By creating illusory profits and distorting economic calculation, inflation will suspend the free market's penalizing of inefficient, and rewarding of efficient, firms. Almost all firms will seemingly prosper. The general atmosphere of a "sellers' market" will lead to a decline in the quality of goods and of service to consumers, since consumers often resist price increases less when they occur in the form of downgrading of quality. The quality of work will decline in an inflation for a more subtle reason: people become enamored of "get-rich-quick" schemes, seemingly within their grasp in an era of ever-rising prices, and often scorn sober effort. Inflation also penalizes thrift and encourages debt, for any sum of money loaned will be repaid in dollars of lower purchasing power than when originally received. The incentive, then, is to borrow and repay later rather than save and lend. Inflation, therefore, lowers the general standard of living in the very course of creating a tinsel atmosphere of "prosperity."
Supermarket buyers and big brands have been driving down prices, seeking special offers on meat products as consumers cut back on their spending in the face of recession. The squeeze on prices has come at a time when manufacturers' costs have been soaring. Beef prices have been at record highs as has the price of grain needed to feed cattle. The cost of energy, heavily used in industrial processing and to fuel centralised distribution chains, has also soared. There has been a mistmatch between the cost of real beef and what companies are prepared to pay.
BEIJING — Chinese police have broken up a criminal ring accused of taking meat from rats and foxes and selling it as lamb in the country’s latest food safety scandal.The Ministry of Public Security released results of a three-month crackdown on food safety violators, saying in a statement that authorities investigated more than 380 cases and arrested 904 suspects.Among those arrested were 63 people who allegedly ran an operation in Shanghai and the coastal city of Wuxi that bought fox, mink, rat and other meat that had not been tested for quality and safety, processed it with additives like gelatin and passed it off as lamb.The meat was sold to farmers’ markets in Jiangsu province and Shanghai, it said.Despite years of food scandals — from milk contaminated with an industrial chemical to the use of industrial dyes in eggs — China has been unable to clean up its food supply chain.
The supreme court said 2,088 people have been prosecuted in 2010-2012 in 1,533 food safety cases. It said the number of such cases has grown exponentially in the past several years. For example, Chinese courts prosecuted 861 cases of poisonous food in 2012, compared to 80 cases in 2010.
This indifference to income distribution is all the more mysterious because pro-market thinkers generally support a theory of politics that tells us to watch out for ways the state can be used to create unjust privileges for some at the expense of others. We should expect the distribution of income to be skewed toward the politically powerful and away from the poor and politically weak. In a representative democracy “special interests” engage in “rent seeking” to get special favors. Those special favors enrich some at the expense of others. That’s what they are meant to do!Liberal political theory tells us to expect that sort of thing as a sort of disease to which the body politic is subject under representative democracy. Our presumption, then, should be that much of the inequality of any epoch is produced by tariffs, licensing restrictions, bailouts, and other specific acts of governments. Most of the time the game is rigged more or less. (The trick of constitutional design is to minimize this evil bathwater without tossing out freedom or democracy.) The more a society’s income distribution is determined by politics and not markets, the more it will be skewed away from whatever pattern would emerge in a less fettered market economy. And in general, that skew will be toward greater inequality. As the political component grows, we can expect power to be concentrated in fewer and fewer hands and income distribution be more and more unequal. If political power is growing, we should strongly suspect that some of the rich are using the state to squeeze money from most of the poor.
The biggest problem I have with the standard analysis of the minimum wage–on either side of the ideological divide–is that it shows a certain lack of imagination. It presumes that market forces work only on quantity and price. So that when legislation artificially raises price, the debate is over the impact on quantity–how many jobs will be lost (or gained if you’re on the other side.)But price and quantity are not the only way market forces work. And they are certainly not the only attributes of a job. There is how hard you have to work, how many breaks you get, how much training or mentoring or kindness. What amenities are in the workplace–snack bar, vending machine, nicely decorated walls and so on. When the government requires that wages be higher than what they would otherwise be, that creates an increase in the number of people who would like to work and reduces the number of opportunities available.Ironically, the minimum wage creates a reserve army of the unemployed. That in turn allows employers to be less thoughtful, helpful, and kind. It destroys the civilizing effect of competition by muting it. That encourages exploitation. It reduces the cost to employers of racism or cruelty. Before the increase, being obnoxious or racist made it much harder to find employees. A minimum wage makes it easier to indulge in bad behavior. The costs are lower. Before the minimum wage, a cruel, selfish employer might have had to mentor his employees or train them or be nice to them despite his nature. Now he won’t have to. He can still get workers to work for him. Even more cruelly, the minimum wage encourages workers to exploit themselves.
