In Venezuela, Price Controls have Resulted to a Shortage of Doctors

In Venezuela price controls has not only brought widespread shortages in many goods at worst it has been causing doctors to flee.

From the eloquent Mary O’ Grady of Wall Street Journal

Yet it is in health care where Venezuelans are feeling the inflation pain most. Hospital services are up 39.7% year over year, doctor and paramedic services are up 21.5%, and the cost of medicines and medical equipment has risen 17.4%.

These cost increases refer, of course, to private clinics and goods that are not subject to price controls. Wherever prices can't be raised, both quality and supply are deteriorating rapidly...

In its 2010 annual report, the ministry of health acknowledged the shortage of doctors, particularly in specialties such as anesthesiology, neonatal care, cardiovascular surgery, neurosurgery and child cardiology. Private hospitals are also deteriorating now as the poor turn up for care with government medical insurance, but the insurer doesn't fulfill its obligation to pay.

The government has admitted that a large number of doctors have fled, but it says it's not worried. More than 25,000 Venezuelan students are now enrolled in Venezuela's new Bolivarian medical schools or in medical schools in Cuba. Unfortunately the curriculum is not public, and Venezuelans are worried that the students spend more time studying revolutionary politics than anatomy. Mr. Chávez seems to understand this, if nothing else. His surgeon hails from Spain

That’s the magic of socialism: equality in hardship.

War on Speculators: Restricting Short Sales on Sovereign Debt and Equities

How does government resolve the problem of their profligacy? Well, blame the speculators (a.k.a. markets)!

From the Wall Street Journal

European Union finance ministers Tuesday reached an agreement on rules limiting short-selling of shares and sovereign debt, overcoming concern from the U.K. that the legislation will give the EU's new securities regulator too much power.

The ministers must now negotiate a final version of the legislation with lawmakers at the European Parliament, which favors broader rules that would also cover short sales of credit default swaps linked to sovereign debt.

France and Germany in particular have blamed short-selling of sovereign debt for having exacerbated the euro-zone debt crisis, though regulators say there is little evidence that trading activity has caused the yields of Greek, Irish and Portuguese bonds to soar in the past year.

These has been a continuing motion to pass the blame on everyone else in what truly represents as the unintended adverse consequences of past policies.

Wind Farms Are Environmental Friendly...Not!

We are made to believe that wind farms, as an alternative energy source, are environmental friendly.

Telegraph’s James Delingpole says otherwise... (bold highlights mine)

So wind farms don’t just despoil countryside, frighten horses, chop up birds, spontaneously combust, drive down property prices, madden those who live nearby with their subsonic humming, drive up electricity prices, promote rentseeking, make rich landowners richer (and everyone else poorer), ruin views, buy more electric sports cars for that dreadful Dale Vince character, require rare earth minerals which cause enormous environmental damage, destroy 3.7 real jobs for every fake “green” job they “create”, blight neighbourhoods, kill off tourism and ruin lives, but they also

KILL WHALES!

According to researchers at the University of St Andrews, the sound of offshore wind farms is likely to mess with the whales’ sensitive sonar systems and drive them ashore, where they get stuck on beaches and die.

Has anyone else noticed the gentle irony here? Well, let me explain with the help of my magic sledgehammer: save possibly the polar bear and the mighty snail darter there is no creature on the planet more totemic of green values than the whale. Saving whales is what greens do. Or rather what they used to do in the days when greens were actually interested in caring for the environment instead of, say, trying to destroy the capitalist system. But now, here they are actively promoting a form of renewable energy which in the process of producing next to no energy very expensively also does the most stupendous damage to the environment and the eco-system.

Hat tip and photos from Matt Ridley

Post script: Telegraph’s James Delingpole says that following the publishing of the whale study, the man who led the research team, dissociated himself from the article. (This only reveals how politically powerful the environmental movement is)

Nonetheless, Mr. Delingpole concludes,

What this means is that, though at this stage we know for absolute certain that wind farms despoil countryside, frighten horses, chop up birds, spontaneously combust, drive down property prices, madden those who live nearby with their subsonic humming, drive up electricity prices, promote rentseeking, make rich landowners richer (and everyone else poorer), ruin views, buy more electric sports cars for that dreadful Dale Vince character, require rare earth minerals which cause enormous environmental damage, destroy 3.7 real jobs for every fake “green” job they “create”, blight neighbourhoods, kill off tourism and ruin lives, the possibility that they also lure whales to their doom remains at this stage an unproven hypothesis. (Just like Anthropogenic Global Warming theory, then.)

Example Of How The Welfare State Destroys The Individual

This is a graphic example of how the welfare state destroys the individual or the intermporal effects (short term gain, long term costs) of welfarism.

Gerry Garibaldi writes [hat tip: Dan Mitchell] (bold emphasis mine)

Connecticut is among the most generous of the states to out-of-wedlock mothers. Teenage girls like Nicole qualify for a vast array of welfare benefits from the state and federal governments: medical coverage when they become pregnant (called “Healthy Start”); later, medical insurance for the family (“Husky”); child care (“Care 4 Kids”); Section 8 housing subsidies; the Supplemental Nutrition Assistance Program; cash assistance. If you need to get to an appointment, state-sponsored dial-a-ride is available. If that appointment is college-related, no sweat: education grants for single mothers are available, too. Nicole didn’t have to worry about finishing the school year; the state sent a $35-an-hour tutor directly to her home halfway into her final trimester and for six weeks after the baby arrived.

In theory, this provision of services is humane and defensible, an essential safety net for the most vulnerable—children who have children. What it amounts to in practice is a monolithic public endorsement of single motherhood—one that has turned our urban high schools into puppy mills. The safety net has become a hammock.

And this applies to the Philippines as well.

For instance, in terms of demographics and education, public schools relieve the personal responsibility of the “poor” to have children, since the entrenched impression is that the state provides “free” education. So family planning becomes less of a priority because of such skewed incentives. I have personally spoken to many ‘poor’ people whose brains appear hardwired to the state’s ‘free schooling’.

