters

At the end of the day, the welfare state epitomizes the axiom "the road to hell is paved with good intentions".

Curse of the Laffer Curve: Why Manny Pacquiao Prefers His Next Fight Outside the US

Boxing legend Manny Pacquiao seems to have joined the list of celebrities in implicitly denouncing class warfare policies by voting with their feet. 

More signs of the curse of the Laffer curve (elasticity of taxable income) in motion.

From Yahoo.com

Manny Pacquiao's chief adviser insisted Monday that the Filipino superstar's preference is for his next bout – a fifth fight against Juan Manuel Marquez – to take place away from Las Vegas, with the off-shore Chinese gambling resort of Macau emerging as the "favorite."

Michael Koncz told Yahoo! Sports that the 39.6 percent tax rate Pacquiao would face if he were to fight again in the U.S. makes a fall bout in Las Vegas "a no go."

Promoter Bob Arum is hopeful of arranging a fifth match between Pacquiao and Marquez in the fall, potentially on Sept. 14. Arum's preference is for the fight to be at the MGM Grand in Las Vegas, which is his company's home base.

But Arum and Koncz say Pacquiao is balking at the additional money he'd lose to the government if the fight were held in Las Vegas. Arum said Pacquiao would not have to pay taxes if the fight takes place in casinos in either Singapore or Macau.

"Manny can go back to Las Vegas and make $25 million, but how much of it will he end up with – $15 million?" Arum said. "If he goes to Macau, perhaps his purse will only be $20 million, but he will get to keep it all, so he will be better off."

Mr. Pacquiao appears to have learned his lessons from his domestic experience.  

Philippine tax authorities has continually been pressuring, if not harassing, by filing criminal charges against him for "failing to present his tax records"in 2012. 

The persecution of Mr. Pacquiao may have been politically motivated. This can be traced to his previous endorsement of the opposition in the 2010 presidential elections, as well as having joined the opposition political party of led by vice president Jejomar Binay (PDP Laban) in 2012.  Mr. Pacquiao has also been known ally of the ex-President GMA.

Nonetheless international celebrities opting to vote with their feet, which serves as an implicit tax protest, signifies as more bad news for the welfare-warfare state.

Tax Exodus: Former French President Nicolas Sarkozy Mulls Move to London

The curse of the welfare state and the Laffer Curve continues to haunt French politics. Aside from the controversial self-imposed exile by French actor Gérard Depardieu, the former French President Nicolas Sarkozy has been revealed as having plans of emigrating to London to dodge French “soak the rich” policies

From the Daily Mail,

Suddenly a handshake from David Cameron probably seems an awful lot more inviting.

Former president Nicolas Sarkozy could become the next wealthy Frenchman to flee to Britain over his country’s looming tax hikes on the rich.

Mr Sarkozy – who famously snubbed the Prime Minister’s attempt to shake his hand after Mr Cameron vetoed changes to the EU treaty in 2011 – is reportedly planning to move to London to set up a £800million investment fund.

The 57-year-old, who was ousted from office last June, has amassed a fortune from £150,000-an-hour public speaking engagements and is now said to be trying to raise capital from investors.

If the move goes ahead, the controversial Frenchman will become the latest to escape a potential top tax rate of 75 per cent in his home country.

He and his former supermodel third wife Carla Bruni-Sarkozy would be likely to settle in an affluent district like South Kensington – so becoming the most high profile Gallic celebrity couple in the city.

But the former president is under investigation for corruption in France, and if he does cross the Channel there will be outrage.

The bizarre thing is that politicians and public officials themselves are looking to shelter their assets elsewhere. The case of the top French taxman who is under investigation for stashing money overseas is another.

If Japan has a declining population due to fertility rates, France may soon join Japan as more people move away from repressive tax policies. Otherwise, France may soon experience a tax revolt

And as pointed out events today has been validating the warnings of the great French economist Frederic Bastiat

Quote of the Day: To Achieve Liberty, Envy and Intolerance have to be Overcome

To achieve liberty and peace, two powerful human emotions have to be overcome. Number one is "envy" which leads to hate and class warfare. Number two is "intolerance" which leads to bigoted and judgmental policies. These emotions must be replaced with a much better understanding of love, compassion, tolerance, and free market economics. Freedom, when understood, brings people together. When tried, freedom is popular.

The problem we have faced over the years has been that economic interventionists are swayed by envy, whereas social interventionists are swayed by intolerance of habits and lifestyles. The misunderstanding that tolerance is an endorsement of certain activities, motivates many to legislate moral standards which should only be set by individuals making their own choices. Both sides use force to deal with these misplaced emotions. Both are authoritarians. Neither endorses voluntarism. Both views ought to be rejected.

