Abedi, Abedi, That's All Folks

Farewell the Euro. I've been saying for a while now that the Euro is finished, the reason being that it is a paper currency backed by absolutely nothing, with a monopolist central bank that can print as much money as it wants and with several money thirsty governments begging for the booze. The theory behind this is quite simple. Having read Rothbard's book The Case Against the Fed, Bagus's book The Tragedy of the Euro, Hoppe's essay Why the State Demands Control of Money and having watched Hoppe's video on money and banking it was a no-brainer for me and if you go through them, you will see it the same way. It is predictable as much as it is inevitable.

I actually made a bet for an ounce of silver this summer with a friend of mine that the Euro would either not exist or be in hyperinflation within 5 years. Going into autumn with the sovereign debt crisis developing as it did, I felt comfortable enough to shorten that period to 3 years. But based on this interview with Ann Barnhardt (Barnhardt Capital Management, Inc.)... well, you draw your own conclusions:

"If anybody out there understands fourth grade arithmetic, you know for a metaphysical certitude that Europe is done, Europe is mathematically impossible, it cannot be saved. I mean, you wanna make a start, you even make a start at trying to bail out Europe, we're talking $25 trillion just to start, and it would then, if you were gonna bail out the entirety of Europe, you would now be talking into the hundreds of trillions of dollars. People, there isn't that much wealth or money on the surface of the Earth, the total gross domestic product of the entire planet Earth I think is just under $70 trillion and we're talking about in excess of 100 trillion to bail out Europe. This is now mathematically impossible. These people have so leveraged themselves and so leveraged these governments and these countries, giving their brain dead citizenry free handouts and entitlements that it is now mathematically impossible to save the paradigm. It's not a matter of if the global financial system is going to collapse, oh, it's going to collapse, you better trust and understand that, it's just a matter of when and these tittling little maneuvers these people are making, that the Fed is doing, oh, we're gonna give Europe some money - OK, what I saw this morning, what the Fed is getting ready to do in terms of Europe, it's gonna keep Europe going for another 7 days. Well, fantastic, thanks for that. And that's literally the brain dead mindset of these politicians. All they're doing is looking to kick the can down the road. At first it was kick the can another 10, 12 years, then it's kick the can down the road for another year, and then it was, well, let's kick the can down the road for another few months, now we're literally to the point where all we can do is kick the can down the road for a matter of a few days. It's not gonna make it, I'll be very surprised if we make it to Christmas."

Wow.

And the lessons?
1. Buy gold and silver, they cannot be printed.
2. The government isn't there to help you. It's there to steal from you.
3. (and this one has become a kind of a mantra now) Lear Austrian economics.

(I encourage you to listen to the entire interview, it's not very long but very informative)

The Economics of a Compulsory Government - Part 2

We have seen how individual interests in the private sector work to a mutual benefit. The more a business satisfies consumer demands, the better off everyone is, the consumer as well as the entrepreneur. It would then be useful to see how these interests apply to the government sector. How can a person utilize their individual interest of being better off within the government? If  government's revenues don't come from and therefore are not effected by the satisfaction of the needs of  those who use its "services", a government employee will be indifferent towards efficiency. Also, if hard work and efficiency don't result in higher income, they will strive less at what they do and look for alternative ways to increase their income. Although it must be pointed out, knowing that governments do not know if they are producing the results desired by the people or not (existing outside the profit/loss system), that it can also happen that they are not. In this case we would not even wish for them to be very efficient. If the government hires a firing squad to get rid of unemployment by shooting the unemployed, we would not call for efficiency.

There is also a moral question at hand. Since all taxation is coercive, there is no conceptual difference between stealing and taxing. Some people might argue that there is a consensus among the governed to be taxed so that the government can perform its "services", whatever they might be. But this consensus is a myth. If a consensus really existed there would be no need for compulsion. The very fact that taxes are compulsory means that there are at least a few people who would rather not pay them, your author included. So at the very least, it is not a consensus. In turn, the myth goes on, we would keep the government in check by voting them out of the office if they failed to meet our expectations. Although what on earth you stand to gain by throwing out the old thugs and installing new masters with exactly the same powers is not within my array of perception. This creates a majority rule where politicians compete for votes, which in most cases they can get by taking or promising to take wealth from »haves« and redistributing it to »have-nots«, since there are at any given time more »have-nots« than »haves« of anything worth having. This system installs a legal plunder of the rich and productive individuals and redistribution of their wealth to the less productive. It is, in effect, a punishment of productiveness and a subsidy and encouragement of the less productive or, in the case of unemployment benefits, the non-productive. Apart from the moral problem of this arrangement, there is also the pure economic aspect. If entrepreneurs and producers are not allowed to keep their incomes and profits, they will stop working and turn to capital consumption and thus, as wrote Mises, »the accumulation of new capital is slowed down. The realization of technological improvement is impaired; the quota of capital invested per worker employed is reduced; a check is placed upon the rise in the marginal productivity of labor and upon the concomitant rise in real wage rates. It is obvious that the popular belief that this mode of confiscatory taxation harms only the immediate victims, the rich, is false«. So then if we punish productive and encourage and support unproductive people, how can we expect to flourish? The answer is, of course, we cannot.
 

There is also the standard argument that the government should get into big-scale projects that the private sector would otherwise not get involved with. But the reason the private sector would and does not get involved with these projects is because it could only undertake them at a loss. This is a signal that the capital structure and the knowledge is not yet aligned to make such a project possible and that there would be insufficient demand, i.e. productivity on the part of the potential consumers, to justify the project. We should also not forget that private sector businesses could afford to invest in many more big-scale investments absent government taxation which robs them of the profits necessary for precisely such investments. To give just a few examples, it might be a desirable and noble idea for everyone to have a helicopter. Or to build roads with such sophisticated equipment that no accidents could occur. It would also have been a noble idea to provide electricity to every home in 1905. The technology for the former certainly exists and existed in 1905 for the latter. The problem is not that the greedy private sector is not and was not providing them in 1905 for selfish reasons. The problem is that there is not and was not enough physical resources to build these things profitably and that wherever the government seeks to interfere, it is only able to do so by collecting taxes and funneling capital away from industries which are producing consumer goods that are currently more urgently demanded by the public, while throwing them in the black hole of government bureaucracy where no measure of value creation, or better yet, destruction is ever possible. Whereas today, owing to decades of capital accumulation (and not just accumulation, also the development and alignment of complementary tools and resources developed by the free market) our labor is so much more productive, when one man or woman can achieve results with the capital that we have that used to require the work of perhaps tens or hundreds of people, that we can now finally afford this and produce, distribute and enjoy the benefits of electricity in every single household. And this is something one single bureaucracy, namely the government, can never ever achieve. It can only be brought about by free people discovering new ways of doing things and being able to keep the incomes from the resources they have invested. What the government can indeed do is temper with this process and/or destroy it.

