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".

Quote of the Day: The Folly of All for One

And is not this the point that we have now reached? What is the cry going up everywhere, from all ranks and classes? All for one! When we say the word one, we think of ourselves, and what we demand is to receive an unearned share in the fruits of the labor of all. In other words, we are creating an organized system of plunder. 

Unquestionably, simple out-and-out plunder is so clearly unjust as to be repugnant to us; but, thanks to the motto, all for one, we can allay our qualms of conscience. We impose on others the duty of working for us. Then, we arrogate to ourselves the right to enjoy the fruits of other men's labor. We call upon the state, the law, to enforce our so-called duty, to protect our so-called right, and we end in the fantastic situation of robbing one another in the name of brotherhood. We live at other men's expense, and then call ourselves heroically self-sacrificing for so doing.

(italics original)

This is stirring quote, posted by Café Hayek’s Prof Don Boudreaux, is from Frederic Bastiat‘s 1850 treatise, Economic Harmonies  based on 1964 W. Hayden Boyers translation. Chapter 12, paragraph 21

Quote of the Day: The Ethics of Minimum Wage

The biggest problem I have with the standard analysis of the minimum wage–on either side of the ideological divide–is that it shows a certain lack of imagination. It presumes that market forces work only on quantity and price. So that when legislation artificially raises price, the debate is over the impact on quantity–how many jobs will be lost (or gained if you’re on the other side.)

But price and quantity are not the only way market forces work. And they are certainly not the only attributes of a job. There is how hard you have to work, how many breaks you get, how much training or mentoring or kindness. What amenities are in the workplace–snack bar, vending machine, nicely decorated walls and so on. When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.

Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves.

This is from Standard University research fellow, author and blogger Russ Roberts at the Café Hayek.

Mr. Roberts captures the largely unseen human dimension in the impact, not just of minimum wages, but of the stereotyped debate on myriad regulations: the excessive focus on price and quantity via mathematical formalism or "scientism" which plagues mainstream analysis.

Quote of the Day: Selfishness, via Profits, Guides People to Serve the Need of Others More Effectively

making money honestly means creating something other people value, not necessarily what you value. The more money I want, the more I have to think about what other people want, and find better, faster, cheaper ways of delivering it to them. The reason someone is poor – and, yes, I know all the excuses for poverty – is that the poor do not produce more than they consume. Or if they do, they don’t save the surplus…

Selfishness, in the form of the profit motive, guides people to serve the needs of others far more reliably, effectively, and efficiently than any amount of haranguing from priests, poets, or politicians. Those people tend to be profoundly anti-human, actually.

This is from investing guru and philosopher Doug Casey at the Casey Research on the morality of money.

Japan’s Finance Minister to Aging Citizens: Hurry Up and Die

The redistributionist welfare state has been justified as an alleged necessity predicated on ‘social justice’ and ‘compassion’. 

But when pseudo-idealism is confronted with reality, where the dependency culture eventually strains on the government finances, politicians reveal of their disdain for social welfare.

Recently the Japanese finance minister Taro Aso candidly uttered a controversial statement censuring aging citizens who depend on the government to “hurry up and die”. 

From the AFP Google 

Japan's finance minister Taro Aso said Monday the elderly should be allowed to "hurry up and die" instead of costing the government money for end-of-life medical care.

Aso, who also doubles as deputy prime minister, reportedly said during a meeting of the National Council on Social Security Reforms: "Heaven forbid if you are forced to live on when you want to die. You cannot sleep well when you think it's all paid by the government.

"This won't be solved unless you let them hurry up and die," he said.

Mr. Aso reportedly retracted this statement a few hours after.

Politicians use the public for their personal and political interests, yet when the welfare state and other political mechanisms backfire, the political class will renege on their commitments and abandon their people.

Mr. Aso’s sentiments already reflects on this, which serves as a blueprint of the future, and will be magnified on the imminence of the debt crisis.

In the world of politics, promises are habitually made to be broken. And the illusions of the welfare state will eventually be shattered.

