The age of fear is coming to a close, and love is taking it’s place. People are trending towards getting along, and the media makes people fear because fear is one of two ways to control. It is the last stand of a dying beast. Continue reading
Resources are limited, this is true. Even when creating wealth, such as growing a garden, it requires the resources of land, water, and sun. It does not follow, however, that the state is necessary to divvy up these resources appropriately. To put it another way, there is no evidence to suggest force is the best way to decide where resources will go.
I bring this up because I’ve heard people say we need a government because land, water, oil, etc. are all to some degree scarce resources, meaning they are limited. But why on earth would anyone think the government will be a proper arbiter or these resources?
Just look at oil. This is a scarce resource, that many people want and need for industry. Are the governments of the world doing a good job splitting that resource? No, they spend more money fighting wars over oil than the actual oil is worth, and that is before we even place a value on human life lost! The only reason governments can spend more wealth obtaining a resource than it is worth, is because the wealth they spend is forcefully taken by them in the form of taxes!
[Fun Fact: there is enough habitable land on Earth for every person alive to own over two acres.]
A company that needs to turn a profit on the other hand, could not spend more obtaining the resource than it is worth. They cannot spend $1 billion mining gold if the amount of gold they mine can only be sold for half a billion dollars. But governments spend far more on wars to obtain land and oil than the total amount of production that said land or oil could sustain.
So if no one was allowed to rob us, including government, then these issues would have to be solved in a mutually beneficial way. In order to obtain oil, we would have to pay the price asked, or go elsewhere. Elsewhere would include solar, wind, hydro, and other forms of creating electricity. The government has helped keep us in the stone age of fossil fuel because they rob us to obtain the oil, then rob us to subsidize the oil, and keep the shelf price of it low enough so that we don’t bother seriously looking into alternative fuels.
But if we were not robbed by the government, that wealth would stay in our hands, and we would be able to spend that wealth in peaceful ways that create more wealth. Instead, government spends it on murder and destruction.
And somehow people still think government is the best arbiter of limited resources? They just don’t know any better alternatives. That is why they should read my fiction novel Anarchy in New England, in order to explore a world where coercion is never okay, and mutual benefit has monumentally raised the standard of living.
In a free market, money (and when I say money I really mean wealth, not printed paper) would not be the government’s to decide where to put it. And that is an underrated benefit of a free market: only those who earn the money get to spend it. Only those who generate wealth have control of wealth.
Wealth can be anything of value. If you have dirt in your backyard, grow some vegetables. There, now you have some wealth in vegetables and you can “spend” your wealth, trade it for something of value to you. But currently government gets to spend at least 25% (federal budget being almost $4 trillion, 25% of the $16 trillion Gross Domestic Product) and probably closer to 50% (when state and local taxes are figured in) of every cent of wealth produced in America in any given year.
At best, 75% of what is actually created and earned is spent by the people who did the creating and the earning, but probably just half of what is earned is spent by those who earned it. When other people get to use wealth that someone else created, it does not a free market make. And why is an economy better organized when the creators of wealth control the wealth?
Well it seems pretty obvious to me. Who spends money smarter: Mom and Dad, or the kids? Mom and Dad buy a new boiler that saves energy costs, the kids want to buy a new pool. Mom and Dad want to put a little extra away for retirement, the kids want to be taken to Six Flags with all their friends. The people who earn the money are generally more careful with where that money goes. And comparing the inhabitants of Washington DC to children is probably more insulting to the kids.
This does not mean that those who can’t earn money simply won’t get any. It means the people who produced the wealth will decide who and under what circumstances people will get help. This might sound cruel until you consider the alternative, how we currently operate. Thieves steal at least 25% of the wealth, keep most for themselves and their friends, and decide where a tiny fraction will go to supposedly “help the poor”. The only thing that allows them to continue stealing is that they have convinced enough people they will spend the stolen money better than those from whom they stole it.