And this seems backed by statistics which shows that the highest fertility rate is seen among the poorest in the society.

And this also departs from the layman’s opinions who mostly see that the “poor people have less to do except make babies”.

Of course, I am quite sure that there are many other laws which contribute to the distortion of people’s behaviour. The essence of which are that these laws (welfare programs) essentially abdicate personal responsibility and are substituted for government dependence, with the provision that individual freedom is compromised or curtailed in return for “safety nets” and votes.

Furthermore, people hardly know that there is no free lunch and such law distorting behaviour will eventually lead to an entitlement crisis. Yet politicians and their apologists continue to sell promises which they don't intend to fulfill.

A Map Of The World’s Drinking Habits

Interesting article from the Economist

THE world drank the equivalent of 6.1 litres of pure alcohol per person in 2005, according to a report from the World Health Organisation published on February 11th. The biggest boozers are found in Europe and in the former Soviet states. Moldovans are the most bibulous, getting through 18.2 litres each, nearly 2 litres more than the Czechs in second place. Over 10 litres of a Moldovan's annual intake is reckoned to be 'unrecorded' home-brewed liquor, making it particularly harmful to health. Such moonshine accounts for almost 30% of the world's drinking. The WHO estimates that alcohol results in 2.5m deaths a year, more than AIDS or tuberculosis. In Russia and its former satellite states one in five male deaths is caused by drink.

I’d like to add that institutions like the WHO, whom has called for stronger “alcohol control policies” appears to have forgotten about the epic regulatory failure in the “Volstead Act” or the US alcohol prohibition law of the 1920s.

Such prohibition, also known as ‘the Noble experiment’, according to wikipedia.org, “stimulated the proliferation of rampant underground, organized and widespread criminal activity” which eventually led to its repeal.

Noble intentions will never rescind the laws of demand and supply.

When Public Education Backfires: Seeds To Egypt’s Revolt

Education equals prosperity is an immensely misguided concept.

It is a belief founded on an observation where prosperous societies are populated by educated people. The oversimplistic causation or applied syllogism which led to this conclusion says that education “caused” prosperity. Hence, many social policies adapted by nation states focus on getting people “educated”.

We have pointed out in this space that this isn’t (necessarily) true. Throngs of unemployed in many places as the Philippines have been “educated” people.

Here is an eye-opening insight from Troy Camplin who argues that Egypt’s free “public” education has backfired and has virtually sowed the seeds of the today’s upheaval.

We quote Mr. Camplin, (all bold highlights mine)

There are plenty of reasons to want to overthrow the sitting Egyptian government. But the irony is that the government’s largesse is part of the problem. The government provided free educations for its people, even though there was not a sufficiently complex economic system in place to create jobs for all of those people. In 2001, Alison Wolf argued in Does Education Matter? that “Egypt is a country whose government made a commitment to give (university) graduates first call on jobs in the public sector. It very quickly found itself with a vast and underemployed army of civil servants, and a huge queue of students aiming at comparable sinecures for themselves” (p.40).

There can only be so many government jobs. What happens when government can no longer absorb the excess college graduates? In the end, the Egyptian government created the current situation by creating a population too educated for its economic system.

Critics will immediately accuse me of arguing that we ought to keep the masses poor and uneducated, to ensure they don’t rise up. What I am in fact arguing is that we cannot create wealth by skipping steps, by leaping a country into a population whose education does not match its economic realities.

One of the side effects of an overly-educated population (overly-educated meaning there are more people with educations than jobs for them at that level of education) is that one has a population composed of people who are both dissatisfied with their lot in life and who know exactly what is causing their dissatisfaction. Their world is bigger, and the limits of their situation cannot contain them. It eventually spills into the streets.

Keeping people ignorant is one way to control people.

Also indoctrination in the form of public education is another form of control, as John Stuart Mill once wrote

A general State education is a mere contrivance for molding people to be exactly like one another; and as the mold in which it casts them is that which pleases the dominant power in the government, whether this be a monarch, an aristocracy, or a majority of the existing generation; in proportion as it is efficient and successful, it establishes a despotism over the mind, leading by a natural tendency to one over the body

Nevertheless, governments, as F. A. Hayek and Mises pointed out, can’t know everything and can’t calculate the nitty-gritty requirements of society. Thus, governments frequently institute policies that are noble sounding that comes with short term benefits, but has been laden self destructive traps, e.g. policies may eventually be used against themselves.

I am reminded of the nice apropos quote from A. Whitney Griswold (1909-1963: Essays on Education, 1954) who wrote,

"Certain things we cannot accomplish… by any process of government. We cannot legislate intelligence. We cannot legislate morality. No, and we cannot legislate loyalty, for loyalty is a kind of morality."

Education isn’t intelligence nor is it a source of political loyalty. The Egyptian Revolt seems to demonstrate this.

The Fallacy Of “ The Richest Filipinos and the Biggest Taxpayers are not the same”

In the eyes of the mainstream, prosperity or utopianism can easily be achieved by simply being virtuous, i.e. the assumption that virtuosity can be unambiguously categorized or defined and collectively practiced by everybody.

One good example is an email I recently received which apparently has been circulating in the cyberspace.

The message incorporates two articles from high profile mainstream analysts Business Asia’s Tony Lopez and Philstar’s Boo Chanco, whose respective original articles can be found here and here.

The central message: Philippine elites have not done their “rightful” share in contributing to the Philippine society by paying “due” taxes.

This signifies the typical liberal argument against capitalist ‘greed’.

These articles are representative of political talking points that assume a moral high ground but have largely been premised on the fallacy of reductio ad absurdum.

Let me first quote Tony Lopez,

Now, compare the Top 40 Richest Filipinos based on the Forbes list with the Top 40 Taxpayers of 2008, based on the BIR list, and make your own conclusions.

BNA got hold of the 2008 list. It is a very interesting and revealing honor roll. It is veritably the roster of current heroes of the Philippines. Two conclusions:

First, people who you think are among the country’s richest are not in the Top 500 Taxpayers list. So, too, are prominent and fabulously rich people who often rant about the need for good governance and having good corporate social responsibility.

