Will France’s Elections Signify as Death Warrant of the Euro?

France holds its elections today with 10 candidates in contention. Currently all the leading candidates appear to be rabid interventionists and inflationists who appeals to class warfare, protectionism, anti-immigration and nationalist platforms,

Writes the Wall Street Journal, (bold emphasis mine)

Nicolas Sarkozy, the center-right incumbent, is proposing to shrink the budget deficit by raising taxes in the name of "solidarity." On top of his already-passed hikes in corporate and personal income taxes, and his 4% surcharge on high incomes, Mr. Sarkozy also promises an "exit tax" on French citizens who move abroad, presumably to make up for the revenue that goes missing when all those new levies impel high earners to leave the country.

As for the reforms on the lips of every other policy maker in Europe, Mr. Sarkozy makes some of the right noises but won't even go as far as the (mostly broken) promises he made in 2007. In a 32-point plan issued this month, he offers some labor reform but more proposals that are vague (creating a "youth bank" for enterprising young people) or off-point (promoting French language and the values of the Republic).

Mr. Sarkozy proposes reducing payroll charges paid by employers but would make up for it by increasing VAT and taxes on investment income. This assumes there will be investment income left in France once Mr. Sarkozy's financial-transactions tax goes into effect in August.

Mr. Sarkozy's campaign is particularly disappointing compared to the one five years ago. Promising a "rupture" with France's old ways, he told voters in 2007 that they could no longer afford a sprawling state that coddled its workers and drove away entrepreneurs. Yet this year he seems content to reinforce a French model that's even more broken than before. If Mr. Sarkozy retakes the Elysée next month, he will have done so by turning his back on the center-right resurgence that he once led to victory.

The President's Socialist rival is a throwback of a different sort. François Hollande's campaign has adopted a fiery old-left style that most had taken for dead after the Socialists' 2007 defeat. All of Mr. Hollande's major economic policy plans have roots in a punitive populism that would make U.S. Congressional class warriors blush. According to the latest polls, he leads Mr. Sarkozy 29%-24% in the first-round vote and by an even wider margin in the likely runoff.

Mr. Hollande says he's "not dangerous" to the wealthy—he merely wants to confiscate 75% of their income over €1 million, and 45% over €150,000. He is, however, a self-avowed "enemy" of the financial industry, and he plans to impose extra penalties on oil companies and financial firms. He'd also raise the dividends tax and impose a new, higher rate of VAT on luxury goods. All of this is necessary, Mr. Hollande says, to chop the massive debt that President Sarkozy has heaped upon France.

But swiping at Mr. Sarkozy's debt record hardly makes sense when Mr. Hollande's own spending plans would pile on still more borrowing. The Socialist candidate is playing Santa Claus, promising lavish new goodies to French voters while other euro-zone governments are pulling back.

Inside Mr. Hollande's gift bag: 60,000 new teaching jobs, new housing subsidies and rent controls, and increased public funding for small and medium enterprises. He would raise the minimum wage to €1,700 a month and enact a new law to prevent and fight layoffs. He also promises to reverse Mr. Sarkozy's most important domestic-policy victory: raising the retirement age to 62 from 60.

So national elections in France has the usual dynamics of prompting politicians to pander to the gullible masses especially to “free market hostile” voters.

Chart from the Economist

Among major economies, the French population has been most averse towards to the free market.

Nevertheless France’s major benchmark the CAC 40, as of Friday’s close, has largely given up its gains and has now been unchanged on a year to date basis, perhaps partly due to the lingering Euro crisis as well as uncertainties from the outcome of elections.

Such concern has likewise been manifested on Credit Default Swaps (CDS) or the cost to insure debt, where there has been recent amplified concerns over the credit quality of French debt papers.

In case the winning French politician actualizes rhetoric into interventionist policies, then we can expect lesser resources to be available for productive ends as more of these will be diverted towards political projects. This also means the likelihood of migration of capital out of the French economy (capital flight), as well as, a transition to a larger informal economy.

With a prospective French political spending binge amidst a debt crisis plagued Europe, this means policies of interventionism will need to be backed by inflationism. Yet if such actions becomes deeply entrenched, then today’s election may have sealed the fate of the Euro.

As the great Ludwig von Mises warned

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.

Or as former British Prime Minister Margaret Thatcher once said,

The problem with socialism is that eventually you run out of other people's money [to spend].

Quote of the Day: Government Bonds as Instruments for Financial Repression

Fact: every dollar that goes into government debt is not going into the private sector. This is a major problem today. The U.S. government is borrowing and wasting an additional $1.2 trillion a year in on-budget (admitted) debt. Meanwhile, it must roll over existing debt as it matures.

The single most important economic factor in strengthening the growth of the modern state has been the development of government bonds. Governments have been able to sustain their growth because they have promised investors to pay interest on money lent to the government.

The government guarantees the payment of a specific rate of interest over a specific period of time. Investors, looking for safety, and looking also for a steady stream of income that is not subject to the risks of the free market, hand over their money to the government on the basis of their trust that the government will not default in any way on its obligations.

As mentioned, a major way that governments default is accomplished through mass inflation, or even hyperinflation. When governments, meaning central banks, increase the money supply, this has an effect on prices. Prices will begin to rise. Investors realize that the money that they will get back over the period of the loan will be worth less than today. So, they demand that the government promise to pay a higher rate of interest.

Those investors who accepted the government's promise when the rate of inflation was lower now suffer capital losses. They hold IOUs from the government to pay a particular rate of interest, and now the government is paying new investors a higher rate of interest. So, new investors are not going to buy bonds from the older investors at the old selling price, because those bonds pay a lower rate of interest than newer ones. They are going to demand that existing sellers of bonds take a lower price than the sellers paid when they bought the bonds from the government.

The ability of the government to extract wealth from rich people through taxation has always been limited. Rich people know how to hide their money. They know how to get it out of the country, and they know how to get it into markets that are less easily taxed.