Quote of the Day: The Ethics of Free Enterprise Capitalism is Value Creation

With few exceptions entrepreneurs who start successful businesses don't do so to maximize profits. Of course they want to make money, but that is not what drives most of them. They are inspired to do something that they believe needs doing. The heroic story of free-enterprise capitalism is one of entrepreneurs using their dreams and passion as fuel to create extraordinary value for customers, team members, suppliers, society, and investors…

This is what we know to be true. Business is good because it creates value, it is ethical because it is based on voluntary exchange, it is noble because it lifts people out of poverty and creates prosperity.

This is from Whole Foods co-CEO John Mackey and Raj Sisodia, a marketing professor at Bentley College in their recently launched book Conscious Capitalism: Liberating the Heroic Spirit of Business as excerpted by a Wall Street Journal Book review (hat tip Carpe Diem's Professor Mark Perry)

  

Quote of the Day: The Virtues of Stock Market Speculation

But the speculator’s actions have conferred definite services to the community. He has smoothed out the jumps in Acme’s share price. By buying the undervalued stock, he has put upward pressure on the price. (Likewise, if he short sells an overvalued stock, he puts downward pressure on the price.) Rather than Acme’s stock jumping from $10 to $20 when war breaks out, it jumps only from $13 to $20, because (in our example) the speculator’s heavy buying had already closed 30% of the gap.

By reducing stock price volatility, speculators take some of the risk out of holding stocks. For example, it’s not necessarily true that the person who sold early to the speculator at $11 “lost” $9 to the wily profiteer. It’s entirely possible that the person needed to sell his holdings of Acme because he had lost his job or because his kid’s tuition went up again. Thus, the speculator has actually made this person — who had planned to sell even if Acme remained at $10 — richer.

More generally, by anticipating future changes in the “fundamentals” and translating them into current stock prices, speculators reward even long-term investors, the kind whom most people praise (as opposed to the short-term, quick-buck speculators). For example, if an institutional investor thinks she has found a solid company that will pay high dividends and will be around for at least 20 years, it is speculators who will help keep the day-to-day stock price from straying too far out of line with these long-term facts. If a financial panic sets in and shareholders are dumping stocks across the board, it is speculators who will staunch the bleeding and swoop in to pick up “deals” at fire-sale prices.

This shows that speculators provide liquidity to the stock market and make it more lucrative for other, long-term investors to do their homework and put some of their savings into corporations they believe have a solid future. A major risk of such an investment is illiquidity — that the investor may have to sell under duress and accept a much lower price than she could get if she only had more time — but speculators mitigate this risk. If the price gets well below “what the stock is really worth,” then that’s exactly when a speculator has an incentive to swoop in and buy.

[italics original]

 

This is from Austrian economics Professor Robert Murphy at the Laissez Faire Books.

Cigarette ‘Sin’ Taxes Equals Smuggling: US Edition

The populist pseudo-moralistic legislation or quasi-prohibition regulations known as “Sin taxes” have spurred growth of alcohol smuggling in the United Kingdom.

I guess the same effects can be said of cigarette taxes in the US.

Here is Joseph Henchman and Scott Drenkard of the Tax Foundation (bold mine)

Public policies often have unintended consequences that outweigh their benefits. One consequence of high state cigarette tax rates has been increased smuggling, as criminals procure discounted packs from low-tax states to sell in high-tax states. Growing cigarette tax differentials have made cigarette bootlegging both a national problem and a lucrative criminal enterprise.

Every two years, scholars at the Mackinac Center for Public Policy, a Michigan think tank, use a statistical analysis of available data to estimate smuggling rates for each state. Their most recent report uses 2011 data and finds that smuggling rates generally rise in states after they adopt large cigarette tax increases. Smuggling rates have dropped in some states, however, often where neighboring states have higher cigarette tax rates. Table 1 shows the data for each state, comparing 2011 and 2006 smuggling rates and tax changes.