Second, the most rewarding jobs are not in business or top management. They are in entertainment, broadcasting and movies.

Here Mr. Lopez confuses correlation with causation. He implicates that the top 40 richest Filipinos should mechanically equate to the top 40 taxpayers. This perspective is skewed for the simple reason that domestic taxes are fundamentally NOT a one-size-fits-all application.

Although I am a NO tax expert, this Commission on Audit guideline would illustrate that domestic income taxes are NOT applied equally.

For instance, dividends, which largely make up the assets of “elite” classes have NOT been subject to income tax. So local elites may not be dependent on salaries or wages, but on dividends. And the dearth of taxes on dividends may have depressed the tax contribution statistical data from which has resulted to such perceived imbalances.

[Important Caveat: It may be tempting to argue to plug the loophole with higher taxes on dividends, yet doing so would retard the incentive for enterprises to invest, hence higher tax rates may result to lesser taxes.]

Furthermore, the percentages of tax rates are applied differently depending on the classification of activities, such as capital gains or interest on any currency bank deposit and other monetary substitutes or etc..., and these are the activities frequented by the elites.

The point is: The elites are hardly the major culprits. They are simply responding to the incentives provided by the current tax structure, virtuosity aside. That’s because what matters is the interpretation of tax laws applied to the individual taxpayers. In short, paying less taxes does not translate to political iniquity as unduly portrayed by these self-righteous analysts.

Yet what is largely ignored is that it is the inequitable construct of the incumbent tax laws that represents as the major factor in the current tax leakages or shortfalls.

Laws engender incentives for people’s action. Period. Whether the consequent actions are positive or negative is beyond the scope of this rejoinder. The reason why the law of unintended consequences exists has primarily been due to its having greater costs (negative effects) from the impact of the imposed laws or regulations than from its desired or intended benefits. A video example here.

In short, many laws do not capture people’s responses to a mandated environment.

Perverted Interpretations

Another misguided interpretation is where “most rewarding jobs” had wrongly been classified as “not in business or top management”. That’s because the cited examples basically contradicts this assertion.

Mr. Lopez writes,

In serious business, mining is very remunerative. The highest-paid tycoons are miners—Philex Chief Executive Officer (CEO) Walter Brown with P26.83 million tax (No. 9) and Rio Tuba Nickel CEO, lawyer Manny Zamora Jr., with P19.96 million tax (No. 12).

Behind them are owners and CEOs of conglomerates: San Miguel Corp. Chair and CEO Eduardo “Danding” Cojuangco Jr., with P18.98 million tax (No. 13); PLDT Chair and Meralco CEO Manuel V. Pangilinan, with P18.55 million (No. 14); former Meralco President Manolo Lo-pez, P17.49 million (No. 16); Unionbank Chair and CEO Justo Aboitiz Ortiz, P15.2 million (No. 19); and SMC President and Petron CEO Ramon S. Ang, P14.85 million (No. 20). Trailing them are ePLDT and TV5 CEO Ray Espinosa, P12.27 million (No. 22) and GMA Network and dzBB broadcaster Mike Enriquez, P11.94 million (No. 23). [my comment-are these personalities not “top management” or businessmen?]

This makes Enriquez the country’s highest paid media-man. He finds it funny, if not ridiculous, that he paid more taxes than the owners of the two largest TV stations. “That means I pay the correct taxes,” he notes. His channel 7 colleague, Mel Tiangco, is No. 45 with P8.9 million in income taxes paid. That makes her the highest paid female broadcaster.

Television is a big moneymaker.

Four of the country’s 10 biggest taxpayers work in TV entertainment. Willie Revillame leads the pack as No. 2, with P58.6 million in tax payments. He used to make P1 million a day while hosting his hugely popular Wowowee noontime show. Actor Piolo Pascual is No. 3, with P55.8 million tax payments; Kris Aquino, No. 8 with P25.44 million; and Michael V., (Beethoven del Valle Bunagan in real life) No. 10 with P22.26 million.

Boxing’s Manny Pacquiao, the No.1 taxpayer, is by his lonesome self, with P125 million in tax payments. In June 2009, Forbes magazine estimated the Filipino boxing great’s 2008 income at $40 million or P1.778 billion.

He paid P7 of tax for every P100 of income, a tax rate of 7 percent Revillame had a higher tax rate, P58.6 million out of P365 estimated gross for a 16 percent tax rate.

To be sure, 2008 was a crisis year for Philippine business. It was the year the world went into the deepest recession in 80 years.

And along the lines of the erroneous assumption of one size fits all nature of taxation, celebrities and high echelon representatives of business entities can hardly be classified as operating on the same tax levels. So basically this would account for an “apples to oranges” comparison. Classifying people in aggregates reveals its stark shortcomings.

To add, the last statement can be construed as an exaggeration—the claim that 2008 had allegedly been a crisis year for Philippine business. This is patently unfounded.

According to ABS CBN (bold highlights mine)

In a statement Sunday, the PSE reported that the combined net income of publicly listed firms dropped to P198.91 billion in 2008 from P281.54 billion in 2007, a banner year...

Lim noted, however, that revenues of listed firms grew 12.8 percent to P2.67 trillion from P2.37 trillion.

The recent data were culled from the latest financial statements submitted by 233 out of 246 listed companies. Of the 233 reporting firms, 159 posted net gains while the remaining 74 posted net losses.

First of all, while indeed corporate profits of publicly listed companies, which represent the biggest firms of the country, dropped in 2008, they did not turn negative. They remained substantially up. [Caveat: We would like to remind everyone that specific reference points determine the contrast effect.] In addition 68% of the corporations reported positive gains.

On the other hand, despite the modest decline in profits as measured from 2007, top line revenues of major firms rose in 2008. This hardly places the Philippine business environment in a “crisis” mode.

And if seen via economic performance one would ask, crisis where?

The Philippines as shown by chart from tradingeconomics.com did not fall into a technical recession (two quarters of negative growth). There had been even NO instance of negative growth in 2008 or throughout 2008-2010.