I have come to one firm conviction after these many years of trying to figure out "the plain truth of things." The best chance for achieving peace and prosperity, for the maximum number of people world-wide, is to pursue the cause of LIBERTY.

If you find this to be a worthwhile message, spread it throughout the land.

This excerpt is from the stirring farewell speech by Ron Paul at the US Congress

Warren Buffett’s Berkshire Share Buy Backs: Do What I Say and Not What I Do

When people talk or preach about politics, the best measure of candidness is to see how they act rather than to simply adhere to what they say. In Austrian economics lingo this is called demonstrated preference.

Crony Warren Buffett is a wonderful example. As a major beneficiary of Mr. Obama’s policies, he continues to promote President Obama’s class warfare “tax-the-rich” policies. That’s because the yoke of his proposed taxation will be borne more by his peers as he deftly applies tax avoidance schemes. So taxes becomes an anti-competition or protective “moat” for his companies.

Recently, along with other cronies such as Mr. George Soros, Mr. Buffett even signed a petition to increase estate taxes.

Because of his political rhetoric you’d probably have the impression that Mr. Buffett would have no qualms with paying the US government on what he believe are his "obligations".

Yet in real life, Mr. Buffett does the opposite: he fervently avoids taxes.

From the Guardian.co.uk

Billionaire Warren Buffett's conglomerate Berkshire Hathaway spent $1.2bn buying its own shares from the estate of an unnamed investor. The anonymous purchase was made at $131,000, or 117% of book value. Berkshire said it bought 9,200 Class A shares from "the estate of a long-time shareholder". The shares represent 1% of Berkshire's Class A stock.

Buffett – known as the Sage of Omaha – has always been reluctant to conduct share buybacks and agreed to it last year only after Berkshire hit historically low valuations. In its most recent filing, Berkshire said it had not made any repurchases in the first nine months of 2012, and spent just $67.5m on buybacks in 2011.

Berkshire's Class A shares rose after its announcement, up 2.8% at $134,500.

The repurchase came less than a month before the looming "fiscal cliff", automatic tax rises and spending cuts set for 1 January that the White House and members of Congress are negotiating to avoid.

Among other levies, the estate tax is expected to rise in the new year package by as much as 20 percentage points.

Buffett was a signatory to an open letter released on Tuesday that called for a lower starting point for the tax and a higher tax rate, beginning at 45%.

So Berkshire's recent buyback has been meant to protect “the estate of a long-time shareholder” from the same estate taxes which he proposes to raise.

I'd see this as galling pretentiousness.

Statist Tax Fantasies Unmasked: Two-Third of UK Millionaires Vanish

Once again, reality has made an abject spectacle of popular statist’s fantasies about “class warfare” or “soak the rich” tax policies where tax rates are seen as having linear effects on tax revenues. 

The axiom “if you tax something, you get less of it” seems to have been proven valid anew.  

In Britain, 2/3 of millionaires swiftly vanished (or in just a year!) in the face of 50% tax rate increase. 

From the Telegraph, (bold mine)

Almost two-thirds of the country’s million-pound earners disappeared from Britain after the introduction of the 50p top rate of tax, figures have disclosed.

In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.

This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election.

The figures have been seized upon by the Conservatives to claim that increasing the highest rate of tax actually led to a loss in revenues for the Government.

It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes…

Far from raising funds, it actually cost the UK £7 billion in lost tax revenue.

The above account shows that amplified elevation of tax rates equals a considerably smaller tax base and significantly lower tax revenues. Maybe politicians should learn about the Laffer curve or the elasticity of taxable income.

In terms of politics of taxation, the Philippines seems to have a parallel experience: When taxes on gold sales were substantially raised, this prompted for a surge in gold smuggling and a similar collapse in tax revenues.

The same phenomenon will likely beset the local version of the proposed sin taxes, which is being pushed by international agencies as Moody’s and the IMF. 

As side note, is the Philippines in a crisis for them to keep intervening by pushing absurd policies (higher mining taxes, SMS tax etc...) and whetting on the insatiable spending appetites of local politicians for a debt financed consumption driven model of economic development?

Yet the blowback from its legislation will likely boost the informal economy and lubricate further corruption, in the same way sin taxes failed in the UK,

We should learn from the lessons from the unmasking of, or the blatant failures of political magical thinking.

Why Warren Buffett Loves to Tax the Rich

In a recent article, Billionaire Warren Buffett proposes, once again, to tax his contemporaries, but this time by imposing a “minimum tax on the wealthy”.

