The Rising Costs of the British Welfare State has the Taxing Authority shaming People using Legal tax Avoidance Schemes

Posted by PITHOCRATES - August 11th, 2013

Week in Review

Britain’s aging population and her vast welfare state is making government very expensive per taxpayer.  As the tax base shrinks and people live longer into retirement state pensions and the National Health Service are consuming an ever larger percentage of the available pot of money.  Forcing the taxing authorities to get more money from each individual taxpayer.   Especially the wealthy.  Who are paying confiscatory tax rates to make up for that shrinking tax base.  So these people use every law in the tax code to minimize their tax liability.  Which the taxing authority strongly objects to.  As they want rich people to submit and pay.  No matter the amount they must pay (see Britain plans to name, shame ‘cowboy’ tax advisers by William James posted 8/12/2013 on Reuters).

British authorities would get the right to name and shame tax advisers who deliberately steer their clients into tax avoidance schemes that are likely to break the law, under a government proposal announced on Monday…

Tax avoidance schemes seek legal ways to reduce tax bills for companies or wealthy individuals. But some which take advantage of complex ownership structures, often involving overseas tax havens, are illegal.

The new policy would empower Her Majesty’s Revenue and Customs (HMRC) to name the so-called high risk tax advisers it considers to be promoting schemes which are deliberately opaque and likely to be hiding illegal activity.

Despite tax avoidance schemes being legal and the fact that only some people may be breaking the law the taxing authority will shame tax advisors who help their clients to not willingly submit and pay.  No matter how high those tax rates get.  Of course it’s nothing new in Britain.  For they have a record of excessively taxing some of their people.

The British Americans, for example.  But in the 1700s it was the cost of world war that they were trying to pay off.  Today it’s the cost of their massive welfare state they’re trying to fund.  Of course, that war debt may have lost the American colonies.  But it built an empire that lasted for a century.  So that war debt could be looked at as an investment into the future of all British people.  Unlike the cost of the welfare state.  Where it is just generational theft.  For those taxes today pay for obligations from the past.  Which doesn’t invest into the future of all British people.  But discounts their future.

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FT167: “When we lived more austerely there was no need for painful austerity to cure a bloated government.” —Old Pithy

Posted by PITHOCRATES - April 26th, 2013

Fundamental Truth

Wise Men in Governments can Do Anything but Pay for their Nanny States

Economics changed in the early Twentieth Century.  America once again had a central bank.  Progressives were expanding the role of government.  And a new economist entered the scene that the progressives just loved.  For he was a macroeconomist who said government should have an active role in the economy.  A role where government tweaked the economy to make it better.  Stronger.  While avoiding the painful corrections on the downside of a business cycle.  Something laissez-faire capitalism caused.  And could not prevent.  But if wise men in government had the power to tweak the private sector economy they could.  At least this is what the progressives and Keynesian economists thought.

That economist was, of course, John Maynard Keynes.  Who rewrote the book on economics.  And what really excited the progressives was the chapter on spending an economy out of a recession.  Now there were two ways to increase spending in an economy.  You can cut tax rates so consumers have bigger paychecks.  Or the government can spend money that they borrow or print.  The former doesn’t need any government intervention into the private sector economy.  While the latter requires those wise men in government to reach deep into that economy.  Guess which way governments choose to increase spending.  Here’s a hint.  It ain’t the one where they just sit on the sidelines.

Governments changed in the Twentieth Century.  Socialism swept through Europe.  And left social democracies in its wake.  Not quite socialism.  But pretty close.  It was the rise of the nanny state.  Cradle to grave government benefits.  A lot of free stuff.  Including pensions.  Health care.  College educations.  And a lot of government jobs in ever expanding government bureaucracies.  Where wise men in government made everything better for the people living in these nanny states.  And armed with their new Keynesian economic policies there was nothing they couldn’t do.  Except pay for their nanny states.

According to John Maynard Keynes raising Tax Rates reduces New Economic Activity

The problem with a nanny state is things change.  People have fewer babies.  Health care and medicines improve.  Increasing lifespans.  You put this together and you get an aging population.  The death knell of a nanny state.  For when those wise men in government set up all of those generous government benefits they assumed things would continue the way they were.  People would continue to have the same amount of babies.  And we would continue to die just about the time we retired.  Giving us an expanding population of new workers entering the workforce.  While fewer people left the workforce and quickly died.  So the tax base would grow.  And always be larger than those consuming those taxes.  In other words, a Ponzi scheme.