How Occupy Wall Street Protests Create Jobs

When OWS demands more government regulation of corporations, the corporate lobbyists roll up their sleeves and get ready to go to work.

The Economics of a Compulsory Government - Part 1

As F.A. Hayek put it in one of his TV interviews, one of the fallacies of socialism and central planning is the assumption that all the available knowledge can be used by a single central authority. It does not recognize that the modern society (which he calls the extended order, where we work for people whom we do not know and we are supported by people whom we do not know), is based on the utilization of widely dispersed knowledge. Once you are aware that we can achieve great utilization of available resources only because we utilize the knowledge of millions of people, it becomes clear that the assumption of socialism that a central authority can command all this knowledge is just not correct. The objection against production for profit is an objection precisely against the instrument that makes this extended order possible. Production for use would only be possible if we knew all the facts. Profit is the signal that guides us and tells us what we must produce for people whom we do not know. We also have to refute a just distribution by a central authority with the same arguments. In order to achieve just distribution, the central authority would have to know all the facts, which is of course impossible. The standard of living we enjoy today is due precisely to the spontaneous process in which we are able to make use of infinitely more information than any central authority possesses.

Perhaps the greatest difference between the private sector and the government is the profit/loss system that exists in the private sector in contrast to the lack thereof in the public sector. In the free market system we can make profits when we are efficient in satisfying consumer demands and we suffer losses when our activities are not producing anything of value to the public. The tragedy is that in a compulsory government no such system exists, since it receives its revenues not from sales of products and services to voluntary buyers, but through taxation. There is hence no way of knowing whether the government is satisfying anyone's wants and demands, whether it is producing anything of value or wasting resources. The voluntary purchase in a free market is a manifestation that someone is producing a product that is the best alternative to the buyer at the time and place of the purchase. Taxation, on the other hand, is a manifestation only of force and extortion. We also do not know how productive the government's employees are. On the basis of this, the only thing we can conclude is that any given compulsory government confiscates money from one individual and gives it to another to perform a certain task. 

In a typical western democracy half of people's incomes are taken away by the government and thrown into the dark, so to speak. Since we cannot calculate what happens with it afterwards, there is no way of knowing if anything productive is happening. All human beings have their self-interests and the beauty of the free market private sector is that the only way you can satisfy them is by satisfying the demands of your customers, which is, simplified, to make better products and cheaper. In the so-called public sector, there is no such incentive or connection. The interests of government employees are the same as everyone else’s (to maximize income and minimize the effort), while it cannot be argued that they are achieved through the satisfaction of the demands of the public. Absent the profit/loss system, this cannot and is therefore never established.

When analyzing every single private enterprise you can easily see how productive they are by looking at their profit and comparing it against the number of employees, the value of their capital etc., and calculate the productiveness. You can see if they are utilizing resources to produce new value and how successful they are at it. The more successful they are, the more capital they can attract. This is, no doubt, a desirable effect. On the other hand, while analyzing the government, it would be an oxymoron to even ask the question, for instance, how productive is the Ministry of Interior. There is no answering this question. And since there is no way of determining this, how do we know that it is productive at all? How do we know it is a benefit to society, that it is producing anything of value whatsoever? Since the government and it’s employees are not motivated by the profit/loss system, and all their revenues come from compulsory taxation, they are not compelled to satisfy anyone’s demands except their own.

Beware Greedy Consumers!

A large number of recent protesters have been caught in the "greed is evil, end all greed, end capitalism" propaganda that keeps on resurfacing in history like feces in a broken toilet that just wont flush very well. But did you notice how these protesters will always claim how "they" are greedy? It's always the other guys. Ask the average protester if they think that they themselves are also greedy and you are most likely to get a negative response, if not a slap in the face.

The fact is we are all greedy to a certain extent, this is not a bad thing a priori. Here I use greed as a synonym of ambition because I don't see much difference between them. I suppose they are both defined roughly as wanting to achieve a better result for yourself beyond what most other people would deem is enough. Whatever that means. Try defining "enough", if you can. You'll find inevitably, with no exceptions, that it boils down to what you think is appropriate for oneself or another, it's only your opinion, nothing more.

So my point is that greed is not a bad thing in and of itself. It pushes people to achieve more and to dream of big things. This is how we got Henry Ford's automobiles, Steve Jobs's computers and so forth. People had big dreams and ambitions. If greed is then nothing more than aspiring to achieve more than you "really" need, how on earth is this a bad thing? I want two cars, instead of just one. How is this bad? Most people need one car (well, they don't really need them, do they?), I want two. So I'm willing to work twice as hard to earn it. No big deal. The "greedy" desires I have are not the malice. The only question relevant here is what means I am employing to achieve these desires. Am I willing to do the honest labor and work for my goals, or am I willing to steal and cheat to get there. This is the only thing that is relevant. Whether the goals themselves are more than one needs or not is completely irrelevant and, really, none of anyone's business. Also, greed is not a prerequisite of being a bad person. By that logic, one could just define a flat screen TV as something you really need and therefore wanting to have it is not a consequence of greed and stealing it is not a vice. By the same token, working hard and long hours to buy a fifth car is evil and should be punished. It doesn't work that way. It's not greed that is the issue here, we're all greedy. It's just that some poeple will employ honest and some poople will employ dishonest means to achieve their goals.

Let me illustrate this with a quick example. EasyJet, a low-fare British airliner, earned an after tax profit of £121.3 million and carried 48.8 million passengers in 2010. This means they made a profit of exactly £2.49, which is €2.84 or $3.94, per passenger. So I was curious what the other side of the trade was, how much did the customer benefit from their services. I went to Orbitz.com and looked for the cheapest flights between today and the end of October and compared the fares to Easyjet's for one particular route. This is the result I got:

A comparison between EasyJet flight fares on EasyJet.com and the cheapest other airliner as found on Orbitz.com on October 15th in USD.

It is true that EasyJet requires an additional payment of $21 for luggage, but sometimes hand luggage will suffice, especially if you are traveling for a week or less. But let's suppose you do pay that $21. And an additional credit card fee of $21. There are also cheaper ways of payment but let's suppose the worst case scenario. On the other hand, Orbitz and the other airliners may also require some additional fees, I didn't look into that so I cannot be sure. But the bottom line is that for every passenger, the "greedy" EasyJet capitalists profit 3.94$, while the passenger profits at a minimum a whopping $58.25. In addition to this, every passenger who voluntarily flies with any airliner obviously profits from the transaction since otherwise they would have held on to the money and not taken the flight.

So what protesters against profit and capitalism are really saying is take those $3.94 of profit out of the capitalist's pocket and put it into mine to add to the $58.25 of profit that I am already making. They're not saying eliminate all profits, what they are saying is reduce the other person's profit and increase mine! Who is the greedy bastard (you may use pig, swine or bastard interchangeably) here then?

