Don’t count on flood of cap-ex for 2013

There seems to exist a collective hope among financial professionals that there will be a flood of capital expenditures from cash-rich firms when (if?) the “fiscal cliff” is resolved in the US. Unfortunately, there is not always a positive market correlation with increased capital expenditure. Even if there were, Mr. Parker from Morgan Stanley suggests there is no reason to believe this is coming.

  1. Capital expenditures expected to decline in 2013, from near average levels in 2013. Therefore, upside not expected.
  2. Overall manufacturing utilization is still below long term average. Current trends indicate slowing utilization.
  3. Historical analysis suggests pent-up spending in some sectors, yet fundamental analysis suggests otherwise.
  4. Global inventory-to-sales has been flat for 10 years, there is no evidence suggesting a big capacity surge is forthcoming.

Rather than big cap-ex, 2013 will see mostly lay-offs.

— View the charts and read the analysis —

The myth of the “independent” central bank

The theater of Canadian politics never ends. Its inanity would be more embarrassing if every other country’s mainstream media were not basically just as bad.

The Canadian media was making a big deal yesterday about Bank of Canada GG Mark Carney hanging out with his friend, Liberal MP Scott Brison. OMG, was he going to join the liberal party? Was he arranging special favors?

Uh, maybe I’m missing something, but the whole thing just seems to be “business as usual”. High-level bureaucrats hang out with high-level legislators and high-level businessmen who are politically connected. They are often buddies. They hang out at dinner parties, or golf together. Their wives get together to gossip. Their kids go to the same private schools. Whatever. Seriously, follow any central banker around, and see who their friends are. It’s the same story for all of them.

Why does anyone care? Because it anything that threatens the myth that central banks are “independent” is a threat to the Establishment’s most important tool — the monopoly on money creation. So a story is created where there is none.

Well, much to the relief of mainstream economists, governments, and the sycophantic media everywhere, Carney has been cleared of any misconduct. He wasn’t seeking political office when he was staying at Brison’s summer home, smoking cigars, drinking scotch and discussing the best ways to exploit the rabble. So it’s cool. I guess.

But let’s be serious — does anyone who doesn’t have a PhD in economics and write economics textbooks really believe in the idea of “independent central banks”? I know a lot of people like to think the central bank only has the public interest at heart. They like to think none of the normal monopoly problems apply to central banks because central bankers are just so noble and wise. At least that is what the textbooks say, and the idea is key to the ultimate scam of monopolized money supplies.

So now the knaves who support central banking can say to anyone ignorant enough to listen: “Hey! Don’t worry! The central bank is totally independent! It’s looking out for us!”

Central banks are not independent, by any stretch of the imagination. Central banks exist to manipulate money supplies. If you think they do this for the “public interest,” you may also believe in things like Santa, decent highways in Saskyland, or the pantheon of Greek gods. To anyone who thinks “outside the box” in regards to this for two seconds, it becomes clear that the central bank benefits their scandalous stakeholders, like inefficient export industries, debt-laden governments, and inherently insolvent financial systems.

Talking about whether Carney and Brison hanging out together constitutes a conflict of interest is just so outside the realm of importance, there is no surprise that the national media focuses on this “scandal” — rather than the scandal of central banking as such. This is theater. It pretends to be newsworthy when it is truly pointless theatre for government and media to put the shucks on the Canadian rubes.

Recession will come to Canada in 2013.

Oh Carney. What a wacky guy. He seems convinced we will only enter a recession if the US falls off the fiscal cliff. Err, I’m sorry, not a “recession,” but a “near-recession.” Central bankers don’t like to use the word “recession” in their predictions, because that serves as a confession that they are not “managing” the economy effectively.

If the fiscal cliff is resolved, he says, Canada will surge with the resultant economic relief!

So… is it the case that Canada’s only economic threat is idiots in the US Congress? (That’s redundant — I should just say “US Congress.)

Sorry, Carney. That is nonsense.