Does Mr. Warren Buffett truly practice what he preaches? Or is he merely a sly and sleek talking famous personality promoting a hidden political agenda?

Well it would seem that despite his progressive “soak-the-rich” class warfare rhetoric, in reality, Mr. Buffett has been averse to taxes.

Mr. Buffett’s flagship, Berkshire Hathaway, still has tax issues with Internal Revenue Services. The company hasn’t even been paying due taxes since 2002.

As the New York Post notes in August of 2011

As Americans for Limited Government President Bill Wilson notes, the company openly admits that it owes back taxes since as long ago as 2002.

“We anticipate that we will resolve all adjustments proposed by the US Internal Revenue Service (“IRS”) for the 2002 through 2004 tax years ... within the next 12 months,” the firm’s annual report says.

It also cites outstanding tax issues for 2005 through 2009.

In November 2011, Berkshire Hathaway subsidiary NetJets also sued the IRS for “mistakenly assessing ticket tax” to recoup $643 million in taxes

So Mr. Buffett hasn’t been pro-tax at all: That’s when taxes applies to his business interests.

And this extends to the way Mr. Buffett and or his company uses tax avoidance maneuvers. Harvard Professor Greg Mankiw exposes them

But on closer examination, one realizes that Mr Buffett never mentions doing anything to eliminate the tax-avoidance strategies that he uses most aggressively.  In particular:

1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings.  So the return on this investment is entirely in the form of capital gains.  By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.

2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain.  His unrealized capital gains are untaxed.

3. He is giving away much of his wealth to charity.  He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.

4. When he dies, his heirs will get a stepped-up basis.  The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating.

In short, Mr. Buffett proposes taxing everyone else but himself.

Lastly, Mr. Buffett seems to be promoting President Obama’s agenda because he benefits substantially from them.

Mr. Buffet’s Berkshire Hathaway had been a major beneficiary of the Wall Street Bailout

Writes Eric Fry at the Daily Reckoning,

During the depths of the 2008 Credit Crisis and stock market selloff, “Wall Street was of fire,” recalls Peter Schweizer in his expose, Throw Them All Out. “[But] Buffett was running toward the flames…with the expectation that the fire department (that is, the federal government) was right behind him with buckets of bailout money…Indeed, Buffett needed the bailout…Beyond Goldman Sachs, Buffett was heavily invested in several other banks that were at risk and in need of federal cash. He began immediately to campaign for the $700 billion TARP rescue plan that was being hammered together in Washington.”

“As the political debates surrounding the proposed $700 billion Troubled Asset Relief Program (TARP) bailout bill heated up,” recalls blogger, Pat Dollard, “Buffett maintained an appearance of naiveté, an ‘aw shucks’ shtick that deferred to the judgment of politicians. ‘I’m not brave enough to try to influence the Congress,’ Buffett told the New York Times.

“Behind closed doors, however, Buffett had become a shrewd political entrepreneur,” Dollard continues. “The billionaire exerted his considerable political influence in a private conference call with then-Speaker of the House Nancy Pelosi and House Democrats. During the meeting, Buffett strongly urged Democratic members to pass the $700 billion TARP bill to avert what he warned would otherwise be ‘the biggest financial meltdown in American history.’”

“If the bailout went through,” Schweizer correctly observes, “it would be a windfall for Goldman. If it failed, it would be disastrous for Berkshire Hathaway.”

Buffett’s “hard work” paid off.

“In all, Berkshire Hathaway firms received $95 billion in bailout cash from the Troubled Asset Relief Program (TARP). Berkshire held stock in the Wells Fargo, Bank of America, American Express, and Goldman Sachs, which received not only TARP money but also $130 billion in FDIC backing for their debt. All told, TARP-assisted companies constituted a whopping 30% of its entire company disclosed stock portfolio.”

But these billions of dollars represented only the most visible portions of the bailout funds that flowed to Berkshire’s companies. Wells Fargo, for example, received “only” $25 billion of TARP funding, but it also received another $45 billion at the same time from the Federal Reserve’s Term Auction Facility (TAF).

Incredibly, Wells Fargo’s borrowings paled alongside those of Goldman Sachs. Throughout the crisis, Goldman gorged itself at every available government trough. The morally challenged investment bank borrowed only $10 billion from the TARP. But at the same time Goldman was griping about “being forced” to take the $10 billion TARP loan, the company was borrowing tens of billions of dollars more from obscure government lending programs with acronyms like: CPFF, PDCF and TSLF.

And that’s not all!