To argue about such a crisis is to engage populist sensationalism. What has been true for most of the world, has NOT been true for the Philippines. What has affected the local stock market, does not represent a similar cataclysmic event for the domestic non-financial markets or the economy. We identify this argument as logical fallacies.

When people assimilate on interpretations of information that are hideously out of reality, then obviously this affects the public’s quality of thought.

And because we are aware that ideas have consequences, then it is part of our responsibility to refute such politically polluted outlook.

Another moralizing comes Philstar’s Boo Chanco who writes,

It is just frustrating that the burden of financing this government is placed on the middle class like us whose tax payments are mostly withheld at source or added on to the things we buy. And of course, we cannot afford to get top notch tax accountants and are at the mercy of BIR examiners. But if we are to help P-Noy succeed, he needs money and not just a lot of hot air from pontificating tycoons in the Makati crowd.

How about a voluntary lifestyle tax from say, everyone who can afford a Manila Golf, Alabang or Wack Wack share?After all, the minimum amount to get to the Top 500 list is just P2.1 million and the side bets in many golf games exceed that on any one day. It shouldn’t hurt to dedicate a Saturday’s side bet once a month to help P-Noy achieve his goals for our own good.

Oh well… let us just end with this quote Tony used from Oliver Wendell Holmes: “Taxes are what we pay for civilized society.” Otherwise, stop complaining about the anarchy around you.

Although we sympathize with the position of the tax ‘burden’ for the middleclass’, as I belong to this category, however when people argue that taxes extrapolate to “civilized societies”, then such presumption erroneously romanticizes the infallibility of government [which ironically in other occasions he criticizes].

This further presupposes one or a combination of the following conditions: people’s incomes are owned by the government or that taxes are spent wisely and efficiently by the political institutions that produces net productivity gains for the economy or that taxes are inviolable and sacred. All of which premises are false.

These people seem to forget that it is production that creates wealth. Taxes, which finances the coercive redistributive nature of governments-taking away resources from productive Pedro and giving these to non-productive Juan-leads not to prosperity but to entitlement and dependency. And these are hardly traits of a prosperous society but one of parasitism or feudal political society. Moreover, political distribution of resources triggers envy, and animosity (since politicians can’t please everyone) than from voluntary exchange.

So this represents not only a post hoc argument, but also one that is economically derelict.

Discriminatory Tax Laws

I’d like to add these articles represent as another example of misreading symptoms for the cause.

The articles hardly delve with how the nature of domestic politics has led to the current tax regime.

One, the gist of the problem of taxes is essentially government spending: the more the government spends, the more taxes would need to be raised sometime in the future. There is no way out. Thus the solution isn’t a ‘voluntary lifestyle check’ but to cut or reduce government spending. You can’t have both. Redistribution has its limits, as currently evidenced by the ongoing debt crisis in Greece. The laws of economics or scarcity ensure this. There is no free lunch.

Next, if we take a look at the roster of Philippine elite classes, many of them appear to have achieved their privileged status from political connections as manifested by monopolies, cartels, guarantees, government contracts, and other political based concessions. This postulates that many of the present laws had been erected to ‘protect’ these politically favoured private institutions from competition.

Alternatively this implies that because of the patron client nature of our political economy then obviously arbitrary laws are likewise subject to discretionary, if not political, interpretation in the implementation of these laws. Hence, these entities can afford “to get top notch tax accountants” to negotiate and strike a deal with BIR examiners, rather than be at their “mercy”.

In other words, these laws were set up precisely for such goals—to protect the interests of the favoured political economic class via legal anti-competition roadblocks and to extract added benefits via legal loopholes...where only the politically favoured parties will benefit at the expense of society. We call this crony capitalism.

At the end of the day, it’s easy to prop up a strawman or a fall guy or to blame the dearth of virtuosity on the economic elites for present government woes.

While the economic elites may not be entirely irreproachable, as many of them have formed unholy unions with the political class and has been instrumental in the institutionalization of these partisan and discriminatory laws (as lobby groups), they are not mainly responsible for the incentives provided by these laws or regulations that serve as the backbone for the operating tax regime.

Yet playing up the rhetoric of political class wars, from these sham representation of inequality, would be a popular way to connect with people who lack the understanding of how economics work.

A timely and pertinent reminder on systematic legal plunder from abusive laws, from the great Frederic Bastiat,

“Nothing can enter the public treasury for the benefit of one citizen or one class unless other citizens and other classes have been forced to send it in. If every person draws from the treasury the amount that he has put in it, it is true that the law then plunders nobody. But this procedure does nothing for the persons who have no money. It does not promote equality of income. The law can be an instrument of equalization only as it takes from some persons and gives to other persons. When the law does this, it is an instrument of plunder.

With this in mind, examine the protective tariffs, subsidies, guaranteed profits, guaranteed jobs, relief and welfare schemes, public education, progressive taxation, free credit, and public works. You will find that they are always based on legal plunder, organized injustice.”

Inequality isn’t mainly about greed of the marketplace, instead it is about greed for the power by political personalities and their followers using the marketplace as an excuse or justification to expand or usurp power. All the rest are gullible victims of their illusory propaganda.

Will A Ban on ‘Texting While Driving’ Reduce Accidents?

In examining accidents, the intuitive response by policymakers is to look at the immediate cause and subsequently apply restrictions on it.

And this applies to “texting while driving”, where the underlying belief is--just ban ‘texting while driving’ and accidents will go away.

Simple antidote right?

Well, a study demonstrates that this socialist “feel-good-to-do-something-about-it” policy is nothing but nonsensical fairy tale, with even more vicious consequences (other than restricting one’s liberty).

From the Cleveland Leader, (bold highlights mine) [Hat tip: Professor Don Boudreaux]

Laws that ban the practice of texting while driving are designed to keep drivers' attention on the road and avoid accidents, but new research published Tuesday by the Highway Loss Data Institute suggest otherwise. Laws banning texting while driving may actually increase the risk of road crashes, according to the study.