What about recession in Europe? Asia? Not to mention the general problems of the US, out biggest trading partner.

First there is Europe. The European recession is spreading, evidenced by slowing price inflation and rising unemployment (at 12% for the Eurozone). This deeply aggravates the existing European crisis. Even Germany, the ‘good’ (cough cough) part of Europe, is grinding into economic slowdown. Its central bank predicts a pathetic 0.4% for next year. It could very easily be less. As long as everyone over there relies on Keynesianism to solve their problems, they will never escape the financial death spiral.

Japan is in a recession. Other Asian export markets are slowing down, because the weight of China’s economic distortions are turning into a brutal yoke and necessitating slowdown there.

And what of the US? The perception is that if “something” is done about the fiscal cliff, everything will be rosy. Shockingly, the US is still considered a safe haven. But foreigners are not scooping up US debt like they used to. China is reducing its exposure; Japan’s purchases are slowing. Bernanke’s surprise announcement to expand the Fed’s balance sheet by an additional $45 billion a month to buy US debt is a telltale sign that he understands the problem, at least to some extent. Yet I do not believe that Bernanke’s action will deflect the recessionary pressures coming from both sides.

Then there is Canada. Everyone here thinks we are special. “Well, if the world goes into recession, we will be okay — we’re CANADA!” they say. The myths spawned during the 2008 financial crisis have sunk deep into the nation’s collective unconscious. Canadians feel invincible. That is dangerous. So the debts continue to grow. Harper continues growing the government, thinking it’s perfectly acceptable to do so because Canada is not as bad as other countries (ignoring the fact that it is still bad).

I frequently speak with executives in the oil industry. There are big deals being made, plenty of excitement as usual. But I’ve noticed people seem strangely oblivious to even the prospect of slowdown in 2013. We are largely a resource based economy, so if the entire world is slowing down, they are not going to buy as much of our stuff. It’s a fairly easy prediction to make. Myanmar and Laos are not going to make up for lost demand from China. Canada’s slow growth will drop mid-to-late 2013 unless some new crisis speeds the world’s decline. Canadians should get ready for this. Hold cash. Get ready to use it when prices fall.

Carney is off to the Bank of England — Pray for England

Bank of Canada Governor and ex-Goldman bankster Mark Carney was selected to become the next Governor of the Bank of England. He will now be overseeing a central bank with nearly ten times the assets of the Bank of Canada. That is a big promotion in the world of central planners! Carney will now be able to create even larger disturbances in economic systems.

Truly, the worst rise to the top.

Good riddance, I say. Not that I expect him to be replaced with anyone much better. But there is always a chance.

I feel bad for England, though. They have no idea what they are getting themselves into (from Bloomberg):

Carney, who holds an economics degree from Harvard and a doctorate from Oxford University, swaps oversight of an economy which bounced back from the global recession without witnessing a single bank bailout for one which slipped back into recession in the second quarter and required multiple bank rescues.

Did you see what they did there?

Carney … swaps oversight of an economy which bounced back from the global recession without witnessing a single bank bailout for one which slipped back into recession in the second quarter and required multiple bank rescues.

Carney … swaps oversight of an economy which bounced back from the global recession without witnessing a single bank bailout … 

an economy which bounced back from the global recession without witnessing a single bank bailout …

without witnessing a single bank bailout

Excuse me? The banks that pushed for Carney to be their man in England have surely put the shucks on the rubes.

Of all the deleterious myths that persist about the Canadian financial system, none are more harmful or obnoxious than the bogus story that its banks never needed and/or never got a bailout.

Anyone who says this is simply lying or has no idea what they are talking about. Those are the only real possibilities. We have covered this at CMR previously, but let us quickly review.

The mainstream news doesn’t even try to deny it anymore. The Canadian banks got a bailout. Now they simply try to play down the significance of it. Even though it is was much bigger than anyone was led to believe.

So is this “no bailouts in Canada” proposition challenged by anyone in the UK? Carney is being sold on the pretense that there were no bailouts?   