So, politicians learned half a millennium ago to get their hands on rich people's money before rich people started hiding their money. They did this by promising to pay a rate of interest on the money. Government bonds are ways of extracting money in advance, especially from rich people, which politicians would have preferred to tax directly, but which they did not tax directly because they knew that rich people would hide the money.

The whole point of the bond market is to enable the government to expand its operations beyond what would be possible by collecting taxes today. Politicians are able to get more money to expand operations today, because they promise to repay lenders a specific rate of interest. But, of course, this does not promise that the government will not repay with debased money.

That’s from Professor Gary North. Read the rest here

How Bureaucracy Tarnishes Forensic Science

TV series like the CSI romanticizes the effectiveness of forensic science in solving criminal cases.

In reality, as the following Washington Post article reports, this has not been the case (bold emphasis mine)

Justice Department officials have known for years that flawed forensic work might have led to the convictions of potentially innocent people, but prosecutors failed to notify defendants or their attorneys even in many cases they knew were troubled.

Officials started reviewing the cases in the 1990s after reports that sloppy work by examiners at the FBI lab was producing unreliable forensic evidence in court trials. Instead of releasing those findings, they made them available only to the prosecutors in the affected cases, according to documents and interviews with dozens of officials.

In addition, the Justice Department reviewed only a limited number of cases and focused on the work of one scientist at the FBI lab, despite warnings that problems were far more widespread and could affect potentially thousands of cases in federal, state and local courts.

As a result, hundreds of defendants nationwide remain in prison or on parole for crimes that might merit exoneration, a retrial or a retesting of evidence using DNA because FBI hair and fiber experts may have misidentified them as suspects….

A review of the task force documents, as well as Post interviews, found that the Justice Department struggled to balance its roles as a law enforcer defending convictions, a minister of justice protecting the innocent, and a patron and practitioner of forensic science.

By excluding defense lawyers from the process and leaving it to prosecutors to decide case by case what to disclose, authorities waded into a legal and ethical morass that left some prisoners locked away for years longer than necessary. By adopting a secret process that limited accountability, documents show, the task force left the scope and nature of scientific problems unreported, obscuring issues from further study and permitting similar breakdowns.

That’s because the incentives guiding the actions of bureaucrats have innately been centered on politically based parameters (such as rules, regulations, codes and degrees) than from the discipline of profit and losses.

The above case fits exactly the predicaments of bureaucratic management as described by the great Ludwig von Mises in Bureaucracy p.49 (bold emphasis added)

There are, of course, in every country's public administration manifest shortcomings which strike the eye of every observer. People are sometimes shocked by the degree of maladministration. But if one tries to go to their roots, one often learns that they are not simply the result of culpable negligence or lack of competence. They sometimes turn out to be the result of special political and institutional conditions or of an attempt to come to an arrangement with a problem for which a more satisfactory solution could not be found.

Where there has been less incentive to become solutions to the problem (think “limited accountability”), bureaucratic shortcomings, operating mostly on legal technicalities (note “struggling to balance…”), are magnified.

The unfortunate realization from the above report is that two wrongs don't solve the problem of criminal justice, where criminals run scot free while the accused innocent remain incarcerated. Or differently put, injustice has been amplified by the bureaucratic or government failure.

Video: Earth Day Message Through George Carlin

Environmentalists will be celebrating their annual Earth Day festivities tomorrow, April 22nd. And a deluge of mainstream's politically correct and self righteous calls of "saving the planet", implicitly via social controls and the political distribution of resources, will surely hug or dominate the headlines again.

Yet the highly relevant, stirring, classic video from comedian George Carlin should serve as reminder of the folly of self-importance and of the delusions of grandeur from interventions from which the environmental politics of anthropomorphic climate change has been founded upon.

Quote of the Day: Moral Bankruptcy Leads to Economic Decadence

In essence, we're headed towards economic and financial bankruptcy. But that's mostly because society has been largely intellectually and morally bankrupt for some time. I don't believe a society can rise to real prosperity without a sound intellectual and moral foundation – that's why the US was so uniquely prosperous for so long, because it had such a foundation. And it's also why societies like Saudi Arabia will collapse as soon as the exogenous things that support them are pulled away. It's why the USSR collapsed. It's the reason why countries everywhere across time reach a peak (if they ever do), then stagnate and decline.

This isn't a matter of academic contemplation, for the same reason that it doesn't matter much if you're in a first-class cabin when the ship it's in is taking on water…

In any event, it's rare that anyone goes bankrupt because of a single bad decision. It takes many missteps, and consistently bad decisions aren't accidents. Consistently bad decisions are the product of a flawed moral philosophy. Moral philosophy guides you as to what is right or wrong.

That’s from investment guru and philosopher Doug Casey. You can read the rest of the trenchant article here.

Capital Markets in the Information Age: More Financial Innovations

The world does not operate in a vacuum. Given the trend of rapid increases in the imposition of strangulating bank and financial regulations, entrepreneurs have been exploring ways to sidestep or bypass the system, by harnessing advances in technology, where they can profit from serving the consumers.

I have earlier pointed out that the internet has spawned innovative ways of borrowing and lending, of payment systems, and of the financing of commercial projects via P2P Lending and Crowd Funding.

Jeffrey Tucker at the Laissez Faire Books shows us more

Squareup. This is an innovation by Jack Dorsey (Twitter fame) and his friends, and came about only in 2010. The first problem they were trying to overcome was there has to be an easier way for merchants to accept credit cards. They decided to give the hardware away for use on simple mobile phones, and then charge per transaction. Win!

In the course of developing the business, which is valued already at $1 billion, they solved an even stranger problem that all of us have but never really noticed that we have: If we don’t have our wallets with us, we can’t buy anything.

