Those who want to "spread the wealth" almost invariably seek to concentrate the power. It happens too often, and in too many different countries around the world, to be a coincidence. Which is more dangerous, inequalities of wealth or concentrations of power?
This underscores an important point that I’ve been writing about for a long time: young people in particular get the sharp end of the stick.They’re the last to be hired, the first to be fired, the first to be sent off to fight and die in foreign lands, and the first to have their benefits cut.And if they’re ever lucky enough to find meaningful employment, they can count on working their entire lives to pay down the debts of previous generations through higher and higher taxes.But when it comes time to collect… finally… those benefits won’t be there for them.You see, every government has multiple obligations– whether to creditors and bondholders in the form of interest payments, or citizens in the form of benefits.And when a government has to borrow money just to be able to pay interest on the money it’s already borrowed, it’s nearly a mathematical certainty that they’re going to default on at least -some- of their obligations.For some of these obligations, it’s politically palatable to default.Youth benefits, for example. No one is going to raise a big fuss. So you can absolutely count on governments unilaterally wiping themselves with these contractual obligations.Case in point: the British government has just announced a new push to eliminate benefits for young people. And this is just step 1.What a pathetic excuse for a social contract. There has to be a better way. And for young people, there is.Youth is a gift. It’s a time in your life where you have tremendous energy and very little to lose. You’re not tied down by a mortgage or a family to support.And rather than follow the conventional path of indebting yourself for 13-years so that you can attend university for four, and then fork over the bulk of your pay to the government, instead focus on learning tangible, valuable skills overseas.
Currently, China’s market order is relatively awful, but I believe everyone should also be full of hope. We Chinese throughout history have valued reputation. Looking back on history, many years ago we had contractual relationships. A piece of bamboo split in half, with each person having one end for comparison, was a contract. I previously mentioned Shanxi Remittance Firms. About two hundred years ago they issued what we today call a traveler’s check. They had branches in Saint Petersburg and Kobe. There were no central banks to examine and approve banks, anyone could start one, but there was no fraud. Why do we today have more and more controls, but fraud is also more common? This is an issue that deserves our consideration.
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.
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.
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.
As every opera fan knows, life is full of tragedy. Sometimes people laugh at you for being short. Sometimes people hate you for being a Jew. Tragedy, however, is more than a matter of intentions. Markets muffle the effects of bad intentions. Governments amplify the effects of bad intentions to their logical conclusion. Market discrimination gave Joseph Schmidt an ugly hurdle to overcome - but with some ingenuity, he overcome it. Government discrimination, in contrast, deliberately walled off his every option. He tried to escape, but there was no escape. Governments driven by prejudice stripped Joseph Schmidt of his livelihood, then took his life.
Among the arguments we hear adduced in favor of the restrictive regime we must not forget that which is founded on national independence."What should we do in case of war," it is said, "if we are placed at the mercy of England for iron and coal?"English monopolists do not fail to cry out in their turn:"What would become of Great Britain in case of war if she is dependent on France for provisions?"One thing is overlooked, which is this: That the kind of dependence that results from exchange, from commercial transactions, is a reciprocal dependence. We cannot be dependent on the foreigner without the foreigner being dependent on us. Now, this is the very essence of society. To break up natural relations is not to place ourselves in a state of independence, but in a state of isolation.Note this: A nation isolates itself looking forward to the possibility of war; but is not this very act of isolating itself the beginning of war? It renders war more easy, less burdensome, and, it may be, less unpopular. Let countries be permanent markets for each other's produce; let their reciprocal relations be such that they cannot be broken without inflicting on each other the double suffering of privation and a glut of commodities; and they will no longer stand in need of naval armaments, which ruin them, and overgrown armies, which crush them; the peace of the world will not then be compromised by the caprice of a Thiers or of a Palmerston; and war will disappear for want of what supports it, for want of resources, inducements, pretexts, and popular sympathy.