Kudos to the Anti-capitalist!

Capitalists give people jobs. They give them contractually specified things to do by no means of force or intimidation. People can accept the offer or refuse it. They also pay them contractually specified amounts of money to do these things. Governments, on the other hand, take non-contractually specified amounts of money from people (i.e. however much the hell they want to take) by force or intimidation for doing non-contractually specified non-binding things. Yet, people continually demonize capitalists and praise their governments and even call them to the rescue. How people come to this conclusion is beyond me. The difficulty of understanding this issue is the difficulty of understanding the difference between the words GIVE and TAKE. This guy over here gives you money, that guy over there takes it. How hard could it be? It takes some serious sociopathic brainwashing to get people to believe the anti-capitalistic socialist propaganda. Completely non sequitur. And also 1+1=3.

But hey, that's what our beloved government schools are for, right? People often say that our schools are failing our children, that they are not giving them the tools necessary to succeed in life. I would disagree. They are not failing, they are doing exactly what they were designed to do - teach the kids that government is your friend. Kudos, you've done it!

Listen to Dead People

It's amazing how we sometimes believe that we the living are always on the forefront of knowledge. That we progress ceaselessly, always upwards and that we know more than our grandfathers did and we can therefore ignore their insights. We tell ourselves stories about how very different our society is today than it was in their times and so we can make up our own rules. How vain we are. The fact is that there is a host of ideas out there, written by people who now lack a pulse, that were somehow forgotten or ignored, but have a far better insight than 99% of the soundwaves that fly into our ears on a daily basis. Here are some of the ones I find interesting:

"It means forgetting that the execution of these regulations is always entrusted to men who may have all the more interest in fraud or in conniving at fraud since the fraud which they might commit would be covered in some way by the seal of public authority and by the confidence which this seal inspires in the consumers."
-Anne-Robert-Jacques Turgot (1727-1781) about how foolish it is to believe government regulators will always look out for our own good as opposed to actors on the market who are supposedly always just trying to con us, while government agents are angels and cannot be corrupt.
Source

If the king "should tell the tyrant's usual lie that he applies the profit from debasement to the public advantage, he must not be believed, because he might as well take my coat and say he needed it for the public service".
-Nicole Oresme (1325-1382) on how governments have always used the tool of money debasement to enrich themselves at the expense of everyone else and then to add insult to injury, had the nerve to try to convince us that this is really for our own good.
Source

"Disputes among the ordinary people are merely trivial matters, for what scope of consequences can a contest of strength between ordinary fellows generate? They have no spreading lands to arouse avarice... they wield no authority through which they can advance their struggle. Their power is not such that they can assemble mass followings, and they command no awe that might quell [such gatherings] by their opponents. How can they compare with a display of the royal anger, which can deploy armies and move battalions, making people who hold no enemies attack states that have done no wrong?"
-Pao Ching-yen (4th century AD) on the devastating results of government force.
Source

What did these people know that we don't? Were they correct? Do these words seem like a relic of the past or can we use their knowledge and apply it to the challenges of today?

It Takes 30 Years To Make a Ham Sandwich

That's right, it took a 30 year process to bring a sandwich to the store shelf for your convenience just before you decided to walk in and grab it. You might think this is a bit of an exaggeration, it is not. Of course, the number is made up but I think it's actually much higher. And what's more, nobody knows how to make one. Do you? I certainly don't.

Here is what I do know though. For the slice of ham to end up in your sandwich, you first need a whole piece of ham, which had to be held at a cool temperature in a facility that needed years of research and development to make it cool at exactly the right temperature. Before cooling, the ham had to be cooked somewhere after it was chopped off a pig. The pig had to be raised at a farm that had to be built years ago by engineers who specialize in farm building, the farmers needed to gain knowledge for generations about how to raise pigs, they had to save money to build barns and buy fodder and so forth. The ham needed to be transported with a truck  which requires tires that again needed years of research and development, you need an internal combustion engine that had to be invented and then bettered for decades so that it could bring the ham to the sandwich packing place. To run the truck you need gasoline that had to be refined from oil, which had to be pumped out of the ground through a hole that had to be drilled with a high tech drill... You get the picture. Now these are the things I know off the top of my head. I don't know how to farm pigs, build trucks, make tires, refridgeators or how to cook a leg of a pig so that it transforms into ham. And this is just the ham part. Then there is the bread, cheese and butter, perhaps also some lettuce...

It takes millions of people and years and years of savings, investment, experimentation, development and production just to place a ham sandwich on a store shelf at the exact time and place you happen to wish for one. And the most fascinating part is that it's all done voluntarily. No one is forcing anyone to raise pigs or build trucks. People come together with their self interest, looking for a way to make a profit with the knowledge and skills they have, responding to prices and consumer demand. They produce and exchange without a central planning board or committee. They look for profit and respond to where consumers are directing them.

So what about fraud then, does that exist on the market? Of course it does. But there are several checks to prevent that very efficiently. Firstly, if you commit fraud on a regular basis, you will be caught out fairly quickly. People talk, they inquire and inform themselves, they share experiences. If you do not take good care of your customers in the long run, you are going to run out of them. That is why careless, incompetent or fraudulent entrepreneurs tend to go out of business and thereby remove themselves systematically as a risk to consumers. Also, consumers can protect themselves. They can look for third party assessments about the quality and safety of the goods they are purchasing. Absent government, people would look for stamps of approval when buying food, some sort of certificate regarding the quality and safety by an independent third party and would be willing to spend money for it according to how important they think food safety is. The only reason they do not do this today is because they expect the government to do it for them. And of course the government does a poor job at it precisely because of the lack of profit and loss incentives. If they fail to deliver, nothing happens, nobody loses money. They receive funding regardless of how successful they are because they receive it via budget allocations by political means, not from satisfied customers. In fact, if they do a poor job, they can always claim it was because of a lack of resources and demand a higher budget for next year.

So the effects are exactly the opposite. If private institutions do badly in satisfying consumer demand, if they fail, they lose money. If a government agency fails to do its job, it usually gets more money next year. The fact is you can never eliminate risk and injustice, the question is only which form of social order does the best job minimizing it – free markets and capitalism or government intervention and socialism.

The whole premise of government apologists is that because some people are sometimes corrupt, we need government to protect everyone. But who is government made up of? Angels? Gods? No, the very same people that they claim can sometimes be corrupt. So how is that going to help? The only difference is that free market organizations collect your money through voulontary exchanges, you give it up because they have something you like more than your money. The way government collects your money is by sticking a gun in your face and saying »pay up, or else...«

The Record of The Fed

The Federal Reserve System (i.e. the US central bank) was established in 1913 with three mandates:
1. Maximum employment
2. Price stability
3. Moderate long-term interest rates.
Let us see how they did on all three accounts.