Why the hell would we think thieves, literally people who have no problem stealing our money at the point of a gun, would spend that money in a better way than the person who put in the blood, sweat, and tears to produce that wealth?
But the plunderers have fooled enough people, and thus, people wrongfully assume their tax dollars will help the less fortunate. In contrast, those who donate to charity are likely to seek out a charity that uses the funds efficiently, or at least uses the funds for a cause the benefactor believes in.
I didn’t want my tax dollars to go to billionaire George Kaiser for his bankrupt company Solyndra. If it was a good solar company, I would think a billionaire might have the rolodex to raise the funds without having to steal it from me. I don’t want my tax dollars to bomb weddings in the middle east. I think a volunteer militia would be a cheap and effective form of “homeland security”, especially if there is no central machinery (government) for conquerers to take over and use against the people. I don’t think wealth creators would allow a large portion of their charitable contributions to be spent on liquor, cigarettes, and drugs. I don’t think earners would keep paying for “security” that kills more innocent people than terrorists.
These are all the things money would not be going toward when spent by the people who earned it. That is often where the discussion ends, but the money would not disapear. It would instead be spent on actual beneficial things: not beneficial to some arbitrary group of thieves, beneficial for the person who earned it. And also beneficial to the person that the wealth is voluntarily being transferred to, in exchange for a service or product.
If I grow vegetables in my back yard, I am not going to benefit from exploding the skull of a twelve year old Iraqi kid, nor a twelve year old Chicago kid; especially if it takes me half my livelihood to do it. Instead I’ll probably give some vegetables away to the homeless person that I know personally, or the soup kitchen I trust to feed the needy. I might throw some carrots and potatoes into the pot for a neighborhood watch, and withdraw them if this neighborhood watch harasses me.
I am simplifying. Of course we would not have to go back to trading potatoes and whiskey (unless you wanted to). The point is if we control what we produce, that wealth will be placed more beneficially for us. In doing so, the wealth is placed more beneficially for all of society. This is because in order to get my money, instead of figuring out how to rob me, someone has to figure out how to please me. And if there is no one spending that has not first earned, that means everyone will be an earner, and no one will be a plunderer.
So really, it is impossible to tell just how awesome a free market would be, while 50% of what is currently produced is stolen and squandered. Would a billion fewer cigarettes be bought? Would that money go towards educating children? Would a million fewer bombs be made? Would that money go towards a revolutionary new transportation? I think the evidence says, yes, something like that would happen. Because right now I don’t buy or smoke any cigarettes, yet my money still pays for someone else’s cigarettes to be made. Right now I don’t purchase or make bombs. Yet my money pays for bombs to be made.
People talk about the wealth gap as if the non-existant free market is to blame. Then why has the wealth gap increased alongside government expenditures? I haven’t given any money to the folks on Wall Street, and the only money they stole from me (bailouts) was facilitated by the government.
The answer is obvious. All the bad effects in this economy are created by the people who are allowed to spend money without earning it.
Poor people in America have cell phone, cars, apartments, food, alcohol, cigarettes, medical care, and free time. These people are “poor” for the first time throughout human history, because poor is a relative term, and they live next to people who have twice, 5 times, or a 100 times more stuff or better food etc. But what people seem to gloss over, is that the American market started out as probably one of the freest markets ever. And what it created was some of the lowest poverty in the history of the world.
To clearly distinguish it from crony capitalism, free market or laissez-faire capitalism removes entire populations from poverty. Indeed even having a sort-of capitalist economy in a few major worldwide superpowers has made poverty drop by 80% worldwide over the last 30 years. And the countries with the more free markets still have the least poverty yet! It makes sense when you think about it. When people can keep more of the products of their labor, they create more, and will trade this excess. All of society benefits because more is created. The Mises Institute has posted an article which supports this common sense with more data.