I am quite aware that I shall be reproached (it is the fashion of the day) with basing the fraternity of nations on men's personal interest — vile, prosaic self-interest. Better far, it may be thought, that it should have had its basis in charity, in love, even in a little self-abnegation, and that, interfering somewhat with men's material comforts, it should have had the merit of a generous sacrifice.When shall we be done with these puerile declamations? When will hypocrisy be finally banished from science? When shall we cease to exhibit this nauseous contradiction between our professions and our practice? We hoot at and execrate personal interest; in other words, we denounce what is useful and good (for to say that all men are interested in anything is to say that the thing is good in itself), as if personal interest were not the necessary, eternal, and indestructible mainspring to which Providence has confided human perfectibility. Are we not represented as being all angels of disinterestedness? And does the thought never occur to those who say so that the public begins to see with disgust that this affected language disfigures the pages of those very writers who are most successful in filling their own pockets at the public expense? Oh! Affectation! Affectation! Thou are verily the besetting sin of our times!What! Because material prosperity and peace are things correlative, because it has pleased God to establish this beautiful harmony in the moral world, am I not to admire, am I not to adore His ordinances, am I not to accept with gratitude laws that make justice the condition of happiness? You desire peace only in so far as it runs counter to material prosperity; and liberty is rejected because it does not impose sacrifices. If abnegation has indeed so many charms for you, why do you fail to practice it in private life? Society will be grateful to you, for someone, at least, will reap the fruit; but to desire to impose it upon mankind as a principle is the very height of absurdity, for the abnegation of all is the sacrifice of all, which is evil erected into a theory.But, thank heaven, one can write or read many of these declamations without the world ceasing on that account to obey the social motive force, which leads us to shun evil and seek after good, and which, whether they like it or not, we must denominate personal interest.After all, it is ironic enough to see sentiments of the most sublime self-denial invoked in support of spoliation itself. See to what this boasted disinterestedness tends! These men who are so fantastically delicate as not to desire peace itself, if it is founded on the vile interest of mankind, put their hand into the pockets of others, and especially of the poor.For what article of the tariff protects the poor? Be pleased, gentlemen, to dispose of what belongs to yourselves as you think proper, but leave us the disposal of the fruit of our own toil, to use it or exchange it as we see best. Declaim on self-sacrifice as much as you choose, it is all very fine and very beautiful, but be at least consistent.
Rent seeking is simply the manipulation of the social or political environment in order to obtain wealth through monopoly privileges (Wikipedia.org). Such actions usually comes in the form of subsidies, various political concessions and or regulations which works to prevent free market competition.
The following controversial article from Bloomberg (which reportedly has been censored in China, according to Zero Hedge) gives an example.
Bloomberg: (bold emphasis mine)
Xi Jinping, the man in line to be China’s next president, warned officials on a 2004 anti-graft conference call: “Rein in your spouses, children, relatives, friends and staff, and vow not to use power for personal gain.”
As Xi climbed the Communist Party ranks, his extended family expanded their business interests to include minerals, real estate and mobile-phone equipment, according to public documents compiled by Bloomberg.
Those interests include investments in companies with total assets of $376 million; an 18 percent indirect stake in a rare- earths company with $1.73 billion in assets; and a $20.2 million holding in a publicly traded technology company. The figures don’t account for liabilities and thus don’t reflect the family’s net worth.
No assets were traced to Xi, who turns 59 this month; his wife Peng Liyuan, 49, a famous People’s Liberation Army singer; or their daughter, the documents show. There is no indication Xi intervened to advance his relatives’ business transactions, or of any wrongdoing by Xi or his extended family.
While the investments are obscured from public view by multiple holding companies, government restrictions on access to company documents and in some cases online censorship, they are identified in thousands of pages of regulatory filings.
The trail also leads to a hillside villa overlooking the South China Sea in Hong Kong, with an estimated value of $31.5 million. The doorbell ringer dangles from its wires, and neighbors say the house has been empty for years. The family owns at least six other Hong Kong properties with a combined estimated value of $24.1 million.
Standing Committee
Xi has risen through the party over the past three decades, holding leadership positions in several provinces and joining the ruling Politburo Standing Committee in 2007. Along the way, he built a reputation for clean government.
He led an anti-graft campaign in the rich coastal province of Zhejiang, where he issued the “rein in” warning to officials in 2004, according to a People’s Daily publication. In Shanghai, he was brought in as party chief after a 3.7 billion- yuan ($582 million) scandal.
A 2009 cable from the U.S. Embassy in Beijing cited an acquaintance of Xi’s saying he wasn’t corrupt or driven by money. Xi was “repulsed by the all-encompassing commercialization of Chinese society, with its attendant nouveau riche, official corruption, loss of values, dignity, and self- respect,” the cable disclosed by Wikileaks said, citing the friend. Wikileaks publishes secret government documents online.
A U.S. government spokesman declined to comment on the document.
While inequality is an innate feature of the marketplace, it is even worse when political access and privilege drives these.
Again from the same Bloomberg article:
Increasing resentment over China’s most powerful families carving up the spoils of economic growth poses a challenge for the Communist Party. The income gap in urban China has widened more than in any other country in Asia over the past 20 years, according to the International Monetary Fund.
“The average Chinese person gets angry when he hears about deals where people make hundreds of millions, or even billions of dollars, by trading on political influence,” said Barry Naughton, professor of Chinese economy at the University of California, San Diego, who wasn’t referring to the Xi family specifically.
Read the rest here
Realize that when politicians and their followers peddle arguments based on “noble sounding” or “feel good policies” such as self sufficiency, nationalism, anti-foreign, currency manipulations-trade deficits, the need for political spending to generate employment (make work bias) and etc.., they are preaching of mercantilism and protectionism which tacitly promotes their interests and NOT of the consumers or of the “people”.
The ultimate beneficiaries of interventionists policies, like the above, are the powers that be.