New York is the highest net importer of smuggled cigarettes, totaling 60.9 percent of the total cigarette market in the state. New York also has the highest state cigarette tax ($4.35 per pack), not counting the local New York City cigarette tax (an additional $1.50 per pack). Smuggling in New York has risen sharply since 2006 (+170 percent), as has the tax rate (+190 percent).

Smuggling takes many forms: counterfeit state tax stamps, counterfeit versions of legitimate brands, hijacked trucks, or officials turning a blind eye. The study’s authors, LaFaive and Nesbit, cite examples of a Maryland police officer running illicit cigarettes while on duty, a Virginia man hiring a contract killer over a cigarette smuggling dispute, and prison guards caught smuggling cigarettes into prisons. Policy responses have included banning common carrier delivery of cigarettes, greater law enforcement activity on interstate roads, differential tax rates near low-tax jurisdictions, and cracking down on tribal reservations that sell tax-free cigarettes. However, the underlying problem remains: high cigarette taxes that amount to a “price prohibition” of the product in many U.S. states.

The ramifications of ‘Sin taxes’ appear to be parallel to direct prohibition regulations such as the war on drugs, e.g. fraud, corruption and violence.

My guess is that the same dynamics will apply to the recently enacted law in the Philippines, which will magnify accounts of the surge of incidences in general smuggling.

By the way, cigarette and alcohol bootlegging and smuggling will likely extrapolate to the Philippine government’s failure to attain revenue goals. That’s my prediction. 

On the other hand, smuggling means a shift to, and the subsequent growth of, the informal economy (the gangster "Godfather" type). 

This also implies the expansion of political and bureaucratic corruption, as well as, the greater risks of potential violence, all of which have accounted for as the typical unintended consequences from such noble sounding but unrealistic, uneconomic and immoral quasi-prohibition laws as “Sin Taxes”.   

I might add that since bootlegging means black market production of alcohol and cigarettes, one may also expect an increase of illness of health problems related to these products.  

It has been said that the path to hell is paved with good intentions. This applies to Sin Taxes

Violence from Prohibition Laws: Atimonan Killing

I have been repeatedly pointing out here that prohibition statutes engender unnecessary violence. Worst, violence have always been arbitrary instituted by political authorities in the name of supposed moral uprightness. 

Today’s headlines shows of a good example, from the Inquirer.net

The gun battle in Atimonan town, Quezon province, that left 13 people dead on Sunday was the culmination of a three-month police operation approved by the Presidential Anti-Organized Crime Commission (PAOCC) headed by Executive Secretary Paquito Ochoa Jr.

But Ochoa denied there was any mission order from the commission authorizing the police-military operation in Atimonan.

The operation, code-named “Coplan Armado,” had only one target: Victor “Vic” Siman, operator of the numbers racket “jueteng” disguised as government-sanctioned Small Town Lottery (STL) in Laguna and Batangas provinces in southern Luzon…

A Philippine Daily Inquirer source in the Philippine National Police described the 12 others killed  in the alleged shootout between security forces and Siman’s group as “collateral damage.”

Such violence has been exercised against alleged crimes based on “vices” or what American individualist and anarchist Lysander Spooner calls as “Vices are not crimes”

It is a maxim of the law that there can be no crime without a criminal intent; that is, without the intent to invade the person or property of another. But no one ever practices a vice with any such criminal intent. He practices his vice for his own happiness solely, and not from any malice toward others.

Unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property — no such things as the right of one man to the control of his own person and property, and the corresponding and coequal rights of another man to the control of his own person and property.

For a government to declare a vice to be a crime, and to punish it as such, is an attempt to falsify the very nature of things. It is as absurd as it would be to declare truth to be falsehood, or falsehood truth.

Jueteng is about gambling and personal vice. The ban on this has created a shadow industry, like all others, prostitution, drugs and etc... Ironically, on the other hand, the Philippine government promotes the "casino" industry.

Yet the war on jueteng has been an endless crusade by the Philippine government that has hardly attained proximity to its stated political ‘moral’ goals.