Now this is genius: Square allows you to pay by saying your name. The merchant matches a picture of your on the square system with your physical face. You look each other in the eye and the deal is done. Anyone can sign up. Yes, it is incredible. Simple and wonderful.

The Lending Club. Again, this is mind-blowing. The Lending Club matches up lenders and borrowers while bypassing the banking system altogether. The idea emerged in October 2008, just as the existing credit system seemed to be blowing up. Today, the company originates $1 million in loans per day.

Anyone can become a lender with a minimum investment of $25 per note. Lenders can choose specific borrowers or choose among many baskets and combinations of borrowers to reduce risk.

Any potential borrower can apply, but of course the company wants to keep default rates at the lowest possible level, and these are published daily (right now, they are running 3%). As a result, most applications to borrow are declined (this is good!).

The average rate of interest on the loans is 11%, cheaper than credit cards but more realistic than the Fed’s crazy push for zero. As a result, the average net annualized return is 9.6%.

The focus if of course on small loans for weddings, moving expenses, business startups, debt consolidation and the like. If you are an indebted country with large unfunded liabilities, you probably can’t get a loan. But if you are student with a job who needs upfront money to put down on an apartment, you might qualify.

Dwolla. This is a super-easy, super-slick online payment system that specializes in linking payments through social networks like Facebook and Twitter. Like most of these companies, the idea was hatched in 2008 in response to the crisis. The system was breaking down and needed new services that worked. Dwolla got off the ground in 2009, and today, it processes more than $1 million per week.

An easy way to understand Dwolla is to view it as the next generation of PayPal, but with a special focus on reducing the problem that vexed PayPal in its early years: getting rid of credit card fraud. Dwolla is focussing its product development on ways to pay that do not require sending credit card information over networks.

Dwolla has also taken a strong interest in the Internet payment system called Bitcoin, a digital unit of account that hopes to become an alternative to national monetary systems. It is a long way from becoming that, but it is hardly surprising that a young and innovative company would be interested in competition to failed paper money.

These are a few of the services, but there are hundreds more. None were created by the money masters in Washington. They are results of private innovation, individual entrepreneurs thinking their way through social and economic problems and coming up with solutions. They accept the risk of failure and enjoy the profit from success.

Indeed, as forces of decentralization deepens, we should expect more innovative technology based solutions to emerge and flourish in every industry; finance and money notwithstanding.

China’s Political System Reeks of Legal Plunder

Internal political schism in China, highlighted by recent rumors of a coup attempt, may have been one of the main factors that has incited China’s political authorities to dabble with the latest gunboat diplomacy with her neighbors. The unfolding controversy over disputed territorial claims at Scarborough Shoal and the Senkaku Islands has most likely been meant to divert or distract the public’s attention from real political issues developing in China.

Yet the tensions being manifested in China’s political system has been exposing on the festering rottenness of the perversion of the legal system, which the great Frédéric Bastiat warned centuries ago, directed at repression and plunder of the resources of the population for personal benefit of politicians and their favored allies. He called this “legal plunder”.

Sovereign Man’s Tim Staersmose gives us a terse but splendid narrative of the political events brewing at China

I’m convinced that history will one day show that corrupt Communist party officials, in cahoots with shady developers and construction moguls, systematically plundered the Chinese economy, getting rich off the hard work and savings of the average person.

It’s been happening on an unimaginable scale… and the fuse for the whole rotten mess to explode may have just been lit with this Bo Xilai scandal. To review, briefly:

- Bo Xilai, the former mayor of China’s largest city of Chongqing, was once one of the rising stars of the Communist party and being groomed for a top spot in the Politburo.

- Wang Lijun was his police chief and right hand man.

- Together, Bo and Wang waged a high profile campaign to stamp out organized crime in the region, jailing and even executing supposed underworld bosses and corrupt businessmen.

(As it appears now, they may have simply been eliminating their competition.)

- The two had an apparent falling out, allegedly over evidence that Bo’s wife was involved in the death of British expat Neil Heywood.

- Heywood had been a longtime confidant of the Bo family. His death late last year was originally ruled as a heart attack, however there is now so much conflicting evidence that many are suggesting Heywood was going to come forward with extensive records of Bo’s shady business dealings.

- After being stripped of his rank by Bo, Wang went to both the US consulate and British High Commission seeking asylum in exchange for information about Bo’s impropriety. He was politely rejected.

- Bo has now been relieved of his powers amid a flurry of evidence and allegations that he and Wang siphoned off hundreds of millions of dollars from Chongqing’s economic boom and secreted the funds out of the country.

- Meanwhile Bo’s wife is under arrest for suspicion of murdering Mr. Heywood. Mr. Wang is also in the custody of Chinese authorities.

- Bo’s son, a lavish partier who attends $90,000/year graduate school and drives around campus in European supercars, is hiding out in the United States.

The top echelons of the communist party are now working overtime to snuff out the scandal lest their own financial dealings and personal dirty linen be aired in public.

But, they’re fighting an uphill battle. The rapid spread in China of micro-blogging services (like Twitter) mean that the party’s censors have a real battle on their hands.

Again the wonders of technological advances in today’s deepening information age has been facilitating the divulgence of the reeking corruption operating behind China’s “communist party system” which in reality is no more than state (crony-fascist) capitalism.

As Frédéric Bastiat wrote in must read classic The Law,

The delusion of the day is to enrich all classes at the expense of each other; it is to generalize plunder under pretense of organizing it. Now, legal plunder may be exercised in an infinite multitude of ways. Hence come an infinite multitude of plans for organization; tariffs, protection, perquisites, gratuities, encouragements, progressive taxation, free public education, right to work, right to profit, right to wages, right to assistance, right to instruments of labor, gratuity of credit, etc., etc. And it is all these plans, taken as a whole, with what they have in common, legal plunder, that takes the name of socialism.

Pretentions to solve social ills via socialist redistributionist policies are simply unsustainable, and the gunboat diplomacy will not excise the truth from unraveling.

