How Many Lies Does “The Good Lie” Tell?

In today’s Western society, with the overwhelming majority of us products of at least twelve years of mandatory government schooling, free market advocates are vastly outnumbered by defenders of the status quo. After all, what use does the state have for critical thinkers who are able to think things out for themselves and come to their own conclusions? A population full of such people could come to all sorts of outlandish ideas such as that the use of force and coercion is always reprehensible, even when committed by “officials”. We can’t have that!

Instead, state-run schools cultivate the sort of hive mind of which we see many expressions in popular culture, perhaps most notably in Hollywood. The basic plot of many a popular movie or TV show has the good guys brandishing uniforms and badges while the bad guys are shady criminals out to destroy the peaceful lives we so happily live thanks to government. Other Hollywood productions, however, include Sudanmore subtle references to the advancements supposedly made possible by – if not exclusively attributable to – state intervention. One recent example of the latter is the 2014 movie by the title “The Good Lie“.

The film follows a group of orphaned Sudanese refugees lucky enough to escape their war-torn homeland to resettle in the United States. After finding a new home in Kansas City, Missouri, the three brothers Mamere, Jeremiah, and Paul have to start at the bottom of the societal totem pole. While Jeremiah and Paul start working a low-wage job at a local grocery store, the more ambitous Mamere decides to hit the books and study to become a doctor. Naturally the men experience quite the culture shock trying to adapt to life in the U.S. both in the personal and professional sphere.

One scene has the store manager asking Jeremiah and Paul to trash two shopping carts full of expired food. Considering their background the brothers are perplexed at the notion of so-called old food, but to their objection that there may be hungry mouths out there to feed, the manager responds: “I don’t sell the food inside to give it away outside, I’m a businessman!”. He then goes on to cite “a big headache with the Health Department” as another reason for trashing the food. Later on there is a confrontation where the manager gets upset with Jeremiah for giving away food to a homeless woman, causing him to quit his job on the spot.

The false dichotomy being set up here is that of a store’s choice between giving food away at a loss or selling it at a profit. Rather, the choice is between avoiding any risk of potential lawsuits by throwing something in the garbage or potentially running afoul of onerous health regulations by giving that food away to people in need. While it may not be an efficient use of resources to go out into the streets to find those people, surely it makes perfect business sense to give away food that can no longer be sold. Just imagine how quick that news would spread on modern communication platforms and the subsequent outpour of support for the business. As the manager points out though, he could get sued for selling food that in the brothers’ minds is perfectly fit for consumption. Clearly such overregulation is a major contributor to the mountains of food that simply go to waste in the U.S. every day.

In another scene one of the refugees, after being fired from his job, is told about “this thing we have in America called bosses”. Basically he is told that although these people can be incredible jerks, employees are powerless to do anything “because you need money to live, and to eat, and to go to school”! To call this a gross oversimplification would be an understatement. Are there people in managerial positions that don’t know how to treat their subordinates with dignity? Sure. Is that likely to affect people in low-skilled jobs more than those with more options on the labor market? Most probably.

The important distinction to be made here, though, is that no employee can be forced to work somewhere against his or her will. While the fry cook at McDonald’s is unlikely to want to stay in his job until retirement, the very fact that he is there in the first place indicates he perceives it to be the best alternative at that particular point in time. After all, had a better, more lucrative job been available surely he would have taken that over flipping burgers. And if he performs well on the job, the fry cook may soon be promoted to a more interesting position or use his experience and professional reference to obtain a better job elsewhere.

Resenting low-paid jobs and the businesses that provide them for not offering a so-called living wage is a great way for populists to score points in the public debate. At the same time it reveals their complete ignorance of basic economics and lack of common sense. Like so many before them the Sudanese brothers featured in The Good Lie come to a developed country in search for opportunities to build a new and better life. It just so happens that building something up takes time and hard work. Only in a fantasy world do well-paying jobs defy the unwritten laws of life and economics and just fall in one’s lap because of some words scribbled on pieces of paper by politicians. And only in a fantasy world does government schooling lead to an educated populace.


What Cues Can South America Take From Europe?