Interventionism is the essence of rent-seeking politics or crony capitalism.
The rent seeking political economy is a universal phenomenon. The greater share of the political influences on the economy, the more economic opportunities are driven by rent seeking. This includes the Philippines. All you’ve got to do is to OPEN your eyes, use common sense and stop listening to sycophants and the institutional propaganda machines.
Politicians hardly practices on what they preach, as they are focused mainly on generating votes or approval ratings to preserve or expand their entitlements.
In the rent seeking political economy, there are many ways to skin a cat, something which the public can hardly see.
When media and politicians talk about “inequality”, like magicians, they simply are engaged in verbal manipulative framing of the public’s mindset. They deliberately shift the blame on market forces, what in essence are mainly caused by political inequality.
Well it seems that President Aquino will be delivering a compromise over the controversial (I would add nonsensical) mining-tourism squabble.
From the Inquirer,
A new mining policy expected to be issued Friday by President Benigno Aquino hopes to generate more revenues for the government in the face of a high demand for metallic resources while excluding about 78 more areas from mining activities.
Aquino said here on Wednesday that he hoped to come out soon with the much-awaited executive order (EO) spelling out the government’s revised mining policy in the midst of intense debate between industry leaders and environmentalists through the years.
Without going into details, the President said small-scale mining would be further regulated throughout the country under the new EO, which, he added, was undergoing “fine-tuning” in certain provisions for being “superfluous.”…
Asked how the new EO will be able to balance out concerns on environment protection and economic gains, Mr. Aquino said that one of its provisions would designate “roughly” 78 areas to be reserved for tourism “and mining cannot happen there.”
Extractive activities would be disallowed in agricultural and ecotourism areas, according to the source. At present, mining is barred only in areas under protected status.
The President noted that the provision in the draft EO that “mining cannot happen in prime agricultural lands” had also been stated in the law extending the implementation of the Comprehensive Agrarian Reform Program which, in turn, prohibited the conversion of irrigated lands.
There are lots of things to discuss here, particularly side effects of these policies, nevertheless, this represents another wonderful example of the public choice theory in action: a political compromise between two vested interest groups.
Here’s Professor Don Boudreaux and Dwight Lee on “logrolling” (bold emphasis mine)
democratic politics falls short of achieving optimal compromise not only because of immoderate ideological restraints imposed on representatives by voters, but also because it displaces voluntary market arrangements which achieve a far greater and more inclusive amount of compromise. In fact, politics stymies more beneficial compromise than it promotes. Politics should more appropriately be called the art of confining compromise--political compromises are confined to the relatively few parties with ample political power to participate in political bargaining.
The lesson here is that political mandates or edicts or regulations work in the favor of the interests of politically organized and politically connected groups than over the unorganized-invisible groups (yes, this means you, me and the rest of the Juans, Marias, and Pedros).
I call this political inequality.
[disclosure: I have equity exposures in the mining industry, but I favor free markets rather than 'compromises' or logrolling or the use of fiat to secure economic advantage over the rest]
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
F. A. Hayek’s famous quote from another landmark book “The Fatal Conceit: The Errors of Socialism” is best exemplified by President Obama’s horrendous track record in investing public funds in the private sector or the Keynesian dictum of “socialization of investments”.
Writes AEI fellow Marc A. Thiessen at the Washington Post (hat tip Professor Mark Perry) [bold highlights mine]
Since taking office, Obama has invested billions of taxpayer dollars in private businesses, including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions. Consider just a few examples of Obama’s public equity failures:
● Raser Technologies. In 2010, the Obama administration gave Raser a $33 million taxpayer-funded grant to build a power plant in Beaver Creek, Utah. According to the Wall Street Journal, after burning through our tax dollars, the company filed for bankruptcy protection in 2012. The plant now has fewer than 10 employees, and Raser owes $1.5 million in back taxes.
● ECOtality. The Obama administration gave ECOtality $126.2 million in taxpayer money in 2009 for, among other things, the installation of 14,000 electric car chargers in five states. Obama even hosted the company’s president, Don Karner, in the first lady’s box during the 2010 State of the Union address as an example of a stimulus success story. According to ECOtality’s own SEC filings, the company has since incurred more than $45 million in losses and has told the federal government, “We may not achieve or sustain profitability on a quarterly or annual basis in the future.”
Worse, according to CBS News the company is “under investigation for insider trading,” and Karner has been subpoenaed “for any and all documentation surrounding the public announcement of the first Department of Energy grant to the company.”
● Nevada Geothermal Power (NGP). The Obama administration gave NGP a $98.5 million taxpayer loan guarantee in 2010.The New York Times reported last October that the company is in “financial turmoil” and that “[a]fter a series of technical missteps that are draining Nevada Geothermal’s cash reserves, its own auditor concluded in a filing released last week that there was ‘significant doubt about the company’s ability to continue as a going concern.’ ”
● First Solar. The Obama administration provided First Solar with more than $3 billion in loan guarantees for power plants in Arizona and California. According to a Bloomberg Businessweek report last week, the company “fell to a record low in Nasdaq Stock Market trading May 4 after reporting $401 million in restructuring costs tied to firing 30 percent of its workforce.”
