Free Markets, Free People

London

London rioting–are we seeing the death throes of the welfare state?

Buried deep in the New York Times story about the ongoing riots in London, the inability of the police to contain them and the fact that they’ve now spread to other cities is this paragraph:

For a society already under severe economic strain, the rioting raised new questions about the political sustainability of the Cameron government’s spending cuts, particularly the deep cutbacks in social programs. These have hit the country’s poor especially hard, including large numbers of the minority youths who have been at the forefront of the unrest.

The underlying cause of the riots had to do with the shooting, by police, of a popular activist in London.  The spread, however, is presumably now because of the “spending cuts” the Cameron government has made in an effort to address it’s very serious deficit problem.   This on the heels of the same sort of unrest and rioting in Greece when social programs were cut.

The paragraph is intriguing because of the way it approaches the problem.   It doesn’t stress the debt or deficit the UK has or the fact that the level of spending the UK is committed too in order to fund the social programs is unsustainable, it instead addresses the “political sustainability” of such cuts.

That’s a very telling point.   Substitute “political will” for “political sustainability” and you get the picture.  And frankly, that’s what it boils down too everywhere.   Do the politicians in charge actually have the political will to do what must to be done to right the financial ship of state?

What has been built by the welfare states everywhere is crumbling.  There are large irreparable cracks in their foundations.  All are showing signs of unsustainability and that is leading to internal instability.  The recipients of the largess taxed from the producers and borrowed on their behalf isn’t going to be there much longer. 

That’s the problem.  Even the rioters know that the gravy train, in relative terms, is pretty much over.  Reality, not politicians, have said so.  In fact the politicians mostly have no choice – they either have the means to continue as they have in the past or hey don’t.   And the more severely indebted welfare states are hitting that wall.

Add this to the mix though and you see how very horrific this is for the UK:

Beyond such social challenges is the crisis enveloping London’s Metropolitan Police. Even before the outbreak of violence, the police have been deeply demoralized by the government’s plan to cut about 9,000 of about 35,000 officers and by allegations that it badly mishandled protests against the government’s austerity program last winter and failed to properly investigate the phone-hacking scandal that has dominated the headlines here for much of the summer. The force now faces widespread allegations that it failed to act quickly and forcefully enough to quell the rioting at its outset over the weekend.

And of course, citizens there are left not only to fend for themselves in many cases, but have been disarmed by government to boot.

As for the poor “disadvantaged youth” at the center of the rioting?  Well it seems they may not be quite as poor or disadvantaged as one would think:

Despite a build-up in the number of riot police officers, many of them rushed to London from areas around the country, gangs of hooded young people appeared to be outmaneuvering the police for the third successive night. Communicating via BlackBerry instant-message technology that the police have struggled to monitor, as well as by social networking sites like Facebook and Twitter, they repeatedly signaled fresh target areas to those caught up in the mayhem.

They coupled their grasp of digital technology with the ability to race through London’s clogged traffic on bicycles and mopeds, creating what amounted to flying squads that switched from one scene to another in the London districts of Hackney, Lewisham, Clapham, Peckham, Croydon, Woolwich and Enfield, among others — and even, late on Monday night, at least minor outbreaks in the mainly upscale neighborhood of Notting Hill and parts of Camden.

They’ve used technology to organize flash mobs of looters.   It’s anarchy and the police seemingly aren’t up to the job of stopping it.

The BBC and other British news organizations reported Tuesday that the police may be permitted to use rubber bullets for the first time as part of the government’s strengthened response to any resumption of the mayhem. David Lammy, Britain’s intellectual-property minister, also called for a suspension of Blackberry’s encrypted instant message service. Many rioters, exploiting that service, had been able to organize mobs and outmaneuver the police, who were ill-equipped to monitor it.

Rubber bullets, of course, only have an effect if police are where the rioters are.   And apparently, that’s not something they’ve been particularly successful in doing here lately.

Finally, harkening back to the fact that the UK has a serious debt and deficit problem and must cut spending, one has to wonder why it is involved spending money on things like this:

On Tuesday, the violence seemed to be having a ripple effect beyond its immediate focal points: news reports spoke of a dramatic upsurge in household burglaries; sports authorities said at least two major soccer matches in London — including an international fixture between England and the Netherlands — had been postponed because the police could not spare officers to guarantee crowd safety. The postponements offered a dramatic reminder of the pressures on Mr. Cameron and his colleagues to guarantee a peaceful environment for the 2012 Summer Olympic Games.