But then change came.  With the Sixties came birth control and abortion.  And we all of a sudden started having fewer babies.  While at the same time advances in medicine was increasing our lifespans.  Which flipped the pyramid upside down.  Fewer people were entering the workforce than were leaving it.  And those leaving it were living a lot longer into retirement.  Consuming record amounts of tax money.  More than the tax base could provide.  Leading to deficit spending.  And growing national debt.

Now remember those two ways to increase spending in the economy?  You either cut tax rates.  Or the government borrows and spends.  So if cutting tax rates will generate new economic activity (i.e., new spending in the economy) what will a tax increase do?  It will decrease spending in the economy.  And reduce new economic activity.  Which caused a problem for these nanny states with aging populations.  As the price tag on their nanny state benefits eventually grew greater than their tax revenue’s ability to pay for it.  So they increased tax rates.  Which reduced economic activity.  And with less economic activity to tax their increase in tax rates actually decreased tax revenue.  Forcing them to run greater deficits.  Which added to their national debts.  Increasing the interest they paid on their debt.  Which left less money to pay for those generous benefits.

President Obama’s Non-Defense Spending caused a Huge Spike in the National Debt not seen since World War II

It’s a vicious cycle.  And eventually you reach a tipping point.  As debts grow larger some start to question the ability of a government to ever repay their debt.  Making it risky to loan them any more money.  Which forces these countries with huge debts to pay higher interest rates on their government bonds.  Which leaves less money to pay for those generous benefits.  While their populations continue to age.  Taking you to that tipping point.  Like many countries in the Eurozone who could no longer borrow money to pay for their nanny states.  Who had to turn to the European Union, the European Central Bank and the International Monetary Fund for emergency loans.  Which did provide those emergency loans.  Under the condition that they cut spending.  Money in exchange for austerity.  Something that just galls those Keynesian economists.  For despite all of their financial woes coming from having too much debt they still believe these governments should spend their way out of their recessions.  And never mind about the deficits.  Or their burgeoning debts.

But these Keynesians are missing a very important and obvious point.  The problem these nations have is due to their inability to borrow money.  Which means they would NOT have a problem if they didn’t need to borrow money.  So austerity will work.  Because it will decrease the amount of money they need to borrow.  Allowing their tax revenue to pay for their spending needs.  Without excessive tax rates that reduce economic activity.  Making the nanny state the source of all their problems.  For had these nations never became social democracies in the first place they never would have had crushing debt levels that cause sovereign debt crises.  But they did.  And their populations aged.  Making it a matter of time before their Ponzi schemes failed.  Something no nation with a growing nanny state and an aging population can avoid.  Even the United States.  Who kept true to their limited government roots for about 100 years.   Then came the progressives.  The central bank.  And Keynesian economics.  Putting the Americans on the same path as the Europeans (see US Federal Debt As Percent Of GDP).

Debt as Percent of GDP and Wars R2

With the end of the Revolutionary War they diligently paid down their war debt.  Which was pretty much the entire federal debt then.  As the federal government was as limited as it could get.  Then came the War of 1812 and the debt grew.  After the war it fell to virtually nothing.  Then it soared to pay for the Civil War.  Which changed the country.  The country was bigger.  Connected by a transcontinental railroad.  And other internal improvements.  Which prevented the debt from falling back down to pre-war levels.  Then it shot up to pay for World War I.  After WWI the Roaring Twenties replaced progressivism and quickly brought the debt down again.  Then Herbert Hoover brought back progressivism and killed the Roaring Twenties.  FDR turned a bad recession into the Great Depression.  By following all of that Keynesian advice to spend the nation out of recession.  From the man himself.  Keynes.  The massive deficit spending of the New Deal raised the debt higher than it was during World War I.  Changing the country again.  Introducing a state pension.  Social Security.  A Ponzi scheme that would struggle once the population started aging.