Amidst much fanfare and self-congratulatory press releases, Goldman repaid its TARP loan in June 2009, but only after securing $25 billion of government capital at a different trough. As we observed in a December 15, 2010 edition of The Daily Reckoning:

On June 17, 2009…thanks to some timely, undisclosed assistance from the Federal Reserve, Goldman repaid its $10 billion TARP loan. But just six days before this announcement, Goldman sold $11 billion of mortgage-backed securities (MBS) to the Fed. In other words, Goldman “repaid” the Treasury by secretly selling illiquid assets to the Fed.

One month later, Goldman’s CEO Lloyd Blankfein beamed, “We are grateful for the government efforts and are pleased that [the monies we repaid] can be used by the government to revitalize the economy, a priority in which we all have a common stake.”

As it turns out, the government continued to “revitalize” that small sliver of the economy known as Goldman Sachs. During the three months following Goldman’s re-payment of its $10 billion TARP loan, the Fed purchased $27 billion of MBS from Goldman. In all, the Fed would purchase more than $100 billion of MBS from Goldman during the 12 months that followed Goldman’s TARP re-payment.

Is it any wonder that Buffett’s $5 billion “investment” in Goldman Sachs succeeded so nicely?

“Later, astonishingly,” recalls Peter Schweizer, “Buffett would publicly complain about the bailouts in his annual letter to Berkshire investors, claiming that government subsidies put Berkshire at a disadvantage…”

And as previously pointed out, Berkshire Hathaway’s Burlington North Santa Fe has also profited from Obama’s energy (oil pipeline) policies.

In essence, Warren Buffett not only has altered or overhauled his winning investing formula from "value investment" to the political entrepreneurship of rent seeking by becoming Obama’s premier crony, he has been using Obama’s policies to quash competitors. It looks as if Mr. Buffett's tax increases have been implicitly designed to attain this.

[As a side note, maybe the Occupy Wall Street movement should consider occupying Berkshire Hathaway too]

It’s sad to see how Mr. Buffett seems to have condescended or has sold his soul to the political demons by veering away from the laudable libertarian principles embraced by his dad, Howard Buffett. Or perhaps Mr. Buffett’s string of investing success may have gotten into his head. 

Howard Buffett’s portrait in Warren Buffett’s office (courtesy of Business Insider’s Tour of Warren Buffett’s office)

Given son Warren’s patent hypocrisy, dad Howard must be rolling in his grave.

Obama’s Fiscal Cliff: The Effects of Taxing Wealth

Below is an article which “confirms my bias” or compounds on what I wrote last Sunday about the recent US stock market selloff as an outcome of rising political risks or regime uncertainty from President Obama’s soak the rich policies.

From the CNBC 

For many of the wealthy, 2012 is becoming a good year to sell.

They're worried about the "fiscal cliff," which is when tax cuts expire and spending cuts are set to go into effect at the end of the year.

Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.

“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”

Capital gains taxes represents a tax on wealth. In essence if you tax something you get less of it.  Thus an increase in capital gains taxes dissuades investors and entrepreneurs to undertake productive activities which becomes a hindrance to capital accumulation and to wealth generation.

So capital gains hike will have lasting adverse  effects

Raising dividend taxes also will hurt stock market investors.

The level of dividend tax rates affect dividend issuance. According to the Wall Street Journal

Historical experience indicates that corporate dividend payouts are highly sensitive to the dividend tax. Dividends fell out of favor in the 1990s when the dividend tax rate was roughly twice the rate of capital gains.

When the rate fell to 15% on January 1, 2003, dividends reported on tax returns nearly doubled to $196 billion from $103 billion the year before the tax cut. By 2006 dividend income had grown to nearly $337 billion, more than three times the pre-tax cut level.

Next a swath of investors will get hurt, not limited to the scorned “wealthy”. From the same article

IRS data show that retirees and near-retirees who depend on dividend income would be hit especially hard. Almost three of four dividend payments go to those over the age of 55, and more than half go to those older than 65, according to IRS data.

But all American shareholders would lose. Higher dividend and capital gains taxes make stocks less valuable. A share of stock is worth the discounted present value of the future earnings stream after taxes. Stock prices would fall over time to adjust to the new after-tax rate of return. And if investors become convinced later this year that dividend and capital gains taxes are going way up on January 1, some investors are likely to sell shares ahead of paying these higher rates.

The question is how this helps anyone. According to the Investment Company Institute, about 51% of adults own stock directly or through mutual funds, which is more than 100 million shareholders.

So again, unless there will be a bipartisan deal reached, US stock markets will remain highly vulnerable to sharp downside volatility.