From Scarborough Shoal to Senkaku Islands

What’s all the ado over territorial claims these days?

The tensions over Scarborough Shoal have yet to be concluded and now Japanese politicians have jumped into a parallel controversy over the disputed Senkaku Islands to pique China.

Reports the Japan Times,

The central government will consider buying the disputed Senkaku Islands, Prime Minister Yoshihiko Noda said Wednesday, adding fuel to a fire already lit by Tokyo Gov. Shintaro Ishihara.

Noda's statement came after Ishihara dropped his bombshell Monday in Washington by revealing that the Tokyo Metropolitan Government is trying to buy the islands from its owner "to protect Japanese territory."

The hawkish governor said he was prompted to make the move as he could no longer stand the central government's "cowardice" for not taking any action against claims to the islands by China and Taiwan.

During a Lower House Budget Committee session on Wednesday morning, Noda stressed Japan's control over the islands in the East China Sea. The prime minister also explained that the government has been in contact with an island owner.

"It is as clear as day that the Senkaku Islands are an integral part of Japan's sovereign territory in light of international law and history, and Japan effectively controls them," Noda said.

And the natural response by China has been to rebuke and to apply partial gunboat diplomacy as with the Scarborough Shoal incident.

From another news report from Japan Times,

China warned Wednesday that Tokyo Gov. Shintaro Ishihara's plan to buy the disputed Senkaku Islands will not only harm Japan's ties with China but also its international standing.

"I want to reiterate that the Diaoyu Islands have been China's inherent territory since ancient times and China holds indisputable sovereignty over them," Foreign Ministry spokesman Liu Weimin told a regular news briefing, using the Chinese term for the Senkaku Islands.

"We do not wish such statements in Japan to encroach on China's sovereignty and harm China-Japan ties," Liu said. "A few politicians have repeatedly made such statements. I believe they not only damage the overall state of China-Japan relations but also harm Japan's international image."

Ishihara said in Washington on Monday that the Tokyo Metropolitan Government is negotiating with the owner of three major islands in the uninhabited chain.

On Tuesday, Ishihara added that Beijing's dispatch of fishery patrol boats to their vicinity is "halfway to a declaration of war" against Japan.

As I earlier postulated, the verbal joust over territorial claims could be about promoting the arms industry or the military industrial complex.

Last year, world military spending has been flat.

Notes the Economist,

WORLDWIDE military spending was flat in 2011 compared with the year before, according to data released by the Stockholm International Peace Research Institute, a think-tank, but this masks some significant changes. America, Western Europe and Latin America, which between them make up 65% of the global total of $1.634 trillion (at 2010 prices), all spent less than they had in 2010. This is the first time America made a year-on-year reduction since 1998, trimming its budget by 1.2% to $690 billion. To keep the total flat, there were some big rises elsewhere. Russia's spending increased by 9.3% to $64.1 billion, which may have had something to do with the build-up to the presidential election earlier this year. It is now the third biggest spender worldwide, ahead of both France and Britain. The chart below gives a sense of how much defence spending has changed relative to economic performance in the past decade for 116 countries and territories for which data are available. China, for instance, which spent $129 billion last year, has increased spending broadly in line with its GDP growth

And considering that Bank of Japan (BoJ) has aggressively been ramping up on monetary stimulus measures, a threat of war which could most likely translate to call for a domestic build up of arms that would justify more inflationist policies.

Wars has always been financed by monetary inflation, as the great Ludwig von Mises wrote in Nation, State and the Economy (p. 195)

In all great wars monetary calculation was disrupted by inflation. Earlier it was the debasement of coin; today it is paper-money inflation. The economic behavior of the belligerents was thereby led astray; the true consequences of the war were removed from their view. One can say without exaggeration that inflation is an indispensable intellectual means of militarism. Without it, the repercussions of war on welfare would become obvious much more quickly and penetratingly; war-weariness would set in much earlier.

So the blaring drumbeats of war may not only be about promoting arms sales and military spending, but about further justifications for monetary inflation.

Video: What can Economist Know? The Value of Heuristics in an Uncertain World

German psychologist and professor Gerd Gigerenzer argues that heuristics has an inbuilt or genetic value for us, therefore should not be treated as having secondary importance in our decision making process.

The science of heuristics even has vastly better predictive performance than mathematical models under an environment of uncertainty...which is the world we live in.

Mr. Gigerenzer's theories reminds me of Malcolm Galdwell's book "Blink" which deals with rapid cognition.

(hat tip Professor Pete Boettke)

Ron Paul’s Message: Hoard Coins

In a statement to the subcommittee on Domestic Monetary Policy Hearing on "The Future of Money: Coin Production," April 17, 2012, Congressman Ron Paul writes, (lewrockwell.com) [bold highlights mine]

There is an old German saying that goes, "whoever does not respect the penny is not worthy of the dollar." It expresses the sense that those who neglect or ignore the small things cannot be trusted with larger things, and fittingly describes the problems facing both the dollar and our nation today. For nearly a century monetary policy has been delegated to the Federal Reserve System. Congress has ignored the importance of monetary policy and relegated monetary oversight to the sidelines, considering it less important than such matters as welfare spending, warfare spending, and who to tax and how much they should be taxed. While Congress has dithered, the Federal Reserve has destroyed the value of the dollar, so much so that the metal value of our already much-debased token coinage now exceeds its face value

The cost to mint pennies and nickels is alleged to be more than double their face value, so that the Mint loses tens of millions of dollars every year by placing them into circulation. Inflation continues to erode the purchasing power of the penny and nickel, so that many consumers find it aggravating and time-consuming to fish around for small change. But changing the composition of the penny and nickel to steel fails to address the root cause behind currency debasement. It also fails to provide a viable solution both for the devalued dollar and for our circulating coinage.