The fact is, the programs labeled as being “for the poor,” or “for the needy,” almost always have effects exactly the opposite of those which their well-intentioned sponsors intend them to have.Let me give you a very simple example – take the minimum wage law. Its well-meaning sponsors there are always in these cases two groups of sponsors – there are the well-meaning sponsors and there are the special interests, who are using the well-meaning sponsors as front men. You almost always when you have bad programs have an unholy coalition of the do-gooders on the one hand, and the special interest on the other. The minimum wage law is as clear a case as you could want. The special interests are of course the trade unions – the monopolistic trade craft unions. The do-gooders believe that by passing a law saying that nobody shall get less than $9 per hour (adjusted for today) or whatever the minimum wage is, you are helping poor people who need the money. You are doing nothing of the kind. What you are doing is to assure, that people whose skills, are not sufficient to justify that kind of a wage will be unemployed.The minimum wage law is most properly described as a law saying that employers must discriminate against people who have low skills. That’s what the law says. The law says that here’s a man who has a skill that would justify a wage of $5 or $6 per hour (adjusted for today), but you may not employ him, it’s illegal, because if you employ him you must pay him $9 per hour. So what’s the result? To employ him at $9 per hour is to engage in charity. There’s nothing wrong with charity. But most employers are not in the position to engage in that kind of charity. Thus, the consequences of minimum wage laws have been almost wholly bad. We have increased unemployment and increased poverty.Moreover, the effects have been concentrated on the groups that the do-gooders would most like to help. The people who have been hurt most by the minimum wage laws are the blacks. I have often said that the most anti-black law on the books of this land is the minimum wage law.There is absolutely no positive objective achieved by the minimum wage law. Its real purpose is to reduce competition for the trade unions and make it easier for them to maintain the higher wages of their privileged members.
One recent local environmental cause, especially popular in California, has been to ban or tax plastic grocery bags. The expressed hope is that shoppers will instead carry reusable grocery bags back and forth to the grocery store, and that plastic bags will be less likely to end up in landfills, or blowing across hillsides, or floating in water. The problem is that almost no one ever washes their reusable grocery bags. Reusuable grocery bags often carry raw meat, unseparated from other foods, and are often stored for convenience in the trunk of cars that sit outside in the sun. In short, reusuable grocery bags can be a friendly breeding environment for E. coli bacteria, which can cause severe illness and even death.Jonathan Klick and Joshua D. Wright tell this story in "Grocery Bag Bans and Foodborne Illness," published as a research paper by the Institute for Law and Economics at the University of Pennsylvania Law School. As their primary example, they look at E. coli infections in the San Francisco County after it adopted an ordinance severely limiting the use of plastic bags by grocery stores.
The gun battle in Atimonan town, Quezon province, that left 13 people dead on Sunday was the culmination of a three-month police operation approved by the Presidential Anti-Organized Crime Commission (PAOCC) headed by Executive Secretary Paquito Ochoa Jr.But Ochoa denied there was any mission order from the commission authorizing the police-military operation in Atimonan.The operation, code-named “Coplan Armado,” had only one target: Victor “Vic” Siman, operator of the numbers racket “jueteng” disguised as government-sanctioned Small Town Lottery (STL) in Laguna and Batangas provinces in southern Luzon…A Philippine Daily Inquirer source in the Philippine National Police described the 12 others killed in the alleged shootout between security forces and Siman’s group as “collateral damage.”
It is a maxim of the law that there can be no crime without a criminal intent; that is, without the intent to invade the person or property of another. But no one ever practices a vice with any such criminal intent. He practices his vice for his own happiness solely, and not from any malice toward others.Unless this clear distinction between vices and crimes be made and recognized by the laws, there can be on earth no such thing as individual right, liberty, or property — no such things as the right of one man to the control of his own person and property, and the corresponding and coequal rights of another man to the control of his own person and property.For a government to declare a vice to be a crime, and to punish it as such, is an attempt to falsify the very nature of things. It is as absurd as it would be to declare truth to be falsehood, or falsehood truth.
It is important to remember that government interference always means either violent action or the threat of such action. The funds that a government spends for whatever purposes are levied by taxation. And taxes are paid because the taxpayers are afraid of offering resistance to the tax gatherers. They know that any disobedience or resistance is hopeless. As long as this is the state of affairs, the government is able to collect the money that it wants to spend. Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.To draw attention to this fact does not imply any reflection upon government activities. In stark reality, peaceful social cooperation is impossible if no provision is made for violent prevention and suppression of antisocial action on the part of refractory individuals and groups of individuals. One must take exception to the often-repeated phrase that government is an evil, although a necessary and indispensable evil. What is required for the attainment of an end is a means, the cost to be expended for its successful realization. It is an arbitrary value judgment to describe it as an evil in the moral connotation of the term. However, in face of the modern tendencies toward a deification of government and state, it is good to remind ourselves that the old Romans were more realistic in symbolizing the state by a bundle of rods with an ax in the middle than are our contemporaries in ascribing to the state all the attributes of God.
One suggestion that has gained popularity in the post-crisis regulatory debate is a tax on financial transactions.Proponents suggest that the tax would raise revenues for governments (at a time when such revenues are badly needed) and curb the excessive speculation that contributed to the global financial crisis.In August 2012, France became the first eurozone nation in the wake of the financial crisis to implement such a tax, and so far, it's been a total failure.In an article for Risk.net, Hannah Collins explains that in France, the tax – which amounts to 0.2 percent on transactions involving buying or selling of shares of stock – is actually just shifting investors out of equities and into even riskier, more opaque products like derivatives and derivatives-based ETFs:Investors who own French shares are selling them and taking positions on them through derivatives instruments such as contracts for difference, structured products and ETFs, according to a Paris-based lawyer. "Most structured transactions remain outside the tax," he says. "It is due only if you have actually purchased the shares."In other words, instead of curbing excessive speculation, the tax is simply forcing those speculative activities into darker, less-regulated corners of the market.