It is an obvious fact that severe poverty has disappeared in the most industrialized countries. Nations like the US, UK, Switzerland, and Japan industrialized within what were predominantlylaissez-faire free-market conditions. Even the so-called social democracies, like Sweden and Germany, developed in free-market conditions, and adopted extensive state welfare and regulatory programs only after achieving high levels of economic development and industrialization. World Bank data shows that there is inequality, but this inequality is between the free-market nations and the crony-capitalist and socialistic nations.…
The idea that domestic laissez-faire causes poverty is unfounded. It is a historical fact that India, China, and Kenya never tried capitalism, so this system was never given a chance to work….
There have been significant improvements in living conditions around the world over the past thirty years. The largest improvements in the poorest nations took place during the wave of globalization that took place twenty years ago, after the fall of the USSR. The collapse of the Soviet Union opened the door to unprecedented globalization of industry. What does real data tell us about poverty during this period? Per Capita GDP rose dramatically
Clearly we should be less worried about catering to special interests by pouring money (extracted from the working population by force) down the poverty hole. As wealth is created, it naturally finds its way into the hands of the poor, without having to be stolen: the act of stealing it reduces the entire amount of wealth available. So by allowing people control over the products of their own labor, we are actually helping the poor people by wealth diffusion, more than they would be helped by redistribution.
It is hard to even imagine how much money America could save as a society if we didn’t waste so much on regulation, and other unproductive costs forced by government. Right from the beginning everything would cost less if we didn’t have one of the highest corporate tax rates in the world–a top rate of 35%, because companies pass off the costs to their customers. We would also have more jobs and productive labor in the US, because fewer companies would see the financial benefits of moving overseas.
The Competitive Enterprise Institute estimates the yearly regulatory costs on the US economy to be around $1.75 trillion dollars: almost 11% of the entire Gross Domestic Product of the US. That means that money is spent on paperwork, lawyers, and complying with regulation, instead of something productive. This also suggests that 11% of the average work day is spent complying with regulation. What if you got out of work at 12:30 every Friday, or what if you only had to work 8-5 Monday through Thursday?
And think about the leaps and bounds that could be made if that money were spent on research and development instead of regulation. Curing disease, inventing new transport, developing alternative fuels, and advancing technology would accelerate, and as a nation we wouldn’t have to work as hard to do it! We would be getting more done for the same cost.
Markets already have built in regulators called consumers. If the government did not force companies to comply with regulations, there would still be just as much or more oversight. Right now we assume the USDA checks up on the meat sold in stores. It is a farce, a charade to make us feel safer.
But what if you knew the government wasn’t going to check into food safety? Maybe you would only buy from local markets where you know the owner. Maybe you would only support businesses that graciously opened their doors to reporters and journalists who sell the information they gather to benefit consumers and help them make better choices about what they buy and who they buy it from.
But the positive effects of eliminating regulation and the costs of regulation would actually snowball. We would all have more time and require less money to buy the same amount of goods and services. Time to grow a garden, clip coupons, start that business, make that product. Money to spend on better quality goods and services, or to contribute to charities, or invest and save.
But even if some of the money you currently earn comes from a company paying you to help them comply with regulations, you may have less money, but more time. And it wouldn’t actually matter that you have less money, because the price of products falls with the decreased costs to the producers. You’re company still has that money though, so they spend it on development which further streamlines production, reducing prices even more. You have less money, but it goes even further than before! And with more time maybe you decide to raise chickens for eggs. This saves even more money.
So you went from working 40 hours a week and getting paid $50,000 per year, to working 36 hours per week and getting paid $45,000 a year–but that $45,000 buys the same amount that $50,000 used to. Why? Because the grocery store went from spending $50 million per year for X amount of groceries, to spending $45 million per year for the same amount. They can’t just pocket the extra money because their competitors lower their prices to better compete, setting off an “arms race” for lower prices until they level out to give the company the same profit margin as before.