(Side note: We could also mention that Canadian banks received assistance from emergency Federal Reserve lending facilities, which by itself is very interesting. We could also mention that rather material fact that Canadian banks are basically in a state of “perma-bailout” by virtue of the Canadian Deposit Insurance Corporation. The existence of the CDIC amplifies the level of risk banks are willing to engage in — it is classic “moral hazard.”)

So it would seem one is more likely to see bank bailouts with Carney, rather than less. That is precisely why the UK banking cartel wants Carney in this position.

Yet that is not the only reason citizens of the UK should worry.

Mark Carney is not only a believer in bailouts — he is a believer in Keynesianism and mercantilism. This means nothing more than this: he sees a connection between depreciating the currency and growing the economy. This he shares with nearly all central bankers (except, perhaps, those in Singapore): he regards a strong currency as harmful to “the nation”. Because when he talks about “the nation,” he is not talking about the consumers (i.e. everyone) who use their stronger currency to buy and invest in more goods. For men such as Carney, “the nation” instead refers to politically-connected export industries that are benefited by making it cheaper for foreigners to buy their stuff.

That being the case, Carney will tend to increase the money supply by adding assets to the central bank’s balance sheet whenever he thinks it’s a good idea. But this means prices must rise and debts will deepen. Britain already has big problems in these areas.

This should be the last thing someone in the UK should desire. The British pound has plummeted in value the last five years against stronger currencies like the yen. Here in Canada, it seems Carney’s manipulations have been obscured by strong demand for Canadian commodities, yet with the slowdown in Asia, Europe, and soon the US, I doubt this will persist. The Bank of Canada has been growing its balance sheet for nearly two years now, since offloading some of its emergency acquisitions during the financial crisis.

Also, it should be known that Carney likes to troll citizens whose currency he manages by blaming them for behavior that is strongly encouraged by his own central bank policies. What a jerk.

I am happy to see Carney go. While I am happy he no longer oversees the Canadian dollar, I am apprehensive about who his replacement will be. Most of all, I must also bemoan the lack of justice. Carney should be serving a prison sentence for counterfeiting, rather than getting $1 million a year to manipulate huge economies.

Will “tougher mortgage rules” hurt the economy? Don’t listen to the shills for the mortgage industry.

The folks in Canada who sell mortgages are complaining about the federal government reducing the subsidy to its business.

From the Financial Post:

The Canadian Association of Accredited Mortgage Professionals says since new rules went into effect in July, 2012, resale housing activity is 8% lower between August and October than a year earlier. Among the changes instituted by the government was a lowering of allowable amortization from 30 years to 25 years for consumers borrowing with mortgage default insurance which is backed by the federal government.

Let us think about this for a moment. By providing insurance against default, the Federal government provides a huge benefit to the mortgage industry. It insulates them against potential losses. This causes them to extend loans to to submarginal borrowers who would not be otherwise creditworthy. I can tell you I would make much riskier investments if someone would pay me back for any money I lose.

Jim Murphy, chief executive from CMAAP, is not happy:

“My concern is that a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole.”

This guy really is clueless. First of all, what is this about “a policy-induced housing market? The “policy-induced” aspect of the housing market is, clearly, the availability of government backed loans for houses and the inflationary policies of central banks, not the reduction in the subsidy to his friends.

More importantly, it is simply false that reducing this subsidy will hurt the economy.

A great deal of resources are shifted into the housing industry that would otherwise be used in a different way because of federally backed mortgage loans. If you are a mortgage lender, a 30-year amortization increases the amount of interest you will take in. On an $375,000 house, you are talking about an extra $65,000 in interest. If more loans are made, housing prices will be bid up. Money flows into the financial industry and the construction industry. More people will be employed at banks, mortgage brokerages, and home-builders, and related businesses.