● Abound Solar, Inc. The Obama administration gave Abound Solar a $400 million loan guarantee to build photovoltaic panel factories. According to Forbes, in February the company halted production and laid off 180 employees.
● Beacon Power. The Obama administration gave Beacon — a green-energy storage company — a $43 million loan guarantee. According to CBS News, at the time of the loan, “Standard and Poor’s had confidentially given the project a dismal outlook of ‘CCC-plus.’ ” In the fall of 2011, Beacon received a delisting notice from Nasdaq and filed for bankruptcy.
This is just the tip of the iceberg. A company called SunPower got a $1.2 billion loan guarantee from the Obama administration, and as of January, the company owed more than it was worth. Brightsource got a $1.6 billion loan guarantee and posted a string of net losses totaling $177 million. And, of course, let’s not forget Solyndra — the solar panel manufacturer that received $535 million in taxpayer-funded loan guarantees and went bankrupt, leaving taxpayers on the hook.
Amazingly, Obama has declared that all the projects received funding “based solely on their merits.” But as Hoover Institution scholar Peter Schweizer reported in his book, “Throw Them All Out,” fully 71 percent of the Obama Energy Department’s grants and loans went to “individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party.” Collectively, these Obama cronies raised $457,834 for his campaign, and they were in turn approved for grants or loans of nearly $11.35 billion. Obama said this week it’s not the president’s job “to make a lot of money for investors.” Well, he sure seems to have made a lot of (taxpayer) money for investors in his political machine.
All that cronyism and corruption is catching up with the administration. According to Politico, “The Energy Department’s inspector general has launched more than 100 criminal investigations” related to the department’s green-energy programs.
Bottom line:
Politicization of investments almost always lines up in the pockets of cronies of political authorities, which have also been blemished by corruption (of course, political authorities are likely to have a share of politically mandated “beneficence”).
Worst, these so-called “investments”, which turn out to be grand sink holes, apparently ends up as added burden for taxpayers.
In effect, the public policy of “socialization of investments” represents transfers of scarce resources from the society (rich, middle class, and poor) to cronies by legislation. Talk about political inequality.
Not only has the above been a manifestation of pretentious and phony “top-down” knowledge by the political leadership, but such also signifies what the great Frederic Bastiat once warned about regarding “legal plunder”.
The fact that the income tax burden is distributed so unevenly produces great politically borne fiscal problems. People who pay little or no income taxes become natural constituents for big-spending politicians. After all, if you pay no income taxes, what do you care if income taxes are raised? Also, you won't be enthusiastic about tax cuts; you'll see them as a threat to your handouts.
That’s from Professor Walter E. Williams
The regulatory and tax states have made the lower classes into pariahs from the point of view of the commercial world. They are expensive to hire and hard to fire, which makes them even more expensive to hire. The minimum wage is bad enough, but that is only the beginning. A giant machinery governs how, where, when, and under what terms they can work and enjoy fulfilling lives. Business creation is harder than ever for anyone but the highly educated elite.
When they do get jobs, the whole system is allied against their social advancement. Cash business is criminalized. Everything requires a permit. The bureaucracy rules, instead of the entrepreneur. The laws, taxes, mandates, programs — and everything else the state has done — work like a giant bed of sharp rocks in the middle of a river that punishes those who tried to get to the other side.
Inflation and the Fed’s interest-rate policy have punished the accumulation of wealth and shortened the time horizon of the lower third of the population classes. The rise of the police state and the criminalization of their lifestyle have driven them into a culturally, socially, and legally marginal existence, so that they are always one step away from entanglement with police, courts, and jail.
As government grows — and the regulatory and tax states expand — and as the prohibitions on behaviors, services, and goods grow and grow, society becomes ever less economically mobile and dynamic. The class system that is part of every society becomes a caste system of entrenched position. It becomes a society of the put-upons versus the privileged.
That’s an excellent excerpt from a book review by Jeffrey Tucker at the Laissez Faire Books.
Every choice represents a tradeoff. Growth of government equates to reduced growth for the private sector. And where choices are politicized, the end result is wealth inequality prompted for by asymmetric political exposures—political inequality. So wealth becomes concentrated to the political class and their cronies at the expense of everyone else. Yet media and the academe have been blind to these developments.
We are often told that the private sector is instinctively greedy, and thus requires intervention to spread ‘charity’ and ‘compassion’.
Well, in the UK, acts of private sector charity or philanthropy will be penalized.
From Wall Street Journal Wealth Blog,
The U.K.’s new budget has ignited all manner of class warfare. Retirees say it’s a gift to the rich at the expense of the poor. The wealthy say it’s another attack on success and job creators.