The HLDI research showed that crash rates rose in three out of four states after texting bans were implemented

Adrian Lund, president of HLDI and the Insurance Institute for Highway Safety says:

"Texting bans haven't reduced crashes at all. In a perverse twist, crashes increased in three of the four states we studied after bans were enacted.

It's an indication that texting bans might even increase the risk of texting for drivers who continue to do so despite the laws."

Lund added that the findings "call into question the way policymakers are trying to address the problem of distracted driving crashes", and said that the increased crash rates were due to drivers responding to the regulations by moving their phones lower down and out of sight when sending a text. This increases the risk of a crash because the driver's eyes are diverted further from the road and for a longer time.

So, the unintended consequences appear to be worse than the desired the goal of reducing accidents or that the costs of the policy seems greater than the intended benefit.

So what’s wrong with the policy?

It basically overlooks human response to circumvent or go around regulations.

Of course, there are other possible ramifications: this law could be used to harass the public, increase the incidence of extortion and corruption, increase taxpayer costs of applying the law (bureaucracy), selective implementation of the law, curtail personal liberty and etc…

In short, the end does NOT justify the means.

Unintended Consequences Of America's Foreign Policy: Hydra Of Warlordism

Given the recent political controversy which resulted to the resignation of General Stanley A. McChrystal as commander of the US and coalition forces in Afghanistan, we came across an interesting insight which reveals of the unintended consequences from America's Afghan policy...the hydra of warlordism has been a product of American policies!!!

This from CATO's Malou Innocent. (Bold highlights mine)

The New York Times reports that congressional investigators have found mounting evidence that “American taxpayers have inadvertently created a network of warlords across Afghanistan who are making millions of dollars escorting NATO convoys and operating outside the control of either the Afghan government or the American and NATO militaries.”

The Financial Times broke this story back in March. But their most startling discovery was that after nearly a decade at war in Afghanistan, Washington still has no clue as to who its true enemies (and allies) are.

Many Americans would be surprised to learn that some prominent Afghan officials are in fact saboteurs of America’s presumptuous and dangerously quixotic nation-building endeavor, instituting policies that feed the insurgency’s momentum in order to get more economic assistance from the coalition. America’s Ambassador to Kabul, Karl W. Eikenberry, said as much last November. Eikenberry warned (of course, to no avail), that Afghan President Hamid Karzai, “continues to shun responsibility for any sovereign burden. . .He and much of his circle do not want the U.S. to leave and are only too happy to see us invest further.” [Emphasis added]

Karzai knows very well that once the conflict ends, his open aid spigot will dry up. Indeed, Karzai has become notorious for replacing and undercutting people in his government who become too well-liked and “clean,” fearing these officials will become more popular than himself. Such double-gaming leads us to Karzai’s younger half brother, Ahmed Wali Karzai.

I guess the US haven't learned from their regrettable experience with Osama Bin Ladin who allegedly had been an erstwhile ally of the CIA.

Maybe learning isn't the right word or phrase, maybe promoting vested interest is.

The huge amount earmarked for military expenditures seems like a compelling incentive for vested interest groups and the political bureaucracy to sustain such 'imperialist' policies in spite of the tremendous costs (needless deaths and corruption of society). As these signify political control over money and power.

Yet we are reminded of former US president Dwight Eisenhower's warning in his farewell speech, where he said,

"we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together."

Why 'Computer In Every Home' Won't Work

Because computer use is highly dependent on the individual.

This from the Wall Street Journal, (bold highlights mine)

``Giving laptop computers to students in fifth through eight grades to take home seems like an appealing idea. But economists Jacob Vigdor and Helen Ladd of Duke University’s Sanford School of Public Policy says it seems to reduce their scores on math and reading tests.

``The researchers looked at the questionnaires filled out by public school students in North Carolina — nearly 1 million of them between 2000 and 2005 — in which students report time spent on homework, time spent watching TV, time spent using home computers for homework as well as other data to gauge broadband access to their homes, which expanded substantially in those years.

“Students who gain access to a home computer between fifth and eighth grades tend to witness a persistent decline in reading and math tests,” they conclude. The effect is modest, they say, but statistically significant. Other studies, they say, are finding similarly discouraging results.

``One hypothesis: Broadband access crowds out time spent on homework. (You don’t need a Ph.D. to come up with this one.) “Internet service, and technology more broadly, is put to more productive use in households with more effective parental monitoring of child behavior.”

Bottom line: Individual incentives matter. Therefore, legal mandates to have computer in 'every home' risks a backfire: educational levels and productivity advancement could be jeopardized based on the dominant non-productive use of computers, and secondly, it's a waste of taxpayer money.

Unintended Consequences From Europe's Agricultural Subsidy

This is another example of the unintended effects from market distorting regulations.

From the New York Times

(all bold highlights mine)

``Call it the mystery of the European sugar triangle.

``It began when Belgian customs officials examined shipping records for dozens of giant tanker trucks that outlined an odd, triangular journey across Europe. The trucks, each carrying 22 tons of liquid sugar, swung through eight nations and covered a driving distance of roughly 2,500 miles from a Belgian sugar refinery to Croatia and back — instead of taking the most direct, 900-mile route.

``Along the way the trucks made a brief stop in Kaliningrad, a grim and bustling Russian border checkpoint on the Baltic Sea.

``Suddenly the sugar triangle made sense to them. Because Russia, and not Croatia, was listed as the intended destination, the shipments qualified for valuable special payments known as export rebates from the European Union’s farm subsidy program.

``Some 200 shipments roared along this route over a three-year-period, investigators say, earning 3 million euros in refunds (about $4.5 million) for the Belgian sugar maker Beneo-Orafti. In the spring, dozens of Belgian and European investigators raided the company’s offices, freezing half of its refunds and initiating an investigation that could cost the company the remaining 1.5 million euros, and possibly more. In the sprawling European subsidy program — which lavishes more than 50 billion euros ($75 billion at current exchange rates) a year in agricultural aid — no commodity is more susceptible to fraud, chicanery and rule-bending, experts say, than simple household sugar."

Regulatory arbitrage according to wikipedia.org is "where a regulated institution takes advantage of the difference between its real (or economic) risk and the regulatory position".