As resources shift into some sectors, they are necessarily shifted away from others. Everyone now has to pay more for houses than they would without so many buyers, who are effectively subsidized to a greater or lesser extent. But beyond the price of the home itself, for the guy buying a house, he is paying an extra $65,000 in interest to the bank. Assuming that is about equal to his annual salary, he basically has to devote an extra year of his life to pay the bank. He likes this, because “Pay less now, more later” is the mantra of our age, but he would pay less overall with the shorter amortization. $65,000 is not chump change — it would buy his wife a new car and send his kid through university. More money and jobs goes into housing, but less money and jobs are produced elsewhere as a result.

So we can understand the impact of this sort of intervention in the mortgage market. Resources are allocated not according to how the market would most efficiently allocate them, but rather are diverted to profit from the government’s protection of the financial industry. Therefore, the elimination of this subsidy would represent a favorable change to the overall economy. This means that some people would be unable to get low mortgage rates that are backed by the taxpayers. Housing prices would fall. It means homebuilders would have fewer homes to build. Lenders would make less money.

To some people, these consequences are bad. To the economist, these consequences must be considered good, because they represent the economy re-allocating resources according to efficiency, rather than government intervention. Resources will have a greater tendency to shift to uses consumers actually need.

Unfortunately, the insurance still exists. It has not been eliminated. The government will merely provide less of a subsidy than they did before. Therefore, the market will be distorted relatively less than it was previously. The economy will be slightly better, because fewer resources will be shifted to inefficient uses (i.e. housing and Jim Murphy’s summer home).

The best thing that could happen would be for the Canadian government to eliminate taxpayer backed mortgage insurance completely, which would do a great deal to restore a free market in housing.

Worst Financial Reporting Ever, Revisited

(UPDATED!! See below.)

Longtime fans of CMR may remember a video clip we posted a long time ago, featuring the worst financial reporting ever courtesy of our own local CTV. It was really quite hilarious, if you like sick humor.

Since then, CTV has been systematically trying to remove all evidence of this clip from the internet. But it’s your lucky day! Because it has resurfaced on YouTube. Enjoy!

Just so this does not happen again, I am taking this opportunity to rip this clip so it will never be forgotten.

UPDATE: CTV desperately tries to hide the truth and again the video has been removed. But… it’s back!

 

Setting the Record Straight on the Fed and “Zero-Interest Rate Policy”

It’s entirely possible I don’t have the time to write this right now. Poor me. But this is important, so I must make the time.

So listen up people. Time for STRAIGHT TALK. It’s important to get the facts straight because it gives us a chance to understand something about economics and do some critical thinking.

What am I talking about? Well, a lot of folks of an anti-Fed persuasion, and even some Fed-lovers, say we have “artificially low interest rates.” Among the generally economically literate folks who are my friends and acquaintances, I constantly hear “artificially low interest rates this” and “artificially low interest rates that.”

Is the interest rate distorted? Yes. But is the Fed the reason interests rates have remained so low?

The answer is no.

“But!” you say, “Bernanke is printing so much money! That money is used to buy bonds, which pushes down interest rates!”

Okay, I am going to blow your mind here: The Federal Reserve is not printing money. They have not added made any net additions to their balance sheet since the end of QE2.

In fact, the Fed has deflated! That’s right… they have sold debt, and reduced their balance sheet.

WHAT!

It is true. I will now proceed to show my evidence:

First, let us look at a long-term chart of the monetary base.

FRED Graph

Here we see the monetary base has skyrocketed since 2008. The first giant spike is what we retroactively call “QE1,” the massive purchasing of mortgage-backed securities during the financial crisis.

You’ll note there was a temporary reversal of such debt-buying just before the second huge spike: QE2, which spent $600 billion on US government debt. Again, following this spike there has been a reduction in the size of the Fed’s holdings.

Now let’s “zoom in” to the end of QE2.

FRED Graph

So from Summer 2011, we have not seen the monetary base increasing. The Fed has been jerking around the amount, but since the end of QE2 the total assets of the Fed has tended downward.