If Congress were truly interested in the cost of coinage, it would begin by reining in and eventually abolishing the Federal Reserve System. The Fed alone is responsible for the devaluation of the dollar. The problem with the penny and nickel is not that the price of copper and nickel are rising, but that the purchasing power of the dollar is declining due to the Fed's currency debasement. The same pattern has been seen throughout history, as debased currency results in the value of the metal content of coins outstripping their face value. Coins disappear from circulation and only paper money circulates. Finally, the currency collapses. Coins will begin to reappear once the monetary unit is restabilized, usually with the introduction of an entirely new currency and after much economic hardship for the people.

Read the rest here.

The bottom line is that governments around the world will continue with rampant policies of inflationism through their respective central banks. And given the metallic content of coins in circulation, coins will serve as insurance against devalued money and will be hoarded by the public as the symptoms of inflationism deepens.

I have noted of this Gresham’s Law on my earlier post.

Nevertheless here is the breakdown of the metallic content of Philippine coins in circulation.

From Wikipedia.org

Perhaps we should start to hoard coins too. Thanks for the reminder, Congressman Paul.

Lessons from the Roman Era Socialism

Inflationism had only been part of the financial repression policies that led to the fall of the Roman empire. Surviving the Roman empire’s welfare-warfare state prompted for broader adaption of socialist policies

Writes Simon Black, (bold emphasis mine)

In the terminal collapse of the Roman Empire, there was perhaps no greater burden to the average citizen than the extreme taxes they were forced to pay.

The tax ‘reforms’ of Emperor Diocletian in the 3rd century were so rigid and unwavering that many people were driven to starvation and bankruptcy. The state went so far as to chase around widows and children to collect taxes owed.

By the 4th century, the Roman economy and tax structure were so dismal that many farmers abandoned their lands in order to receive public entitlements.

At this point, the imperial government was spending the majority of the funds it collected on either the military or public entitlements. For a time, according to historian Joseph Tainter, “those who lived off the treasury were more numerous than those paying into it.”

Sound familiar?

In the 5th century, tax riots and all-out rebellion were commonplace in the countryside among the few farmers who remained. The Roman government routinely had to dispatch its legions to stamp out peasant tax revolts.

But this did not stop their taxes from rising.

Valentinian III, who remarked in 444 AD that new taxes on landowners and merchants would be catastrophic, still imposed an additional 4% sales tax… and further decreed that all transactions be conducted in the presence of a tax collector.

Under such a debilitating regime, both rich and poor wished dearly that the barbarian hordes would deliver them from the burden of Roman taxation.

Zosimus, a late 5th century writer, quipped that “as a result of this exaction of taxes, city and countryside were full of laments and complaints, and all… sought the help of the barbarians.”

Many Roman peasants even fought alongside their invaders, as was the case when Balkan miners defected to the Visigoths en masse in 378. Others simply vacated the Empire altogether.

In his book Decadent Societies, historian Robert Adams wrote, “[B]y the fifth century, men were ready to abandon civilization itself in order to escape the fearful load of taxes.”

Perhaps 1,000 years hence, future historians will be writing the same thing about us. It’s not so far-fetched.

In the economic decline of any civilization, political elites routinely call on a very limited playbook: more debt, more regulation, more restriction on freedoms, more debasement of the currency, more taxation, and more insidious enforcement.

Further, the propaganda machine goes into high gear, ensuring the peasant class is too deluded by patriotic fervor to notice they’re being plundered by the state.

The lesson is simple: the loss of freedom leads to a collapse of civilization. Freedom is the essence of humanity.

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

The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.

Quote of the Day: Freedom is the Essence of Humanity

Oh they tell us that in a democratic system, we can vote and that this is our choice. We have nothing to complain about. If we don’t like the system, we can change it. But this is wholly illusory. The government completely owns the democratic system and administers it to generate the types of results that government wants. More and more people are catching on to this, which is why voter participation falls further in every election season.

The great thinkers of the libertarian tradition have always told us that freedom and the good life are absolutely inseparable. I think of Thomas Jefferson, Frederic Bastiat, Herbert Spencer, Albert Jay Nock, Ludwig von Mises, Murray Rothbard, F.A. Hayek and so many others. Even contemporary authors have addressed the theme. They had long warned that every step away from freedom would mean a diminution of the quality of life. We are seeing these prophecies come true.

Too often public policy debates take place on the wrong level. The core point is not to make the “system” work better or otherwise fine-tune the rules within a bureaucracy. We need to start talking about larger issues about the dignity of the human person, the moral status of freedom and the rights and liberties of the individual in society. The expansion of the state is not just wrong as a matter of “public policy”; it is wrong because it is dangerous to the good life and the quality of life.

To kill freedom is to kill the essence of what makes us human.

(bold emphasis mine)

The stirring excerpt is from the prolific Jeffrey A. Tucker at the Laissez Faire Books.

Again, the mainstream’s public policy debates can be summarized into the following alternatives 1) change the authority involved 2) throw money at the problem 3) control, restrain or prohibit activities of parties perceived as immoral and or 4) tax the alleged offenders.

And that’s why politics tend to become mostly personality oriented as policy debates have been premised on a system which is largely perceived as a “given”, and where the solution has been reduced to “saintliness” or “virtuosity” of those in power. The solution of which is like eternally Waiting for Godot who never comes.

Instead what truly matters is to debate the ethics, as well as, the feasibility from which the incumbent political system has been established. [Well anyway maybe economic realities would render the debate moot]

Unfortunately, all of which of mainstream’s way of solving social problems evolve around restricting people’s freedom.

Yet ironically and fortunately, many people find ways to circumvent or fight the repressive system—built to benefit and preserve the interests of the political insiders which thrive on patron-client relations or state (crony) capitalism—through the informal economy, black markets and corruption (as response to arbitrary regulations or statutes).

Bottom line: The battle for freedom continues.

Has the US Federal Reserve been Transparent?

The short and direct answer is NO.