Then came World War II and the federal debt soared to its highest levels.  After the war a long decline in the debt followed.  At the end of that decline was the Vietnam War.  And LBJ’s Great Society.  Which arrested the fall in the debt.  Its lowest point since the Great Depression.  Which was about as large as the debt during the Civil War and World War I.  Showing the growth in non-defense spending.  Then came Reagan’s surge in defense spending to win the Cold War.  Once the Americans won the Cold War the debt began to fall again.  Until the Islamist terrorist attacks on 9/11.  Halting the fall in the debt as the War on Terror replaced the Cold War.  Then came the Great Recession.  And President Obama.  Whose non-defense spending caused a huge spike in the national debt.  Taking it to a level not seen since World War II.  When an entire world was at war.  But this debt is not from defense spending.  It’s from an expanded nanny state.  As President Obama takes America into the direction of European socialism.  And unsustainable spending.  Which can end in only but one way.  Austerity.  Painful austerity.  Not like the discomfort of the sequester cuts that only were cuts in the rate of future growth.  But real cuts.  Like in Greece.

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2012 Endorsements: John Adams

Posted by PITHOCRATES - October 24th, 2012

2012 Election

John Adams was descended from the Puritans who landed at Plymouth Rock

John Adams was the Rodney Dangerfield of the Founding Fathers.  He got no respect.  However deserving he was of respect.  The man was brilliant.  Well read.  Honest.  Virtuous.  But irascible.  And vain.  He knew he was right when he was right.  And was more than eager to argue with anyone that was wrong.  Which was most of the time.  Tending to make most people not love him.  A lot.  Earning him monikers like His Rotundity.  Because he was portly.  Irascible.  And not really loved.  Which bothered Adams.  For he was one of the greatest of the Founding Fathers.  But others got all the love.  Such as Thomas Jefferson.  The junior Congressman they delegated the writing of the Declaration of Independence to after Adams did all the heavy lifting in Congressional debate to lead the nation to declare their independence.  While Jefferson sat through all those heated debates silently.  For, unlike Adams, Jefferson did not like public confrontations.  He preferred stabbing people in the back through surrogates.  Or in the press.  As Adams would learn firsthand during the 1800 presidential election.

Adams was a very religious man.  His family descended from the Puritans who landed at Plymouth Rock.  Who stressed filling your day with hard work and going to church.  And if you had any time left in the day you might get a little eating or sleeping in.  Adams was a farmer.  And had the hands of a working man.  But he was also a lawyer.  A very good lawyer.  Who had as much reverence for the law as he did for his religion.  So much so that he represented the British soldiers involved in the Boston Massacre.  After the Stamp Act (1765) things were getting a little heated in Boston.  Adams then wrote the Braintree Instructions in response to the Stamp Act.  Stating that there should be no taxation without representation.  Calling for trial by jury.  And an independent judiciary.  Things the British denied the good people in the American colonies.  But things Adams insisted that the Americans shouldn’t deny to the British soldiers who shot those Americans in Boston.  So he represented the British on trial when no one else would take the case.  And he got a jury of Bostonians to acquit all but two who they found guilty of manslaughter.

Just about every Bostonian wanted the British soldiers found guilty of murder and hung.  Bu the rule of law prevailed.  As Adams convinced  the jury that the British did not just open fire on innocent bystanders.  There was a mob harassing the British.  Throwing snowballs and chunks of ice.  And other projectiles.  Someone knocked a British soldier to the ground.  While the mob grew in size.  And in intensity.  Provoking the British to discharge their weapons.  As much as the British killing these Americans bothered Adams so did an unruly mob.  His religious teachings emphasized hard work and prayer.  Not drunkenness and mob violence.  However, Boston had always had drunken, unruly mobs.  But they didn’t always get shot by British redcoats.  So why did they this time?  Because British redcoats were quartered within the city of Boston.  This was the kindling that led to the mob action.  Which was yet another British violation of the good people of Boston.