What about QE3? Well… what about QE3? As far as I can see, it either has not even started yet, or it is being offset by the sale of other Fed assets. In any case, the grinding weight of the American economy already has the recessionary momentum, and $40 billion a month isn’t going to matter.

That is why America is certainly entering a recession in 2013, and so Canada will also.

If this is true, and if it is also true that the Federal Funds rate has stayed the same the entire time, then something else must be keeping interest rates as low as they are. The contraction of the Fed’s balance sheet should cause the interest rates to rise. So what could it be?

It’s not actually a big shocker: the economy is extremely delicate. Extremely delicate. That’s because everything seems to depend on the whims of politicians and bureaucrats who will either:

  1. Pump more crack into the financial system and eke out a bit more cancerous economic ‘growth’, OR
  2. Let a depression come and bring the economy to its knees. Or another crisis will come and the economy will be brought to its knees anyway.

So what Robert Higgs calls “regime uncertainty” is at critical levels, forcing low growth and keeping unemployment high. Additionally, the huge banks don’t trust each other because they are all fundamentally broke and the financial system is such a twisted nightmare. Virtually all the money added by Bernanke has printed been packed into the banks excess reserves.

Graph of Excess Reserves of Depository Institutions

Could it be the case that if Bernanke were not paying interest on the banks’ excess reserves, that interest rates would rise? Probably not. They are already losing money by parking their reserves at the Fed. But they prefer to lose just a tiny bit of money, rather than a lot of money in a highly uncertain economy.

The same way investors will give their money to Geithner — GEITHNER, of all people! — for a negative real return. They would rather know they will gain nothing, or lose a percent or two, rather than lose 20% with some fund manager.

The Great Depression also saw record low interest rates, so the present state of affairs should surprise no one.

Now just to clarify, I am not defending Fed policy, I am not defending Bernanke. I loathe central banking in principle. Deflation, i.e. reducing the money supply, is not necessarily a good thing. Yes, falling prices are good. Yes, inflation is bad. But if you are going to have a central bank, then policy should be to maintain a stable money supply, and let the market determine the value of the currency. Reducing the money supply through open market operations is just as much of an intervention in the market as increasing the money supply, it just affects different people in different ways. For example, the debtor prefers inflation, the saver prefers deflation.

That being said, the money supply has been RELATIVELY flat now for over a year. When we’re talking about Ben Bernanke, isn’t that pretty much the best we can hope for? Much better than him flying around in his helicopter throwing trillions of dollars at the world’s problems, like he did up until mid-2011.

Don’t get me wrong. The Fed is still creating distortions, for example by buying up nearly all the 30-year Treasury bonds with the Twist program, and affecting prices of different assets. But… relatively speaking, the Fed is not causing too much trouble at the moment. Silver linings, I guess. If they let us go into a recession and come out of it the natural way, that would seriously be pretty swell.

I also believe that the Fed will print when they think they “need” to, but for the moment they are relying on PR and promises.

Remember, according to the Austrian theory of the business cycle, you can only maintain the “boom” phase by ever-increasing expansion of the money supply. You cannot raise then money supply and then stabilize it. You can’t even increase it at the same rate the entire time. Monetary policy must become more aggressive as the boom matures, and becomes more and more unwieldy. Otherwise, the bust inevitably comes.

Moving on, when the Fed announces it will maintain its target Federal Funds rate, it does not mean that their actions are determining what the actual rate is at the moment. That is the case now. They trick people into thinking they have it under control, but they don’t. The actual rate is determined by the overnight lending of the banks.

But when rates do start to rise, the Fed won’t need to print anymore money. They already did. The two trillion dollars they’ve added to the system will come flooding out, and by the magic of fractional reserve banking the entire universe will explode in 10 minutes in a reserve currency hyperinflationary apocalypse. The Fed won’t let that happen — if they still exist, they will crash the economy with Great Depression II to save the big banks. Remember, the Fed is there to protect the big banks. It is not there for “full employment” or “protecting the financial system” per se. Hyperinflation would destroy the big banks so it must be avoided from a central bank standpoint. High inflation on the other hand…

Anyway, hopefully CMR has been able to clear up this complex issue for some people.