And President Obama will increasingly rely on team Bernanke and the FED to offset the effects of wealth destructive policies.

Ironically while Mr. Bernanke has been doing his darned best to keep asset markets afloat, Mr. Obama has been undoing them. Such paradox accounts for as the proverbial "the left hand does not know what the right hand is doing". That's the way of politics.

A Looming Tax Revolt? Protesting French Entrepreneurs Goes Viral

Because government holds the badges and guns, they haughtily presume of the complete subjugation of their subjects. They fail to realize that as humans, their constituents will respond to policies based on the latter’s self-interests—which could mean either life or death.

In France, the class warfare policies of President Francois Hollande has compelled entrepreneurs to bond together to demonstrate or protest on the highly repressive tax regime being rammed down their throats. 

The French entrepreneur’s grievances has gone viral (above logo is from their Facebook page) 

From Bloomberg,

French entrepreneurs have a new mascot -- the pigeon.

Using the bird’s role in French slang as the “sucker,” owners of startups have formed a group dubbed “Les Pigeons” to show that President Francois Hollande’s new taxes make them the fall guys for France’s economic woes. They are protesting the almost doubling of the tax rate on capital gains generated from selling a business in Hollande’s budget for 2013.

The group has gathered more than 34,000 supporters in less than six days on Facebook Inc.’s social network and spurred more than 3,600 posts under the “#geonpi” tag on Twitter, with the founders of Iliad SA (ILD), Vente-Privee and Meetic SA (MEET) throwing in their voices of support.

“The government thinks France’s entrepreneurs are pigeons,” the movement’s initiators wrote on a dedicated Facebook page. “Anti-economic policies are crushing the entrepreneurial spirit and exposing France to a big risk.”

Entrepreneurs have for months called on France’s government to avoid slapping them with more taxes, saying it will dry up interest in creating new companies or drive startups away.

Socialist President Hollande, seeking to appease his base in his first annual budget last week, raised taxes on the rich and big companies and included a minimum of spending cuts to reduce the deficit. The government introduced a 75 percent tax for income above 1 million euros ($1.29 million).

Class warfare policies foster social divisions. This means that if the French government will remain recalcitrant in the pursuit of harsh socialist redistributionist policies, untoward consequences or the risks of capital flight,  tax revolt and or civil unrest rises. 

Moreover, by assailing the productive tax paying class, French fiscal position will likely worsen thus the likelihood of bringing down the entire euro project with it.

So instead of attaining “social justice”, class warfare policies will only lead to greater risks of intensifying the current crisis, a violent outcome and social instability.

Again politicians and their sycophants never learn.

Signs of Dancing on the Grave of Keynesianism

Yesterday my quote of the day was about Austrian economist Gary North’s prediction of the twilight of the Keynesian political economy.

Today, Sovereign Man’s Simon Black enumerates of the 8 signs that reveals how the “system is broken”.

Apparently 6 of them represent symptoms of Mr. North’s prophesy.

The 6 signs from Simon Black:

3) Last month, a school district in California sold $164 million worth of bonds at 12.6% interest; this is more than Pakistan, Botswana, and Ecuador pay in the international bond market.

4) Based on the Treasury’s most recent statistics, US government interest payments to China will total at least $26.055 billion this year. The real figure may be much higher given that China has been purchased Treasuries for decades, back when interest rates were much higher. They’re still getting paid on those higher rates today.

Even still, this year’s interest payment to China totals more than ALL the silver that was mined in the world last year.

5) In August 2008, just before the Lehman Brothers collapse, the number of employed persons in the United States was 145.47 million persons. Over the subsequent years, the employment figure dipped to as low as 139.27 million. Today it stands at 142.1 million.

Even if this is considered recovery, to ‘rescue’ those 2.8 million jobs, it took the federal government an additional $6.421 trillion worth of debt ($2.3 million per job), and a $1.9 trillion (203%) expansion of the Federal Reserve balance sheet.

6) Meanwhile, despite trillions of euros in debt and bailouts, the unemployment rate in the eurozone just hit a record high of 11.4%… and a second Spanish bailout is now imminent.

7) Inflation in Zimbabwe (3.63%) is lower than inflation in the UK (3.66%, August 2011-July 2012).

8) Last week, the French government reached a ‘historic’ budget compromise, shooting for a budget deficit that’s ‘only’ 3% of GDP. This is based on an assumption that the economy will grow by 0.8%.

In other words, France’s official public debt (which is already at 91% of GDP) will increase by 2.2% of GDP next year amid flat growth. And this is what these people consider progress.