The only downside to eliminating all regulation would be if any of that regulation actually keeps us safer, but I have serious doubts that it does. My grandfather paid extra to have seat belts installed in his car decades before they were mandated. Earlier, competition to Ford arose when he wouldn’t paint his cars anything but black.
The market solves problems more efficiently than government regulation, because it only regulates in areas where consumers actually care. Already I prefer to buy from companies that label their products non-GMO even though there is no mandate to label the GMO products. But there is a method to becoming “certified organic”–and it costs money. My sister buys from a CSA that straight out says, “We are organic, but we are not ‘certified’ organic because that would cost us more, and therefore cost you more”.
If enough people care and put their money where their mouth is, the problem will be solved. And if not enough people care, then the costs of “solving” the problem exceed the benefit.
How do we get the economy back on track? Well not wasting 11% of the entire wealth our nation produces yearly would be a good start.
Thomas Sowell is great at eradicating widely believed myths by providing facts which contradict the prevailing beliefs, which he does in regards to economics in his book Economic Facts and Fallacies. I hear some people speak as if it is a fact that the more natural resources a country has, the richer that country is. But a simple examination of the facts will prove this is not true, unless looking at one particular segment of any such population. It is true that Saudi Princes are ridiculously rich from their country’s oil, yet the vast majority of average Saudi’s live in poverty. So abundance of natural resources ensures no such abundant distribution among the population.
The world’s largest producer of natural gas (Russia) is not even among the top 70 nations of the world in real income per capita. Neither is the world’s largest producer of rubber (Thailand) or zinc (China). The world’s largest producers of gold (South Africa) and copper (Chile) are 69th and 70th , respectively, in real income per capita. The value of natural resources per capita in Uruguay and Venezuela is several times what it is in Japan or Switzerland but the real per capita income in Japan and Switzerland is about double that of Uruguay and several times that of Venezuela (Sowell, 212).
Some of the countries with the most and richest natural resources are the poorest. Venezuela can hardly acquire toilet paper, despite having several times the amount of natural resources per person when compared to Switzerland. Switzerland, in case you were wondering, has plenty of toilet paper—as well as electronics, guns, vacation homes, watches, chocolate etcetera.
So who could guess what the difference is between these countries who cannot translate their natural resources into societal wealth, and the countries who can build up national riches, without any such natural commodities? Well we don’t have to guess, we can figure it out, since knowledge and reason are some of the most precious resources of all.
Geographic accessibility to the advances of the rest of the world seems to have had more effect on economic development than the possession of rich natural resources. Knowledge is, after all, what makes something a natural resource. The cave man lived amid the same physical resources we have today—and had them in greater abundance—but they were not natural resources in any economically meaningful sense until human beings acquired the knowledge to use them and the cultures to organize their use (Sowell, 212).
But even so, while some countries have long been situated to reap the economic benefits of trade, they remained poor even into relatively modern history. Japan and Singapore were both backwards and poor economically only one hundred or fewer years ago, yet are today two of the most prosperous places on earth. What allows people to use their resources, and to use their knowledge is protection from plunder of the fruits of their labor. Some governments protect their citizens from thieves, and some government do the thieving. The freest market possible while existing in a stable region is what creates the most wealth for a country, per capita.
In countries most restrictive in economics underground black markets form in order to better serve the needs of the population. These are to avoid red tape and regulatory costs of the government, but include their own costs which limit how much economic advancement can be achieved. In underground markets wealth cannot be transferred as easily to fund large and long term projects—and less collateral exists to retrieve value from a failed investment.
The bottom line is that people need to be able to take advantage of the knowledge and resources available—resources alone are not enough to create wealth. Confiscatory policies of currently third world governments (which have not always been third world countries) show this misunderstanding, and prove this dynamic, since some with the most oil also have the most poverty, and others with no resources have booming economies.