A Strong enough Naval Force acts like an Impregnable Fortress Wall to any Hostile Power

When the British marched to Lexington and Concord to seize some weapons in 1775 and exchanged shots with the Americans a state of war existed.  The Revolutionary War had started even though their declaration of independence was another year away.  Up to this time most of the trouble with the British was in Massachusetts.  And some states wanted to leave it in Massachusetts.  Which was a problem for Massachusetts.  For they couldn’t take on the British Empire by themselves.  But if the states united together they had a chance.  Adams understood this.  So when it came time to choose a commander for the Continental Army he looked to a Virginian.  George Washington.  After they voted to declare their independence he looked at another Virginian to write the Declaration of Independence.  Thomas Jefferson.  Understanding that they had to make this an American Revolution.  Not just a Massachusetts one.  For only a union of their several states could withstand the mightiest military power on the planet.  But not just any union.  One that would release all the latent energies of the several states.  A republican union.

After declaring their independence the first order of business for the states was to replace the British governing structure.  And that started with the writing of new constitutions.  To make those new state governments.  That could join in a republican union.  Something Adams had given much thought and study to.  He believed in the separation of powers between the executive, the judicial and the legislative branches.  To provide checks and balances.  And a bicameral legislature.  A lower house to represent the common people.  And an upper house to represent the rich people.  With an executive to represent the state.  Such that the interests of the many, the few and the one were all represented.  Similar to Great Britain’s two houses of Parliament (House of Commons and House of Lords) and the king.  Though, of course, having versions of these that weren’t corrupt.  Thus not allowing one group of people (or person) to dictate policy to the other group of people (or person).  Thereby avoiding a pure democracy and mob rule.  A characteristic of a single-house legislature.  As France would demonstrate during their French Revolution.

After delegating the busy work of writing the Declaration of Independence to the junior member from Virginia, Thomas Jefferson, Adams dove into the work of building a navy.  What he liked to call ‘wooden walls’.  For a strong enough naval force acted like an impregnable fortress wall to any hostile power.  The British Empire ruled the world because the Royal Navy was the most powerful navy in the world.  She could protect her coasts.  Prevent the landing of armies.  Keep foreign warships out of canon range of her cities.  And even protect her trade routes.  In a day of competing mercantile empires dependent on their shipping lanes having a navy to protect those shipping lanes made the difference between empire and former empire.  As few picked fights with the nations with the big navies.  Adams understood this.  And he believed in it.  Peace through strength.  For a strong navy was a deterrent to aggressive nations.

If John Adams were Alive Today he would Likely Endorse the Republican Candidates Mitt Romney and Paul Ryan

But Adams was no warmonger.  During his presidency Napoleon came to power in France and was waging war across Europe.  And against American shipping.  Once again Adams fought to build up the navy.  To erect those wooden walls.  To be able to protect American shipping on the open seas as France and Great Britain returned to war.  President Washington maintained a policy of neutrality in their latest war.  Adams continued that policy.  Which infuriated the French.  And the American people.  As the French had helped the Americans win their revolution the French and the American people believed the Americans should help the French win theirs.  So the French seized American shipping.  And demanded tribute from the American ambassadors in France before beginning any peace discussions.  When news of this leaked out to the American people (known as the XYZ Affair) the public sentiment on France changed.  And soon everyone was demanding a declaration of war on France.  Adams tried one more peace commission while at the same time the growing American navy fought back against French naval aggression in an undeclared war.  The Quasi-War.  Eventually peace came.  Through strength.

Adams was pretty much everywhere in the making of the American nation.  From the Braintree Instructions to supporting George Washington to winning the debate for independence to the writing of states’ constitutions to building a republican union.  He helped build American naval power.  And he avoided war with France when just about everybody wanted war with France.  But one place he was not was in Philadelphia in 1787.  Even though his constitution writing skills were second to none he did not help draft the U.S. Constitution.  For he was busy in Holland.  Getting the first foreign power (the Netherlands) to recognize the United States following their victory in the Revolutionary War.  He negotiated a Dutch loan.  Negotiated a treaty of amity and commerce with the Dutch.  And established the first American-owned embassy on foreign soil.