As pointed out in the past, the downfall of the ousted administration in EDSA II, has been tied to this. The difference is that because the involved had been the top political brass, then “no killing” had been dispensed with.

But of course, application of laws has been different with people with lower levels of political power.  I call this political inequality.

Unfortunately, the public has been benumbed or inured to “collateral damage”, which echoes on the my edited version of Stalin’s axiom “one death is a tragedy, one million dozen is a statistic”, or that “collateral damage” has been perceived as “reasonable” for as long as government does it, or has been carried out with good intentions, and or for as long as this happens to the others (and not to them)

The tragedy here is that the public doesn’t realize which has been more immoral: violence as a means to a (questionable) end or personal vices.

Yet the above example exhibits the institutional violence inherent in all governments, as the great Austrian economist Ludwig von Mises once pointed out (bold mine)

It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

To draw attention to this fact does not imply any reflection upon government activities. In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.

In upholding an unjust populist edict, the recourse to violence means that government creates more victims via repression than attaining its political goal. It also means the government has hardly been about the fiction of social justice but about the preservation, expansion and the showcase of political power.

Public Choice Theorist James Buchanan R.I.P.

Nobel prize winner and Public Choice theory co-founder James M. Buchanan passed away yesterday at the age of the age of 93 yesterday. Gordon Tullock has been Mr. Buchanan's partner in developing Public Choice.

I join the exponents of free markets in paying tribute to Mr. Buchanan with this resonant quote on “government failure”, which Mr. Buchanan embellished as Politics without Romance:

Public choice then came along and provided analyses of the behavior of persons acting politically, whether voters, politicians or bureaucrats. These analyses exposed the essentially false comparisons that were then informing so much of both scientific and public opinion. In a very real sense, public choice became a set of theories of governmental failures, as an offset to the theories of market failures that had previously emerged from theoretical welfare economics. Or, as I put it in the title of a lecture in Vienna in 1978, public choice may be summarized by the three-word description, 'politics without romance'.

“Politics without romance” included Mr. Buchanan’s strident aversion to public debt finance as summarized by the Independent Institute’s Jeremy H. Tempelman (italics mine)

1. The burden of public debt falls on future generations.
2. Public debt constitutes negative capital formation.
3. Ricardian equivalence does not hold because of fiscal illusion.
4. Keynesian macroeconomics is the principal cause of the disappearance of the unwritten balanced-budget norm that existed prior to the 1930s.
5. Barring constitutional constraints, public deficits will be a permanent phenomenon.
6. Public debt is immoral because future generations bear a financial burden as a result of spending and borrowing decisions in which they did not participate.
7. A constitutional balanced-budget amendment is required to remedy the tendency in elective democracy for government to borrow and spend rather than to tax and spend, and to spend much rather than little.

Such lessons have increasingly been valid and or applicable in today’s world which has been undergoing tremendous friction from the ongoing collision between deepening politicization and the forces of decentralization from the information age.

Thanks for the wonderful insights.

Rest in Peace.

The Fiscal Cliff Deal and Crony Capitalism

Yesterday’s bipartisan last minute “Fiscal Cliff deal” exhibits or signifies an example of the unjust and immoral distribution of political-economic privileges (which favors those with political connections or the political class)

From ABCNews.go.com (hat tip Zero hedge)

The “fiscal cliff” compromise has been heralded as a saving grace for middle class taxpayers, their families and the unemployed.

But buried in the fine print of the 150-page deal are also some lesser-known New Year’s gifts to some of Washington’s favorite industries.

So what industries are these?

From the same article (bold original)

$430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States.  Producers can expense up to $15 million of costs for their projects.

$331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.

$222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.

$70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”

$59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.

$4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

Unnamed in Washington’s favorite industries is Warren Buffett’s Burlington Northern Santa Fe who will be one of the major beneficiaries (perhaps compensation for being Obama's mouthpiece).

