Stefan Molyneux on Voluntraysim

This piece below is and excerpt of Stefan Molyneux guest hosting the Peter Schiff show. It is one of the best short and comprehensive cases I've ever heard made in favor of a free stateless society. I hope you find he is absolutely spot on:

"I think we have to look at why we believe we need a government, and I think fundamentally we believe we need a government because we're afraid of bad people. We are afraid of bad people doing bad stuff to us and taking our property. Now, logically it doesn't make much sense to put a government into place to do that. It's like - I'm afraid that someone might come and steal my property so I'm going to create a monopoly of violence with the right to violate my property and take 50% of it pretty much at will. And that really doesn't make any sense, but it's sort of what we've inherited from the past. 

We understand that if everybody was an angel we wouldn't need a government, and people who are voluntaryists or are looking for a stateless solution in the long run are often called idealistic - we don't understand how bad human beings can be and not everyone is perfect and therefore we need a government. But if you think about it logically, I think quite the opposite is true. I think that voluntaryists really recognize that human nature has a pretty dark side. If you create a government in order to save you from bad people then the smartest and most able bad guys - where are they going to go? They are going to flock like flies to a big mount of horsy cac, they're going to flock straight to the government. Because what do evil people want? They want something for nothing and they want to escape the consequences of their actions. Well, that is the government, the government gives you something for nothing - you get to print money, you get to go to war, you get to do all these terrible things with no negative consequences - so you get to get something for nothing and you get to escape the consequences of your actions. So I believe that government, this hierarchical violence that we use in society, is something that attracts and draws bad people in to run it. You do not protects yourself from bad people by creating a monopoly of violence that bad people will infest and expand at your expense."

And here is the whole show (the excerpt starts at 48:30):

Rothbard in 1989: Beware a European Central Bank

A central bank is good at one thing: printing money.

The Economics of a Compulsory Government - Part 3

In the free market the price system allocates limited resources so that they go to the people who are willing to pay the highest price for them and have the knowledge to employ them productively at those prices. Government, however, since it can collect as much money as it wishes (in theory) with its legislative power to tax, is not very sensitive to the price signals. The prices are much less a matter of concern to an entity that can simply increase taxes when it runs out of funds. Whenever funds are scarce, the answer is simple – higher taxes. There is no room for thrift and economy when you have the power to confiscate when in need. This means that the bigger the government gets, the more money it collects and spends, the more resources it commands which in turn are not distributed in society according to where they would be most productively used, but are rather funneled into unproductive use by the government.

As is obvious, I assert here that every and all government activities are wasteful, since the only way it could avoid this predicament is, working outside the profit/loss system, which is a yardstick for productiveness, to employ them all in a productive manner by pure chance. And given the number of activities governments find themselves entangled in these days, those chances are less than great. And even if, as if by some miracle, the government managed to succeed in that, since we know that resources tend to be commanded in the private sector by individuals who can most productively employ them and are therefore willing to pay the highest price, this would only mean that government is taking away resources from the private sector and preventing it to do the things that then in turn the government does anyway. One would have to turn a blind eye not to question the reasoning behind this. Even if this scenario were to happen, it would still be more productive to just let the private sector do these things by itself instead of having to finance a middleman in between in the form of a coercive government. On the basis of this we can see how government is, even in its best theoretical position, a net loss to society.

Furthermore, government has a severe lack of competition, to put it mildly. Most of what governments do are monopolized activities where the formation of competition is prohibited. And as we know from the theory of free markets and competition, a lack thereof results in lesser quality at a higher price. Two of the most obvious, and perhaps in essence the only really important monopolies the government holds are the monopoly of taxation and the monopoly of final decision making in all conflicts on its territory. Since the latter also applies to conflicts where government itself is involved, this composition enables it, for instance, to raise taxes and then decide that this is indeed a just and justified or even necessary thing to do. It is no coincidence that under such circumstances taxes will continually rise and conflicts in society will continually be decided in favor of bigger and stronger government.

It is often the case that people, especially the economically illiterate, will support government intervention in the economy despite all these obvious economic distortions that necessarily ensue. This is at first glance hard to understand, but not all that difficult to fathom once you come to realize the relationship between short term and long term effects or apparent and hidden results of a certain policy. An instance of the former would be precisely the credit expansion and the accompanying artificial boom described earlier. The boom period will quickly be ascribed to the expansionary policy and since it is apparent and immediate, it is not hard to make this connection. Also, since there is the illusion of a hike in the general welfare, people will naturally support such a policy. When the inevitable recession and/or inflation period arrives at a later time, the causes are harder to understand and this connection is not made by the public, which is why there is always an unfleeting reservoir of other causes to point the finger to, such as the "wicked" free market and capitalism. The same goes for the minimum wage. At first, a raise in the minimum wage will create a short term illusion that the public is now better off due to higher wages and such a policy will thus attract many proponents. But this effect can only be carried out to the detriment of the future welfare. If the labor market is relatively unregulated, it will of course eventually lead to higher unemployment, less production and a fall in the standard of living. If, however, the labor is heavily protected and the laying off process hampered, these wages must come from entrepreneurial profits. This will reduce investment into capital goods, which will in turn reduce labor productivity and again cause a slump in wages and general welfare at a later time. But since there is a time lag between the cause and effect, it will be hard for the general public to understand the connection. As for the apparent versus hidden results of government intervention, the most obvious example would be government job creation. Since government has no funds of its own, it must first appropriate them through taxation of the public. This means that in order for the government to create one unproductive job, it must first expropriate the resources away from the productive private sector. Knowing that in shifting resources from the productive private to the unproductive public sector there is always a net loss, one new job in the government could mean a loss of two productive jobs in the private sector. The public will only see the one job created by government, it will not see the two jobs that would have been created, had the money to pay this job not been confiscated from the private sector. To an individual who is untrained in economics, which is most of the public, the gain in the government created job will be apparent, while the loss in the private sector job creation will go unnoticed.

