Our Economic System Is Built To Enrich the 1%

by | Nov 29, 2022

Our Economic System Is Built To Enrich the 1%

by | Nov 29, 2022

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I would like to attempt to describe our economic model since we abandoned sound money and any constraints upon our ability to print IOUs (or what most refer to as dollars without any understanding of what that really means).

Before, there was mandated fungibility between dollars and gold and at a set, fixed price. If we acted irresponsibly, others would redeem dollars they held and expect us to deliver gold.

Well, we decided we preferred fiscal and monetary irresponsibility. We decided it was fun to inflate and run fiscal deficits. We wanted more. Only we were unwilling to pay for what we wanted.

So we breached the agreement to redeem dollars for gold at the agreed upon fixed price. (A reminder that agreements are only as good as your ability to enforce them.) We then told the world that yes, it is true that it is our money. And that makes it their problem.

We decided we wanted to make their problem worse and instead of backing our money with gold we decided to back it with oil. The petrodollar was born! We took our military to the Middle East and “persuaded” the oil producing countries to invoice exclusively in dollars.

Our Empire required that. People preferred gold to our money, and our hegemony depended on our money being our money and everyone else’s problem.

We replaced a sound money regime with one collateralized by oil and bullets.

Occasionally (or constantly) we need to kill a lot of people to remind them that it’s our money and their problem. For the nations that are not so easily intimiated by bullets we use economic sanctions to maintain dollar hegemony.

Our wars in the Middle East have not, in my opnion, been primarily about oil per se but instead about preserving the petrodollar.

So let’s have a look in the mirror today. More than one-third of Americans are essentially without savings. National debt stands at more than 100% of GDP with much (much!) larger unfunded liabilities. If the government had to apply the same accounting principles as companies, and if the SEC scrutinized those statements and tested compliances with the same GAAP standards applied to publicly traded companies, then our government officials would be switching out their nice suits for a new wardrobe: pinstripes.

Let’s not leave GDP alone either. We don’t permit public or private companies to manipulate their earnings and other information used by third parties. They cannot unilaterally change the definition of assets or liabilities or earnings. Yet we’ve allowed the government to redefine how inflation is calculated, and therefore real GDP.

So what has been our recent economic model? Borrow, print, borrow, print. Hakuna matata!

The Federal Reserve has printed money to bail out banks by acquiring corporate and mortgage debt. The Fed decides who to allocate capital to and what what price. Sounds like capitalism to me!

Let’s not forget the money the Fed also lends to foreign entities who coincidentally buy our stocks. Are their verbal guarantees against downside risk? Who knows? Banskters know. Do not ask!

So, how can government get away without not reporting their unfunded liabilities and running what appears to be unsustainably high levels of debt?

First, companies cannot force capital contributions nor coerce you to lend. Now, remember those taxes you believe are not a confiscation of your wealth? Well, the government is a senior claimant to that money. So, if one day those we owe money to demand repayment we will have a few options. We can always kill all those who demand repayment as an incentive to not ask for the money back. We can print a lot more in debased and deflating dollars, rewarding the irresponsible at the expense of the responsible. Maybe the government taxes all income at 99%, and everyone can decide how much they are taxed before the deem it confiscation.

I would like to return to the SEC and regulation. Our largest financial catastrophes have been related to banksters, from the S&L debacle to the Lehman debacle where, according to President George W. Bush, we had to save capitalism by embracing a new form of economics. We privatized gains while socializing losses. The biggest beneficiaries were not insured depositors but parties who had exposure to uninsured liabilities and also equity holders. I could say this another way: those who most benefited from the bailout were the 1% maybe the one-tenth of 1%.

It’s public choice economics. A few rich people congregate in Manhattan, and they donate to others who congregate in DC. Together they come up with clever ideas of how to take pennies, nickels, dimes, quarters, and dollars from the 99% and (with them being none the wiser) allocating it to the 1%. In return, the Manhattan folks work diligently to keep those living in DC in their residences.

They also collude (oops, I meant to say cooperate) to loan the 99% money at subsidized rates to maintain the illusion that wealth has been created when in fact indentured servitude has been insured.

If the 99% want to create some wealth, the 1% has another great idea: label the 99% as non-accredited investors where a limited number of asset classes are open to them and sold by specially licensed people working for specially licensed firms. (For their protection, of course).