Add to the above:

Wind farms, motorsports tracks, global banks and other businesses won revived tax breaks in a $75.3 billion package included in a last-minute budget deal Congress passed yesterday… (Bloomberg)

Political power blocks, special interest groups and pet projects of politicians accounts for as the main beneficiaries of the latest fiscal deal.

The above hardly has been about "unregulated capitalism", but about cronyism via state capitalism or participatory fascism

As Professor Thomas DiLorenzo at the Mises Institute aptly described, 

It is a system of crony capitalism financed by a central bank, government borrowing, and pervasive taxation. It is a system that is of plutocratic elites, for plutocratic elites, and by plutocratic elites (to paraphrase Abraham Lincoln, the true founding father of this system). The massive welfare state is merely used to buy enough votes to maintain the “legitimacy” of the system.

Vatican’s Scapegoating Capitalism

The easiest way of blaming social evils has been to bash capitalism. 

A good example has been the recent New Year homily by the Catholic Pope Benedict XVI who condemned “unregulated capitalism” for sowing “hotbeds of tension and conflict caused by growing instances of inequality between rich and poor” due to "the prevalence of a selfish and individualistic mindset which also finds expression in an unregulated financial capitalism” (BBC)

In the eyes of the Pope, the world operates on unregulated or unfettered individualism. 

In reality, the world is being suffocated by mounting regulations that has essentially been shifting the balance of social power from the markets to politicians.

Proof?

In 2012, in the US 29,000 laws came into existence in the state laws with more coming.

From CNBC.com

In 2013 in Illinois, motorcyclists will be able to "proceed through a red light if the light fails to change." In Kentucky, releasing feral or wild hogs into the wild will be prohibited. And in Florida, swamp buggies will not legally be considered motor vehicles.

On Jan. 1, as crowds of people toast to a new year, more than 400 news laws across the country will take effect — and possibly improve life for some.

"The laws that state governments deal with are really the laws that impact people on a daily basis," said Jon Kuhl, a spokesmanfor the National Conference of State Legislatures, which tracks the bills. "Whether amending or updating laws or enacting brand new legislation, it was an active year."

In addition to the new laws of 2013, more than 29,000 laws were passed by state legislatures this year, Kuhl said. Many dealt with healthcare, education, gay rights, child safety and the Internet.

And that’s aside from Federal laws. (MSNBC estimates the above at 40,000 laws including federal)

Another fact is that US tax code has ballooned from 400 to 72,000 words.

As Voxxi notes (chart theirs)

We have more professional tax preparers in the United States than law enforcement officers (765,000) and professional firefighters (310,400) combined.

But we need them. Consider this: in  1913, we had 400 pages of federal tax code in law. Today, its more than 72,000 pages.

Fear of being audited has led to this boost in tax preparers.

In short lobbying, tax avoidance, corruption and other means to influence political institutions to acquire favorable treatment becomes the commonplace operations.

 

And the above is just a segment of the overall political picture.

In other words, the Pope got his perverted idea of social malfeasance backward. Either the Pope has been misinformed or has not been forthright.

The Pope only needs to see how government debt levels in developed countries has been skyrocketing and how central banks have been bailing out the the privileged bankers. This has hardly been a function of individual-market based greed but of greed by those in power and their cohorts.

What the Pope and the Vatican seem to really rebuke hasn't been unregulated capitalism but state capitalism, corporatism or cronyism.

Yet in truth, individuals are not innately evil. It is mainly political power that debauches morality.

As the great John Emerich Edward Dalberg-Acton, 1st Baron Acton, popularly known as Lord Acton [Online Library of Liberty] pointed out

I cannot accept your canon that we are to judge Pope and King unlike other men, with a favourable presumption that they did no wrong. If there is any presumption it is the other way, against the holders of power, increasing as the power increases. Historic responsibility has to make up for the want of legal responsibility. Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it.

I am inclined to think that institutions like the Catholic church have used capitalism as convenient scapegoats when they are underfire, i.e. to deflect on the raging controversies, such as charges of institutional corruption and sexual abuse  which like the Australian Catholic Church admits and apologized.