Simply put, where some people try to profit from regulatory loopholes. The New York Times call this "cookie jar waiting to be pilfered"

Additional notes from the article:

-impact of price control via subsidies...

``Critics have long said that Europe’s subsidy system distorts the market, skewing competition and driving up prices. That is especially true for sugar, which in Europe has traded at roughly double the world market rate for almost two decades. European sugar prices are the highest per capita of any region in the world and about 20 percent higher than in the United States.

-failed goals

``But investigators say that fraud and rule-bending also contribute significantly to higher costs, because of the millions lost in uncollected revenue and in the payment of undeserved subsidies."

-spawns illegal activities...

``In addition, there are continuing investigations in Germany, Hungary and Belgium into cartel activity aimed at fixing prices and dividing up customers and territory."

``Perhaps the most common scheme used to game the system is to mix in cheap cane sugar from abroad with European beet sugar, which lowers production costs and increases volume. Companies doing this often falsely declare the country of origin for the sugar, which is illegal.

-producers confused with the bureaucratic maze...

``Sugar companies claim their activities are misinterpreted because they are governed by a byzantine European Union system that invites confusion. “It’s very complicated” and difficult for anyone to understand, said Dominik Risser, a spokesman for the Südzucker Group, a German company that is the industry giant in Europe and owns 40 factories in 10 nations, including those of Beneo-Orafti.

-producers or traders devise schemes to evade or circumvent regulations and taxes

``The mixing schemes extend into exotic hybrids — sugar mixed with dashes of tea and cocoa. By doing this, exporters can declare their products processed foods, and thus pay lower customs fees or avoid them altogether."

All these translates to a failure of policy or regulations.

Let me add that such distortive regulations will further put a strain on the global food supply chain as monetary stimulus from global central banks gains more traction, heightening the risks of a food crisis.

It's time to abolish such subsidies.

Food Crisis Watch: Sugar On Fire- Writing On The Wall?

Sugar prices have been on fire.

According to the Economist, ``THE price of sugar is higher than at any point in 27 years, having risen much more than prices of other food in recent months. The cause appears to be a huge drop in sugar production in India, the world's second-largest producer. In the 2007-08 season India's output was 28.6m tonnes of sugar, but this year production is estimated to fall to 16m tonnes. Indian farmers planted less sugarcane last year after sugar prices fell, partly in response to a ban on exports. A weak monsoon also threatens this year's production. Indians are also the biggest consumers of the sweet stuff: in 2008, they used 24.3m tonnes, nearly 15% of global demand. A decline in Indian production means that it will import more, driving up international prices. India's government has lifted its export ban, but production is unlikely to meet demand before 2011."

So the unintended effects from government policies to curb exports and weather appears to be the "seen" culprit.

But as you would probably notice, the Economist food price index have likewise been creeping higher but at a much subdued clip relative to sugar prices.

I would add that sugar's accelerated price movement came about as stock markets globally surged. This implies of some correlation-loose monetary environment plus fiscal policies may have likely been principal factors too.

Nonetheless here is Jim Roger's take on sugar.(emphasis added)

``Sugar –even though it is at a 28 year highs, you would probably know it is down 70% from its all time high. So sugar is still very depressed on any kind of historic basis and I suspect it will go higher. The last time we had a bull market in sugar in 70s, if you would remember there was no biofuel - that is a huge new element of demand now and most of Asia was not involved in the sugar market in any big way back in the 70s. But now Asia is prospering and there are 3 billion people trying to have a better life and most people when they get more prosperous, use more sweets. So you have big elements of demand in sugar now that you did not have in the last bull market. I wouldn’t sell sugar, I don’t know if it is going to go up in the next week or the next month but I am certainly expecting sugar to go much higher during the course of the bull market over the next several years.

It won't be just sugar though...

Jim Rogers anew, ``food inventories are at the lowest they have been in decades – not lowest in months or years but in decades. There is a very good chance that we are going very serious explosions in the price of food because we may have no food at any price if we continue to have weather problems. Yes you are having some monsoon problems in India but the rest of the world still hasn’t had bad weather. If we start having serious weather problems around the world as we have had many times in history, the price of food is going to skyrocket because there are no inventories and there is no productive capacity."

Ergo, The price spike in sugar could be the proverbial "shot across the bow".

As we noted in Chart: Global Food Price Inflation

``Many factors that gives rise to these disparities, aside from monetary and fiscal policies (taxes, tariffs, subsidies, etc...), there are considerations of the conditions of infrastructure, capital structure, logistics/distribution, markets, arable lands, water, soil fertility, technology, productivity, economic structure and etc.

``Our concern is given the present "benign state of inflation", some developing countries have already been experiencing high food prices, what more if inflation gets a deeper traction globally? Could this be an ominous sign of food crisis perhaps?"

Filipinos Killed In Afghan Chopper Crash Manifestation Of Failed Migration Policies

The recent deaths of 10 Filipinos in a helicopter crash in Afghanistan is a conspicuous example of the failed policy of migration controls.

This from the Associated Press (bold highlights mine) ``Ten Filipino workers were among the civilians killed in a helicopter crash at NATO's largest air base in Afghanistan, officials said Tuesday.

``All 16 people aboard the Russian-owned civilian Mi-8 helicopter died Sunday when it slammed into the tarmac at Kandahar Air Base shortly after takeoff....

``The Philippines has banned its overseas workers from Afghanistan, but many still end up employed at military bases there.

``A Filipino carpenter at Kandahar Air Base was killed in a rocket attack in March.

``The Filipinos killed Sunday had been working at the NATO base for several years. They did not return to the Philippines because the government had imposed a ban on travel to Afghanistan, the head of the Overseas Workers Welfare Administration, Carmelita Dimzon, told the Philippine Star daily"...

``Last week, Manila airport authorities intercepted 13 workers bound for Afghanistan. Vice President Noli de Castro said they had been recruited illegally as carpenters, plumbers and electricians at the Kandahar base for a monthly salary of $1,300 — about 10 times what they would make back home...