From Cato’s Dan Mitchell

To add, last month the French government approved of the 75% tax on those earning over one million euros a year — by holding public spending and not cutting government jobs (IBD). So the French class warfare policy essentially kills the proverbial goose that lays the golden eggs.

So by maintaining the unproductive segments of a society who entirely depends on the shrinking the productive sectors, French politicians believe that the Santa Claus Fund will never end and instead would bring about prosperity.

The populist measures undertaken by the French government essentially assures of the diffusion and the intensification of the Euro crisis which most likely serves as the death warrant for the euro.

Events in France will perhaps herald the coming global debt default that will engulf most of developed nations and emerging economies whose economies have been predicated on the Keynesian parasitical relationship welfare-warfare states.

In a world of politics, common sense is uncommon specially backed by obtuse theories moored on the belief of the Philosopher’s stone of turning lead into gold.

As the distinguished Ron Paul recently wrote,

It's because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we've heard that one before — like the philosopher's stone that could turn lead into gold. Prosperity without work is a dream of the ages.

How Argentina’s Class Warfare Policies Promotes Poverty

Argentina’s politics serves as an example of how the minority (political class) exploits the majority (voting poor) to perpetuate themselves into power.

In the attempt to redistribute wealth, Argentina’s government has engaged in the tightening of currency controls that has only exacerbated capital flight.

First the unintended consequences

From the Telegraph, (bold emphasis mine)

The new regulations required anyone wanting to change Argentine pesos into another currency to submit an online request for permission to AFIP, the Argentine equivalent of HM Revenue & Customs. To submit the request, however, you first needed to get a PIN number from AFIP, either online or in person. Having finally obtained your number, submitted your online request and printed out your permission slip, you could then present it at the bank or official cambio and buy your dollars. Well, that was the theory.

In practice, the result was chaos. The online system quickly folded under the onslaught of applications, while a personal visit to an AFIP district office meant bringing a camp bed and picnic hamper.

The reason for this tidal wave of requests, and indeed for the introduction of the restrictions in the first place, was the ferocious rate of capital flight from the Argentine economy that had started in 2010, when many could already see the writing on the wall. Which brings us to that thumping electoral victory in October.

Argentina’s politicians implemented class warfare policies to gain hold of political power.

Again from the same article,

When Mrs Kirchner first came to power in 2007 she inherited the social reform programme of her predecessor (also her husband), Nestor Kirchner. Hefty tax demands on the country’s wealth base were liberally redistributed to the disadvantaged, but with little investment in longer-term projects that would deal with the causes of poverty.

From the point of view of the middle-classes, the Kirchners were using taxpayers’ money to buy themselves a constituency of dependents that would keep them in power, a tactic vindicated by that 54 per cent majority last October. Anyone with moveable assets started shifting them out of her reach by transferring them abroad or converting them into dollars.

The nasty economic effects from despotic redistributive policies and a culture of dependency: capital flight, inflation and economic stagnation as investors scamper for safety elsewhere.

In 2010 the flight of capital started gathering speed, totalling $11 billion by the end of the year. In 2011, as the election approached and signs of a probable Kirchner win emerged, this figure more than doubled to $23 billion. Hence the great slamming of the fire exits as soon as her victory was in the bag.

The months since then have seen an almost weekly tightening of restrictions to close any remaining loopholes, to the extent that it has now become almost impossible to buy foreign currency anywhere apart from the black market.

Which is, of course, exactly what the government hoped for, and in that respect at least the policy has been a success. In the first six months of this year dollar flight has been reduced to $3.5 billion. But damming the flood has come at a huge cost to the economy, especially since the currency restrictions were coupled with another set of regulations that effectively imposed a near-total ban on any imported goods. 

Apart from the minor inconveniences this has caused to shoppers, such as no longer being able to buy breakfast cereal not composed of shredded carpet, the measure has also backfired on Argentine industry itself because so many of the products manufactured in Argentina still need component parts and raw materials from elsewhere. Hence, for example, the 1,600 workers laid-off from the Renault car plant in Cordoba last June, while the parts they needed to finish the job languished in a container on a Buenos Aires quayside. But you do not need to be an economist to imagine the consequences when a G20 nation suddenly adopts North Korean-style siege-economy tactics, which does make you wonder about the quality of advice the government is getting.

Eventually there will be no one else to squeeze but the gullible and manipulated poor, and signs are becoming evident…

It’s not that significant, but set alongside the downwardly spiralling prospects and the upwardly spiralling inflation (25 per cent), the frantic hunt for hard currency and the bland ministerial assurances that there is nothing to worry about, it is just another little ripple of déjà vu permeating life in Argentina.