Undercapitalized Scotiabank’s new acquisition.

Scotiabank is picking up a 51% stake in Banco Colpatria. I think it is pretty awful how big banks have their businesses essentially underwritten by the central banks and governments of the world, and then they scoop up acquisitions like these. Oh well. Scotiabank still has horrendously bad TCE numbers (under 3.5%, only CIBC and National Bank of Canada are worse), and in a lot of ways they look as bad as Lehman Brothers.

Interestingly, Scotiabank’s CFO says the bank will have 7-7.5% Tier 1 Capital ratio by 2013, as reaching that target puts them in good financial health. But this is still way too low. Canada’s banks remain among the world’s least capitalized. Getting new over-valued acquisitions like Banco Colpatria is not the best idea in my estimation. They should be aggressively strengthening their balance sheets.

 

Victory for poutine… for now.

Wanna-be social engineers in a small Quebec town tried to ban poutine and other “unhealthy” food at their arena. But you can’t mess with poutine lovers. I mean, I would fight to the death for a good poutine. Wendy McElroy writes:

A headline in the National Post (07/10) announced, “Hot dogs and poutine stage comeback after Quebec rink’s fans revolt.”

The story revolved around the town of Lac-Etchemin, Quebec that prided itself on being the first Canadian municipality to ban ‘unhealthy’ food from its arena. “Now, in an admission that paninis are outmatched against poutine, the town council has lifted the ban and French fries will return before the end of the month.”

You might chortle at the hubris of a Quebec town trying to ban the delicious French Canadian staple of french fries laden with cheese curds, smothered in gravy. You should applaud the victory of rebellious Canadiens against the Nanny State municipality. In doing so, however, it is important to realize that the attempted ban is neither humorous nor trivial. It is merely one instance of government’s creeping encroachment into what goes onto your dinner plate. In the ’80s, people protested under the slogan “Get government out of the bedroom,” meaning that the state had no proper business monitoring or punishing the consenting sexual choices of adults. Today, the protest should read “Get government out of the kitchen.”

FOOD AS SELF EXPRESSION

The governmental censoring of food choice is often viewed as a trivial matter or even a benevolent one. After all, what is one french fry more or less? And the goal, as stated, seems well-intentioned.

There is nothing benevolent, however, about state imposed control over one of the main ways in which human beings express themselves. Food choices are personal; they define our identity as surely as our choices in attire or reading material. “Food is love” is a hackneyed saying that conveys the basic truth that eating is about far, far more than sustaining life.

Food is an integral aspect of transmitting culture and ethnicity. From Italian pastas to Indian curries, from poutine to falafels,  a rich array of dishes form a part of your family’s history and the background of who you are. Often the mere smell of a dish as you walk by a restaurant can elicit a flood of childhood memories, including how recipes or cooking techniques were passed down from one generation to the next.

Food is also a form of cultural exchange through which diverse ethnic groups can automatically appreciate each other’s heritage. The appreciation happens spontaneously, without tax-funding, laws or government programs. It happens every time someone chooses a Chinese restaurant or expresses preference for a Jewish deli. During World War II, sauerkraut was widely banned in North America as “unpatriotic” because of the deep hostility toward anything German. Equally, the approval of ethnic food is a form of acceptance of a culture or, at least, of one significant aspect of it.

Food is also a moral choice as every vegan knows. It is a religious choice as Orthodox Jews will attest. Food is also a political statement as any farmer who produces raw milk will tell you.

One of the most important functions of food choice returns to the saying, “food is love.” When a spouse or mother celebrates your birthday, it is through making “a favorite meal” or baking a cake. When a man proposes, it is over a romantic meal at an expensive restaurant. When you express sympathy at a post-funeral gathering, you do so while holding a casserole that you’ve brought over. It is commonplace for those who are emotionally distressed to seek ‘comfort food’ that allows them to ‘feed themself’ when the world is not. How many women have recovered from a broken heart over tubs of ice cream?