“Soak the rich” socialist policies of French President François Hollande has been prompting many wealthy French citizens to consider the exit option
Reports the New York Times
The call to Vincent Grandil’s Paris law firm began like many others that have rolled in recently. On the line was the well-paid chief executive of one of France’s most profitable companies, and he was feeling nervous.
President François Hollande is vowing to impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. “Should I be preparing to leave the country?” the executive asked Mr. Grandil.
The lawyer’s counsel: Wait and see. For now, at least.
“We’re getting a lot of calls from high earners who are asking whether they should get out of France,” said Mr. Grandil, a partner at Altexis, which specializes in tax matters for corporations and the wealthy. “Even young, dynamic people pulling in 200,000 euros are wondering whether to remain in a country where making money is not considered a good thing.”
A chill is wafting over France’s business class as Mr. Hollande, the country’s first Socialist president since François Mitterrand in the 1980s, presses a manifesto of patriotism to “pay extra tax to get the country back on its feet again.” The 75 percent tax proposal, which Parliament plans to take up in September, is ostensibly aimed at bolstering French finances as Europe’s long-running debt crisis intensifies.
But because there are relatively few people in France whose income would incur such a tax — an estimated 7,000 to 30,000 in a country of 65 million — the gains might contribute but a small fraction of the 33 billion euros in new revenue the government wants to raise next year to help balance the budget.
The French finance ministry did not respond to requests for an estimate of the revenue the tax might raise. Though the amount would be low, some analysts note that a tax hit on the rich would provide political cover for painful cuts Mr. Hollande may need to make next year in social and welfare programs that are likely to be far less popular with the rank and file.
And class warfare politics has negatively affected business sentiment as well. Again from the same article,
Many companies are studying contingency plans to move high-paid executives outside of France, according to consultants, lawyers, accountants and real estate agents — who are highly protective of their clients and decline to identify them by name. They say some executives and wealthy people have already packed up for destinations like Britain, Belgium, Switzerland and the United States, taking their taxable income with them.
They also know of companies — start-ups and multinationals alike — that are delaying plans to invest in France or to move employees or new hires here.
Politicians and their apologists fail to realize that they are dealing with people who will respond adversely to their foolish repressive measures.
That's why there such a thing called the law of unintended consequences, or as per Wikipedia.org, used as an adage or idiomatic warning that an intervention in a complex system tends to create unanticipated and often undesirable outcomes
So far the concurrent panic in the peripheral crisis stricken Euro nations have been prompting for a stampede into French 10 year bonds. This despite the deteriorating fiscal conditions of the French government.
The French equity bellwether, the CAC, has also been in a rally mode since ECB President Draghi’s promise to do whatever it takes to save the Euro
Given the fluidity of events, current market actions may swiftly and drastically change.
And once the exodus of the wealthy French transforms into reality, then we should expect a selloff in both the bond and the equity markets.
Class warfare politics through taxing or soaking the rich serves only as camouflage to the real consequences—taxing everyone else including the poor, except for the political class—or myth of the Santa Claus Fund.
As the great Ludwig von Mises explained, (bold emphasis mine)
High surtax rates for the rich are very popular with interventionist dilettantes and demagogues, but they secure only modest additions to the revenue. From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by "soaking the rich," but that the burden must be carried by the masses. The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation and lavish spending have been carried to a point at which their absurdity can no longer be concealed. The notorious principle that, whereas private expenditures depend on the size of income available, public revenues must be regulated according to expenditures, refutes itself. Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will themselves have to foot the bill. The deficits of publicly owned and operated enterprises will be charged to the bulk of the population. [p. 858]
The situation in the employer-employee nexus will be analogous. The popular doctrine contends that wage earners are reaping "social gains" at the expense of the unearned income of the exploiting classes. The strikers, it is said, do not strike against the consumers but against "management." There is no reason to raise the prices of products when labor costs are increased; the difference must be borne by employers. But when more and more of the share of the entrepreneurs and capitalists is absorbed by taxes, higher wage rates, and other "social gains" of employees, and by price ceilings, nothing remains for such a buffer function. Then it becomes evident that every wage raise, with its whole momentum, must affect the prices of the products and that the social gains of each group fully correspond to the social losses of the other groups. Every strike becomes, even in the short run and not only in the long run, a strike against the rest of the people.
An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.
French class warfare politics essentially serves as the death warrant for the Euro.
While Filipinos have been dreaming of emigrating to the US and acquiring US citizenship, the number of wealthy overseas Americans giving up their citizenship have been ballooning, due to increasingly repressive tax laws.
From Bloomberg,
Rich Americans renouncing U.S. citizenship rose sevenfold since UBS AG (UBSN) whistle-blower Bradley Birkenfeld triggered a crackdown on tax evasion four years ago.
About 1,780 expatriates gave up their nationality at U.S. embassies last year, up from 235 in 2008, according to Andy Sundberg, secretary of Geneva’s Overseas American Academy, citing figures from the government’s Federal Register. The embassy in Bern, the Swiss capital, redeployed staff to clear a backlog as Americans queued to relinquish their passports.
The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a U.S. passport.
“It started with the fallout from UBS and non-U.S. banks feeling it’s too risky to deal with Americans abroad,” said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich. “It will increase because Fatca will require banks to track down people, some of whom will make voluntary disclosures before renouncing their citizenship.”