If Adams were alive today he probably would not be a fan of the Democrat Party.  And their constant use of class warfare.  Especially when the top 10% of earners pay about 70% of all federal income taxes.  While about 50% of the population pays no federal income taxes.  This does not represent the interests of the many, the few and the one.  The few pay the majority of tax revenue and have the least say in how that money is spent.  Taking the nation closer to a pure democracy.  And mob rule.  While at the same time the Democrats use the courts to write unpopular legislation they want but can’t pass in Congress.  Where a few judges can write law through court opinions.  A great offense to a pure jurist like Adams.  And transforming ‘the one’ into a leviathan of special interests and cronyism.  Knowing how hard it was to secure loans to pay the nation’s war debt in his day he would be appalled at the size of the annual deficits and the accumulated debt today.  And the constant refrain that the rich need to pay their fair share even though about 10% of all Americans are already paying approximately 70% of the tax bill.  The character assassination of Mitt Romney by the Obama Campaign would be too reminiscent of the abuse he suffered through in the 1800 election.  And as a firm believer in the policy of peace through strength he would not like the massive cuts in defense spending.  Which will only encourage more attacks like the one on the American embassy in Benghazi.  An obvious sign that our enemies don’t fear us.  And are not deterred by our strength.  No, if John Adams were alive today he would likely endorse the Republican candidates Mitt Romney and Paul Ryan.

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War Debt, Seven Years War, Revolutionary War, Articles of Confederation, U.S. Constitution, Central Government, Federal Spending and Fiscal Policy

Posted by PITHOCRATES - February 7th, 2012

History 101

Americans don’t like Paying Taxes

Americans don’t like paying taxes.  A dispute over taxation without representation led to American independence from British rule.  For Britain had been fighting for many years in many wars.  And ran up an enormous war debt.  Which they had to repay.  Because some of that debt was incurred protecting the American colonists from the French and Indians during the Seven Years War, some had a bright idea.  “Here’s a thought,” they said, “Let’s have the Americans pay their fair share.  I mean, fair is fair, right?  Besides, it’ll be a lot easier getting money from the Americans than it will be getting it from Parliament, eh wot?” 

The Seven Years War, though, was a world war.  Fought in many countries and on many seas.  Costing lots of money.  Which Parliament was financing with lots of taxes.  But the British taxpayer had tax fatigue.  And felt they had no more taxes to give.  Or wanted to give.  As they had a say in Parliament raising taxes further was a nonstarter.  But the Americans had no representation in Parliament.  So what could they do?  Turns out they could do a lot.  Now the Americans weren’t unreasonable.  They just didn’t appreciate the, “Oh, by the way, here’s your share of the war debt.  We’ll tax you accordingly.”  Which the British did.  Without so much a by-your-leave.  Rubbed the Americans the wrong way.  If the British had shown them the numbers and gave them a chance to agree on what their ‘fair share’ was they probably would have paid.  And stayed loyal to the Crown.  But the British didn’t.  So the Americans didn’t.

Now fighting wars is expensive.  Especially long ones.  And the Revolutionary War was a long one.  Eight years until they penned their names to the Treaty of Paris (1783) officially ending it.  In these eight years the Americans ran up a great war debt.  And needed to repay it.  Just like the British.  The very thing that started the Revolutionary War.  Now it was the Americans’ turn to raise taxes.  They tried taxing whiskey.  Which led to another tax rebellion.  The Whiskey Rebellion.  For Americans still didn’t like paying taxes.  This time, though, it was a tad different.  Because those they were taxing had representation.  And the new ‘nation’ (a confederation of ‘equal’ states) had the legal authority to impose this tax.  And to put down the rebellion.  Which General Washington did.  To the howls of liberty-loving patriots everywhere.  The tax quietly went away.  But it didn’t solve the nation’s problems.  They were broke.  Needed money.  And they had to get a handle on the massive sums they owed for the world of nations to take them seriously.

Hamilton thought both Jefferson and Burr were Scoundrels but at least Jefferson was a Principled Scoundrel

The new ‘nation’ (that confederation of ‘equal’ states) was the problem.  Just as the world of nations didn’t take the Americans seriously these ‘equal’ states didn’t take the new national government seriously.  There was no taxing authority.  So the federal government could only ask for contributions from the states.  Which often came in late.  And when they did they were often less than they requested.  Some states even refused to pay anything.  Worse, the states were making their own treaties with other nations as well as the Indian Tribes.  Or reneging on the treaties the federal government made with other nations and the Indian Tribes.  The confederation wasn’t working.  They needed something new.  And once George Washington was onboard they called a meeting in Philadelphia (1787) to rework the Articles of Confederation.