Precisely because of its strong emotional pull and roots in culture, food choice has become one of the most important rituals in our society. From Thanksgiving to Christmas, from Hallowe’en candy to chocolates on Valentine’s Day, food and ritual are inextricably linked.

Ultimately, food is also one of the main forms of self-control you exercise over your own body. Through these choices, you express a personal judgment on what benefits your body and/or fits your lifestyle; for some, the judgment leads to an Atkins diet, for others it is organic lentils. Even people who make allegedly ‘bad’ choices are expressing themselves.

The bounty and diversity of food available in every grocery store and each passing street corners should cause joy because it demonstrates the richness of society itself – not merely in terms of prosperity but also in terms of choice.

Thus, when government dictates what you may or may not eat, it is restricting your heritage, your religious and political choices, the control over your own body; telling you that a choice every bit as personal as freedom of speech or the art you view is not yours to make. That decision is theirs.

Why? For your own good. Even as an adult, you cannot be trusted with choosing the food that goes into your own mouth at your own expense. That’s what government experts are for.

ARE THE EXPERTS CORRECT?

Politically-speaking, it does not matter whether the food ‘experts’ are correct about poutine any more than their opinion on a specific work of literature should matter…at least, politically-speaking. You have an inalienable right to read graphic novels about a dystopian future rather than be force-fed Ibsen’s writings on dysfunctional families. You have a similar right to eat food bought at your own expense.

Nevertheless, almost all discussion of government’s censorship of food choice revolves around whether or not the claims being made are true or false. This would be a fascinating and valuable discussion if it did not always seem to end at the conclusion “there ought to be a law.” Thus, otherwise interesting discussions about the value and risks of raw milk result in farmers being arrested and driven out of business by huge fines. Otherwise interesting discussions about the calorie-count or artery-impact of poutine end in the banning of a cultural choice. This is akin to banning literature because a government book reviewer finds the contents to be ‘unhealthy.’ Society should cease to have discussions that end in such conclusions.

Those who are in the “there ought not to a law” camp often encounter the following argument: we live in a society that offers (to varying degrees) free health care. This means that tax-payers bear the consequences of providing health care to those who are reckless with their bodies through drugs, alcohol, smoking or unhealthy diets. In short, your neighbor has a vested and financial interest in what goes into your body.

This line of reasoning – rather than justifying a Nanny State or a nosy neighbor dictating your personal choices – constitutes a powerful argument against socialized medicine. If socialized medicine had been ‘advertised’ decades ago as a government mandate to control the minutia of your daily life, then it would probably have never been implemented. If socialized medicine had announced itself as the right to usurp parental control over what to feed children, then it would have met the same ‘rink-revolt’ that occurred in Lac-Etchemin.

Tell the government that it is not a welcomed guest in your kitchen. There is no room for bureaucrats at your dinner table.

While this battle has been won, the war is not over. Denmark has passed the first “FAT TAX” which charges 16 kroner per kilogram of saturated fat in food when the saturated fat content exceeds a completely arbitrary number of 2.3%. Mark my words — wanna-be social engineers in Canada are dying to impose this kind of tax in Canada.

First of all, this is incredibly stupid from a health standpoint, as it is not saturated fat that makes you fat. But most importantly, this is terrible for business and the consumer. Making consumers pay more for their goods through government decree is just wrong, especially during a bad economy.  And although this is a form of consumption tax (targeting a certain class of goods), it ultimately taxes production and hurts business. Again, terrible idea anytime but especially when the economy is approaching absolute calamity.