Renunciations are higher in Switzerland because American expatriates expect extra scrutiny of their affairs after the UBS case and as the U.S. probes 11 other Swiss financial firms for aiding offshore tax evasion, said Martin Naville, head of the Swiss-American Chamber of Commerce in Zurich.
This is another example of the law of unintended consequences at work. Worst, these could be symptoms to the road to serfdom.
The Wall Street Journal Wealth Blog writes,
To dig itself out of recession, Britain hiked its income-tax rate to 50% for those making £150,000 or more. Proponents said the tax was needed to bring fairness to an economy, in which the rich were getting richer and not contributing enough to the cause. Critics said the tax would chase out the job creators.
As it turned out, the real impact was in tax avoidance. According to the Chancellor of the Exchequer’s budget announced today, the income-tax hike caused “massive distortions” that cost the government.
A study found that £16 billion of income was deliberately shifted into the previous tax year. As a result, the tax raised only £1 billion – a third of the amount forecast.
This is another concrete example of a blowback of simplistic knee jerk policies embraced by the left.
In desperate attempts to raise revenues, the stereotyped recommendation by left leaning experts, which has often been adapted by politicians, has been to raise taxes.
They assume that people are like robots who will blindly comply with the regulations. They fail to understand that policies create incentives for people to act, particularly to circumvent on regulations whom they view as either undeserving or excessive.
And higher taxes, observes Cato’s Dan Mitchell, lower incentives to earn and report income, and lower tax rates increase incentives to earn and report income.
That’s exactly what transpired in UK. The response of the rich from higher taxes had been to use tax avoidance measures to withhold from paying more taxes. Common sense.
Unfortunately common sense is uncommon to people blinded by political self-righteousness
Prohibition laws, though popular, has not worked before and won’t work today, whether applied to alcohol, prostitution, drugs and etc, for the simple reason that demand and supply can’t be wished away by fiat.
Worst, applying prohibition signifies as the proverbial cure that is worst than the disease.
Apparently Guatemala’s President, Otto Pérez Molina, seems to see the light.
From Cato’s Juan Carlos Hidalgo, (bold emphasis mine)
It was going to happen sooner rather than later. Three years ago, a trio of former Latin American presidents denounced drug prohibition and called to “break the taboo” of discussing policy alternatives such as drug decriminalization. Then, a few months later, we had a former Mexican president calling for outright legalization. Late last year, a sitting Colombian president said that he would favor drug legalization “if the rest of the world does it too.” This weekend,a sitting Guatemalan president said he will propose drug legalization for Central America in an upcoming regional summit.
Otto Pérez Molina thus becomes the first sitting head of state to propose ending the war on drugs. Being a conservative former general who ran on a platform of fighting crime with “an iron fist,” Pérez Molina is an unlikely champion of sensible drug policy reform. As he described it, under his proposal “It wouldn’t be a crime to transport, to move drugs. It would all have to be regulated.” Pérez Molina says that with legalization, “you would get rid of money-laundering, smuggling, arms trafficking and the corruption that has crippled judges, police forces and entire government institutions, not only in our country but in the region.”
Central America is one of the hottest battlegrounds in Washington’s hemispheric war on drugs. Guatemala, along with neighboring Honduras, El Salvador and Belize, are among the most violent countries in the world. Most of the violence stems from turf wars between juvenile gangs, but Mexican drug cartels are increasingly escalating it as they extend their influence and operations in the region.
As Pérez Molina said, Central America’s biggest liability in its fight against organized crime is its institutional weakness. Judges, policemen, politicians, and soldiers are easily corrupted by cartels. Despite increasing their security budgets by 60% in the last five years, Central American countries spent approximately $4 billion in 2010 on security and justice. This amount dwarfs with the estimated $25-35 billion that Mexican cartels—who run the drug business in Central America—pocket every year.
Institutional corruption has been a major unintended effect from the war on drugs.
As economist Mark Thornton explains,
In general, however, prohibition results in more, not less, crime and corruption. The black markets that result from prohibitions represent institutionalized criminal exchanges. These criminal exchanges, or victimless crimes, often involve violent criminal acts. Prohibitions have also been associated with organized crime and gangs. Violence is used in black markets and criminal organizations to enforce contracts, maintain market share, and defend sales territory.
The crime and violence that occurred during the late 1920s and early 1930s was a major reason for the repeal of Prohibition (Kyvig 1979, 123, 167). The nondrug criminal activity of heroin addicts has been associated with the economic effects of prohibition laws and is viewed by Erickson (1969) and others as a major cost of heroin prohibition.
Corruption of law-enforcement officers and other public officials is also a familiar manifestation of prohibited markets. Experience with prohibition has shown it to be a major corrupting influence. The corruption of the Prohibition Bureau proved to be a major stumbling block to the effective enforcement of Prohibition and was also cited as a reason for repeal. Most important, this corruption penetrates beyond the enforcement bureaucracy to government in general.
Recent experience has shown that worldwide multidrug prohibition is a major corrupting force in several national governments, such as Colombia and Mexico.
Corruption is a natural side-effect from interventionism.
Yet there are three ways to deal with the drug menace: prohibition, education and rehabilitation-therapy.
Since prohibition predominantly fails, then the next two options would provide for better alternatives: focus on education and rehabilitation.
The nanny state wants to control even our diets. They pretend to know what is best for us.
But each time they do so unintended consequences arise.
From NY Daily News, (hat tip Dan Mitchell)
A pair of slippery smugglers were busted in Norway looking to peddle an illicit contraband - butter.