Is it not that the Bible warned that “He that is without sin among you, let him first cast a stone”? (John 8:7)

Does this not apply to the Vatican too?

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

Quote of the Day: Government Redistribution Tends to Bring Out the Worst in Us

the creation of wealth is edifying. When only voluntary transactions are permitted, the creation of wealth requires cooperation, and this brings out the best in us.

Piles of wealth, however, tend to be corrupting. The fixed nature of a pile is all about apportionment, not cooperation, and this zero-sum game tends to bring out the worst in us.

It follows directly that no matter how noble the ends, government redistribution (which is hardly voluntary) tends to bring out the worst in us. Rising government redistribution over the past 75 years has produced ample evidence of this point.

We are in this mess because we have allowed our culture to be dominated by those who are bent on spreading the false and self-serving narrative that our economy is a giant zero-sum game.

As such, we might as well have the government do the dividing.

Small wonder why our politics have become increasingly about who you are for rather than what you are for.

(italics mine)

This spectacular quote is from University of Missouri-St. Louis Professor of economics David C. Rose at the letters section of the Wall Street Journal (hat tip Prof Don Boudreaux)

Direct or indirect beneficiaries of government programs will staunchly defend on what they perceive as unalienable entitlements, even if such programs are economically unsustainable and immoral, to the point of bringing out the worst in us.

Such political apportionment programs are mainly channeled through inflationism (for instance participants in the financial markets as bankers, stock market participants, bond holders and etc…), welfarism (welfare beneficiaries), bureaucratic politics (political appointees via mandates, regulations, prohibitions), warfare state (defense contractors and related interests) and cronyism (politically distributed economic opportunities).

In defending the status quo, these politicized agents resort to more than just stridently deceptive denunciations on those who question them, but to the recourse of violence ala the unfolding events in Greece. 

Politics does tend to bring out the worst in people.

Video: Hayek: Social Justice is a Meaningless Concepcion

The great Austrian economist and Nobel laureate Friedrich A von Hayek in a discussion with Firing Line host William F Buckley Jr. and George Roche III (Hillsdale College) on Social Justice (source LibertyPen, hat tip Mises Blog)

Hayek (5:06)

There are no possible rewards of a just distribution in a system where the distribution is not deliberately the result of people bringing it about. Justice is an attribute of individual action. I can be just or unjust toward my fellow man. But the conception of a social justice to expect from an impersonal process with nobody can control to bring about a just result, is not only a meaningless conception, it’s completely impossible. You see everybody talks about social justice, but if you press people to explain to you what they mean by social justice…what to accept as social justice, nobody knows.

Quote of the Day: Taxation Is Not Revenue Raising

Taxation isn’t revenue raising.  It is confiscation of people’s resources.  Revenue is what merchants or employees earn in voluntary trade.  To classify taxes as revenues is an obvious distortion.  It is akin to characterizing the loot from a bank robbery as earnings, profits or income…

Imposing taxes on people is no more asking them for funds than is a tax a form of revenue.  Both of these distortions have to be conscious since they both clearly serve to help to pretend that something voluntary is going on when that is the farthest thing from the truth.

This excerpt is from Philosophy Professor, Cato adjunct scholar and research fellow at the Hoover Institute of Stanford University Tibor R. Machan.

When Corruption Greases the Wheels of Prosperity

Mainstream media seems befuddled by the connection between economic growth and corruption

The Reuters reports,

Uzbekistan, Bangladesh and Vietnam found themselves cheered and chided this week.

The Corruption Perceptions Index, compiled by Berlin-based watchdog Transparency International, measured the perceived levels of public sector corruption in 176 countries and all three found their way into the bottom half of the study.

Uzbekistan shared 170th place with Turkmenistan (a higher ranking denotes higher perceived corruption levels) . Vietnam was ranked 123th, tied with countries like Sierra Leone and Belarus, while Bangladesh was 144th.