The US Federal Reserve has even opted to defy their self-imposed policy.

Reports the Wall Street Journal

The Federal Reserve has pledged to be more transparent, but it is only willing to go so far.

The central bank normally releases comprehensive transcripts of its policy-making meetings five years after the sessions. But when news organizations requested transcripts of the meetings around the 2008 financial crisis, the Fed released redacted documents that revealed only pleasantries from the sessions and no substantive discussions.

In early March, the central bank published on its website 513 of about 7,000 pages of transcripts of the Federal Open Market Committee meetings from 2007 through 2010, according to a March 7 letter from FOMC Secretary William English that also was posted online.

The heavily redacted transcripts reflect who attended the meetings, reveal comments at the start and finish of the sessions, and transcribe some banter in between, but no talk about economics or policy. Federal Reserve Chairman Ben Bernanke is quoted calling the meetings to order, introducing staff presentations, honoring departing colleagues and adjourning the sessions for lunch.

The Fed isn't required under law to release details of its policy deliberations, but decided in 1993 to begin releasing nearly full transcripts of FOMC meetings after a five-year lag. That was in response to pressure from Congress on the central bank to be more open about its deliberations. Few major central banks release transcripts of their policy meetings.

When government engages in the picking of winners and losers or of the political or unilateral redistribution of scarce resources, contending interest groups who vie for these resources—and who don’t become the anointed—would always question the selection process. Thus, government choices would always be subjected to political controversies and conflicts that spawn social stress.

In addition, political agents do not want to be held accountable for the risks or unintended consequences from the decisions they make, or of the policies they impose. So opacity would be their default behavior.

SM Oliva formerly of the Mises Institute captures the essence of the innate non-transparency of governments.

“Transparency” is a buzzword associated with all sorts of good-government movements. But it’s something of a libertarian Trojan horse. No government can ever be transparent, for that would rob of it of its very substance. All monopoly government is predicated on the ability to actively mislead and misdirect the majority — the public — away from the truth, whether it’s political truth, economic truth, or personal truth. Even government attempts at transparency are themselves usually little more than misdirection by another name. One can be transparent in such a way as to satisfy most inquisitors while revealing nothing that compromises the basic pillars of the state.

Bottom line: Centralized political structures are inherently non-transparent.

And buzzwords of “transparency” or “independence” account for as political doublespeak or part of the communications campaign to sanitize reality.

Quote of the Day: Good Economists

It's difficult to be a good economist and simultaneously be perceived as compassionate. To be a good economist, one has to deal with reality. To appear compassionate, often one has to avoid unpleasant questions, use "caring" terminology and view reality as optional

Affordable housing and health care costs are terms with considerable emotional appeal that politicians exploit but have absolutely no useful meaning or analytical worth. For example, can anyone tell me in actual dollars and cents the price of an affordable car, house or myomectomy? It's probably more pleasant to pretend that there is universal agreement about what is or is not affordable.

If you think my criticism of affordability is unpleasant, you'll hate my vision of harm. A good economist recognizes that harm is not a one-way street; it's reciprocal. For example, if I own a lot and erect a house in front of your house and block your view of a beautiful scene, I've harmed you; however, if I am prevented from building my house in front of yours, I'm harmed. Whose harm is more important? You say, "Williams, you can't tell." You can stop me from harming you by persuading some government thugs to stop me from building. It's the same thing with smoking. If I smoke a cigarette, you're harmed – or at least bothered. If I'm prevented from smoking a cigarette, I'm harmed by reduced pleasure. Whose harm is more important? Again, you can't tell. But as in the building example, the person who is harmed can use government thugs to have things his way.

How many times have we heard that "if it will save just one human life, it's worth it" or that "human life is priceless"? Both are nonsense statements. If either statement were true, we'd see lower speed limits, bans on auto racing and fewer airplanes in the sky. We can always be safer than we are. For example, cars could be produced such that occupants could survive unscathed in a 50-mph head-on collision, but how many of us could buy such a car? Don't get me wrong; I might think my life is priceless, but I don't view yours in the same light. I admire Greta Garbo's objectivity about her life. She said, "I'm a completely worthless woman, and no man should risk his life for me."

That’s from Professor Walter E. Williams who channels Frédéric Bastiat’s "That which is seen and unseen" but includes the ethical dimensions.

Read the rest here

ECB Staffs Demand Inflation Insurance on Pensions

From the Financial Time’s Money Supply blog

A spot of domestic trouble for the European Central Bank: its staff in Frankfurt are demanding protection for their pensions — against inflation.

Oops.

Does the ECB staff know something which their bosses don’t?

Or could this be an example of the idiom where left hand doesn’t know what the right hand has been doing?

Or could this signify as the proverbial handwriting on the wall?

Understating the Internet’s Contribution to the Global Economy

The Economist writes,

MUCH of the world may still (or again) be in recession, but the internet keeps growing—and so does its economic weight. In the G20 countries, the internet economy will grow at more than 10% annually for the next five years and by 2016 reach $4.2 trillion, or 5.3% of GDP—up from $2.3 trillion and 4.1% in 2010, according to a recent report by the Boston Consulting Group (BCG). But there are big differences between countries. Britain leads the pack. Its internet economy is now bigger than its construction and education sectors, mainly thanks to the popularity of e-commerce. To paraphrase Adam Smith, the country has become a nation of digital shopkeepers. China and, to some extent, India stand out thanks to internet-related exports in goods and services, respectively. South Korea and Japan are also strong in both e-commerce and exports. Europe punches below its weight, mainly because its internet economy is held back by a lack of a single digital market. If the European Commission succeeds in creating one, the old continent may be able to pull ahead of the new one by 2016.

My research is done principally through the internet and this has been facilitating much of my transactions executed on a traditional non-internet based platform. The newsletters I send to my clients have also been internet based.

Aside from my newsletters, the web perhaps also plays a role in the information acquisition of my clients for them to decide on their financial markets transactions—but the degree of application may likely to be different.