Over the past few years Greece has probably made the news more than ever before. Whether it be protesters in the streets, election results, or the announcement of some new government policy, whatever happens in Greece seems to be written about in all corners of the world. Just recently the fierce rhetoric of a relatively obscure populist left-wing party made international headlines and fueled new speculations about the future of one of the world’s major currencies, if not the world economy and financial markets. The eventual ascent of that same party, Syriza, to Parliament has all eyes both on the Old Continent and across the world focused on its plan of action. Mind you, we are talking here about a country whose GDP represents less than 0.4% of the world economy.

In the meantime, incessant government intervention into the economy has caused major upheaval in several countries in South America. Venezuela is currently experiencing the worst depression in decades, Argentina’s economy is in shambles once again on the heels of its most recent default, and since the World Cup bubble popped Brazil has equally dipped into recession. These countries dwarf Greece in terms of population as well as contribution to world GDP, and some of their resources make them important players in global commodity markets. Yet aside from some news outlets’ reporting on Venezuelans having to stand in line for hours for even the most rudimentary items or the mysterious death of a federal prosecutor in Argentina, major media are hardly paying attention.

The latter, far from being the result of a massive media cover-up, reflects a general sentiment in South America. Here in Chile, for instance, nobody in their right mind would dream up some theory about the aforementioned woes causing a spillover effect that might bring the entire continent to its economic knees. Unlike in Europe, xenophobia has not been on the rise here, nor have there been any incidences of heads of state being compared to blood-thirsty dictators. As much as some populist leaders like to speak of a “Latin American brotherhood”, in truth the misery even in neighboring countries is hardly discussed except in case of any personal ties.

While it would clearly not be a fair comparison to put the South American economy on equal footing with that of Europe, the events that have unfolded in recent decades can certainly serve as valuable lessonsEurope-SouthAmerica for the continent. The mere suggestion that one day, Europe’s economic fate would seemingly come to hinge on the outcome of Greek elections would have seemed outright preposterous as recent as the nineties or even in the early 2000s. Indeed it would be like predicting that two decades from now, all of South America would be trembling at the prospect of a severe recession in Guyana.

Still, a lot more can be drawn from European history than simply a long list of don’ts. Going further back just a few centuries can literally provide a blueprint for sustainable growth and pave the way for prosperity on a continent too long haunted by the destructive and backward forces of socialism. Historians and other scholars have written extensively on “the European miracle” and its foundations. As it turns out, the terminology belies an astonishingly simple recipe; defense of property rights and decentralized power structures limited by competing jurisdictions in their ability to intervene in and expropriate resources out of the market.

Whilst academia and politicians would have us believe economics is an incredibly complex field of study that should be left safely and exclusively in the hands of the “experts”, historical evidence proves them utterly wrong. In fact, the more power is centralized into the hands of these conmen, the lower the odds of the kind of sustainable economic growth that has permanently lifted millions out of poverty, and continues to do so to this day.

Political leaders and their outdated and misplaced allegations of imperialism cannot be allowed to stand in the way of free people and free markets in South America. In the words of Ron Paul: “An idea whose time has come cannot be stopped by any army or any government”!

How Does Healthcare Reform Impact Liberty in Chile?

For more than three decades Chile has had a dual healthcare system consisting of both state-run and private health services, which has provided more Chileans with greater choice and better access to such services. Initially funded by way of a 4 percent tax on income, by the late nineties the public Fondo Nacional de Salud (FONASA) started running deficits as one in four Chileans opted for private insurance instead. Consequently the obligatory contribution was raised to 7 percent, helping force a significant chunk of people back into the old system. Unfortunately government meddling did not stop there.

1314902_99313658In 2005 a fresh round of regulations listed 56 priority health problems that all insurers must cover. Unsurprisingly, premiums spiked across the board that year as well as the following years. Unfazed, the first Bachelet administration expanded the list to cover a total of 80 medical conditions. The result is as predictable as it is inevitable, and the unfortunate thing is it usually leads to more demonization of the market and increased calls for more heavy-handed government intervention. Considering the aforementioned developments it seems as though that process is already playing out.