Of course they didn’t rework the Articles of Confederation.  They replaced them with a new U.S. Constitution.  And a new nation.  The Preamble to the U.S. Constitution began with “We the people.”  The sovereignty of the new nation wasn’t with the states.  It wasn’t with the new federal government.  It was with the people.  It was a nation of the people, by the people and for the people.  To borrow some words from Abraham Lincoln.  Which meant that although the thing they created had more power than the confederation of states it replaced, its power was limited.  Very limited.  The Framers designed it to do only those things the states could not do well individually.  National defense.  Coin uniform money.  Establish post offices and post roads.  Make national treaties with other nations and Indian Tribes.  Declare war.  Create a standard of weights and measures.  But little more.  In fact, the Constitution listed more things the new government couldn’t do than listed what it could do.  To quell everyone’s fear that they just replaced one far away central power (the British Crown) with another far away central power (the central government of the United States).  Especially when it came to taxes.  Raising taxes required approval by two houses of Congress and by the President.  Making it difficult to raise taxes.  The way Americans liked it.  For Americans didn’t like paying taxes.  And still don’t.

Getting the new Constitution ratified wasn’t a walk in the park.  The size and power of the new central government appalled those Patriots who worked so hard during the Revolution.  James Madison, the Father of the Constitution, joined forces with Alexander Hamilton and wrote a series of articles arguing for ratification.  The Federalist Papers.  And were successful.  Then when Alexander Hamilton was putting the Constitution into action as Secretary of the Treasury in the Washington administration, Madison didn’t like what he saw.  For Hamilton wanted to use the power of government to make the United States an economic superpower like Britain.  His opponents, though, saw a man who wanted to be king.  So Madison joined the opposition.  Led by Thomas Jefferson.  And the politics got ugly.  Before it was done the Jefferson camp would write about an affair Hamilton had.  And the same muckraker who exposed this affair would later write about a Jefferson affair with a slave.  Sally Hemming.  The people in the different camps hated each other.  Especially Hamilton and Jefferson.  They hated each other with a passion.  But they were principled men.  For when the election of 1800 came down to either Thomas Jefferson or Aaron Burr, Hamilton backed his archenemy.  Thomas Jefferson.  Both Jefferson and Burr were scoundrels as far as Hamilton was concerned.  But at least Jefferson was a principled scoundrel.  Burr took great offense to some things Hamilton said about him around this time.  And challenged him to a duel.  In which Hamilton suffered a mortal wound.  Pity.  For Hamilton was a true Patriot.  And perhaps the greatest treasury secretary the United States ever had.

It’s not the Spirit of Alexander Hamilton, Thomas Jefferson or James Madison that lives on in Politics but Aaron Burr

Funny how things change.  The new nation almost didn’t survive because of the opposition towards a strong central government.  And towards federal taxes.  Now federal spending includes just about everything under the sun.  Most of which the Framers excluded from the Constitution.  And the taxes!  They have reached a level none of the Founding Fathers thought would ever be possible.  Even Hamilton.  He was ‘big government’ for his day but he would be disgusted to see what became of his beloved Treasury Department.  And the money they pull out of the private sector economy.  Not to make America an economic superpower.  But to buy votes.  And for personnel gain.  The true underbelly of democracy.  Where people come to public service not to serve.  But to enrich themselves at the expense of the taxpayer.  Like that scoundrel that killed him.  Aaron Burr.

Even worse they use fiscal policy to further their spending ways.  The federal debt grows.  And now whenever a recession rolls around they use Keynesian fiscal policy to ‘lessen’ the affects of the recession.  Which is just a clever way to keep on spending after they’ve run out of money.  Because this spending is now stimulus.  And if the government stops spending it will make the recession worse.  Clever.  And it’s just coincidental that friends of the administration benefit most by this Keynesian stimulus spending.

It would appear it’s not the spirit of Alexander Hamilton that lives on in Washington.  Or Thomas Jefferson.  Or James Madison.  It’s the spirit of Aaron Burr.  Scoundrel extraordinaire.  And role model for the political elite.