1. Maximum employment
According to the US Bureau of Labor Statistics (at the US Department of Labor), the official unemployment rate as of August 2011 was 9.1%, though this number does not include "short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment." It also does not include long-term discouraged workers. If you include these people, the rate is substantially higher.

2. Price stability


















I don't suppose this chart needs any additional commentary.

3. Moderate long-term interest rates
Currently the 30-year treasury bond yields 3.26%, which is lower than the official CPI (consumer price index) rate of increase, currently at 3.6% as of July 2011 for the past 12 months. Last I checked moderate and negative were not synonyms.

Well yes, I guess it's been a complete success. More power to them!

Empire of Debt

Empire of Debt is a book by Bill Bonner and Addison Wiggin. It was written in 2005 and published in 2006 and it talks about the history of empires and the current American empire. It talks about how empires rise and come down and most of all, it describes perfectly the conditions that led to the economic crisis and it predicts precisely the events that we are going through today. This is the book that gave me a lot of answers, sent me searching for more and eventually led me to discover Austrian economics. I want to share one of my favorite excerpts from this book:

     "Things that are unusual usually return to normal. If they did not, there would be no "norma" to return to. That is why you can expect stocks to become more expensive when they are cheap and cheaper when they are expensive. Stocks today are expensive - they trade for an average of about 20 times earnings. Usually, they trade for only 12 to 15 times earnings, so you can expect them to get cheaper.
     Houses are expensive too. They usually go up at a rate roughly equal to the rate of inflation, income, or GDP growth - no more. For the past 10 years, however, they've gone up three to five times as fast. House prices cannot grow faster than income for very long; people have to be able to pay the prices in order to live in them.  So, you can expect houses to revert to their mean too. Prices will fall... or else stop rising. 
     These simple reversions to mean are hardly controversial. We don't know when they will happen or how, but that they will come about is practically guaranteed.
     More interesting to us are the reversions to other, bigger means. An empire itself is a rare thing. It is normal, but unusual. Nature abhors a monopoly. An empire is a monopoly on force. Nature will tolerate it for a while, but sooner or later, the imperial people must revert to being normal people, and the preposterous beliefs that the imperial people cherish, also must pass away. They must go up to a kind of humbug heaven, where absurd ideas and idle flatteries strut around while the gods point, snicker, and collapse into mirth, rolling around clutching their stomachs as if the humor of it was going to kill them.
     The dollar is an extraordinary thing too. Do you know what the long term mean value of paper currency is? Well, it is zero. That is what the average paper currency is worth most of the time... and it is the black hole into which all paper currencies in the past have gone. There could be something magic about the dollar that makes it unlike any paper currency in the past - this is, something that makes it non-mean reverting. But if anyone knows what it is he is not working on this book. For the last hundred years, the dollar has lost value faster than the decline of the roman-era Dinarius after the reign of Nero. This is not surprising. Roman coins had silver or gold in them. In order to make the coins less valuable, they had to reduce the precious metal content. People didn't like it. The dollar, by contrast, contains no precious metal. Not even any base metal. It is just paper. It has no inherent value. There is nothing to take out, because there was never anything there in the first place. Over time, the dollar is almost certain to revert to its real value - which is as empty as deep space. 


It's an excellent book, pick it up if you have a chance. And if you don't, the authors also have a blog called The Daily Reckoning. It's a good read.

The Social Contract

The justification for a democratic social order is often based on the so called social contract, whereby citizens give their consent, pay taxes and pledge their obedience to their elected overlords in exchange for protection, justice, a civil society, order and all the rest of it. This creates a sort of a balance. The men of elevated justice take on the monstrous task of creating a social order, while the masses pay taxes and obey the rule(r)s. Also, there are checks. The men in power amass all the guns so as to make sure people obey their commands, while the people, on the other hand, have the right to vote the bums out of office every 4 to 5 years and vote in – new bums who take over the guns from the old bums along with the rights to tell everyone what to do. So far, so good.

There is one problem, however – no one has ever seen this contract. If it were a super hero, it would be the invisible man. It's the 10th planet of our solar system and the third twin baby. It would be the Bigfoot of contracts except there have actually been reported sightings of Bigfoot. There have, on the other hand, been no reported sightings of the social contract. At least none that I know of.

But since we are all driven to obey this mysterious contract, it would certainly behoove us to learn a little bit about the wording of it, would it not? Now again, I have not myself seen or signed it (drunk Fridays don't count), so I cannot testify to its contents first hand. Nonetheless, observing the world around me, I can imagine it looks a bit like this:

This is a contract between the governing people

and

The governed

1. The governing people shall henceforth be allowed to

·      Write any law that shall direct and prescribe behavior of the governed and command obedience

·      Write any number of nearly incomprehensible laws, of which ignorance and inability to comprehend them shall not exempt the governed of being guilty of violating them

·      Be the final arbiter and judge in any case of disagreement or conflict between the subjects of the governed or between the governed and the governing people themselves

·      Write different classes of laws, one class applying to the governed and another applying to themselves - the governing people

·      Take possession of all firearms and disallow possession of them by the governed – for their own safety

·      Demand payment from the governed in any size and from any sources deemed fit and appropriate by the governing people and assume debt which will have to be paid by the governed and their scions; these payments and debt can be changed at any time, subject to the governing people's discretion

·      Spend the collected money according to their discretion

·      Use force in case of non obedience by the governed

·      Inspect, regulate, license, control, survey, register, restrict, punish, label and supervise conduct of the governed to ensure compliance with the laws they have written

·      Change any of the above at any time and in any way deemed necessary or appropriate by the governing people

2. The governed people shall henceforth be allowed to

·      Have a 1/N (N = the number of voters) chance of replacing the governing people with new governing people who shall remain in control of all the powers listed in point 1. and be allowed to change them at will.

Would you sign this contract? Apparently we already have. It's a strange thing this collective amnesia thing. I have to go ask my neighbor if he remembers signing it...

If Only Tobacco Had a Voice

There are many differences between tobacco and a government. Tobacco never lies, deceives or robs people. It does not tax or regulate and it cannot fight as well. It does not shoot at people and it doesn't insult anyone. It cannot protect and defend itself and it has no means of having anyone do that job for it. What a shame!

And why should you care? If tobacco is so defenseless, it's obvious then that we should stand up for it and defend it with all honor, for it is being attacked all them time. Government keeps throwing around ugly images about what tobacco does to us all the time. We see pictures of black lungs, they try to frighten us about what tobacco will do to us with photographs of yellow teeth and fingernails. We find dire warnings on cigarette packs and billboards. Something must be done to stop these atrocities tobacco is committing, the government warns us! Likewise, the government forces bar and club owners to ban tobacco from being used on their premises. Even the World Health Organization tells us that "[t]obacco caused 100 million deaths in the 20th century". How on earth tobacco managed to kill all these people when it cannot even pick up a gun is a bit of a stretch for my reasoning. But whatever, my aim is not do dispute this number. Quite the contrary, I believe it likely to be accurate. I do not smoke myself and obviously, if you are going to be a smoker, you are increasing your chances of slashing a few years off your to-do list. I just want to put this number into perspective.