But one piece has gone largely unnoticed: the limit on philanthropic giving. The measure would cap the tax relief for wealthy givers at 25% of their annual income, or £50,000, whichever is higher. It takes effect next year.
It’s similar to the Obama proposal, which would limit charitable deductions for high earners to 28% for couples with incomes of $250,000 or more or individuals with income of $200,000. The White House says limiting itemized deductions would shrink the deficit by $584 billion over 10 years.
The U.K. expects its measure (along with caps on business deductions) to result in $490 million in saved revenue.
“Giving shouldn’t mean you pay no tax,” according to the U.K. Treasury.
Yet charities say the plan would put a chill on philanthropic giving just as the U.K. government is trying to create a new culture of giving.
The “new culture of giving” is that the government forcibly takes what you own (by taxation), which in turn discourages acts of private charity (both by administrative limits and again by taxation--what you opt to donate will be taken instead).
And as the norm, governments spend these confiscated resources charitably on their pet projects (to the benefit of cronies and or to vote rich welfare dependents or for photo Op sensational projects).
This is not really new. It has been the nature of governments to undertake lawful plunder of the resources of the citizenry when so deemed politically expedient.
As the great Frédéric Bastiat wrote in The Law published in 1850
When does plunder cease, then? When it becomes more burdensome and more dangerous than labor. It is very evident that the proper aim of law is to oppose the fatal tendency to plunder with the powerful obstacle of collective force; that all its measures should be in favor of property, and against plunder.
But the law is made, generally, by one man, or by one class of men. And as law cannot exist without the sanction and the support of a preponderant force, it must finally place this force in the hands of those who legislate.
This inevitable phenomenon, combined with the fatal tendency that, we have said, exists in the heart of man, explains the almost universal perversion of law. It is easy to conceive that, instead of being a check upon injustice, it becomes its most invincible instrument.
It is easy to conceive that, according to the power of the legislator, it destroys for its own profit, and in different degrees amongst the rest of the community, personal independence by slavery, liberty by oppression, and property by plunder.
It is in the nature of men to rise against the injustice of which they are the victims. When, therefore, plunder is organized by law, for the profit of those who perpetrate it, all the plundered classes tend, either by peaceful or revolutionary means, to enter in some way into the manufacturing of laws. These classes, according to the degree of enlightenment at which they have arrived, may propose to themselves two very different ends, when they thus attempt the attainment of their political rights; either they may wish to put an end to lawful plunder, or they may desire to take part in it.
By preventing the private sector from engaging in philanthropic activities and by coercively taking their resources by law, who’s greedy now?
Wall Street activists and the left should look at this, wealth of politicians in China and the US have been ballooning
Reports the Bloomberg,
The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.
The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.
The income gain by NPC members reflects the imbalances in economic growth in China, where per capita annual income in 2010 was $2,425, less than in Belarus and a fraction of the $37,527 in the U.S. The disparity points to the challenges that China’s new generation of leaders, to be named this year, faces in countering a rise in social unrest fueled by illegal land grabs and corruption…
The wealth gap between legislatures holds with statistically comparable samples. The richest 2 percent of the NPC -- 60 people -- had an average wealth of $1.44 billion per person. The richest 2 percent of Congress -- 11 members -- had an average wealth of $323 million.
The U.S. figures come from a downloadable database on the website of the Washington-based Center for Responsive Politics. The U.S. figures are inflated because the database includes members of Congress who were retired or defeated in the 2010 elections as well as their replacements.
The wealth of members of Congress did increase at a higher rate than that of their Chinese peers in the most recent disclosures as U.S. equity markets outperformed China’s. The average wealth of the richest 2 percent of Congress rose 22 percent in 2010 from 2009. The Standard and Poor’s 500 Index rose 12.8 percent in 2010.
Funny how the news above attempts to paint the wealth of politicians as mostly derivative of conventional economic means.
In reality a significant portion of the wealth of politicians account for as economic and financial benefits from political inequality: the greater the political power over society, the more access to what Bastiat would call as “lawful plunder”.
From the great Frédéric Bastiat in The Law
Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws. According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.
Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder. Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.
It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution — some for their evilness, and some for their lack of understanding
Accounts of lawful plunder are manifested through gaming or manipulation of the laws to secure their self-interests, e.g. insider trading, anti-competition laws and etc…, crony capitalism, logrolling and or corruption through earmarks (pork barrel) or through other means.
The same Bloomberg article gives us some clues
“The rich in China have strong incentive to become ‘within system’ due to the relative weakness in the rule of law and of property rights,” Victor Shih, a professor at Evanston, Illinois-based Northwestern University who studies Chinese politics and finance, wrote in an e-mail.
Transparency International’s corruption perception index also gives us more hints…
China is perceived as more corrupt compared to the US which could partly explain the wealth inequality between Chinese and American politicians.