But law and order are necessary for economic development, which is why there is a bell curve when it comes to how conducive to economic prosperity powerful governments are. To the extent that the government is powerful enough to prevent major loss of life, loss of production, and destruction or pillaging of materials and goods, it promotes economic advancement. When that government uses its power to itself confiscate too much of the production and labor of a country, or to do so in a way that cannot be planned for in advance by individuals and businesses (Obamacare), economics will suffer, stalling or reversing advancements.
There is no question as to whether our government is powerful enough to keep this region stable enough for economics—if that power is properly directed. Our biggest problem right now is preventing that power from being used to plunder the wealth the people of our country have created.
One reporter feels that income distribution in America is less than ideal. That is true, far too much of our income is upwardly distributed to the government and their cronies who build non-functioning websites, unsuccessful energy companies, and cars no one wants. But this reporter thinks the problem is the people who produce, not the leeches attached to their jugulars. He suggests that the top tax rate be raised to 80% because, to hell with the economy, we’ve got to punish the rich! After all, the top tax rate was 90% after WWII, you know, just after most of the world’s manufacturing capability was destroyed, but not America’s.
So now, in the most competitive global economy ever, with abysmal job creation, somehow taxing 80% of what the most productive Americans earn will have no negative effect on jobs and the economy. Somehow, raising the minimum wage to $15 will not slow job creation, will not keep people from hiring, and will not leave more unemployed without the chance to gain skills. Magically, the rich will continue working for merely 20% of what they produce, jobs won’t go overseas, and companies won’t raise their prices. And if you believe all this I have a bridge to sell you.
This reporter, and many others, like to pretend that the top marginal income tax rate only applies to the super rich. This is not true. Earning more than $400,000 a year puts a person in the top income tax bracket. What surgeon is going to keep doing brain surgery, with all the costs and risks, only to make $80,000 in the second half of the year, for the same effort put in for $400,000 in the first half of the year? They won’t, they’ll go on a well deserved vacation to Hawaii, because the work and risk is not worth the reward. This means longer waits, fewer and less skilled surgeons.
Or what about the CEO who makes $10 million a year running a grocery store chain. He might decide to retire early since he only takes home $2.3 million despite earning $10 million. Since everyone who has the skills to properly manage a large successful business also has the means and investment and savings to forgo future employment when the reward is not great enough, this means less qualified people running the grocery store chain. Say goodbye to fresh vegetables, well stocked shelves and affordable products. CEO’s don’t get paid a lot for nothing, they get paid for their skills in making the company money–money that is taxed.
So great, the government makes almost $8 million off this CEO the first year they tax the top bracket at 80%, and $70 million in corporate and capital gains taxes on his company. Then the next year they only make $4 million on the salary, because the new CEO is not as skilled as the last, so he doesn’t get paid as much. As a result, the company does not do as well, earning 75% of the profits from the previous year therefore only contributing $53 million in taxes from corporate and capital gains. The $8 million gained from the CEO being taxed at 80% the first year is quickly lost in a less profitable business, which contributes fewer dollars in taxes from the lower profits of the company.
What could have been a continuous $70 million per year in tax revenue could turn into $78 million the first year, then quickly shrink the next year to $57 million. This is a case of killing the goose that lays the golden egg. If the government would just leave alone the people who do the most work, and produce the most, they could have their cake and eat it too. But its never enough for the government, they always want more, more money, more power, more control. But they don’t seem to realize that when you bite the hand that feeds, you stop getting fed.
Most would agree that America is a wealthy country, but what is wealth and how does it come into being?
It is tempting to think of wealth as piles and piles of money; however, history is replete with examples of worthless currency – Confederate notes at the end of the American Civil War, for example.
What about gold and diamonds? Precious metals and stones are widely accepted as having value, so this is closer to the mark; still, you can’t eat them. To live, humans need air, water, food, and some protection from their environment. We can probably agree that someone who must spend all of his time just to provide the bare essentials to ensure survival is not wealthy. So does free time equate to wealth? In a way, yes, but running around half naked and living in a grass hut does not meet the western vision of wealth, even if you do have only a five hour work week.