Given all of the above, we can be sure to say that the more resources are funneled to the government, the worse off the society and its people are. Any increase in government will therefore impair the economy and every decrease will make it function more productively. The worst government is a socialist kind that envelopes most of the economy and the best kind is the one that taxes no man and spends no man’s money.

Gold vs. Stocks

Gold dropped quite a bit approaching 2011 year-end, which sent a few Johnny-come-latelies home crying and encouraged the gold bears to come out and feast. Not so fast.

Gold has already recovered most of its losses in 2012 but more importantly, looking at the chart you will quickly notice that the recent drop was merely a correction after it had shot up off its trend line in November. This is scarcely an odd thing. Granted, it hasn't recovered fully yet but I have no doubt it will shortly and then continue its growth. For the media it presented an exciting story, for people buying gold just because they heard it was going up it was drama, for the rest of the gold bulls it signaled a good buying opportunity.

When buying gold one must never forget the nature of the precious metal. It is not an investment in the traditional sense, it yields no dividend and produces no value. It is a means of saving, especially long-term, because of its unique characteristics, i.e. it cannot be counterfeited (printed), it is easy to store, easily divisible etc. Of course there is always money to be made in speculation but for the vast majority of us non-experts I would suggest buying into dips (such as this recent one) and holding onto it until you want to buy the thing you have been saving for.

Gold price in EUR, 1 year

Source: goldprice.org

Gold, denominated in EUR, has gone up by about 25% in the last year and roughly 170% in the past five years. That's pretty impressive, no? Of course it does not mean it will continue to go up under any circumstances, but given our current monetary and political system of massive public debt growth, bank bailouts and money printing, yes, I think it's the safe side of the trade.

 Gold price in EUR, 5 year

Source: goldprice.org

I also made a comparison between gold and the DAX (an index of 30 German blue chip companies traded on the Frankfurt stock exchange) just for kicks. If you had put 1,000 EUR into gold 5 years ago, you would have had ca. 2,700 EUR today. Adjusted for inflation (the EUR17 CPI grew about 11.2% in the period) you now have 2,428 EUR. On the other hand, the DAX fell roughly 8% in the same period, which means that investing 1,000 EUR 5 years ago would have left you with 920 EUR today. Given a 3.5% dividend yield on your DAX stocks (holding your 1,000 EUR investment constant, which it wasn't), you made 175 EUR (but probably a bit less) in dividends, a combined sum of 1,095 EUR nominally. Adjusted for inflation you now have 985 EUR, not counting all the broker fees you had to pay for the privilege (yes, you had to pay commission for gold as well, but at least there you made a profit to pay it with).

DAX, 5 year

Source: bloomberg.com

This is not to say that stocks can't be a good investment. They absolutely can. At the right time and price, some stocks can be an excellent bargain. Also, corporate profits seem to be doing well so you are likely going to be better off in equities than fixed income investment vehicles such as bonds (esp. government bonds) with the official YoY inflation rate being in the 3% area. But again, for the vast majority of us non-experts, the stock market might prove to be just a bit too expensive of a playground.

What a Pretty Picture

(Photo: nj.com)

Allow me to put this picture into context a bit. To the left is Barack Obama, current U.S. president. To the right is Jon Corzine. Not a very well known figure, especially out of the U.S., but his name seemed to keep popping up in the past few weeks, so I did a bit of digging.

I did not have to dig very hard nor deep to find out a few interesting facts. Here is his track record:
-Godman Sachs Chairman & CEO 1994-1999
-Earned an estimated $400 million in Goldman's IPO after his departure
-Presidential Comission for Bill Clinton, Chairman
-U.S. Treasury Department's borrowing comittee
-Participant in the Bilderberg Group meetings
-Elected to U.S. Senate in 2000
-Spent over $62 million of his own money on his campaign, the most expensive Senate campaign in U.S. history
-Co-authored Sarbanes-Oxley, a U.S. federal law which regulates the financial industry
-Elected New Jersey governor in 2005
-Named Chairman and CEO of MF Global, a financial services firm, in March 2010
-Hosted a fundraiser for Obama in April 2011
-One of 41 donors who bundled more than $500,000 last year for Obama's re-election
-Directly contributed (along with his first and second wives) $917,000 to Democratic committees and candidates in the past 20 years

MF Global filed for bankruptcy in October 2011 and Corzine resigned November 4th. In this bankruptcy, $1.2 billion (that's $1,200 million) customer funds went "missing".

Now take another look at the picture. Pretty, innit?

On the question of the role of government in society, Corzine calls for universal health care, universal gun registration, mandatory public preschool, more taxpayer funding for college education etc.

Where do you stand on those questions?

Find sources here and here.

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.