Bottom line: Unknown to most, (wealth or income) inequality mostly emanates from political actions, particularly instituted arbitrary laws which facilitates “lawful plunder” that works to benefit the political class, their cronies and their dependants at the expense of everyone else.
Laws create corruption, to quote the legendary investor Doug Casey, and corruption engenders laws.
From Professor Arnold Kling,
In business it is actually really hard to get people to do what you want. In fact, understanding that fact is exactly what sets CEOs apart from policy wonks. Policy wonks think that you write a law and that solves a problem. They think that you promulgate regulations and people do not figure out how to game those regulations.
Someone with business experience would never announce a mortgage loan modification program and expect it to be implemented in a matter of weeks (remember, a mortgage is a legal document that is somewhat antiquated with procedures that differ by state and local jurisdiction; remember that, prior to 2008, mortgage servicers had very few staff with any experience at all in loan modification; remember that when you introduce entirely new parameters into a highly computerized business process, somebody has to determine which systems are impacted, gather requirements, redesign databases, develop logic to protect against data input errors, develop a test plan,...). Someone with business experience would not enact a program that fines companies for failing to use a fuel that does not yet exist. Someone with business experience, I dare say, would understand that chaotic organization has consequences.
The fundamental difference between private business and government is the use of force.
To survive or to thrive, businesses must persuade consumers that their products or services offered are worth the use, the consumption or the ownership, in order for consumers to conduct voluntarily exchanges. Failing to do so means that these private sector providers would lose out to the competitors.
On the other hand government, operating as mandated or legislated monopoly, forces people to comply with their edicts or regulations under the threat of penalty (incarceration, fines and etc.) for non-compliance.
In other words, for businesses, the distribution of power to allocate resources is ultimately decided by the consumers, whom are guided by price signals and where the consumer represents as the proverbial 'king'. Whereas for government, it is the politicians and bureaucrats who decides, whom act based on political priorities rather than by price signals.
Social power, thus, is distinguished between market forces relative to political forces.
Yet there are many other significant differences.
So comparisons of “government run as business” is not only patently misguided but a popular fallacy which needs to be straightened out.
From Robert Lawson and Richard Alm, (hat tip Professor Arnold Kling)
In 2010, a tiny cabal of 535 individuals — just 0.00017% of the population — spent $3.5 trillion, or about 23% of the $14.5 trillion U.S. economy. That leaves 77% for the other 99.99983% of us.
The group is the U.S. Congress — whose members have enormous powers to tax and spend. And they've used them to grab economic power well beyond anything found in the private sector.
If we look at the richest 535 private citizens, measured by the Forbes 400 list combined with estimates for the nation's next 135 wealthiest people, we estimate these rich people probably have about $166 billion in spendable income each year.
Internal Revenue Service data from the 535 highest tax returns give a somewhat lower figure of $135 billion.
Thus, the members of Congress wield 20 to 25 times more economic power than the same number of richest private citizens in the country.
In a heavily politicized economy, inequality mostly springs from actions of political agents whose escalating interventionism bloats the bureaucracy and the pockets of political stewards by compelling economic agents, not only to comply and finance their desires (at the expense of the consumers) but to also lobby for privileges. The result is a vicious cycle of feeding the leviathan to unsustainable levels.
Informal economies are symptomatic of the state of affairs for economies struggling with byzantine legal and bureaucratic entanglements.
But in today’s modern finance based economy, it’s my first time to hear of the proliferation of informal stock exchanges.
From Bloomberg,
China will ban trading of securities and futures on unauthorized exchanges to regulate the market and prevent financial risks, the State Council said.
Some of the trading activities have led to price manipulation and fund embezzlement by the exchange managers, China’s cabinet said in a statement dated yesterday. Such problems may cause regional financial risks and endanger social stability, the statement said.
There are over 300 unregulated bourses across the country, the Financial Times reported today, citing analysts. Turnover on the three authorized commodity futures and a financial futures exchanges in China fell 4 percent to 113.4 trillion yuan ($18 trillion) in the first ten months from a year ago, according to the China Futures Association.
“Regulators are concerned because these exchanges do not pay much attention to risk control, and volatile trading could hurt the participants and have a spillover effect on other companies and related industries,” said Shen Zhaoming, a Shanghai-based analyst at brokerage Changjiang Futures Co. “Local governments all hope for bigger economic influence, and they think establishing such exchange platforms is an efficient way to achieve the goal.”
Apart from the stock and futures exchanges approved by the State Council, no other bourses are allowed to list new shares, offer centralized pricing or make markets, the statement said. Exchanges that trade gold, insurance or credit products must receive approvals from financial authorities under the State Council, it said.
Price manipulation and fund embezzlement (e.g. MF Global Holdings) have also been present in ‘regulated’ exchanges.
Centralization does not sanitize or prevent markets from having miscreants. To the contrary, politicized regulated markets may even spawn them e.g. Philippines’ BW Resources Scandal and the US shadow banking system, where the former is the result of cronyism and the latter has mostly been product of regulatory capture and regulatory arbitrage.