Have these been captured by statistics? Apparently not.

Attempts to quantify the internet’s contribution to the economy has been grossly misleading for the simple reason that much of what the internet contributes—access to information, knowledge, connectivity, communications and the ensuing productivity it brings—cannot be measured.

Testament to these has been the impact of the internet to the Arab Spring or popular Middle revolts of last year.

Professor of business and technology Soumitra Dutta in an interview with Knowledge@wharton says that the internet has enabled changes in people’s social relationships and norms that has contributed to last year’s Arab Spring upheavals.

Technology has empowered individual citizens, and of course this pushes against various constraints, whether it is political constraints, or gender constraints. The same thing is happening in the rest of the world, by the way, the Middle East is not unique in this. So what this calls for is not a retreat from technology, but a more enlightened approach to understanding how technology interweaves with social values and norms. Eventually, social norms are going to be influenced and changed by widespread use of technology, but that's the way society largely develops.

And to repeat a quote which I earlier posted from Jeffrey Tucker,

That the Internet has vastly increased productivity is the understatement of the century. The Internet has given birth to products and services that have never before existed — search, online advertising, video games, web-based music services, online garage sales, global video communications. Moreover, the main beneficiaries have been old-line industries that seem to have nothing to do with the Internet.

The most difficult-to-quantity aspect of digital media has been its contribution to the sharing of ideas and communication throughout the world. This has permitted sharing and learning as never before, and these might be the single most productive activity in which the human person can ever participate. The acquisition of information is the precondition for all investing, entrepreneurship, rational consumption, the division of labor and trade…

No amount of empirical work can possibly encapsulate the contribution of the Internet to our lives today. No supercomputer could add it all up, account for every benefit, every increase in efficiency, every new thing learned that has been turned to a force for good. Still, people will try. You will know about their claims only thanks to the glorious technology that has finally achieved that hope for which humankind has struggled mightily since the dawn of time.

The appeal to quantify the internet into statistical accounts falls into the same fallacious trap as in the treatment of human action as natural sciences.

As Mark Twain scornfully said,

Lies, damned lies and statistics.

Infographic: The Religions of the World

For a clearer picture click on the source of this infographic at the National Post

The Emergence of Capitalist Cuba?

I previously pointed out that the post-Fidel Castro Cuba has broken the proverbial ice of electing to take the road of economic liberalization.

Eric Margolis at the lewrockwell.com examines and predicts Cuba’s future…

Thanks to Raul’s recent reforms, small private enterprise is bubbling up everywhere. Aid and oil from Venezuela has kept the island afloat. People are more outspoken, a little less wary of the secret police and informers. One feels growing energy pulsating into Havana’s delightful old city. With its beautiful buildings, friendly, attractive people, and little music bars with their electrifying salsa bands, Havana is poised to resume its role of 50 years ago as the most fun – and perhaps wickedest city – in the world. All it needs are more hotels, better food, and waves of young Yankee partyers. Already, some 100,000-200,000 Americans sneak into forbidden Cuba each year.

America’s Great Satan, Fidel Castro, is sidelined by age and illness, but Cubans still love their national papa figure. Brother Raul, now pushing 81, has gained respect for his leadership. But once the Castro era is over, what will happen?

Either a power grab by the military and old guard, or the half million Miami-based Cubans will return and rebuild Cuba. A tsunami of US money will swamp Cuba, washing it into the modern world but erasing much of its austere charm and sense of community. Many friends of Cuba do not look forward to this change, though Cubans desperately need relief from their threadbare existence.

More evidence of Cuba’s reforms from Kansas City.com (bold emphasis added)

Across Cuba, there are entrepreneurs like Suarez and Hidalgo, striking out on their own as locksmiths, plumbers, electricians and the like. They've always existed, but operated on a smaller scale, illegally, in the informal economy.

"I can make more money," Suarez said, comparing his take with the official government monthly salary of $20.

In the past 24 months, Cuba's communist government has announced a series of economic openings intended to ease its announced plan to trim the country's bloated government payroll by 1 million jobs and to buy time as the country transitions away from the reign of the two Castro brothers who've ruled since 1959 but now are in their 80s.

The reforms include expanded self-employment, a liberalization of rules for family-run restaurants, more flexibility for Cuban farmers to sell their products, and even creation of fledgling real estate markets in big cities such as Havana and Santiago.

Most of the 181 newly allowed self-employment categories involve menial labor, and services such as beauty salons, barber shops and plumbers. The government says it has granted 371,000 licenses.

The reforms, however, remain far from free-market capitalism. Not included among the openings are medicine, scientific research and a range of technical jobs that the government has kept under its control. There are no wholesale businesses to provide goods and services to entrepreneurs.

What Cuba’s gradualist reforms has done so far has been to legitimize parts of her huge informal economy.

And the direction of Cuba’s reform will likely deepen and accelerate overtime as political leaders realize that their survival will depend on a wealthier citizenry from economic freedom.

Perhaps like Myanmar, whom has been slated to open a stock exchange by 2015, Cuba may even consider reviving the Havana Stock Exchange which was closed in 1960.

Bottom line is that globalization vastly aided by the internet, or the information age, have begun to pry open formerly closed economies. Forces of decentralization have swiftly been diffusing across the world.

And given the huge potentials of the reformist nations of Cuba and Myanmar, especially coming from a depressed level, investors ought to keep an eye on these prospective frontier markets.

Lessons from the Roman Era Devaluations

Writes Simon Black at the Sovereign Man

In his 1958 work State and Currency in the Roman Empire to 300 A.D., Sture Bolin outlines the systematic (and almost constant) debasement of the silver denarius coin of ancient Rome, which I have reproduced below:

Subsequent emperors became even more clever at debasing the currency; Caracalla (reign 211-217 AD) created a new coin, the Antoninianus, which had a face value far greater than its weight and metal content.