Needless to say, the selfless crusaders for more equity – be it in healthcare or whatever other area of life – make no mention of inflation, currently estimated at 4.5 percent, that is stealthily yet ceaselessly robbing all Chileans of their purchasing power. Nor is there any mention of the fact that patent laws are artificially propping up drug prices, or that compulsory medical licensing is keeping competition out of the market. Experiences with “free” state-run healthcare and the resulting long waiting lines and other unintended consequences such as in Canada and the UK are equally overlooked if not purposely left out of the debate.

To point the finger to the market as the source of inequality merely reveals one’s intellectual laziness, if not dishonesty. Moreover, it is to deny the fact that free market type policies have made Chile the most prosperous Latin American nation in known history, slashing poverty from 50 to 11 percent while raising per capita income fivefold. In other words, being poor in today’s Chile generally means owning a used sedan rather than a new SUV, whereas just a few decades ago it was the difference between having three meals a day or going hungry.

Extracting wealth from the SUV driver in the name of equality is not only immoral; it has historically never lead to anything but equal misery for everyone, wherever it has been tried. Besides, the case of the United States shows that simply increasing spending on health by no means guarantees a healthy population. After all, when government policies make healthcare more expensive that inevitably leads to more spending, yet as a measure of effectiveness or efficiency that metric is of no use at all. It does, however, achieve the exact opposite of the stated goal of making healthcare more affordable. Where have we heard that before?

Bachelet’s healthcare reform falls squarely into the category of just another excuse for more government intervention to solve the problems created by previous intervention.

Lessons Unlearned From Brazil’s Recession

As she was sworn in for her second term last week Dilma Rousseff publicly stated government spending would have to be cut. Yes, you read that right; the leader of the Workers’ Party just said her own administration is spending too much taxpayer money. It might be a day late and a few billion dollars short, but could it be Brazil’s president just had her Eureka moment?

ReaisYears of spending billions of dollars on stadiums and infrastructure for a 4-week event has left the Brazilian government with little to brag about. While the world has moved on to other things the World Cup’s relics lie mostly unoccupied in a land of poverty, police corruption and gang violence. After the artificial boom created by said event the bubble has definitively burst. Yet to hear one of South America’s most adamant cheerleaders of government intervention admit to it is remarkable to say the least.

Government figures show Brazil’s economy had already fallen into a recession before the World Cup even got underway. This year the central bank expects the economy to grow by a dismal 0.38 percent while inflation hovers north of 6.5 percent, well above the 4.5 percent target rate. Industrial production is forecast to expand by no more than 0.7 percent, with the country’s current account deficit widening to $78 billion. Predictable though the downturn may be, its sheer magnitude is forcing the Dilma administration to consider some rather uncharacteristic measures. Or is it?

The budgets of a few dozen ministries and some secretariats may be cut by one-third, reportedly amounting to some $700 million in savings, the new Finance Minister Joaquim Levy was quick to add expenses listed in the constitution will be unaffected – a constitution about as thick as Ayn Rand’s novel Atlas Shrugged, by the way. In addition taxes on imports, credit, cosmetics and fuel are set to be raised. To make matters worse, an income tax reduction already approved by Congress was recently vetoed by Dilma herself.

Naturally, the fact that Brazil’s tax burden of 36% of GDP is far higher than that of other middle-income countries cannot be allowed to keep failed economic policies from going full steam ahead. The logic on which excise taxes or protective tariffs on imported goods rest, i.e. that raising prices of certain goods discourages their consumption, suddenly loses all its validity when it comes to such activities as human labor or investment. Can Brazilians really be expected to keep working just as hard despite essentially working two out of five business days just to sustain a giant bureaucracy? Can a society really be expected to achieve any sort of meaningful growth when forty percent of its productivity is sucked out of it?

It is obviously too late to take all of the resources spent on the aforementioned projects and redirect them into the private sector, where they would have contributed to sustainable economic growth. It is not too late, however, to reverse the trend and stop adding fuel to the fire. Besides, imagine how much more expensive that fire will be considering rising fuel taxes!

As the famous quote attributed to Thomas Edison goes, “I have not failed, I’ve just found 10,000 ways that will not work.” The latter can also be said for the idea of taxing and spending one’s way to prosperity. Edison’s point, however, was that making mistakes can be useful if one learns from them. Unfortunately that message does not seem to have reached Brasilia.