The two men, who snuck into the country from Sweden, were arrested with about 550 lbs of butter divided into 18-ounce packets, the Norwegian daily newspaper Adresseavisen reported.
They were nabbed Saturday, and both admitted to churning up the scheme, authorities said.
So in effect, Norway’s high tariff on butter prompts some people to engage in smuggling. In short, the government’s “social engineering” regulations creates criminals. This another noteworthy example of the corrupting effect of repressive/arbitrary laws.
Worse, the shortage of butter have made many Norwegians ‘bitter’ to the point that lawmakers are considering a temporary easing of high tariffs, as shown in the video below from Al Jazeera.
I'd further say that any backtracking or implied retreat by Norway's government may eventually lead to its liberalization, a sign of government failure.
From the MSN.com
President Benigno Aquino on Monday fought off accusations that he was partying with starlets as the Philippines was mourning hundreds of people killed by a storm.
The presidential palace said Aquino briefly stopped by the traditional Christmas party of his elite security group at their compound on Sunday to show gratitude for their services.
"The president stayed for a little over 30 minutes. But he did not go up on stage, he did not sing, he did not dance. There was no partying," the head of the presidential security group, Colonel Ramon Dizon, said in a statement.
Tropical storm Washi hit the southern island of Mindanao at the weekend, spawning swollen rivers, flash floods and landslides which left 652 dead with hundreds other missing, according to Philippine Red Cross figures.
Reports of Aquino's alleged partying spread after a local TV actress and show host, Valerie Concepcion, said in her Twitter account that she met Aquino at the party, where she performed for the troops and their families.
Concepcion said Aquino laughed at her jokes and enjoyed her performance, triggering a wave of criticism directed at both.
The 51-year-old bachelor president, who comes from one of the country's richest landowning clans, had previously been linked to female celebrities and was once criticised for buying a Porsche sports car, which he has since sold.
My comments:
1. I told you so.
2. While I am very sympathetic to the unfortunate victims of the disaster, mainstream media foolishly makes it appear that events like this function as the only political priority. They make the public expect of excessive maudlinness or overreaction from officials. Policymaking for them, thus, has mechanically been demonstrated as perpetually attempting to please public sentiment reactively.
That’s why many Filipinos end up chasing their own tail—many, if not most, don’t really know what to expect from politicians except for political melodramatics which ultimately ends up frustrating them.
Understand that politicians will HARDLY deliver us from the terrible toll of natural calamities; to the contrary more interventionism, which have been the key cause, will likely worsen such conditions.
Notes the Inquirer,
The absence of a flood warning, high tide, darkness and a false sense of security proved disastrous for people of northern Mindanao when Tropical Storm “Sendong” came over the weekend.
Add illegal logging, rapid urbanization and mining, and the result was deadly for residents of Cagayan de Oro and Iligan cities, government and Red Cross officials said.
This represents as very naïve ex-post account of what has happened.
This assumes that had been none of the above activities occurred, the current fatalities and damages wouldn’t have happened. This is simplistic and sloppy thinking. In reality, this simply isn’t so.
Unknown to the author is that illegal logging activities globally, for instance, have been mainly caused by poverty and by the tragedy of the commons where effected arbitrary laws in response to such problems, has exacerbated the incidences of these activities and engendered other untoward consequences such as more corruption, organized crimes, human rights abuses and etc….
The application of conventional prohibition laws, which tramples on property rights, represents as typical example of applying a cure which is worst than the disease.
In other words, poverty brought about by excessive regulations, the lack of trade opportunities, and or the politicization of local economics has spawned these “illegal” activities and thereby the ensuing environmental degradation.
Poor people care about their day to day survival and not the environment.
Thus the said effects has flagrantly been misread by media as the cause, and thus dumbing down their gullible audiences.
So if the political reactive response will be to curb on these activities, we eventually end up with more of what we least desire. This would represent as the law of unintended consequences.
Instead, as seen in other countries, economic freedom has vastly mitigated the destructive effects of natural calamities. Wealthier people are likely to undertake protective measures for themselves, their families and the community regardless of government actions.
Bottom line: Keeping people poor and politically dependent is a guaranteed recipe for prospective victims of natural catastrophes.
Next as I have argued before, ALL public officials are HUMAN BEINGS. This means that as humans (and not a quasi-deity whose popular delusions has been promoted by media), their actions will be dictated by personal values and preferences.
Alternatively this exposes the myth about good government. There is no such thing as good government whose employment of organized violence will always be politically motivated benefiting a few at the expense of the rest. Despite all the idealistic blarney by media, politics has not been about serving the public (hahaha!) but of the self-interest of the political leaders and their allies, followers and cronies (insider-outsider dynamics).
Lastly, more “compassionate” overreactions actions by political authorities will extrapolate to more corruption and inefficient use of resources which leads to massive wastage and higher taxes and or inflation in the future.
This subsequently translates to more poverty and the same set of troubles in the future.
Does the politically connected mainstream media ever account for why, after all these years and all the changes in political stewardship, we get the same set of problems?
Good government? Duh!
Bush-Obama price controls have led to a shortage in cancer drugs.