``Apart from Afghanistan, Filipino workers are not allowed to seek jobs in Iraq, Lebanon and Nigeria. About 6,000 were thought to be working illegally at military bases across Iraq.

Another from the Philippine Inquirer,

``[Philippine Vice President] De Castro agreed with the OWWA that the fatalities were not entitled to full benefits from the government for being undocumented workers.

``However, he said the DFA and the Department of Labor and Employment (Dole) would follow up their benefits from their employers...

``Asked why the Filipino workers were lured to work in this war-torn country despite the deployment ban, De Castro said it could be due to the withdrawal of American forces from Iraq.

“The problem is the concentration of jobs has shifted to Afghanistan because Americans are withdrawing from Iraq,” he said, adding that most of the foreign workers in Afghanistan were employed by US bases and NATO.

``He said the Task Force on Illegal Recruitment, which he heads, has decided to go after the recruiters of the Filipino fatalities."

Our comments:

-the ban on the deployment of Overseas Filipino Workers to places considered as dangerous has not stopped or prevented local laborers in search of "greener pastures" in spite of the increased risks.

This means OFWs in prohibited areas had opted on their own accord to assume security risks in exchange for higher pay.

-It also exposes the impossibility to control people's desire to seek ways to improve one's well being, aside from exposing institutional inefficiencies despite the tomes of regulations and maze of procedures aside from charges and fees slapped on OFWs allegedly for their supposed benefits.

-Because there is a demand for our OFW, a labor black market has emerged.

-And if the demand for local labor in high risk places comes mostly from official institutions as the US or NATO military bases then all the directives to contain illegal recruitment seems like a pretentious witchhunt.

Our regulators appear barking at the wrong tree! Official channel coordination and not a ban should be the answer.

-So instead of helping aggrieved OFWs, the ban has only deprived OFWs of the so called death benefits.

Government policies designed to help the OFW turn out to only punish them.

Some Unintended Consequences from Environmental Politics

Environmentalism today has morphed into a fad (yes...a frothy bubble) such that rampant imposition of regulations have led to undesired consequences.

And here we find some examples of the harmful side effects.

1. A ban on lead toys have halted sales of bikes and threatens a change in behavior of children...

From USA Today (all bold highlights mine) , ``A new federal law aimed at protecting children from lead in toys has also forced a nationwide halt in sales of off-road motorcycles and recreational vehicles built for young riders, killing off a multimillion-dollar industry that was thriving despite the recession.

``Thousands of powersports dealers were told to halt sales of vehicles designed for children 12 and younger because of new lead restrictions in an act of Congress that took effect Feb. 10....

``With the motor vehicle industry already hurting from recession, he said the ban means a 20% drop in sales of youth off-road motorcycles and the parts business for bikes already sold...

``The ban will have repercussions economically.

``The Motorcycle Industry Council estimates nearly 100,000 youth bikes were sold in the USA in 2008, though some were aimed at kids 13 and older and not covered by the ban. Dealernews, an industry trade publication, estimates that the value of inventory at U.S. dealers that can no longer be sold probably exceeds $100 million...

``Most cycles and ATVs are made overseas, but there are tens of thousands of jobs attached to the industry here. More than 13,000 powersports dealers sell products in the United States, according to the Motorcycle Industry Council, employing an estimated 124,000 people. Vitrano says the industry estimates the retail market value for all off-road cycles and ATVs is $14.5 billion a year, including sales, service, parts, accessories and payroll.

``Vitrano says the ban will have a perverse effect: Rather than no longer riding, kids who can't get a cycle their size may hop on a bike made for older children or adults — one inappropriate and dangerous for a smaller child...

``The economy notwithstanding, enthusiasts say the ban needlessly kills a family-oriented sport where children ride with their moms and dads and, like other sports, can induce children to behave."

2. Biking Scheme Ruined By Theft

From BBC (bold highlights mine), ``A popular bicycle rental scheme in Paris that has transformed travel in the city has run into problems just 18 months after its successful launch.

``Over half the original fleet of 15,000 specially made bicycles have disappeared, presumed stolen.

``They have been used 42 million times since their introduction but vandalism and theft are taking their toll.

``The company which runs the scheme, JCDecaux, says it can no longer afford to operate the city-wide network.

``Championed by Paris Mayor Bertrand Delanoe, the bikes were part of an attempt to "green" the capital...

``City hall has recently agreed to pay towards the costs of replacing the stolen or trashed bicycles but is refusing to bail out the company.

3. Manipulating environments have led to baneful environmental imbalances...

From New Scientist (bold emphasis mine) , ``Good intentions have rarely gone so awry. When conservationists tried to save an island's birds by culling its feral cat population, they overlooked one critical consequence: rabbits. A new study reveals that removing just 160 feral cats triggered a boom in Macquarie Island's rabbit population from about 4000 in the year 2000 to 130,000 in 2006.

``The cats were shot as they had been preying on the island's burrowing birds. But the newly rampant rabbits have devastated vegetation over 40% of the island. Clearing up the mess is expected to cost at least $16 million, and it remains unclear whether the island will ever fully recover.A landslip in 2006 that badly damaged a penguin colony has been blamed on rabbit destruction of the vegetation.

``A World Heritage Site halfway between Australia and the Antarctic, the Macquarie Island case is a tragic demonstration of why agencies in charge of conservation need to analyse all aspects of an eradication programme. "We need a culture change," says Hugh Possingham of the University of Queensland in Brisbane, Australia. "It's a generalisation, but people who do environmental work are often adverse to mathematics, and so avoid quantitative risk assessments."

My additional comment: the late author Michael Crichton has a great exposition on why attempts to manipulate environment almost always ends up opposite to the desired goal/s; see our previous post Michael Crichton And The Complexity Theory.

4. Green Policies have recently instigated a man made disaster -Australia's bushfire which claimed 173 lives ...

From theage.com.au (bold underscore mine), ``ANGRY residents last night accused local authorities of contributing to the bushfire toll by failing to let residents chop down trees and clear up bushland that posed a fire risk.