But if the 99% observe that what the government determines is eligible investment vehicles do not have adquate risk/return profiles, the government has another brainstorm. Lottery tickets! You can invest 100% of your savings into lottery tickets. Venture finance and hedge funds? Too risky. But invest in all the lottery tickets you want. The government does not care where the money comes from or if you understand the risk/return tradeoff. The government does not care if you invested in them without an offering memoranda explained to you by an expert and where you acknowledge you have the expertise to understand. The government does not even care about your identity. They are basically contingent bearer bonds. For all they care you could have been selling drugs, narcotics, terrorist paraphernalia or any other considered contraband. Just hand over the cash and get your ticket. Might the explanation be that the government itself is the beneficiary of the lottery ticket? Stupid question, I know!

In an interview with economist Ronald Coase he was asked his opinion on regulation:

Henry Hazlett: “You said you’re not a libertarian. What do you consider your politics to be?”

Coase: “I really don’t know. I don’t reject any policy without considering what its results are. If someone says there’s going to be regulation, I don’t say that regulation will be bad. Let’s see. What we discover is that most regulation does produce, or has produced in recent times, a worse result. But I wouldn’t like to say that all regulation would have this effect because one can think of circumstances in which it doesn’t.”

Hazlett: “Can you give us an example of what you consider to be a good regulation and then an example of what you consider to be a not-so-good regulation?”

Coase: “This is a very interesting question because one can’t give an answer to it. When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies—perhaps all the studies—suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been. I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up. But that doesn’t mean that if we reduce the size of government considerably, we wouldn’t find then that there were some activities it did well. Until we reduce the size of government, we won’t know what they are.”

Hazlett: “What’s an example of bad regulation?”

Coase: “I can’t remember one that’s good. Regulation of transport, regulation of agriculture– agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.”

What is the relationship between taxation and regulation? My explanation is that by what some now describe as mass hysteria formation or psychosis, the government propagandizes people to be in a constant state of fear. The lowest part of the Maslow Pyramid is survival. That is when humans are at their basest and willing to abandon any sense of humanity. Government authority dissipates as we rise up the Pyramid. So government power and authority depends upon keeping people at the bottom of the pyramid where they are fearful of their survival and vulnerable to this mass hysteria psychosis.

So we willingly accept asking permission for anything and everything and accept the confiscation of our earned money as taxation. We comply with the regulations and the taxes because we think the protection racket is effective. But if you dispute its effectiveness it behaves (curiously enough) a lot like the gangster. Pay for your protection, or else…

“It’s not an endlessly expanding list of rights — the ‘right’ to education, the ‘right’ to health care, the ‘right’ to food and housing. That’s not freedom, that’s dependency. Those aren’t rights, those are the rations of slavery—hay and a barn for human cattle.”- Alexis de Tocqueville

“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”- Frédéric Bastiat

“The greater the bureaucratization of public life, the greater will be the attraction of violence. In a fully developed bureaucracy there is nobody left with whom one could argue, to whom one could present grievances, on whom the pressures of power could be exerted. Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act; for the rule by Nobody is not no-rule, and where all are equally powerless we have a tyranny without a tyrant.”- Hannah Arendt

“The economic decline of a society without property rights is followed by the loss of other values. It is only when we have a sufficiency of necessaries that we give thought to nonmaterial things, to what is called culture. On the other hand, we find we can do without books, or even moving pictures, when existence is at stake. Even more than that, we who have no right to own certainly have no right to give and charity becomes an empty word; in a socialistic order no one need give thought to an unfortunate neighbor because it is the duty of the government, the only property owner, to take care of him; it might even become a crime to give a “bum” a dime. When the denial of the right of the individual is negated through the denial of ownership, the sense of personal pride, which distinguishes man from beast, must decay from disuse. The income tax is not only a tax; it is an instrument that has the potentiality of destroying a society of humans.”- Frank Chodorov, The Income Tax: Root of All Evil

“To make a contented slave, you must make a thoughtless one. It is necessary to darken his moral and mental vision, and, as far as possible, to annihilate his power of reason. He must be able to detect no inconsistencies in slavery. The man that takes his earnings, must be able to convince him that he has a perfect right to do so. It must not depend upon mere force; the slave must know no Higher Law than his master’s will. The whole relationship must not only demonstrate, to his mind, its necessity, but its absolute rightfulness.”- Frederick Douglass

About Jeffrey Wernick

Jeffrey Wernick is a private investor and early advocate and acquirer of bitcoin. He frequently lectures at his alma mater, the University of Chicago.

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