This reminds me of all the free stuffs given by local governments in the Philippines which most people think are without costs.

Nevertheless Argentina’s politics serves as a grim reminder of the evils of democracy.

As the great libertarian Henry Louis H.L. Mencken once warned,

The state — or, to make matters more concrete, the government — consists of a gang of men exactly like you and me. They have, taking one with another, no special talent for the business of government; they have only a talent for getting and holding office. Their principal device to that end is to search out groups who pant and pine for something they can’t get, and to promise to give it to them. Nine times out of ten that promise is worth nothing. The tenth time it is made good by looting ‘A’ to satisfy ‘B’. In other words, government is a broker in pillage, and every election is a sort of advanced auction on stolen goods.

Bottom line: There is no such thing as a free lunch

Validating Bastiat: France’s Hollande Scales Back on Wealthy Taxes

Perhaps in the realization that many of the wealthy French, whom have been targeted by the President François Hollande’s “soak the rich” policies, have been exploring overseas refuge, the French government appears to have signaled the softening, if not a subtle backtracking of the proposed repressive taxes on the wealthy.

These mostly through the insertions of many loopholes that essentially enervates the proposed populist statute.

From the CNBC,

News reports in France today say the tax has been tweaked so that it will only effect 1,000 households. And that’s if it passes – which remains a big question.

The French newspapers Les Echos and Le Figaro both say today that the tax being considered would only be levied on income of more than 2 million euros. That’s double the original cut-off.

There may also be other changes. Rather than applying to all income, the tax may only apply to ordinary income from salaries. If investment income or capital gains is excluded, the wealthy French who make their money from investments need not worry.

The tax also makes special provisions for athletes and artists, carves out social security taxes and ... you get the idea. Pretty soon, it’s not anything like a 75 percent tax on million-plus earners.

Considering the precarious state of the French fiscal conditions, it would amount to absurdity for politicians and their imbecilic followers to think that tax increases by in itself would solve the looming risks of a debt crisis. The idea that people will behave like automatons, and fawningly submit to edict, is sheer fantasy.

chart from tradingeconomics.com

Taxes are always political.

They are instruments to what the great French classical liberal Frederic Bastiat called as “Government is the great fiction through which everybody endeavors to live at the expense of everybody else”

Yet people’s subjective take on taxes will mean a change on incentives to save, produce and consume or economic activities, as well as changes, in the approach towards treatment of taxation.

At certain levels, people may find taxes to become an unbearable burden and thus would work to preserve on their savings through circumventing actions, such as the employment of accountants and tax lawyers to exploit on loopholes, seek refuge elsewhere, bribe authorities, influence policies or even incite or join revolutions.

The inherent structural self-contradiction through promises of undeliverable benefits from the limitations of resources the state can generate from taxation, as wonderfully explained by the great Frederic Bastiat [Government, 1848] (bold added)

There is the public on one side, Government on the other, considered as two distinct beings; the latter bound to bestow upon the former, and the former having the right to claim from the latter, all imaginable human benefits. What will be the consequence?

In fact, Government is not maimed, and cannot be so. It has two hands - one to receive and the other to give; in other words, it has a rough hand and a smooth one. The activity of the second necessarily subordinate to the activity of the first. Strictly, Government may take and not restore. This is evident, and may be explained by the porous and absorbing nature of its hands, which always retain a part, and sometimes the whole, of what they touch. But the thing that never was seen, and never will be seen or conceived, is, that Government can restore to the public more than it has taken from it. It is therefore ridiculous for us to appear before it in the humble attitude of beggars. It is radically impossible for it to confer a particular benefit upon any one of the individualities which constitute the community, without inflicting a greater injury upon the community as a whole.

Our requisitions, therefore, place it in a dilemma. If it refuses to grant the requests made to it, it is accused of weakness, ill-will, and incapacity. If it endeavors to grant them, it is obliged to load the people with fresh taxes - to do more harm than good, and to bring upon itself from another quarter the general displeasure.

Thus, the public has two hopes, and Government makes two promises - many benefits and no taxes. Hopes and promises, which, being contradictory, can never be realized.

Mr. Bastiat also shows that unrealizable political promises leads towards unsustainable debt and bankruptcy…

These two promises are for ever clashing with each other; it cannot be otherwise. To live upon credit, which is the same as exhausting the future, is certainly a present means of reconciling them: an attempt is made to do a little good now, at the expense of a great deal of harm in future. But such proceedings call forth the spectre of bankruptcy, which puts an end to credit.