``During question time at a packed community meeting in Arthurs Creek on Melbourne's northern fringe, Warwick Spooner — whose mother Marilyn and brother Damien perished along with their home in the Strathewen blaze — criticised the Nillumbik council for the limitations it placed on residents wanting the council's help or permission to clean up around their properties in preparation for the bushfire season. "We've lost two people in my family because you dickheads won't cut trees down," he said.

``"We wanted trees cut down on the side of the road … and you can't even cut the grass for God's sake."...

``Another resident said she had asked the council four times to tend to out-of-control growth on public land near her home, but her pleas had been ignored...

``Of all the speakers who addressed the meeting, it was Arthurs Creek CFA Captain David McGahy who got the most rousing reception.

``Choking back tears he told them: "I'm so terribly sorry. We desperately wanted to protect you but we couldn't. [my comment-too late the hero... officials have always been reactive]

``"In the cold analysis of light, it wouldn't have mattered if we'd have had 200 units here, all that would have happened is we would have ended up with a whole lot of dead firefighters. I've been at this game for about 40 years and I haven't experienced anything like that, not even remotely like it."

Ben O'Neill lays the blame squarely on socialism as to why such a devastating mishap occurred (all bold highlight mine),

``Because private ownership entails the right to control one's own property, and because some people may not wish to sacrifice their lives to prevent interference with local possums, environmentalists seek to achieve their goals through government ownership of land — land socialism. In this endeavor, they have been very successful. State forests, national parks, and other Crown land in Victoria make up approximately one third of the state but contributed four-fifths of the February 2009 bushfires. And as with all examples of land socialism, the situation in Victoria has created an incentive structure that has destroyed accountability, thereby exacerbating the disaster.

``As mere caretakers of public land, bureaucrats and local politicians are not liable for any loss caused by their mismanagement. Nor do they have any personal stake in its capital value. When property is destroyed due to their ineptitude and their enslavement to the philosophy of environmentalism, their savings are not in danger. If anyone is required to pay for compensation, it is taxpayers who have had nothing to do with the whole mess. For the local councilor or the state or federal politician, what matters is getting the green vote, showing how "environmentally conscious" they are, and placating all those green lobby groups and media darlings that might say nasty things about them if they don't toe the line."

My comment: Politicians secure the power to engage in environmental socialism but hasn't be held responsible for the acts of neglect or omissions or damages accrued to the society. The irony is it is the taxpayer who suffers...as the victim (of the consequences of these perverse laws) and likewise bears the onus of indemnification of the victims.

The last word comes from Lew Rockwell who diagnosed the California bushfire in 2003 (as quoted by Ben O'Neill),

``What went wrong? The problem is in the theory of environmentalism. Under it, ownership is the enemy. Nature is an end in itself. So it must be owned publicly, that is, by the state. The state, in its management of this land, must not do anything to it. There must not be controlled burning, brush clearing, clear cutting, or even tourism. We can admire it from afar, but the work of human hands must never intervene.

``Then the brush begins to gather. It piles higher and higher. Old growth rots. Uncontrolled growing leads to crowding. When the weather gets hot the stuff combusts. Then the winds blow and the fires spread. It's been the same story for several decades now, ever since the loony theory that nature should be left alone took hold."

Lesson: the laws of nature eventually overwhelm human intervention.

The Transitioning Political Phase: Shadows of Smoot Hawley and Financial Crisis Claims First Government-Belgium

We are now entering into the political phase of the current global crisis.

To begin with, the modern day version of the Smoot-Hawley Act seems to be in the process of resurrection.

This from Washington Post (bold highlights mine),

``Only a few weeks after world leaders vowed at a Washington summit to reject trade protectionism and adhere to free-market principles as they combat the global financial crisis, a host of nations are already breaking that promise.

``Moving to shield battered domestic manufacturers from foreign imports, Indonesia is slapping restrictions on at least 500 products this month, demanding special licenses and new fees on imports. Russia is hiking tariffs on imported cars, poultry and pork. France is launching a state fund to protect French companies from foreign takeovers. Officials in Argentina and Brazil are seeking to raise tariffs on products from imported wine and textiles to leather goods and peaches, according to the World Trade Organization.

``The list of countries making access to their markets harder potentially includes the United States, where critics are calling the White House's $17.4 billion bailout of the U.S. auto industry an unfair government subsidy that would put foreign competitors at a disadvantage.

``Though still relatively narrow in scope, the moves, observers warn, in the coming months may grow into a broader wave of protectionism. That could worsen the global financial crisis by further choking world trade, which is already facing its first decline since 1982 as the world economy sharply slows and demand dries up.

``In hard times, analysts say, nations are more inclined to take steps that inhibit trade, often with dire consequences. Trade restrictions imposed by countries trying to protect domestic industries in the 1930s, for instance, escalated into a global trade war that deepened and prolonged the Great Depression.

``Exporting firms tend to be innovative, dynamic and capable of generating good job growth," said Eswar S. Prasad, a professor of trade policy at Cornell University and senior fellow at the Brookings Institution in Washington. "If trade restrictions caused by trade wars shut them down, their suppliers shut down, job losses get worse, and you can quickly have a spiraling downward effect on the entire economy."

``To be sure, most of the measures taken to date appear to be within the limits of current international trade treaties, which grant countries some room to raise tariffs and contain loopholes that can be exploited to protect domestic industries.

``But the general trend toward protectionism could undermine what has been the steady march of free trade during the era of globalization, with export-dependent countries such as China standing to lose the most."

So the unintended consequences of bailouts are partially contributing to such movement.

Next, we have national governments falling under the weight of the financial crisis.

Belgium is reportedly the first of the victim.

This according to the Financial Times, ``The Belgian government last night became the first national administration to fall as a direct result of events linked to the global financial crisis.

``Belgium's King Albert II formally accepted the resignation of the coalition government led by Yves Leterme, prime minister - but ordered it to stay on in a caretaker capacity to deal with "day-to-day" business.

The political ramifications of the crisis carries a big weight to trade, migration and capital flows dynamics, hence requires to be monitored.

For us, protectionism is one major threat or risk that can bring about the modern day version of the Great Depression.