Keynesianism in Chile

Last week Chilean president Michelle Bachelet announced an “especially anti-cyclical” government budget for 2015. Utilizing the usual rhetoric of creating jobs and stimulating the economy, the first budget in her second term is set to increase by a whopping 9.8 percent. The new budget’s “historical increase in public investment” – mind you, these are the words of a Socialist Party president – will be directed mostly toward social reforms.

La_MonedaThe increase in spending is supposedly covered by a landmark tax reform passed last month raising corporate taxes and closing tax exemptions. These funds, confiscated from those who could make actual investments to meet market needs, will be used to ramp up spending on health care by 85 percent and education by 10.2 percent. In addition, Bachelet pledged to pump more money into developing certain remote regions and consolidate social welfare schemes, stating her administration’s goal to have 1,700 of the poorest families on the dole by next year.

The latter, of course, is typical of the redistributionist ideology; the fundamental difference between giving a man a fish to feed him once and teaching him how to fish so that he may become more self-reliant. As always the irony of striving first and foremost to make the poor and destitute more dependent on others for their sustenance seems to be lost on most people. Growing up, children are expected to become better able to take care of themselves and take on more responsibility as they get older – I personally recall a story or two about my older sister looking after me when we were kids. Yet when government takes this inherent human instinct and turns it on its head, nobody bats an eye.

In her press conference president Bachelet administration claims the stimulus will create 139,000 jobs. What she left out, however, is how many jobs will be destroyed or never created because of the tax hikes. After all, there is no way of knowing how many more or fewer jobs would have been created if the government had not decided to extract more resources from the voluntary sector. Nor does Bachelet specify what types of jobs will be created. Since jobs created by an institution that does not have to make a profit are not subject to the discipline of the market, the creation of these jobs might actually harm the economy and the people rather than help them. And all of this is assuming the tax hikes will even create enough revenue to cover the increased spending.

Rather than help sustainably grow the Chilean economy, the new budget represents the State’s clenching fist on an economy that is already struggling. The slowdown in the Chinese economy and the Finance Minister’s announcement that there will be no stimulus has lowered demand for copper, Chile’s main export product. With Chinese demand for copper dropping the commodity’s price has fallen by over 6 percent in recent weeks. If the U.S. dollar keeps strengthening the way it has for the last 12 weeks the price of copper is expected to fall further.

The good news for the Chinese is that it seems their economy will be allowed to run its (semi-) natural course rather than get a temporary monetary fix, which is inevitably followed by a correction. Unfortunately the Bachelet administration either does not understand that or is simply doing what is politically expedient. Either way it is telling to witness a socialist president in Chile implement more interventionist policies than the so-called communist Chinese. The difference will be that when the Chinese economy bounces back, it just might be a more sustainable recovery.

What’s Really Growing in Argentina?

Traveling through Argentina recently I was taken aback by the abject depression that seems to have taken the country and the people in its grip. Even after spending barely two days in the country I left with a negative taste in my mouth. More than the many buildings, modes of transport, streets and sidewalks in severe states of disrepair the overall feel of the place really stood out in my mind. And it is not that I was expecting to see a prosperous, bustling country either.

Moneda_ArgentinaFor some time now it has been clear that the Argentine economy is rapidly disintegrating. The people are struggling to cope with an estimated inflation rate of over 50 percent, a rate the Kirchner administration has been stubbornly underreporting to the point to where international authorities have openly questioned the numbers. Other persistent problems include seemingly permanent fiscal deficits, international reserves drying up, and the ongoing devaluation of the peso. Government spending as a percentage of GDP now hovers around 50 percent, contributing to last month’s second sovereign debt default in a mere 13 years. Meanwhile the previous one is still haunting the state budget.

In late 2001 the Argentinian government declared the world’s largest sovereign default, triggering the worst economic recession in history. Unemployment spiked to 20 percent causing widespread riots and looting, not to mention political instability– five different presidents held office in a mere two weeks. Eventually the debt was restructured and most bondholders agreed to a debt swap even if the new bonds were worth only 35 cents on the dollar. A small minority holding some 9 percent of Argentine debt did not take the deal. Consequently these hedge fund “holdouts”, in Argentina less affectionately referred to as “vultures”, have been involved in a legal battle with the government that has gone all the way to the U.S. Supreme Court.