In the developed world, we tend to use our extra time, time left over after we meet our need for food and shelter, to increase our standard of living. We strive to obtain better food and more of it, more comfortable shelter, labor saving devices, various forms of entertainment and possessions that increase our sense of well-being. We also take steps to feel good about ourselves such as working for charities or running marathons. This is the essence of wealth: a high standard of living. The higher your standard of living, the wealthier you are. Even those who spend all their time acquiring this high standard of living are considered wealthy. One could, and some do, argue that this is also the definition of the rat race, that we are not actually better off than our ancestors for all our accumulated wealth. The fact remains, however, that even the marginally wealthy can expect to live a long and healthful life without the threat of epidemic, starvation, being eaten by an animal, freezing to death, or being overrun by a barbarian horde. Thus our working definition of wealth will be a high standard of living.
So where does wealth come from? Suppose you are stranded on a deserted tropical island with one other person, Alex. You both hunt and gather all day, every day, in order to stay alive.
But Alex is a better hunter than you, and you are a better gatherer. You get an idea; you offer to gather for Alex if Alex will hunt for you. Now, since you are both doing a job you do more efficiently, you have a little free time every day. With that time you develop tools for hunting and gathering, giving you even more free time. Your next innovation is to create fishing gear which you use to improve your diet, and since fish are plentiful, free up more time. With that time you make chairs, hammocks, shelters, and other comforts.
Specialization, cooperation, innovation and motivation have increased your standard of living. You created wealth. All the resources were already present on the island, but this did not raise your standard of living. It was your labor, both physical and mental, that transformed these resources into a higher standard of living.
Next, since life is now easier, you decide to build a musical instrument. It takes a long time. You work hard creating many prototypes that sound terrible. Finally you succeed! You now have music, another boost to your standard of living.
Your island mate would like an instrument too. You teach your friend everything you learned about making this instrument, but to no avail. Alex just does not have the talent required to make one. You are now wealthier than Alex. Your buddy knows how hard you worked to make your instrument and therefore does not ask you to make another. However, Alex is also better off now that there is music on the island. Your wealth benefits both of you.
One day you are walking the beach when you come across two more people who have washed ashore. Their names are Chris and Taylor. You and your island mate introduce Chris and Taylor to island life and get them fed and settled. You assume that, like you and Alex, Chris and Taylor will hunt, gather, fish, and build things. It soon becomes apparent, however, that Chris and Taylor are not very good at fending for themselves.
You and Alex now have a problem; you are spending part of your time to make up the difference between what Chris and Taylor consume and what they produce. Some of your wealth is being transferred to Chris and Taylor. But what can you do? You don’t think it is right to let them starve, so you keep helping them. Time goes by. Chris is still working hard and falling short, but Taylor is only making a half-hearted effort. Taylor’s attitude is “I eat whether I work or not, so why kill myself?”
Alex has had enough and refuses to help Taylor any more. That leaves just you to support Taylor. You are back to square one: working all day every day so that you, Chris and Taylor can survive. The wealth of the island is declining. You are the most productive but your excess goes to Chris and Taylor. Alex helps Chris, but not Taylor, so Alex still has time to create wealth. Your tools and comforts start to wear out and you don’t have time to maintain them. Alex is now the wealthiest, but the island as a whole is poorer. Then you get sick.
Chris and Alex take care of you. Without your support Taylor does not have enough to eat. Taylor has some cash and tries to buy food from Alex, but cash is useless to Alex on the island. The same goes for jewelry and other “valuables”; without an advanced society to create a demand for these items they are worthless. Taylor slinks off to the other side of the island. In time you regain your health.
But Taylor has a serious problem: no shelter, no tools, no companions and not enough to eat. Taylor needs to think of something quickly. Taylor was an accountant before being stranded. This is a valuable skill in an advanced society, but not on the island. Before being stranded Taylor liked to read books about sailing, ship building, and navigation. Taylor sets to work to identify sources on the island for the materials needed to build a sailing vessel.