…as well as, the perpetual search for the elusive “something from nothing” elixir by the gullible public on promises made by politicians.

What is to be done then? Why, then, the new Government takes a bold step; it unites all its forces in order to maintain itself; it smothers opinion, has recourse to arbitrary measures, ridicules its former maxims, declares that it is impossible to conduct the administration except at the risk of being unpopular; in short, it proclaims itself governmental. And it is here that other candidates for popularity are waiting for it. They exhibit the same illusion, pass by the same way, obtain the same success, and are soon swallowed up in the same gulf.

Events in France and the Eurozone have simply been upholding Bastiat’s predictions, and mostly importantly, his classical liberal principles.

Wealthy French Mull Exodus in Response to Class Warfare Policies

“Soak the rich” socialist policies of French President François Hollande has been prompting many wealthy French citizens to consider the exit option

Reports the New York Times

The call to Vincent Grandil’s Paris law firm began like many others that have rolled in recently. On the line was the well-paid chief executive of one of France’s most profitable companies, and he was feeling nervous.

President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. “Should I be preparing to leave the country?” the executive asked Mr. Grandil.

The lawyer’s counsel: Wait and see. For now, at least.

“We’re getting a lot of calls from high earners who are asking whether they should get out of France,” said Mr. Grandil, a partner at Altexis, which specializes in tax matters for corporations and the wealthy. “Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.”

A chill is wafting over France’s business class as Mr. Hollande, the country’s first Socialist president since François Mitterrand in the 1980s, presses a manifesto of patriotism to “pay extra tax to get the country back on its feet again.” The 75 percent tax proposal, which Parliament plans to take up in September, is ostensibly aimed at bolstering French finances as Europe’s long-running debt crisis intensifies.

But because there are relatively few people in France whose income would incur such a tax — an estimated 7,000 to 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.

The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.

And class warfare politics has negatively affected business sentiment as well. Again from the same article,

Many companies are studying contingency plans to move high-paid executives outside of France, according to consultants, lawyers, accountants and real estate agents — who are highly protective of their clients and decline to identify them by name. They say some executives and wealthy people have already packed up for destinations like Britain, Belgium, Switzerland and the United States, taking their taxable income with them.

They also know of companies — start-ups and multinationals alike — that are delaying plans to invest in France or to move employees or new hires here.

Politicians and their apologists fail to realize that they are dealing with people who will respond adversely to their foolish repressive measures.

That's why there such a thing called the law of unintended consequences, or as per Wikipedia.org, used as an adage or idiomatic warning that an intervention in a complex system tends to create unanticipated and often undesirable outcomes

So far the concurrent panic in the peripheral crisis stricken Euro nations have been prompting for a stampede into French 10 year bonds. This despite the deteriorating fiscal conditions of the French government.

The French equity bellwether, the CAC, has also been in a rally mode since ECB President Draghi’s promise to do whatever it takes to save the Euro

Given the fluidity of events, current market actions may swiftly and drastically change.

And once the exodus of the wealthy French transforms into reality, then we should expect a selloff in both the bond and the equity markets.

Class warfare politics through taxing or soaking the rich serves only as camouflage to the real consequences—taxing everyone else including the poor, except for the political class—or myth of the Santa Claus Fund.

As the great Ludwig von Mises explained, (bold emphasis mine)

High surtax rates for the rich are very popular with interventionist dilettantes and demagogues, but they secure only modest additions to the revenue. From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by "soaking the rich," but that the burden must be carried by the masses. The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation and lavish spending have been carried to a point at which their absurdity can no longer be concealed. The notorious principle that, whereas private expenditures depend on the size of income available, public revenues must be regulated according to expenditures, refutes itself. Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will themselves have to foot the bill. The deficits of publicly owned and operated enterprises will be charged to the bulk of the population. [p. 858]

The situation in the employer-employee nexus will be analogous. The popular doctrine contends that wage earners are reaping "social gains" at the expense of the unearned income of the exploiting classes. The strikers, it is said, do not strike against the consumers but against "management." There is no reason to raise the prices of products when labor costs are increased; the difference must be borne by employers. But when more and more of the share of the entrepreneurs and capitalists is absorbed by taxes, higher wage rates, and other "social gains" of employees, and by price ceilings, nothing remains for such a buffer function. Then it becomes evident that every wage raise, with its whole momentum, must affect the prices of the products and that the social gains of each group fully correspond to the social losses of the other groups. Every strike becomes, even in the short run and not only in the long run, a strike against the rest of the people.

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.

French class warfare politics essentially serves as the death warrant for the Euro.