I cannot be perfectly sure, but if tobacco had a voice, I think it would wish to tell us these two things:

1.     I don’t kill people. Some people seem to have higher time preferences than others. They want to enjoy the present and are not too much worried about increasing their chance of an early death in the distant future. It is their choice to roll me up in paper and set me on fire, and who is anyone else to be the final and objective judge on what is right or wrong with that.

2.     I may have indirectly caused the death of 100 million people in the 20^th century, but governments around the world, who are constantly trying to warn you abut me, have very directly murdered 262 million people in the same 20^th century. And this is just in times of “peace”. In wartime, an additional 34 million perished at the hands of government sponsored wars. In the 20^th century alone then, governments around the world gave a blood bath to nearly 300 million people. This is the entire population of the USA completely wiped out, off the face of this planet.

If you’ve managed to read this whole piece, you probably either feel better about smoking or worse about your government. I wish it wasn’t the former.

Hi Policeman, Would You Like To Have Some New Powers Today?

I've said many times that most people will not protest the loss of liberty and will be quite complacent about it, so long as Internet and Facebook in particular remain relatively free. Well, apparently, and predictably, this also is about to change. In a rather fascist statement, the British prime minister David Cameron made it blatantly clear today that the powers that be will stand for no loss of control and will indeed take any chance to expand it:

"Mr Speaker, everyone watching these horrific actions will be stuck by how they were organised via social media. Free flow of information can be used for good. But it can also be used for ill. And when people are using social media for violence we need to stop them. So we are working with the Police, the intelligence services and industry to look at whether it would be right to stop people communicating via these websites and services when we know [emphasis added] they are plotting violence, disorder and criminality."

How exactly the government would come to know someone is plotting violence, ho does, to the best of my knowledge, not explain. Also, once they usurp these powers, the line between knowing and thinking will gradually diminish. Moreover, the term "plotting violence" can have more definitions than Angelina Jolie has children. He then goes on to assure us that our rights don't really matter that much:

"I have also asked the police if they need any other new powers. Specifically on facemasks, currently they can only remove these in a specific geographical location and for a limited time. So I can announce today that we are going to give the police the discretion to remove face coverings under any circumstances where there is reasonable suspicion that they are related to criminal activity. And on dealing with crowds, we are also looking at the use of existing dispersal powers and whether any wider power of curfew is necessary. Mr Speaker, whenever the police face a new threat – they must have the freedom and the confidence to change tactics. This government will make sure they always have that. The fight back has well and truly begun."

Notice how "knowing" swiftly changes into "reasonable suspicion". Reasonable, also, is a flexible term. Like a steak. Beat it enough and it soon covers half of your kitchen. I wonder, though, what they'll do if the swine flu returns and everyone is wearing masks... "Remove that mask, sir, oh no wait, hang on... oh... Harry, good ol' chap, I say, what to do with all these powers if you shan't use them... Take your trousers off instead!" But back to serious matters, the bottom line is, when I step on your toe and you complain, the best way to silence you is to bash you over the head. The complaints, of course, must be evil, for I have every right to step on that toe. And how do you know that? Well, I've written a law about it, haven't you heard?

Switzerland Joins the Band Wagon

The Swiss National Bank (SNB) announced recently that it will devalue the Swiss Franc. This can in no plausible way end well. The only way they can of course devalue the Franc is through inflation. And the way the modern banking system is designed, it can only do so through the banking system in the form credit expansion. It means more debt will be taken on and since banks make money through loans, this measure will lower the interest rate and lure businesses into investing. Now since this lowering of the interest rate will not come through an increase in savings by the people but rather by monetary expansion, it is by definition necessary that all these investments will not be completed. People are spending the same or more, saving the same or less, and yet more investment is being undertaken. This cannot be, it is unsustainable. At a certain point, some of these investments will have to stop. Businesses will need to fail and the banks that fund them will be in trouble. Sound familiar?

At this point, the government can do two things. It can either let the recession and liquidation process run its course and let the economy heal or it can bail out the banks, create more credit and inflation. And we all know how that story ends...

Another myth out there is that the strengthening Franc is somehow bad for the Swiss economy. Is it really? Let's look and see. When a currency strengthens, it means it has more purchasing power. It means you get more for the same amount of money. So on the face of it, it would seem at least weird to claim that it is bad for the Swiss to have their money buy more stuff. Truth be told, there are some sectors of the Swiss economy that might be having some trouble, such as exports, but it is not specifically because the Franc is rising, that's just a corollary and I'll get to that in a minute. First, you have to remember what the Franc is gauged against, which is always another currency. So if the Franc is going up, by necessity, another, and in this case, most (or all) other currencies are losing value. And this is the true underlying trend. It's not so much that the Franc is gaining, rather the value of other currencies like the Euro and the US dollar is plummeting. Compare the Franc to the New Zealand dollar and it is not anywhere near as bad, the Franc is flat to slightly rising. Compare it to gold and you will see the Franc flat to falling, depending on which time horizon you are looking at. So it might be that exporters are having a tough time (though I'm not entirely convinced) but importers on the other hand are positively thrilled. Their imports are getting cheaper and cheaper as the Franc is gaining value. And to the extent that the exporters are in trouble, it is because the rest of the world is losing its purchasing power, not specifically because of the Franc. Besides, it's a more or less open world for trading, Switzerland imports as much as it exports (their trade surplus is less than 0.5% of the GDP), so every single exporting business in Switzerland is enjoying the benefits of a strengthening Franc as much as it is lamenting the downsides. Also, as the Franc has been going up during the past 5 years, so has the Swiss trade surplus! On the other side of the pond, the US has been devaluing its dollar for decades and the last time they had a trade surplus was in... um... hang on... well, the chart I have only goes back to 1992. It's not that you can prove or disprove a point by pointing at statistical data, but it lends some illumination nevertheless.

Now let's examine what will happen to the Franc and the Swiss businesses after the Swiss central bank starts devaluing. Inflation will cause rising prices in Switzerland and stop (or else slow down) its strengthening against other currencies. Foreign goods and services will also start rising in price just like they are for the rest of the world – US dollar denominated commodity prices have doubled (!) in the last two and a half years – and if the Franc stops outpacing the USD, imports will get more expensive and this will start squeezing the profits of  the exporters. Now of course, if the Swiss businesses want to drop their profit margins, they can do so at any moment. They need only to lower their prices and voila, there it is (I wonder why they don't do that?). I have a hunch they will not be happy with lower profits or losses. They will have to raise prices and the problem reemerges. On top of that they will have rising domestic consumer prices, an ailing economy and a wave of bad investments ready to spoil whatever is left of the party.