So price manipulation and fund embezzlement would be a flimsy pretext by the Chinese government to exercise control over informal exchanges.
Besides, bailouts, unilateral credit margin maneuvering, quantitative easing, artificially low interest rates, Operation Twist (manipulation of the yield curve), Basel Accord (Financial Repression), ban on shorts and other forms of politicization of the marketplace represent price manipulations which has been the du jour policies being undertaken by global governments at the expense of the average market participants and the taxpayers.
So it is ‘legal’ for governments and their cronies to finagle or to manipulate or to exercise insider trading of the markets. To add, governments are beyond or are exempt from the laws which they implement. Again this implies that 'what may be legal is not moral'. One would call this political inequality.
Finally it is simply amazing how “300 unregulated bourses” exists in China.
Again some possible drivers here,
-regulated exchanges have been too much bureaucratic or extensively politically controlled to force many financial market investors to go underground,
-the major bourses of mainland China Shanghai and Shenzhen have not expanded enough to cover the entire country. However, the current state of technology seem to reduce the odds of such dynamic unless restrained by politics.
-China’s capital markets have been so limited or constrained such that boom bust policies have been compelling many investors to seek ways to stretch on yields by participating in the informal stock exchanges. And a possible symptom of this would be the China’s version of the shadow banking or financing system that has funded the recent property boom (and possibly informal stock exchanges too?).
This should be a great example of how the markets are always way ahead of and manage to circumvent regulators—a perpetual cat and mouse game.
Increases in government power expand, rather than shrink, producer-groups’ access to unwarranted privileges – privileges that are unavailable in competitive markets. As the economist and historian Deirdre McCloskey notes on page 35 of her 2006 book The Bourgeois Virtues: “When American steel producers get tariffs or when sugar beet growers get import quotas it is not because of their market power but because of their political power, their access to an all-powerful state.”
That’s from Professor Donald J. Boudreaux. Said differently, worshippers of the state implicitly endorse crony capitalism and social inequality.
Mises Institute Founder and Chairman Llewellyn H. Rockwell, Jr. eloquently writes,
In the end, we end up with about 3 million people who constitute what is commonly called the State. For short, we can just call these people the 1%.
The 1% do not generate any wealth of their own. Everything they have they get by taking from others under the cover of law. They live at our expense. Without us, the State as an institution would die….
The State is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.
It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the State that created and sustains the Fed and the dollar because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the State to destroy our money on a whim.
The State is everybody’s enemy. Why don’t the protesters get this? Because they are victims of propaganda by the State, doled out in public school, that attempts to blame all human suffering on private parties and free enterprise. They do not comprehend that the real enemy is the institution that brainwashes them to think they way they do.
They are right that society is rife with conflicts, and that the contest is wildly lopsided. It is indeed the 99% vs. the 1%. They’re just wrong about the identity of the enemy.
Parasites thrive on hosts and at the latter's expense. That’s how the causal relationship works (even in biology).
Politicization of the marketplace has been broadening. Trading curbs are not only applied to commodities but to short-selling as well.
From Bloomberg,
The European Union reached a deal as part of a short-selling law that will pave the way for an optional ban on naked credit-default swaps on sovereign debt.
Poland, which holds the rotating presidency of the EU, and lawmakers from the European Parliament reached the accord at a meeting in Brussels yesterday.
Under the deal, traders may be prevented from buying CDS on government bonds unless they either own the sovereign debt or other assets whose price moves in tandem with it. Nations will have the right to opt out of the measure if they detect signs that it may affect their borrowing costs.
“These balanced measures will ensure that sovereign CDS are used for the purpose for which they were designed, hedging against the risk of sovereign default, without putting at risk the proper functioning of sovereign-debt markets,” EU Financial Services Commissioner Michel Barnier said in a statement.
German Finance Minister Wolfgang Schaeuble and lawmakers in the European Parliament have called for a ban on naked CDS trades on government debt over concerns the practice fueled the euro zone’s debt crisis. Germany already has restrictions on using swaps to bet on sovereign defaults.
Some European governments have also criticized the use of short selling to bet against bank stocks, arguing that the practice has roiled markets. Volatility that sent European bank stocks to two-year lows led France, Spain, Belgium and Italy in August to impose temporary bans on short selling that remain in force.
Opt-Out Clause
Under yesterday’s deal, national regulators will be able to suspend the CDS ban in their territory at the first signs that it may harm their sovereign debt market.
The opt out-clause won over some critics of possible bans.
“I never signed up to the belief that a ban on uncovered sovereign CDS would have any positive impact,” Syed Kamall, who represents London in the EU Parliament, said in an e-mailed statement. “However, I’m reassured that member states will have the ability to opt out of the ban, if they see signals that sovereign debt markets are distressed.”