Under Gallienus (reign 260-268 AD), the Antoninianus was composed of less than 5% silver. By the time of Aurelian in 270 AD, further debasement was essentially impossible… though they kept trying.

Such debasement led to rampant inflation in the empire. A slave under the reign of Commodus that cost 500 denarii was five times as expensive under Septimius Severus. A second century modius of wheat (about 1/4 bushel) sold for 1/2 denarius. By the time of Diocletian’s price fixing in 301 AD, the nominal price was 200 times more expensive.

In Roman Egypt, where the best documentation on pricing has survived, a measure of wheat which sold for 200 drachmae in 276 AD increased to more than 2,000,000 drachmae in 334 AD, roughly 1,000,000% inflation in a span of 58-years.

In his 1960 work Roman Coins, historian Harold Mattingly remarked about Roman inflation that “[t]he Empire had, in all but words, declared itself bankrupt and thrown the burden of its insolvency on the citizens.”

Other historical examples abound, but Mattingly’s assessment sums it up the best.

Any government that resorts to debasing the currency is making a conscious decision to stick the people with the consequences of its insolvency.

The short of this is one of the history or the cycles of inflationism and financial repression, where political authorities repeatedly transferred the burden of their policy mistakes to their subjects. Put bluntly, politicians plundered the resources of their constituents through inflationism and financial repression to pay for their profligate ways. All of them, ex-post eventually, failed.

Today’s “unprecedented” pace of inflationism via the massive expansion of the balance sheets by global central bankers has been no different than the eon of the doomed Roman empire. The principle has been the same, but the application has been different.

In Roman times, inflationism had been about coin debasements, today’s inflationism has been coursed through central banking mostly based on digital computer keyboard inputs.

Remember, world governments today have fervently been attempting to put a rein on cash transactions from which they intend to gain wider control and greater access to the resources of the private sector—for the same intent as their Roman era peers.

History does not repeat itself, said Mark Twain, but it does rhyme. Alternatively, those who cannot remember the past, warned George Santayana, are condemned to repeat it.

The rhyme of condemnations beckons.

How Capitalism Brought about Modern Marriage

Contractual rights is the foundation of modern (monogamist) marriage which has been traced to the capitalist roots.

The following excerpt from an article by the great Ludwig von Mises seems as a compelling narrative of the evolution of modern marriage (bold emphasis mine)

Where the principle of violence dominates, polygamy is universal. Each man has as many wives as he can defend. Wives are a form of property, of which it is always better to have more than few. A man endeavors to own more wives, just as he endeavors to own more slaves or cows; his moral attitude is the same, in fact, for slaves, cows, and wives. He demands fidelity from his wife; he alone may dispose of her labor and her body, himself remaining free of any ties whatever. Fidelity in the male implies monogamy. A more powerful lord has the right to dispose also of the wives of his subjects. The much discussed jus primae noctis was an echo of these conditions, of which a final development was the intercourse between father-in-law and daughter-in-law in the "joint family" of the Southern Slavs.

Moral reformers did not abolish polygamy; neither did the church at first combat it. For centuries, Christianity raised no objections to the polygamy of the barbarian kings. Charlemagne kept many concubines. By its nature, polygamy was never an institution for the poor man; the wealthy and the aristocratic could alone enjoy it. But with the latter it became increasingly complex according to the extent to which women entered marriage as heiresses and owners, were provided with rich dowries, and were endowed with greater rights in disposing of the dowry.

Thus monogamy has been gradually enforced by the wife who brings her husband wealth and by her relatives — a direct manifestation of the way in which capitalist thought and calculation has penetrated the family. In order to protect legally the property of wives and their children a sharp line is drawn between legitimate and illegitimate connection and succession. The relation of husband and wife is acknowledged as a contract.

As the idea of contract enters the law of marriage, it breaks the rule of the male, and makes the wife a partner with equal rights. From a one-sided relationship resting on force, marriage thus becomes a mutual agreement; the servant becomes the married wife entitled to demand from the man all that he is entitled to ask from her. Step by step she wins the position in the home which she holds today. Nowadays the position of the woman differs from the position of the man only in so far as their peculiar ways of earning a living differ. The remnants of man's privileges have little importance. They are privileges of honor. The wife, for instance, still bears her husband's name.

This evolution of marriage has taken place by way of the law relating to the property of married persons. Woman's position in marriage was improved as the principle of violence was thrust back, and as the idea of contract advanced in other fields of the law of property it necessarily transformed the property relations between the married couple. The wife was freed from the power of her husband for the first time when she gained legal rights over the wealth which she brought into marriage and which she acquired during marriage, and when that which her husband customarily gave her was transformed into allowances enforceable by law.

Thus marriage, as we know it, has come into existence entirely as a result of the contractual idea penetrating into this sphere of life. All our cherished ideals of marriage have grown out of this idea. That marriage unites one man and one woman, that it can be entered into only with the free will of both parties, that it imposes a duty of mutual fidelity, that a man's violations of the marriage vows are to be judged no differently from a woman's, that the rights of husband and wife are essentially the same — these principles develop from the contractual attitude to the problem of marital life.

No people can boast that their ancestors thought of marriage as we think of it today. Science cannot judge whether morals were once more severe than they are now. We can establish only that our views of what marriage should be are different from the views of past generations and that their ideal of marriage seems immoral in our eyes.

When panegyrists of the good old morality execrate the institution of divorce and separation they are probably right in asserting that no such things existed formerly. The right to cast off his wife which man once possessed in no way resembles the modern law of divorce. Nothing illustrates more clearly the great change of attitude than the contrast between these two institutions.

And when the church takes the lead in the struggle against divorce, it is well to remember that the existence of the modern marriage ideal of monogamy — of husband and wife with equal rights — in the defense of which the church wishes to intervene, is the result of capitalist, and not ecclesiastical, development.