This is not, however, an unexpected turn of events. If one has an exclusive right to print money, it's impossible to expect them not to take advantage of it and inflate. The only question in my mind is how they were able to resist it thus far, as much as they did. Either way, at long last, as if any further proof was needed, we find that all politicians are red under the skin and wicked to boot, even the Swiss.

Why the Depression Just Won't Go Away

The US just lost its AAA credit rating, stocks are plummeting, the European states are drowning in debt and the economy is in the toilet...

Many people around the world find themselves wondering why the economic downturn we are enduring keeps persisting so relentlessly and are at a loss for an explanation. Thinking that you, dear reader, might be one of them, I have set before me the all but impossible task of shedding some light on this issue. It's not something you can learn in 2 minutes, but fear not, it doesn't require a lifetime either. On the contrary, everything is very logical and you don't have to be a trained economist to grasp it. In fact, it might even help you, since your mind has most probably not been clouded with all the political economy nonsense that is floating around these days.

I also want to throw in a word about economic literacy and why it is important. It is vitally important because you are inevitably going to make decisions in your life that reflect what you think about the economy. If you think that recovery is around the corner, you are invariably going to make different decisions than if you think the retardation is going to persist. If you know the weather, you might spare yourself getting caught wet and cold. If you know economics, you might be able to spare yourself being caught penniless in the coming economic hail. You will be able to translate the near incomprehensible lingo of Keynesian economists, such as »we must increase aggregate demand to stimulate economic output« into what they are really saying, which is »we must print money so that our friends in the government and banking sector might increase their income at the expense of everyone else.«

Back to the subject at hand. Our current recession is a part of what economists call a business cycle, whereby the economy goes through cyclical, recurring changes in the amount of goods and services the economy produces. It keeps switching between expansion or economic boom and contraction, also known as the bust, recession etc. This is why it is also called the boom and bust cycle, or the trade cycle. Its history starts roughly in the mid 18th century and this peculiar phenomenon has boggled the minds of countless economists ever since. There were economic depressions before that but not this cyclical and lacking an apparent cause. Numerous theories have been developed as to the root of this menace, but only one of them has been able to both predict and explain the cycle to the full extent. Ever since Ludwig von Mises and Friedrich A. von Hayek have developed the »Austrian« theory of the business cycle in the 1920s and 1930s, the cause of the cycle is no longer a mystery (when I say Austrian, it doesn't have much to do with Austria; it is called Austrian because it is based on a school of thought whose founders mainly came from Austria).

A correct and full explanation of the trade cycle must answer two vital questions. Firstly, why do many or most entrepreneurs suddenly find themselves producing losses all at the same time. Entrepreneurs tend to be great forecasters. If they are not, the market weeds them out and they go out of business fairly quickly. So why do all these entrepreneurs, trained to forecast future demand, make all these losses all at the same time? Secondly, why are capital goods industries hit much harder than consumer goods industries. Why is, for instance, construction and manufacturing hit much harder than retail. In every recession, case after case, you have these two phenomenon and the Austrian theory of the business cycle is the only one that answers both of these questions and many more.

So let me then try and put forth the Austrian theory of the business cycle in a nutshell as best I can. This theory holds that interest rates, much like any other price in the economy, actually have a meaning and that they should be determined by the market, not by a central planning institution, such as the central bank. Central planning of prices has been tried many, many times in the history of human kind and every time it is implemented, it wreaks havoc to the economy. It so happens that prices convey information about relative scarcity (how much of something there is available) and when they are artificially set, they put a blindfold on people’s eyes so that they can no longer make informed decisions. Interest rates then play the function of allocating credit to the most eligible borrowers that are most credit worthy and will use the borrowed funds most productively.

First, let us examine the process of saving and lending in a free market where a central bank does not exist. In this case interest rates in general will be determined by the supply and demand for loanable resources (saved money). While the demand for them will be set by different variables, such as technological advances and tendencies to take risk, the supply of loanable funds (credit) will always be determined by people's time preferences – how much of their income they wish to consume and how much of it they wish to save and invest for future consumption. Thus, when people's time preferences fall, the level of savings in the economy increases and this lowers the interest rate. This provides a powerful incentive for entrepreneurs and businesses to borrow. Since there are now more resources available to invest at a lower cost, businesses engage in new projects and new investments. Also, since long term projects are more interest rate sensitive (if you are borrowing for 30 years, the interest payments represent a much higher cost than if you are borrowing for 3 years), it follows that businesses will also engage in more long term investments that are higher in the stages of production, i.e. investments that are further removed from consumer products (investments into buildings and machinery as opposed to investment into computers). The increased pool of saved resources by the public will provide the supply of physical resources to see all these new projects through to completion, which is why they can be carried out profitably. Upon the completion of these projects, the invested businesses can now repay the loans to their borrowers (this being the public who initially saved) in the form of consumer products that they can now produce with a higher rate of productivity because of the new capital they have invested in (more and better equipment and machinery etc.). This is the way economies grow and have grown since the day man invented his first tools that we now call capital and there is no way around it. Only sufficient saved funds will provide the resources for investment and an unhampered free market will be needed to guide these resources to their most efficient uses. This is the process by which we have been able to come to enjoy the standards of living that we do today.

By contrast, when the central bank intervenes in the market interest rate, usually by lowering it, this gives businesses the false illusion that there are now more loanable funds available for borrowing and investing. The effects are the same, the interest rate drops, even though no one is saving more. The money supply increases but the pool of real resources (the real material stuff out there) needed to fund these investments stays the same. Just because a central banker decides to lower the interest rate, this doesn't release any new resources into the economy. As we have seen, the supply of saved funds is determined by people's time preferences (apportioning income between consumption and saving) and an artificial lowering of the interest rate does not cause people to spend less and save more. If anything, people will spend even more since saving has now been rendered less rewarding by a lowering of the interest rate. The economy is now being stretched apart in an unsustainable way and is »overheating«. Businesses have received new loans due to an increase in the money supply and now an increased number of enterprises is competing for the unchanged pool of physical resources, an unchanged pool of the factors of production, investing them in all the wrong places (eg. tech companies in the 1990s, housing in the 2000s) and most importantly, bidding up their prices. Since entrepreneurs were not calculating with these price increases, they now need new borrowed funds, new credit, to carry out their projects to completion. This causes a surge in the demand for credit, which in turn causes the interest rate to rise again. All those projects that seemed profitable and were started just because of the artificial lowering of the interest rate will now reveal their true nature and show to be unprofitable again because the public has not saved enough to fund them and the return to the market interest rate indicates precisely that. The projects will either not be completed or there will not be enough consumer demand (spending) to make them profitable. What needs to happen then is for these malinvestments, as they are called, to get liquidated. Some investments can be restructured and be put to new use, while others will have to be abandoned altogether. The investments were being made by an artificial boom in credit and were not allocated according to consumer demands.