The European Securities and Markets Authority will give a non-binding opinion on whether a national regulators’ decision to drop the ban makes sense. ESMA coordinates the work of national markets regulators in the 27-nation EU.
Renew Indefinitely
While the suspensions will in theory be temporary, regulators will be able to renew them indefinitely. Under the terms of the agreement, existing CDS positions will be grandfathered until they expire.
CDS are instruments that act as insurance for the buyer against losses on bonds. The practice becomes naked when someone buys swaps on debt that they do not actually own.
The measure forms part of a broader agreement on an EU law that will also curb naked short selling of stocks and government bonds.
All these curbs seem like a 'comprehensive strategy' to preserve the status quo
Global governments want to see LOWER commodity prices because this allows them some space to apply more inflationism to uphold political goals when deemed as expedient by the incumbent authorities. Also this allows them to declare victory against ‘inflation’ or to swagger about the success of their policies.
Governments do not want see the public go SHORT on sovereign debt because the welfare state based governments badly desire to maintain their spendthrift -borrow and spend-ways, whose benefits accrue to the political class, their voting constituent groups and their cronies.
Instead governments want HIGHER stock markets, particularly the banking and financial sectors as these institutions hold much of sovereign debt in their balance sheets as Basel mandated ‘risk free’ assets. Remember, banks serve as the PRINCIPAL conduits in the financing of the welfare state.
That’s why a ban on naked shorts, a form of price control, has been designed NOT only to preserve the access to funding by the welfare state, they are meant to keep banking and financial stocks AFLOAT.
Besides for central bankers higher stock markets PROMOTE aggregate demand via more spending (regardless of what kind of spending).
Yet these policies are directed to benefit holders financial assets at the expense of the productive sectors of the economy. Wealth/Income inequality and political inequality anyone?
To add it up: The overall direction of global market interventions has been to promote Bernanke’s doctrine of the wealth effect worldwide and to preserve the welfare state.
The caveat is that all these cumulative actions presumes that market interventions will effectively skew the law of demand supply in their favor—a utopian scenario.
Occupy Wall Street guys, have you been listening?
In the world of politics, gender inequality has been narrowing as female politicians have been increasing around the world (but still remains low overall).
But in many areas, the growth of female politicians seems more representative of a symptom of a chronic disease known as political dynasties.
From the Economist, (emphasis added)
YINGLUCK SHINAWATRA, whose party won Thailand’s general election and who is the country’s presumptive prime minister, is far from the only female relative of a former leader to have taken over the family political mantle (Yingluck is the youngest sister of Thaksin Shinawatra, the prime minister ousted by the army in 2006). As our table shows, there are at least 20 such figures now active in politics, including three presidents or prime ministers and six leaders of the opposition or presidential candidates. (The region most receptive to female dynastic leaders seems to be South Asia. Two of the last three presidents of the Philippines have also been related to former presidents.) Historical figures are not available for comparison, but it is hard to think of any period when so many such women hold high political office. A remarkable number are daughters or other relatives of former strongmen: they are influential in Ghana, France, Peru, South Korea, Guatemala, Kazakhstan and Italy. Perhaps women are thought best able to soften an authoritarian family brand, and make it more acceptable in a democracy.
Such malady especially applies to the Philippines.
Here is a roster of 12 popular mother and son political “tandems” (yahoo)
Cory & Noynoy, Gloria & Mikey, Imelda & Bongbong, Loi & Jinggoy, Guia & Jv, Elenita & Junjun, Lani & Jolo, Glenda & Ruben, Jr, Nikki & Julian, Letty & Ranjit
There about 250 political dynasties in the Philippines (New York Times 2007) and this number has been growing. The 14th Philippine congress has an estimated more than 75% of lawmakers from old political families (Wikipedia.org).
As I earlier pointed out,
And how do you sustain political dynasties? By systematic redistribution. The above board taxes generated from the local economy are used to pay off voters indirectly by virtue of massive welfare programs [e.g. free movies, free health care, senior citizens discount and etc...] or directly (vote buying) during elections. For instance, local authorities discreetly allow people to squat on empty government and private lands and are given protection from doing so in exchange for votes.
Female leaders are hardly about instituting ‘puritanical/moral’ reforms or about representation of particular issues or political sectors in the conventional wisdom. Instead, most of these women leaders essentially ‘represent’ extensions of family interests in their respective political domain.
I understand that there is a pending anti-dynasty bill (HB 3413) being deliberated in the Philippine Congress (abs-cbnnews.com)
An anti-dynasty bill that limits tenure WILL NOT remedy a disease brought about by the addiction to power over the political distribution of resources, as there will always be legal loopholes to circumvent. In fact, some of the women leaders (which include the other relatives) have been embodiments of systematic legal bypass over term limits on legislative branch and the local government(Wikipedia.org).
The only solution to a problem of political inequality (centralization) would through market distribution (decentralization). In short, economic freedom serves as the only genuine antidote to political dynasties.