That’s according to the Wall Street Journal editorial
Shortages have more than tripled since 2005, according to the University of Utah's Drug Information Service, and by the end of the year more than 300 products are likely to be back-ordered, in short supply or totally unavailable. Some are anesthetics and pain therapies, others emergency room "crash cart" drugs. But most—about 70% in 2010—belong to the class of drugs known as "sterile injectables" that are mainstays of the chemotherapy arsenal, such as paclitaxel or cytarabine.
The result is that more and more patients are receiving substandard care—relying on less effective or more expensive substitutes or else forced to postpone treatment. In oncology, delays of weeks or even days can be fatal.
Most sterile injectables have been off-patent for decades, but unlike other cheap generic drugs with low profit margins, production is complex and requires special facilities. Nonetheless, George W. Bush and the Republican majority decided that Medicare was "overpaying" for these cancer drugs and included a 6% cap on price increases every six months in the 2003 prescription drug bill. These new price controls (which apply to the providers that purchase the drugs) took effect in 2005, when the shortages began.
In a rational market, sterile injectable prices would now be rising to encourage more supply, since the demand for cancer drugs is inelastic. The old reimbursement system, called "buy and bill," was imperfect, but at least it allowed prices to float and wasn't producing the scarcity that central planning always does. The sterile injectables that are in short supply currently sell for $37.88 a dose on average, and modest price increases could make the market economic.
The problem is compounded because Food and Drug Administration rules cause pointless delays. It takes as long as two and a half years to receive FDA manufacturing approval for a generic, so other drug makers can't ramp up production if a company cancels a product line due to these disincentives or even if the fragile supply chain for sterile injectables is contaminated and manufacture is delayed.
This should serve as another evidence of the economic infeasibility of political policies cloaked with noble intentions that eventually succumbs to the laws of unintended consequences.
And another important lesson exhibited from the above is that the whims of politicians via edicts or by fiat cannot and will not ever subvert the laws of economics.
In short, the political therapy is worse than the misdiagnosed disease.
Failed repeated attempts to politicize economics has posed as a vicious cycle that had been experimented for the last 40,000 years (Professor Thomas DiLorenzo has a synopsis here).
This means that people have never learned from history. And that people simply get mesmerized and tolerate political insanity or doing the same things over and over again yet expecting different results.
I’d say that political insanity seems far worst in many aspects in the Philippines but maybe not as much as in the healthcare sector yet.
From Yahoo
On Oct. 1, consumers in Denmark saw a sudden jump in the cost of many of their favorite bread-friendly products. The average price of a half-pound package of butter increased by 2.5 krone (or 45 U.S. cents). A pound of cheese rose from 34.5 krone ($6) to 36 krone ($6.50). And don't even think about lard. In a single day, the cost of a half-pound block of pork fat skyrocketed from 12 krone ($2.15) to 16 krone ($2.85) — a 35% increase. Thanks to a new fat tax, Danes are paying more for just about anything they might want to slather on a piece of bread.
Other countries have imposed tariffs on food and drink considered unhealthy, but Denmark is taking the "fat tax" appellation literally. In the name of reducing cardiovascular disease, obesity, and diabetes, the law that went into effect on Saturday specifically targets saturated fats — the fats found most commonly in animal products like butter, cream, and meat. But few outside the government seem to think it's a good idea — or even a healthy one.
Social engineering policies like the above, which attempts to “nudge” people’s behavior, are expressions of how political leaders think of us. They see as incorrigible idiots who don’t know what is the best interest for ourselves. They essentially are imposing their value preferences on us.
While waging war against the 'fat' or 'obese' seems noble sounding, the unintended consequence is to politically stigmatize people who are ‘fat’ or ‘obese’. In short, such paternal nudging policies promote discrimination and societal divisiveness. Shouldn’t we also tax skinny people too who may also signify as health hazards?
The other unintended effect has been to raise consumer prices which affects not only the fat but even the non obese. So the social costs of rectifying such aberrations will unfortunately befall to everyone.
Social engineering policies signify as slippery slope or incremental steps towards total control of people—a totalitarian state.
As Ludwig von Mises wrote,
The "social engineer" is the reformer who is prepared to
"liquidate" all those who do not fit into his plan for the arrangement of human affairs.
On the other hand, the welfare state, whom have increasingly been burdened by financial strains as a result of the ballooning of the unsustainable system, has been using such ‘sin taxes’ as pretext or as propaganda to raise funds in order to maintain or preserve on the privileges of the political class.
Here is an example of how discriminatory laws can adversely affect people’s relationship.
This from the New York Times, (bold emphasis mine)
Millions of Chinese women, and some men, woke on Aug. 13 to discover their spouse had, in effect, become their landlord.
On that day, the Supreme Court’s new interpretation of the 1980 Marriage Law came into force, stipulating that property bought before marriage, either outright or on mortgage, reverted to the buyer on divorce. Previously, the family home had been considered joint property. Experts agree the change would mostly affect women, since men traditionally provide the family home.
The result has been uproar — and, in the cities, a rush to add the wife’s name to title deeds.
Some husbands have agreed to this, but others have balked, and Chinese news outlets have already reported on marriage breakdowns caused by a husband’s refusal to add his wife’s name.
How this law came about?
The government says that in an era of soaring property prices — up about 500 percent since 2000, according to the National Bureau of Statistics — the law must protect a family’s investment. Parents and other relatives often contribute money to buy an apartment for their son, in order to help him attract a wife.
The law does not specify gender, so a woman who bought an apartment would also get it back at divorce. Yet social scientists say far fewer women buy family homes.