Knowing this, what then is the best way to “treat” the recession? The shortest way out of it is for the government to step out of the way and let the market work. At a higher rate of interest, the public will automatically increase their savings to provide funding for profitable investments and a reallocation of invested resources to their proper productive use. In other words, the recession is not to be fought, but rather let to run its course and correct the mistakes of the boom since it is the only way back to prosperity. The worst thing a central bank can do is to lower the interest rate yet again, since that will only cause a new wave of malinvestments that will need to be liquidated later on in a longer and more painful period of restructuring, once the credit expansion cycle is over. If the central bank keeps lowering its rates and increasing its money supply in perpetuity, it will eventually and inevitably lead to hyperinflation. If it raises its rates, a recession will ensue but there is no third way. And the sooner the recession, the better, since there will be less malinvestments to liquidate. As Ludwig von Mises puts it in his opus magnum Human Action, »[t]he wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.« Get rid of the central bank and the problem disappears.

Read Austrian economics and learn more about this stuff, I could not encourage you more, for as Murray Rothbard and Mises put it, economics is far too important to leave it to the economists. If you are interested in this subject, here are some helpful links:

Introductory:

Tom Woods on the business cycle and why the 1920 depression was over very quickly: Why You've Never Heard of the Great Depression of 1920 (video)

Tom Woods: An 8 min part of the same lecture where he speaks only about the business cycle theory (video)

Ron Paul, US congressman: Ron Paul and the Austrian Theory of the Business Cycle (video)

Intermediate:

Roger Garrison: Austrian Theory of the Trade Cycle (video)

Advanced:

Murray Rothbard: America's Great Depression (pdf book)

What the Bloggin' Hell?

I used to be so sure I would be able to sway people's opinions in the right direction, show them bits and pieces of the truth about what is going on in the economy, in our daily lives and how tragic it is that we are losing all these freedoms and that people would eagerly lend me their ears. I though if I could just point out some of the things I believe are so horribly wrong in this world and especially why they are wrong (for what good is medicine without a proper diagnosis), they would get interested and listen. I was wrong.

It seems that as long as people have internet access, Facebook and alcohol, they could hardly be interested in who is stealing money from their wallet. Fair enough, I am judging no one. It is a hard pill to swallow. Some of these economic issues are hard to fathom and when understood, the knowledge of how little of an impact we can make can be very brutal. I should know, for it keeps me up many a night. Sometimes the feeling of helplessness in the face of injustice can be even worse than injustice itself. It makes many people favor tolerating degradation because to stand up and fail would be even more degrading.

Sadly, as we have all doubtless been taught and know to be true, ignorance doesn't work. And I for one have no intention of doing nothing when I am routinely being looted by the government. It's wrong morally and it makes for very bad economics.

Knowing that people will not just march in my way after seeing my flag, what then is my point? First of all, I believe there is something very liberating about finding out the truth. Years ago, when I first started studying Murray Rothbard, Ludwig von Mises, Hans-Hermann Hoppe, Tom Woods and free market Austrian economics in general, I was almost literally flying. I experienced many of those, »ah, so that's how it really works« moments that are so rare in life. Secondly, having studied economics in much depth in the past few years, I know that the economic situation round the globe is going to get much worse before it ever gets a bit better again and I want to do my best to help people understand why, so that we can get on the right track.

All this makes me certain of one thing – knowing where we are headed, I am sure that people will increasingly start searching for answers, as I believe they already have. I just hope that someone, lost for answers as for why their life has taken such a turn for the worse, might one day stumble across my footsteps and follow my trail, not being satisfied with the cheap statist, Keynesian, socialist answers they have been fed.

I know that I alone can do nothing against the all powerful government, the power is in numbers. But first, we have to win the battle of ideas. A few people have asked me »how do you expect to convey all these hard economic topics to all those people?« »One at a time«, I reply.

To conclude, I might do best to quote Ludwig von Mises: »Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping toward destruction. Therefore, everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interest of everyone hangs on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.” In other words, what you think about the world is a part of my fate.

With that happy thought I am leaving for vacation for a few days. But worry not. Be back soon:)

How I Got Mugged by the Insurance Company

Well, actually, it might be more accurate to call it the insurance office and you will see what I mean by that during the course of reading this. Anyhow, I want to share a story that happened to me a few days ago. Facing the situation of having to arrange my health insurance by myself for the first time, I went to the Health Insurance Bureau to get the papers quickly and get on with my life. Little did I know at the time it would become the nightmare that it turned out to be...

You see, we have a system in this country whereby you are mandated to buy basic heath insurance (which doesn't really cover much), whether you want it or not, need it or not, no questions asked. And to make things worse, there is only one institution where you can do this (in other words, a monopoly) and it is run by the government (you've guessed) – the aforementioned Health Insurance Bureau. 

So I walked into the building and was kindly escorted to the window, where I described what I was there for. The clerk then asked me on what basis I would like to establish my insurance. Not knowing what on earth she was talking about, I tried to look perplexed enough to entertain a follow up question. Sure enough, she went on to ask me if I was employed, if I owned a business, if I wanted to insure myself as a citizen and so forth. Now that was a question I could answer! So I said »Yes, I do own a business« (wondering about the relevance of the fact), feeling quite proud, though the feeling was rather short lived as the next sentence she uttered was »well in that case you can only insure yourself as a business owner«. Sensing this didn't mean I get a lollipop at the end of the procedure, I tried to find out what this meant for me (here comes the tricky part). Knowing that the health insurance premium for citizens is 14,70 EUR, I was rather surprised to hear her say it was 40 for me as a business owner. »Forty what?«, I replied. »Forty, zero forty«, she said. »Forty Euros?« »No, the code of insurance is 040«, I was informed. Another indispensable piece of data, no doubt. As you can imagine, I was starting to get a wee bit frustrated at this point, so I proposed »why don't you rather tell me what premiums I will have to pay.« Much to my further surprise, she replied »a bit higher, I think, but I don't actually know that, I'm just filling out these forms. Ask your accountant.« Facing no other choice, I signed the papers, only to find out later that the difference was way beyond anything remotely reasonable, as you will see. 