But that’s not all. Once the principle behind these sorts of laws is accepted, nothing can be ruled out. Doug Hornig at Casey Research highlights the absurdity of these kinds of laws:

Why not meter Internet usage, so that addicts who log on more than a certain amount a week are taxed? Same with computer gamers; the number of minutes they play per day could be relayed to a central database in D.C. Obsessive collectors? Just monitor their eBay accounts and if they seem out of control, add a surcharge to PayPal transactions. Those who buy candy bars probably qualify as chocoholics by definition. They should pay extra. And don’t forget Netflix. If you’re ordering more than three movies a week, you’ve got a movie habit that ought to be taxed.

We can allow Hoppe to have the final and most decisive say on this kind of social engineering and its economic consequences:

Once again the effect of such a policy of behavioral controls is, in any case, relative impoverishment. Through the imposition of such controls not only is one group of people hurt by the fact that they are no longer allowed to perform certain nonaggressive forms of behavior but another group benefits from these controls in that they no longer have to tolerate such disliked forms of behavior. More specifically, the losers in this redistribution of property rights are the user-producers of the things whose consumption is now being hampered, and those who gain are nonusers/nonproducers of the consumer goods in question. Thus a new and different incentive structure regarding production or nonproduction is established and applied to a given population. The production of consumer goods has been made more costly since their value has fallen as a consequence of the imposition of controls regarding their use, and mutatis mutandis, the acquisition of consumer satisfaction through nonproductive, noncontractual means has been made relatively less costly. As a consequence, there will be less production, less saving and investing, and a greater tendency instead to gain satisfaction at the expense of others through political, i.e. aggressive, methods. And, in particular, insofar as the restrictions imposed by behavioral controls concern the use that person can make of his own body, the consequence will be a lowered value attached to it, and accordingly, a reduced investment in human capital.

 

So instead of people taking responsibility for themselves, these kinds of taxes and laws systematically cause people to think that they do not own their own bodies. If you don’t own something, you will take poorer care of it. As always, the way to make people more responsible is to make them free.


From Libya to Uganda! The battle for Africa’s resources.

The resource rush is on for Africa. China was ahead of the American Empire in Libya, and look what happened there (even though Obama was buddies with him two years ago).  China’s commercial deals with Libya are toast. The next imperialist target in Africa is clearly Uganda. Pepe Escobar writes:

 

That brings us to Uganda as a new land of opportunity. Ah, the sheer scale of humanitarian warmongering possibilities. For a semblance of success, the initial steps of Obama’s African surge would have to include a military base with a long runway attached, and a mini-Guantanamo to imprison the “terrorists”. If that sounds too good to be true, that’s because it is; think of the Pentagon’s Africom headquarters soon entertaining the possibility of time-traveling from Stuttgart, Germany, to somewhere in Uganda.
Any student of realpolitik knows the US doesn’t do “humanitarian” interventions per se. Africom’s surge parallels the real name of the game; precious minerals – and mining. Uganda – and nearby eastern Congo – happens to hold fabulous quantities of, among others, diamonds, gold, platinum, copper, cobalt, tin, phosphates, tantalite, magnetite, uranium, iron ore, gypsum, beryllium, bismuth, chromium, lead, lithium, niobium and nickel. Many among these are ultra-precious rare earth – of which China exercises a virtual monopoly.

The mineral rush in Africa is already one of the great resource wars of the 21st century. China is ahead, followed by companies from India, Australia, South Africa and Russia (which, for instance, has set up a fresh gold refinery in Kampala). The West is lagging behind. The name of the game for the US and the Europeans is to pull no punches to undermine China’s myriad commercial deals all across Africa.

Then there’s the inescapable Pipelineistan angle. Uganda may hold “several billion barrels of oil”, according to Heritage Oil’s Paul Atherton, part of a recent, largest-ever on-shore oil discovery in sub-Saharan Africa. That implies the construction of a $1.5 billion, 1,200 kilometer long pipeline to Kampala and the coast of Kenya. Then there’s another pipeline from “liberated” South Sudan. Washington wants to make sure that all this oil will be exclusively available for the US and Europe.