That $15 billion extravaganza will have its centerpiece in a sprawling vista of new stadiums and an athletes’ village that lie only miles from the neighborhoods where much of the violence in the last three days has taken place.

Bread and circuses?  The UK is laying off policemen and cutting defense spending, but has $15 bil to throw at the 2012 Summer Olympic Games?  One has to wonder about priorities.

All-in-all a very volatile situation which could, given the method being used by the criminals, get worse.  In the meantime expect the liberals on both sides of the Atlantic to denounce the cut backs in social spending and demand the rioting “youths” be placated.  Political will is a scarce commodity in this world.   It may indeed end up the the “political sustainability” of the cuts fall before the desire of politicians to maintain power.   Of course that won’t change the fact that the unsustainable spending bill will come due whether they or the rioters like it or not.   But perhaps, just perhaps, they can kick the can down the road just enough for them to escape the wrath and blame that will come when that can can’t be kicked anywhere any longer.

~McQ

Twitter: @McQandO

Hacking Away At The Last Pillar

The siege against capitalism continues unabated. Yesterday, leaders of the 20 largest national economies reached a consensus that they needed to reel in unfettered free markets, which they all agreed was the cause of the world’s economic crisis. The medicine consists of further funding of the IMF (to the tune of an addition $1 Trillion) and an increased regulatory state.
crumbling-column

Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose freewheeling activities sparked the crisis. And they vowed renewed support for trade and more help for the globe’s poorest countries.

“The world’s leaders have responded today with an unprecedented set of comprehensive and coordinated actions,” Obama said, in the spotlight on his first overseas trip as president. “Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. . . . Today, we have learned the lessons of history.”

For some reason, the bulk of the reporting on the G-20 conference outcome is limited to describing how wonderful everyone feels about the loose agreements, and how industrious they all were to come to terms with one another. Very little press has been devoted to the actual agreements. The media seem to be under the collective impression that the most important aspect of these meetings is the conduct of the diplomacy. They could not be more wrong:

FINANCIAL market “cowboys” who wreaked havoc on the world economy will be brought undone by the G20 agreement, Prime Minister Kevin Rudd says.

Mr Rudd says the $US1 trillion ($A1.4 trillion) deal agreed on at the G20 summit in London, will benefit “tradies”, young people and small business with real commitments against real timelines.

“Today’s agreement begins to crack down on the sort of cowboys in global financial markets that have brought global markets undone with real impacts for jobs everywhere,” Mr Rudd told reporters at the conclusion of the summit overnight.

The summit has agreed to a restructure of the financial regulatory system, reform of and a trebling of funding for the International Monetary Fund (IMF) to $US750 billion ($A1.08 trillion), an extension until the end of next year of a ban on nations introducing trade protection measures, a curb of excessive executive payouts and agreement to co-ordinate further economic stimulus.

Make no mistake. What the G-20 leaders (as stated by PM Rudd above) are saying to world is that none of this would have happened if they had been in charge. “Financial market cowboys” (meaning US and UK bankers), the faces of capitalism, are entirely to blame for the woes of the world. If only there had been more government involvement, according to this theory, then the financial crisis would have been averted or severely curtailed. Accordingly, the G-20 have decided that the way to fix this mass is to assert greater control over the world economy. The immediate targets of this new world order? Tax havens of course:

Switzerland, Singapore, the Cayman Islands, Monaco, Luxembourg and Hong Kong are among 45 territories blacklisted on Thursday by the Organisation for Economic Co-operation and Development and now threatened with punitive financial retaliation for their banking secrecy.

Among the sanctions being considered by the G20 are the scrapping of tax treaty arrangements, imposing additional taxes on companies that operate in non-compliant countries, and tougher disclosure requirements for individuals and businesses that use shelters.

[...]

Illegal tax evasion through offshore shelters has been a long-standing irritation for Gordon Brown, President Barack Obama and French President Nicolas Sarkozy. An estimated $7 trillion of assets are held offshore and, according to pressure group Tax Justice Network, developed countries lose $180bn a year in evaded taxes.

Under the OECD definition, countries will be considered non-compliant if they have less than 12 bi-lateral agreements to exchange tax information with foreign governments on request. “Authorities should have access to the information to effectively crack down on tax evasion,” Andrew Watt, director at law firm Alvarez & Marsal Taxand, said.