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FUNDAMENTAL TRUTH #77: “Liberals only call for bipartisan compromise when they’ve lost majority power and can no longer dictate policy.” -Old Pithy

Posted by PITHOCRATES - August 2nd, 2011

English Law and Capitalism gave People Freedom few knew in the 18th Century

Politics is a class struggle.  The ruling class against everyone else.  The ruling elite fights to keep the power in the hands of the privileged few.  While everyone else tries to wrest it away.  So they can live a better life.  Free from tyranny.  And oppression.

Life was pretty good in British North America.  The colonies were growing.  Their English law and free market capitalism gave people freedom that few knew in the 18th century.  Over in Europe the masses were poor and worked for subsistence.  Over in British America, though, a thriving middle class was emerging.  Like I said, life was pretty good.  Until the French had to go and spoil everything.

Great Britain and France were at war.  Again.  And this one was a world war.  The Seven Years’ War (the French and Indian War in North America).  Great Britain ultimately prevailed.  And made all French North America British.  We call it Canada today.  But conquering a world power and managing an empire that stretched around the globe was expensive.  And to make matters worse, the treasury was running low.  They needed more tax revenue.  But Britain’s land owning aristocracy was already heavily taxed.  And they were none too keen on paying any more.  So what to do?

Well, there was this.  There was a vast continent on the other side of the Atlantic with a lot of wealth that just got a whole lot safer thanks to some brilliant, and very expensive, military engagements.  Surely, they would not refuse to pay for some of the safety they gained in the recent war.

The London Ruling Class wouldn’t let a bunch of Backwoods Upstarts challenge their Authority

Well, as it turned out, yes, they could.  And did.  And don’t call me Shirley.

At the time, the American colonialists were proud Britons.  They loved their way of life.  And the representative government enshrined in Parliament.  Based on the Rule of Law.  Only thing was that they had no say in Parliament.  No representation.  Which was fine.  For awhile.  Being that far from the seat of government had its advantages.  But it was a different story when that distant power started flexing its muscle.  And a great power desperate for money could be rather presumptuous.

Now the colonists were reasonable people.  They were willing to make some kind of bipartisan deal of fair-share sacrifice.  But they wanted to talk about it.  They want to sit in Parliament.  And they wanted more say about their future on the new continent.  They were already very unhappy with some of the treaty details the British made with the French.  And the Indians.  Forbidding western expansion?  And allowing the French Canadians to practice their Catholicism in their very backyard?  No.  These would not do.  Americans had to have more say in America’s future.  And the British response?  “Shut your bloody mouths you insolent swine.  You do as we say.  And like it.”

I’m paraphrasing, of course, but you get the gist.  The ruling class in London wasn’t about to listen to a bunch of backwoods upstarts challenging their authority.  No, they were going to dictate policy from London.  And the Americans were going to accept their second class status and do as they were told.  Well, long story short there was a rebellion, the colonies declared their independence from Great Britain and a new confederation of states was born.

After Winning Independence the States got Drunk on Democracy

The Revolutionary War lasted from 1775 until the Treaty of Paris formally ended the war in 1783.  It was a long and bitter war.  Especially in the South where it evolved into a civil war between Patriot and Loyalist.  Independence did not come easy.  Nor was it cheap.  Like Great Britain, the young confederation of states racked up a large war debt.

With the common enemy defeated the several states went their own ways.  And threatened to destroy what they just won.  Some states were fighting over land.  Over tariffs.  Trade.  The united confederation of states wasn’t very united.  And they were more on the road to becoming another war-plagued Europe than the great nation envisioned by George Washington and the others who had served in the Continental Army.  Who saw the greater America.  Beyond the borders of their own state.

And the worst danger was democracy.  Mob-rule.  Religious persecution.  And the general feeling you didn’t have to do anything you didn’t want to.  The people were drunk on democracy.  They were voting themselves whatever they wanted.  In debt?  No problem.  We’ll pass debtor laws to protect you and rip up those contracts you signed.  Or we’ll give you worthless money we’ve printed to pay your debts.  And we’ll pass a law forcing creditors to accept this worthless money as legal tender.  Even though it’s worthless.  The Rule of Law was collapsing.  As was the new ‘nation’.

Madison and Jefferson feared the Power a Permanent Government Debt Gave 

This was quite the pickle.  An oppressive ruling class was bad.  But so was mob-rule.  They needed something else.  Something between these two extremes.  That would somehow strike a delicate balance between responsible governing.  And liberty.  The solution was federalism.  As created in a new Constitution.  Drafted during the summer of 1787 in Philadelphia.  Which created a new central government.  That shared power with the states.