Those findings are unlikely to surprise. But consider this. All three countries are said to boast some of the best prospects for business and growth over the next two decades. That’s according to the findings of a separate study released in the same week.

Uzbekistan, Vietnam and Bangladesh made it into the top 20 countries with the best growth prospects for business, outranking the United States, a study by political risk consultancy Maplecroft found…

They conclude:

Corruption and good growth prospects may seem uneasy bedfellows, but the findings of the two studies do hint that dodgy dealing might sometimes be a symptom of  a fast-moving, unshackled economy. Transparency International’s corruption study ranks China and India 80th and 94th respectively but these have also been the the world’s fastest growing economies, and its worth recalling that Maplecroft ranks them 1st and 2nd in terms of business growth potential.

Roman orator, lawyer, historian and senator Gaius Cornelius Tacitus or popularly known as Publius Tacitus accurately described the essence of corruption in the Annals: Corruptissima re publica plurimae leges or

The more numerous the laws, the more corrupt the government.

It is naïve or myopic to see people as inherently having perverse values as driving corruption. Instead, when politics, via legislation, ordinances, regulations, decrees or political institutions become an obstacle to survival, people will resort to corruption.

In short, the political environment influences people’s actions. The harder it is to engage in openly working for a living due to social controls, the more likely people’s economic activities will be driven underground or the informal economy (guerrilla capitalism), which would partly entail paying off or bribing political authorities.

Corruption, in this sense, signifies an intuitive reaction against political restrains on economic activities.

As University of Columbia assistant professor of political science Chris Blattman observes (hat tip Prof Pete Boettke) [italics original]

Most of us fail to imagine that corruption can also grease the wheels of prosperity. Yet in places where bureaucracies and organizations are inefficient (meaning entrepreneurs and big firms struggle to transport or export or comply with regulation), corruption could improve efficiency and growth. Bribes can act like a piece rate or price discrimination, and give faster or better service to the firms with highest opportunity cost of waiting.

In theory, this improves overall efficiency. If bribes subsidize large chunks of the government, then corruption reduces the need to collect taxes and allocate government spending efficiently–difficult and expensive tasks in poor countries. The “tax” that corruption imposes could be more efficient than the seemingly clean alternative.

It’s really not people who are immoral, but the politicians and the political environment which they made, that inhibits people's right to live.

Into the Eyes of the Gorgon: IMF’s Endorsement of the Philippines

The mainstream implies that accolades made by the IMF on the Philippines must be read as bullish for the stock market.

I’d say that the Philippine stock market and the IMF’s approval are two different issues.

Well with the IMF pushing for SMS Taxes[1] as well as Sin Taxes[2], the only thing bullish here is for politicians, who will have more political control over the populace, but not necessarily more money.

As I pointed out earlier[3], Sin Taxes in the United Kingdom have not only failed to achieve the desired tax revenues and the supposed morality to be attained from such a regulation. Instead sin taxes spawned a bootleg industry, increased health risks of alcohol patrons who decided to go underground, and importantly increased corruption, as well as risks of violence.

Sin taxes are equivalent to prohibition laws focused on human vices like drugs, cigarettes gambling, prostitution and etc… that seems noble sounding humanitarian based, but have been hardly in touch economic reality.

As exiting US Congressman Ron Paul said in one of the greatest speech ever[4],

Humanitarian arguments are always used to justify government mandates related to the economy, monetary policy, foreign policy, and personal liberty. This is on purpose to make it more difficult to challenge.  But, initiating violence for humanitarian reasons is still violence.  Good intentions are no excuse and are just as harmful as when people use force with bad intentions.  The results are always negative.

Importantly a common mistake has been to misinterpret taxes rates as a constant or linear function of revenues. An important economic axiom to realize is that “when you tax something, you get less of it.”

And such economic law applies to the effects of raising taxes on gold sales that has only prompted for the skyrocketing of smuggling activities[5] from the output of small scale gold mining or the informal gold economy in the Philippines. In fact, some lawmakers have appealed for the repeal of these taxes[6].