Now let's imagine for a second you got this kind of treatment from a privately owned organization operating on the market. Say you went to Mercator (local supermarket chain), filled up your cart and the first thing the sales clerk asked you at the register was »are you employed, do you own a business, sir? Ah, in that case it's 040 for you, you have to pay higher prices for your food but we don't actually know how much. If you'd be kind enough to sign here, you can ask your accountant about our prices later. Oh and you can't buy food anywhere else and in fact you have to show up and buy food here every month, or else we put a gun in your face and throw you in prison.« If the private sector did this to us, we would scream endlessly about the injustice, burn down their headquarters and demand someone be put in jail. And quite rightly so! Yet when the government does the exact same thing, we automatically think this is the way things are supposed to work, this is the only way things can work and to suggest otherwise would be just ludicrous. When the government forces us to pay higher prices, when it prevents competition and arbitrarily discriminates against us, most people find nothing in particular wrong with it and will even got to great lengths to defend it. I have a hunch why this is the case but perhaps that is a topic for another discussion. 

Let me rather describe how insurance is supposed to work on a free market. Insurance companies insure people against low probability, high-cost disasters, such as natural, health-related, and other disasters. They collect premiums from consenting customers and pay out compensation when disaster indeed strikes. One thing insurance companies also do is discriminate, but in a very different way than was described above - in the right kind of way. They encourage and provide incentives to their customers to engage in less risky behavior, primarily in the form of discounts on their premiums. For instance, safe drivers get lower premiums, people with security alarms get a discount on their burglary insurance, a house with a fire sprinkler system will be awarded with a lower fire insurance premium. Insurance companies do this because if their customers engage in less risky behavior, they need to pay out less compensation. If they pay out less in compensation, they have lower costs of doing business. If they have lower costs of doing business and there is competition on the market, they pass these lower costs out in the form of lower premiums to attract additional customers and keep the existing ones so they can earn higher profits. Everybody wins. There is no real magic in it, it's the way free markets work and it's a beautiful self-correcting, perpetually-improving system. This is why proponents of capitalism always say that greed is good in a free market. The greed for higher profits pushes businesses to create new and better products at lower prices to earn our money. 

Now compare this to my situation. I have to pay higher premiums just because I own a business. I could be very poor, and it makes not difference. I could live a very healthy life, greatly diminishing the probability of the need for high-cost medical care and it makes not difference. Someone else might have a hobby to jump in open fires day in and day out and pay less than me. Someone who engages in mountain climbing could have lower premiums. Someone who smokes 3 packs of cigarettes and drinks a bottle of vodka a day could have lower premium payments than me. In fact, someone who regularly drinks vodka and smokes cigarettes while climbing a mountain above an open fire could enjoy lower health insurance premiums than me, just because he/she doesn't own a business. Indeed, if an insurance company operated like that in a free market it would go out of business immediately. 

Another thing I want to mention are the incentives involved. In a free market health insurance system, as we have seen, people are encouraged to lead healthy lives to minimize their expenses. We wouldn't need all those horrible pictures and dire warnings on cigarette packs to discourage smoking, people would just naturally tend to smoke lease because they would have much lower health insurance. There would be less negative externalities, if you will. In the socialist health care system we have today, non-smokers have to pay for the health expenses of smokers, hardly a just and deserving penalty for not being a smoker. Moreover, what kind of incentive is it to penalize people just because they own capital. If they checked my income and/or net worth and decided I can afford higher payments, it would still be wrong and flawed, but at least I could partially understand the logic behind it. But in a case like mine, there is no welfare system logic behind it, it is pure ideology. Because of the fact that I own capital, I have to pay more for health insurance. It is socialism 101 – make the capitalist pay! I want to especially stress this fact several times to show just exactly how corrupt the government is. The fable about creating justice and equality is a farse, it just doesn't work that way. The government is rather in the business of expropriation and repression and even though they claim to be of benefit to society, we should know better. A rat might learn how to bark and it will still be the same rotten old rat.

Oh, and by the way, my premium is 325 Euros. Trure, they are selling me other things, such as unemployment inurance and pension insurance, but I don't need that, nor do I want it. Why don't I have the freedom to chose what services I want to buy? I just want health insurance and if I don't want all the other things in the offered package deal, effectively my health insurance cost is 325 EUR. Imagine a chicken farmer going out to buy bread, only to find out that the store only sells bread in a package deal with 5 chickens at 150 EUR. And for the sake of argument let's say that he can't sell the chickens. For him, the price of that bread is 150 EUR.

Profit Is Not Money

When profits are made on the market as a consequence of voluntary exchanges, it means both parties to the exchange make a profit (or else expect to make it), otherwise the exchange obviously would not take place. There are two parties making a profit because they both perceive what they are giving up (their costs) to be of lesser value than what they are acquiring in exchange. This is a key thing to understand about free markets. In every voluntary exchange there are two parties profiting. So whenever you make a purchase of something you like, you're making a profit. You are letting go of your money because you obviously perceive the thing you are obtaining to be of greater value. And the difference between all the enjoyment that this something is capable of delivering and the money you have paid is your profit. It is impossible to measure it, but this does not make it any less of a profit.

In any case, all profits are impossible to measure. This concept might be a bit difficult to grasp at first because you have been taught all your life to view profits as a figure businesses report at the end of their fiscal year. But of course money has no value in and of itself. You can't eat or drink it and it will not give you a lap dance, no matter how hard you try. What gives money its utility is the services it provides, its purchasing power. It is the same with profits. People do not seek to make a profit to create a heap of paper money in their back yard, they want stuff and services and all the rest of it. So when corporations report their earnings, it doesn't really have much in-depth meaning. They are just abstract numbers. Not that money is not important, it's the foundation of modern civilization, but it does not tell us much about the nature of profits.

If capitalists were to report their real profits, they would send in the following report: »kitchen table, new manufacturing tool, microwave, 2 week vacation with family, roof tiles, garden hose, new Xerox for office, 7 whisky shots, taxi home, flowers for wife« and so forth. In other words, all the things that they have bought with the money. These are the real profits and they are impossible to measure because you cannot measure utility. 

And here is another example. When I go after a girl, I work pretty damn hard to get her (OK maybe not every time but that's beside the point). I try to entertain her, push all the competitors away and if I can make her laugh AND make sure she doesn't notice that other guy who is trying to flirt with her and is actually a bit better looking than me (though not much!), I get my reward. My »costs« are all of the above (hard work, right) and the benefits, i.e. my »profit« is I get to enjoy a few kisses here and there and a few other benefits of an exclusive kind. Yes, I do make a profit, and through a voluntary exchange too!

So now the obvious question is why should any third party be entitled to a part of my profit. Why should any third person or group of people be entitled to a part of the benefits me and you make by making a voluntary exchange. If the government was consistent in extracting taxes from our profits, you should give them 20% of all the enjoyment you get above the costs that you gave up in every single voluntary exchange.

So next time, before you argue in favor of taxation of profits, think again. And beware, the government might just break into your home and demand to be a part of all the exchanges you are making with your girlfriend. And why? Why of course, because you are both profiting, you capitalist swines!