Jeffrey Owens, director of the OECD’s centre for tax policy said: “This is the major breakthrough we have been trying to get for 13 years. If you intend to evade tax through offshore bases, you will think hard about it now you know tax authorities can trace you.”

[...]

Mr Sarkozy added: “Sixty percent of hedge funds are registered in tax havens. Putting hedge funds under supervision isn’t going to generate jobs in the textile industry. But we have to put behind us the madness of this time of total deregulation.”

The reactions of Owens and Sarkozy are like being annoyingly puzzled at why the whipping boy continues to move, seeking to avoid the lash.

Clearly the aim here is not at fixing anything other than the ability of wealthy nations to collect taxes. Small countries typically designated as “tax havens” tend to have one thing in common: they have no other means of competing in the world market place other than in the area of business taxation. If the economies of these countries were all dependent upon growing and selling corn, then the G-20 actions would be met with a much different response. Instead, companies that wish to minimize their tax burden, so that they may instead fund R&D, expand (create jobs), or re-invest, are treated as outlaws, unworthy of little more than scorn. And the small countries that have been willing to host these companies as a means of boosting their own economies, are labeled pariahs to be sanctioned by the wealthiest nations in the world. The message: “Don’t muscle in on our territory. That’s our tax money and we’re here to collect.”

In addition to punishing tax havens, the G-20 decided that the favorite whipping boys of statists needed to be better restrained so as to prevent their squirming:

Leaders agreed to craft tighter controls over hedge funds and establish more rigorous regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in and spread overseas.

[...]

The leaders agreed to set benchmarks for executive pay and make accounting standards more uniform across borders. Most would be drafted by a new Financial Stability Board, where central bankers, regulators and finance ministers from the more than 20 nations represented at the summit will eventually hash out the details.

Credit agencies — whose top-notch ratings of instruments linked to bad U.S. subprime mortgages gave false indications of their relatively safety — would be subjected to new oversight and regulations. But there was no call for a global regulator that could overrule decisions made by individual countries.

While I’m glad to see the ratings agencies (whom have inexplicably been absent from public criticism and ire) taking their turn at the post, everyone should be dismayed at what these sorts of agreements portend. The collective effort to rein in “cowboy capitalism” is little more than a barely disguised effort to place the European bit in the mouth of American (and, to a lesser extent, British) mouth. Business decisions are no longer to be made in the interests of the shareholders, but in favor of “public good.” What constitutes the “public good” will be determined by the special interests who exact the most influence upon, and best line the pockets of, the political forces in charge. In short, consumers no longer rule the market place; bureaucrats do.

Fallen pillar

Fallen pillar


As with all movements based on collective will, such as that which the G-20 has furthered, an unfettered free market is featured as the main culprit. America is widely considered to be an economic jungle where the capitalist beast roams freely, devouring the innocent and maiming cautious outsiders. Ironically, Leviathan himself has identified capitalism as an unrestrained beast in need of controlling. Yet, we have nothing like an uncontrolled free market here. It only appears that way because the remainder of the world has cloaked their industries in thick blankets of protectionism and shackled their businesses with an alarming array of bureaucratic chains. Comparatively, America does look like a free market jungle.

But therein lies the problem. As the Washington Post stated it:

Along with declarations of optimism came the recognition of at least a temporary shift in attitude away from two decades of intense reliance on free trade, deregulation and market-knows-best policies that fueled stunning growth across the planet.

Brown — the leader of a country closely associated with that philosophy — declared “the Washington Consensus” over, using a term that recognizes the American roots of an economic system seen by many in the world as unfair and unhealthy.

As far from a pure free market as we are, it is our relative distance from the nanny-statism of Europe and beyond that props up the economies of the world. That stunning growth was made possible precisely because of what the rest of the world refers to as “cowboy capitalism” and they were all happy to join in the ride. But now that woe times betide us, thanks primarily to government meddling (e.g. CRA, Fannie Mae, Freddie Mac, Fed policy, etc.), the world is ready to chop down the last pillar of capitalism, and assert government control over everything. With that final support gone, the capitalist beast will be brought to heel, confined to the zoo where it will live its remaining days as little more than a novelty. Unfortunately, it will take its wealth producing powers with it.