The interpretation is intended to address an immediate problem, and not build a perfect, logical system, a senior Supreme Court official, Du Wanhua, told legal experts last year, Southern Weekend reported in a recent article, “The Behind-the-Scenes Struggle of the New Marriage Law.”
But marriage law specialists said court officials ignored their opinions, listening instead to property law specialists.
The above is a lucid example of the untoward unintended consequences of the political actions by an elite group of people who believed that they knew what was best for their constituents. This represents what the great F. A. Hayek calls as the ‘pretence of knowledge’ or ‘fatal conceit’.
Yet the government will not be held accountable for the negative externality or the costs of such laws.
In addition, as admitted by the officials the new law has been meant to “address an immediate problem” which is what politics has mostly been about—short term at the expense of the long term.
Professor Robert Higgs explains, (bold emphasis mine)
it has to do with widespread inability to form confident expectations about future private property rights in all of their dimensions. Private property rights specify the property owner’s rights to decide how property will be used, to accrue income from its uses, and to transfer these rights to others in various voluntary arrangements. Because the content of private property rights is complex, threats to such rights can arise from many different sources, including actions by legislators, administrators, prosecutors, judges, juries, and others (e.g., sit-down strikers, mobs).
Because of the great variety of ways in which government officials can threaten private property rights, the security of such rights turns not only on law “on the books,” but also to an important degree on the character of the government officials who administer and enforce the law. An important reason why regime uncertainty arose in the latter half of the 1930s, for example, had to do with the character of the advisers who had the greatest access to President Franklin Roosevelt at that time—people such as Tom Corcoran, Ben Cohen, William O. Douglas, Felix Frankfurter, and others of their ilk. These people were known to hate businessmen and the private enterprise system; they believed in strict, pervasive regulation of the market system by—who would have guessed?—people such as themselves. So, as bad as the National Labor Relations Board was on paper, it was immensely worse (for employers) in practice. And so forth, across the full range of new regulatory powers created by New Deal legislation. In a similar way, the apparatchiki who run the federal regulatory leviathan today can only inspire apprehension on the part of investors and business executives. President Obama’s cadre of crony capitalists, which he drags out to show that “business is being fully considered,” in no way diminishes these worries.
Thus, regime uncertainty is a multifaceted and somewhat nuanced concept. Many economists don’t like it because it cannot be measured and compiled along with other standard macro variables in a convenient data base.
Read the rest here
Every time governments intervene in the marketplace someone’s property rights gets affected. The unintended consequence is risk aversion from heightened atmosphere of uncertainty.
Global regulators have been arguing over the kind of regulations required for crisis prevention.
From Bloomberg,
Capital standards designed to fortify the global financial system are eroding as European officials, beset by a debt crisis, rewrite the regulations and U.S. rulemaking stalls.
The 27 member-states of the Basel Committee on Banking Supervision fought over the new regime, known as Basel III, for more than a year before agreeing in December to require banks to bolster capital and reduce reliance on borrowing. Now, as they put the standards into effect in their own countries, European Union lawmakers are revising definitions of capital, while the U.S. is struggling to reconcile the Basel mandates with financial reforms imposed by the Dodd-Frank Act.
“The game on the ground has changed in Europe and the U.S.,” said V. Gerard Comizio, a former Treasury Department lawyer who is now a senior partner at Paul Hastings Janofsky & Walker LLP in Washington. “The realists in Europe realized that their banks cannot raise the capital they’d need to comply. U.S. banks have reversed course and are more assertively fighting against it. The future of Basel III looks less certain now than it did when it was agreed to.”
The Basel committee revised its capital standards and outlined new rules on liquidity and leverage after the 2008 crisis exposed the vulnerability of the banking system. Credit markets froze following the collapse of Lehman Brothers Holdings Inc., sending the world economy into its first recession since World War II. Basel III was meant to create “a much stronger banking and financial system that is much more resilient to financial crises,” said Mario Draghi, who will take over as president of the European Central Bank in November.
Not Binding
Basel standards aren’t binding, so each country needs to write its own rules putting the agreed-upon principles into effect. The European Commission proposed regulations to parliament last month that would translate Basel III into law. A majority of EU governments also must endorse them. U.S. regulators led by the Federal Reserve have to come up with their own version, though they don’t need legislative approval.
The proposed EU rules, submitted by financial services commissioner Michel Barnier, omitted a ratio designed to improve banks’ cash positions, deferred decision on a rule to limit borrowing, revised capital definitions and extended some compliance dates. In the U.S., regulators are stymied because the 2010 Dodd-Frank Act bars the use in banking rules of credit ratings, which Basel III relies on to determine risk.
First, regulators have been squabbling over proposed elixirs, when in reality they are arguing about treatments to the symptom rather than the disease itself.
All these web of proposed regulations, on top of existing maze, won’t stop the banking financed boom bust cycle. This is because the current central banking based monetary system has been engineered for bubbles.
As the great Murray N. Rothbard wrote
for it is the establishment of central banking that makes long-term bank credit expansion possible, since the expansion of Central Bank notes provides added cash reserves for the entire banking system and permits all the commercial banks to expand their credit together. Central banking works like a cozy compulsory bank cartel to expand the banks' liabilities; and the banks are now able to expand on a larger base of cash in the form of central bank notes as well as gold.