Taylor returns with a proposal: “In exchange for food I will design a sailing vessel and direct its construction.” Now Taylor has something to trade: knowledge. Taylor knows the important aspects of ship design. Taylor can identify suitable materials. Taylor can navigate by the stars. You, Alex and Chris agree.
With Taylor’s leadership you build a boat and sail it to Hawaii. You have rescued yourselves. With the proceeds from a movie deal you each dramatically increase your standard of living. You have learned some lessons:
Resources alone are not wealth. Resources must be converted to wealth with labor. The game must be hunted, the berries must be gathered, the fish must be caught, the wood must be cut and worked.
Skill is an important resource. All the other resources in the world are useless if the skill to convert them is not available.
Knowledge is a very important resource. The ability to stuff your head full of things you didn’t know before, recall them, and apply them to the situation at hand is valuable. It is important to note that you need not develop this knowledge yourself. You don’t have to reinvent the wheel. A written language confers a huge advantage. Knowledge can then be saved for posterity.
Specialization leads to efficiency. When people do what they do best, work gets done in less time. The remaining time can be enjoyed or used to increase the standard of living.
The ability to organize is valuable. People who organize often don’t appear to do much. Stuff can still get done without them. But just muddling through is often not enough. What would a car cost if a whole gaggle of organizers didn’t plan for every nut, bolt, wire and hose to be where it needed to be, when it needed to be there, at the lowest possible price? The answer: too much. This was the situation before Henry Ford applied the assembly line to auto production. Henry Ford did not build cars, he organized the building of cars. In our story Taylor did not build a boat. Taylor provided the knowledge and organization to build a boat. In the beginning Taylor was a drain, but in the end Taylor was the MVP.
There can be no consumption without production. This is obvious. In our story, on day one, no one can eat, or sleep under cover, or play music because none of this has been produced yet. Later, Taylor consumes what you and Alex have produced. In the end you invest some of your wealth (you feed Taylor) in Taylor’s boat project in the hope that you can get off the island. It was a risk; maybe Taylor didn’t really know how to build a boat. You were willing to take that risk and in this case it paid off.
Just as obvious is the fact that shuffling existing wealth around the island will not increase the wealth of the island. If Alex gets your musical instrument and you get Chris’s hammock and Chris gets Taylor’s chair and Taylor gets Alex’s spear, what has changed? There is still the same amount of wealth on the island, it is just in different hands. Maybe the new owners will make better use of these things, but probably not, otherwise the islanders would have traded amongst themselves or produced more of these things. Yet governments routinely take wealth from one group, give it to another group and expect that somehow the country will be better off.
To participate in commerce you must produce something that somebody else wants. On the island Taylor was not very good at manual labor. With just four people there was no need for an accountant. It was knowledge and organizational skills that Taylor was finally able to trade for food.
A rising tide lifts all ships. As the wealth of an area increases everyone benefits. When you made a musical instrument, but Alex couldn’t, Alex still got to hear the music you played. When your productivity exceeds your basic needs you seek out products and services that increase your standard of living. This gives others the chance to produce and fosters competition to supply these items. Competition leads to lower prices and more choices. Think of the things that at one time only the well off could afford. Cars, radios, TVs, stereos, cell phones, computers, travel… The list goes on and on. Now even the poor have all these things.
So where does the wealth come from? It comes from individuals who produce more than they need to survive and consume no more than they produce. In a perfect world, this would be everybody. On the island it was you and Alex. On the island Chris tried hard but fell short. Maybe in an advanced society Chris could do alright. Maybe Chris could be a doctor or an entertainer. We don’t know enough about Chris. On the island, Taylor was content to live off the efforts of you and Alex. When Alex balked and you got sick, Taylor was forced to find a way to contribute.