While this year’s default differs from 2001 in many ways it is impossible to truly grasp the former without understanding the far-reaching ramifications of the latter. Former Economy Minister Roque Fernández even goes so far as to argue the government has effectively been in default since 2001 as it never resolved that situation. Whatever the case may be, the common denominator is the victim: the Argentinian people. Historical evidence of its many defaults suggests they typically result in at least a 10 percent drop in GDP.

Nonetheless, the Kirchner administration has had the audacity to place signs at sites of taxpayer-funded projects proclaiming “Aquí tambien la nación crece” (here too the nation is growing). The sad truth is the only indices indicating growth in Argentina are the ones that should show the opposite; think government spending, the money supply, and the fiscal deficit. Unfortunately the Kirchner administration has been too busy childishly denying reality and trying to shift the blame for the economic malaise on the “vultures” to do anything constructive for the people they claim to represent.

But there is hope. In the midst of all the chaos Bitcoin is making headway as an inflation hedge. A Subway franchisee in Buenos Aires recently decided to start taking Bitcoin, and the country’s first Bitcoin ATM is now a reality. The old adage holds true in Argentina today: you can fool some people sometimes, but you can’t fool all the people all the time. Especially in the information age.

A Critical Look At a World Famous Welfare Program

Hailed by The Economist as a “much admired and emulated anti-poverty program”, the signature legislation of Brazil’s last president Lula da Silva was the Bolsa Família (Family Allowance) program. Aimed at alleviating the misery of the poorest segments of the population, the program provides financial aid to families and free education for children whose parents cannot afford to send them to school. The largest conditional cash transfer in the developing world comes with strings attached, though.

The eleven million families receiving the financial aid – on average $35 per month – commit to keeping their children in school, adhering to the government’s vaccination schedule, and taking them for regular health checkups. In a country plagued by persistent inequality and poverty widely blamed on an unjust system, the popularity of a program of direct wealth transfers to the least privileged should be no surprise. Still, might the superlatives expressed by the likes of The Economist have been a little overdone?

At first glance the numbers seem impressive; extreme poverty has been halved from nearly 10 percent to just over 4 percent, income inequality has fallen, and about one fourth of the population has benefited from the program. In addition, the initiative has been touted for its decentralized nature and target accuracy in reaching those in the most dire of circumstances. As Henry Hazlitt might have pointed out, however, there is more than meets the eye.

The National Congress in Brasília

It does not take a genius to understand that since the government has no money to spend it has to fund its operations through taxation, the printing press, or by going into debt. In the long term, therefore, the Bolsa Família program cannot be said to contribute to real wealth creation. Worse yet, regardless of the preferred means of funding itself these government programs necessarily extract wealth from the private sector, thereby making society poorer in the long run. Any consumption whose origin is found in the artificial creation of illusory wealth only contributes to a reduction in living standards due to the absence of an increase in general productivity. Sooner or later the market corrects the unsustainable boom, and it’s back to square one.

The irony of government intervention, as famously pointed out by Ludwig von Mises in his critique of interventionism, is the invariable snowball effect of piling on new interventions aimed at solving the problems created by previous ones. History tells us this endless game of government whack-a-mole invariably leads to an economic and humanitarian catastrophe. But in the case of Brazil there is plenty more reason for skepticism besides the objections raised from a more academic standpoint..

The aforementioned fundamental problems are compounded by the fact that would-be contributors to real growth such as a good education system are still lacking. After all, boosting school attendance rates is one thing, creating an environment in which students can get a good education is another. In its Human Capital Report of last year the World Economic Forum ranked the Brazilian education system as among the 35 worst in the world, trailing such nations as Surinam and Botswana while just barely ahead of Bhutan and Kenya. Steady increases in government spending in the last decade have entirely failed to achieve a competitive education system even compared to other, poorer Latin-American nations.

Perhaps a cynic would call Lula’s program and his successor Dilma Rousseff’s support thereof a classical example of vote-buying through government handouts. That might not be so far off.