Rampant smuggling has not been limited to gold but has broad based.

According to an Inquirer report[7], smuggling activities in the incumbent administration has exploded to a $39.2 billion industry, or an average of $19.6 billion per year or for the two years of President Aquino’s tenure. This is far from the average of $3.1 and $3.8 billion for the Estrada and the Arroyo administration respectively. As a side note, mainstream economists may deny it but this seems to be one of the real factors contributing to the economic vitality. 

Political agents and the apologists of the state would like make us believe that edicts, ordinances and regulations can supplant the law of economics. Guess who will be wrong?

Or is it that President Aquino realizes that the informal economy has been real force behind the growth in the domestic economy for him to promote populist regulations that drives economic activities underground? So could he be hitting two birds with one stone?

Another more important point is that the diversion of productive resources to redistributive unproductive or politically directed activities will eventually lead to more debt and more inflation whose outcome will be worse than the cumulative effects of individual’s vices. Think Greece.

SMS taxes regardless of the form, on the other hand, will raise the cost of texting at the expense of consumers. Given that the mobile phone market will reach nearly 100% in terms penetration level[8], this implies that kernel of text users are likely to be from the middle to the lower income levels. 

So IMF’s Christine Lagarde in essence discriminates the poor by taxing them in favor of the political class.

Should I be bullish with the IMF’s endorsement? Ms Lagarde’s acclaim seems tantamount to the risk of catching the eyes of the mythical gorgon: victims turn to stone.

---

[1] Manila Bulletin IMF chief says SMS tax could help Philippines November 16, 2012

[2] GMANetwork.com Sin tax bill a transparent way to raise revenues — IMF’s Lagarde November 16, 2012

[3] See The Unintended Effects of Alcohol “Sin” Taxes: UK Edition November 26, 2012

[4] See Video: Ron Paul's Farewell Speech to Congress November 15, 2012

[5] See Philippine Informal Gold Mining Industry Booms August 24, 2012

[6] Inquirer.net Stop gold tax, BIR urged November 12, 2012

[7] Rigoberto Tiglao Smuggling at its worst under Aquino Inquirer.net November 14, 2012

[8] GMANetwork PHL mobile penetration to hit 100 percent in 2012, telco claims July 17, 2012

Quote of the Day: Big Government Destroys Systems of Interaction and Help

I want collective action that is voluntary not coerced. I want people to have the incentive to come together and help others. Government takes my money and gives it to other people. Sometimes it’s good people. But sometimes it’s not. So it doesn’t just replicate what I would have done already. It distorts it. But more importantly it discourages the deeply human ways we help one another as friends and family. I don’t want to romanticize private charity or the way families work. They’re both deeply flawed and imperfect. But big government destroys those systems of interaction and help. Big government makes it cheaper to be on our own. It makes it cheaper to avoid helping others because the government is doing it already.

This is from Professor Russ Roberts at the Café Hayek, discussing a comment  skeptical of the Road to Serfdom.

Graphic of the Day: Price Ceiling Means Shortages

Laissez Faire Books publisher and executive editor Jeffrey A. Tucker lambasts price anti-price gouging laws

There is no real distinction between responding to economic conditions and so-called gouging. A law against gouging is a law against economic behavior. Merchants need to raise prices — not to reflect higher costs (though costs could rise), but to reflect changing conditions of supply and demand. A higher price would signal consumers to conserve. A higher price would also call forth greater supply — without having to have the government intervene with special shipments. A higher price would also settle the crowds down a bit and stop the insane attempt to stockpile as much as possible at the low price.

Price controls are causing human suffering — yet again. And this time, the toll is very high, even if it will always remain somewhat invisible.

Politicians barely have comprehended that despite four centuries of repeated attempts to subvert the law of economics, price controls have always failed. Yet such blatant failures has never been an obstacle for politicians aspiring to acquire or expand more power and control over society. Pretentious moralism results to economic decay.