Two, regulators think that the action of bankers can be restrained by virtue of fiat. They are delusional. They forget that as humans, regulator-banker relationship will be subject to various conflict of interests relationships such as the agency problems, time consistency dilemma, regulatory arbitrage and regulatory capture aspects.
In reality, more politicization of the banking-central banking amplifies systemic fragility.
Yet amidst the publicized noble intentions, we can’t discount that the implicit desire by regulators for these laws have been to expand control over the marketplace and to protect the interests of certain groups (regulatory favored groups).
Three, as shown above opposing interests leads to conflicting design of regulations.
In a world of complexity, centralization is bound for failure.
Let me add that while many see capital adequacy laws as one way of restraining bubbles, such perspective do not account for the unseen or unintended consequences.
Expanding capital adequacy regulations or laws can have lethal effects on the economy: they destroy money.
As Professor Steve Hanke explains, (bold emphasis mine)
The oracles have erupted in cheers at the increased capital-asset ratios. They assert that more capital has made the banks stronger and safer. While at first glance that might strike one as a reasonable conclusion, it is not the end of the story.
For a bank, its assets (cash, loans and securities) must equal its liabilities (capital, bonds and liabilities which the bank owes to its shareholders and customers). In most countries, the bulk of a bank’s liabilities (roughly 90%) are deposits. Since deposits can be used to make payments, they are “money.” Accordingly, most bank liabilities are money.
To increase their capital-asset ratios, banks can either boost capital or shrink assets. If banks shrink their assets, their deposit liabilities will decline. In consequence, money balances will be destroyed. So, paradoxically, the drive to deleverage banks and to shrink their balance sheets, in the name of making banks safer, destroys money balances. This, in turn, dents company liquidity and asset prices. It also reduces spending relative to where it would have been without higher capital-asset ratios.
The other way to increase a bank’s capital-asset ratio is by raising new capital. This, too, destroys money. When an investor purchases newly-issued bank equity, the investor exchanges funds from a bank deposit for new shares. This reduces deposit liabilities in the banking system and wipes out money.
By pushing banks to increase their capital-asset ratios to allegedly make banks stronger, the oracles have made their economies (and perhaps their banks) weaker.
Prof. Tim Congdon convincingly demonstrates in Central Banking in a Free Society that the ratcheting up of banks’ capital-asset ratios ratchets down the growth in broad measures of the money supply. And, since money dominates, it follows that economic growth will take a hit, if banks are forced to increase their capital-asset ratios.
Professor Hanke goes to show how these regulations have impacted the Eurozone which has resulted to declining money supplies that has led to the recent market turbulence. Read the rest here
To add, adherence to math or algorithm based models has been one of the principal weakness of such regulations, writes Philip Maymin, (bold emphasis mine)
One might think that the ideal regulations would be those that find the right numbers for these portfolios, not too small and not too large—the Goldilocks of risk.
Surprisingly enough, it is not possible. It turns out that no algorithm for calculating the required risk capital for given portfolios results in lower systemic risk.
In Maymin and Maymin (2010), we prove why this is so, both mathematically and empirically. First, the math. Imagine that there are 1,000 securities whose returns are each independently distributed according to the standard bell curve of a normal distribution. Simulate five years of monthly returns for each security, and then calculate the volatility that each one actually realized. Because there are only sixty data points for each security, some securities will appear to have a little higher volatility than they truly do, and some will appear to have a little less. Out of the one thousand securities, how many would you guess exhibit less than 80 percent of their true volatility?
The answer is ten, and we show this with a formula in the paper. If we make the situation more realistic by relaxing the assumption about normality, the problem is exacerbated, and the ten securities with the lowest realized volatilities would deviate even further from their true volatility.
We also show empirically that the securities with historically low volatility tended to have almost twice as much subsequent risk, while those with historically high volatility tended to have almost half as much subsequent risk. For both the riskiest and least risky securities, therefore, historical risk is a statistical illusion.
Here's where the problem of objective regulations comes in. To see it, consider the perspective of a bank deciding what to invest in. It can invest in any of the 1,000 securities, but if it invests in the special ten that exhibit less than 80 percent of their true volatility, it will have to put up one-fifth less capital than otherwise. At least to some extent, those ten securities will be more favored than the others. What's worse, every bank will favor the same ten securities because the objective regulations are the same for everyone.
If those securities continue to rise, then no problem will be apparent. But if they should fall, then, suddenly, all banks will need to liquidate the exact same positions at a time when those positions are falling anyway. This sets the stage for systemic failure. Consider sub-prime mortgages as an illustration. These assets appeared to be historically low-risk and were, therefore, regulatorily favored. Banks invested more in them than they perhaps should have. For a while, as real estate prices continued their ascent, no problems surfaced. But once the market turned, banks began experiencing more losses on their sub-prime mortgage holdings than their regulatorily-mandated risk calculations had planned for. Banks needed to raise capital quickly and began doing two things: selling the sub-prime mortgages, dropping the prices even lower; and selling other assets. Because the banks all acted nearly simultaneously, and all in the same direction, the impact on the markets was both broad and deep, and systemic collapse became a real threat.
Bottom line: whack-a-mole stop-gap regulations meant to preserve the current fragile, broken and unsustainable paper money system founded on the cartelized system of welfare government-central banking-politically privileged "Too big to fail" banks will ultimately fail.
Paper money will return to its intrinsic value-ZERO.