And what is the role of government? Government exists to protect the society as a whole from a common threat, and you as an individual from having force used against you. If you decide to buy insurance in order to share the risk of some catastrophe with others in the insurance pool, that is commerce. If Big Al sends the boys around to “convince” you to pay for “protection,” that is force. For society to get the maximum benefit each individual must be free to decide what to produce and what to consume. That individual must also live with the consequences of that decision.
Too often these days government is on the wrong side of commerce. Government is the one doing the forcing. Government is the one throwing up roadblocks to production. Government is the one draining the wealth. Vote accordingly.
*written by Harry Jarvis*
The solution to the economic crisis in Cyprus and the rest of the world is not going to come from government taxing the savings of their citizens. The only way for the world to climb out of this financial hole is a grassroots approach. The solution is the exact opposite of what just happened in Cyprus. When individuals are allowed to keep the products of their labor, whether gained through muscles or mind, is when the world will start to heal from the damage done by looting governments.
It is only the saver, the entrepreneur, and the technologist who move our society forward, and rule of law is exactly what allowed these people to come into being. When the saver knows that what he works for and puts into his account will not be stolen by the government, his neighbors or invading hordes, is when his bank account will grow large enough to support new technologies, innovations, products, advancements, companies and jobs. It is because his savings are not robbed that his money will work to benefit all of society. Had the government plundered his savings, there would be no societal advantage other than what can be forcibly accomplished with the crack of a whip at the end of a gun.
If every time Bill Gates saved a buck, the government took it, where would the capital to start Microsoft have come from? If every dollar Thomas Edison worked for was taken by the government for the “betterment of society”, would we still be sitting in the dark? And it is not just about resources going from the private sector to the government, it is about future wealth never being created, because why save something that will be stolen from you? Why, if you live in a bad neighborhood, save money in a jar if that jar is stolen once a month? If the message that government sends is that it is not worthwhile to work hard and save, fewer people will work hard and save.
Why were men finally able to create farms and grow crops? Because the government had a rule of law which was followed, that meant the farmer knew exactly how much of his crop would be given to the government before he grew it, and he knew that with that share of his wealth the government would protect him from foreign and domestic robbers who would otherwise take his harvest. Now imagine the government comes in after the harvest, and says extra crops will be taken that year. The rule of law has been breached, and the incentive to grow more crops than necessary has been crushed. That individual farmer may be fine with what he and his family can save, but now he has nothing to trade with his neighbor, or sell. This means it will be harder for people in the area who are not farmers to get food, because farmers only grow enough for their families, since otherwise the government takes it. Now, because the government ignored the rule of law, the wealth of the farmer and his region has been reduced, not only by the initial amount of food taken by the government, but also by curbing the future supply of food with their actions.
The same incentives exist behind the complicated markets of today’s economy. Cyprus cannot expect to attract investors, savers, or companies after implementing a savings tax, because people will not be guaranteed the fruits of their labor. The situation has greater implications since it was not the Cyprus government acting alone, but in coordination with the EU. This means that if you live in the European Union, you can not be sure that money in a savings account will not be taxed. To some this means moving money and investments out of the EU. To others it may mean investing in physical gold and a strong safe, which would damage the lending capabilities of the banks which used to hold the deposits that have been turned into gold. To many it means abandoning plans to start a new business, to expand a business, or to create new products, innovations and jobs. Why go through the grueling work of building a company, if what you work for could be taken by the government in the blink of an eye?
The rule of law has been breached by implementing a tax on what one has already earned, and already paid taxes on. No one could plan for this surprise tax, and when people were putting money into their accounts, they did not know about this tax. People in the EU can no longer be certain that what is theirs will stay theirs. The one time tax on savings in Cyprus will most likely have terrible economic repercussions for all of the EU, not because of the $7 billion taken in taxes, but because of the precedent set, the uncertainty created, and how people will act with their money in the future.