Getting the new constitution ratified wasn’t easy.  Most of the old Patriots from the Revolutionary days hated the thought of a new central government.  They didn’t trust it.  This was just King George all over again.  Only on this side of the Atlantic.  The wrong side.

Alexander Hamilton and James Madison worked tirelessly for ratification.  They wrote a series of essays explaining why it was the best compromise possible.  These essays became the Federalist Papers.  An extensive set of checks and balances would greatly limit the powers of the new federal government.  And the only thing the new central government would do would be the things the several states couldn’t do well.  Coin money, treat with other nations, raise an army and navy, etc.

Hamilton and Madison succeeded.  The constitution was ratified.  And the United States of America was born.  And soon thereafter Hamilton and Madison (and Jefferson who was out of the country during the Constitutional Convention) parted ways philosophically.  Hamilton wanted to assume all the states’ debts and fund it.  It was the right thing to do because they had to pay it to be taken seriously on the world stage.  But this scared both Madison and Jefferson.  They feared the power a permanent government debt gave.  Money and government was (and still is) a dangerous combination.  All the world powers consolidated money and power in their capitals.  And all the great mischief of the Old World was a direct result of this combination.  It’s what lets the ruling class oppress the people.  Money and power concentrated into the hands of a privileged few.

Had Liberals lived during the Revolution they would have been Loyalists

Fast forward a few hundred years and we see exactly what Madison and Jefferson feared.  The federal government is bloated beyond the Founding Fathers worst nightmares.  And handling such vast sums of money that would even make Alexander Hamilton spin in his grave. 

We’ve come full circle.  We began by rejecting a distant ruling class.  And we now have a distant ruling class again.  In Washington.  Made up of liberal Democrats.  And obedient RINO Republicans who toe the liberal line.  And the nation has a permanent debt so large that we’ll never pay it off.  Thanks to out of control government spending.  It’s as Madison and Jefferson feared.  All of that spending and debt require ever more taxation.  And ever more borrowing.  And whenever taxation and borrowing is not enough, they manufacture a crisis to scare us into raising both taxes and the borrowing limit.  For we have no choice.  Because if we don’t the consequences will be unbearable.

This is the liberal way.  Big Government.  The bigger the better.  With all power concentrated into as few hands as possible.  Their hands.  The privileged few.  The ruling elite.  Who like to dictate policy when they have majority power.  And cry foul when they don’t.  For the only interest they have in bipartisan compromise is when they can’t have their way.   

Liberals like to invoke the Founding Fathers (and Ronald Reagan) whenever they can in some twisted explanation of why they would support their policies (i.e., the new central government was created to raise taxes and therefore would approve high taxes).  But their actions are clearly more consistent with King George and his ruling class than the Founding Fathers.  And had they lived during the Revolution, no doubt they would have been Loyalists.  To support and maintain the ruling class.  And their privilege.

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LESSONS LEARNED #73: “Politics is about overspending and vote-buying while getting some poor dumb bastard to pay for it.” -Old Pithy

Posted by PITHOCRATES - July 7th, 2011

Great Britain’s Costly World Wars

The 18th century was a time for adventure.  Exploring brave new worlds.  Discovering new species of plant and animal.  And new peoples.  But most of all it was a time for war.  World war.  As the great mercantilist empires raced to establish colonies in those brave new worlds.  And bumped into each other in the process.  Great Britain, Prussia and Portugal fought against against France, Spain, Austria, Russia and Sweden in the Seven Years’ War.  They fought for control of trade routes.  And each other’s colonies.  They fought from 1756 to 1763.  In Europe, Asia, Africa, South America, North America, the Caribbean, the Philippines and on the high seas.

Great Britain’s secretary of state, William Pitt, committed to total war.  He went all in.  Thanks to his allies fighting in Europe on land he had armies available for the colonial theaters.  And he had the Royal Navy.  That ruled the seas.  It was a formidable force.  And the British Empire grew.  From Gibraltar to the Indian subcontinent to the Philippines to the Caribbean.  And, of course, Canada.  It was a great victory.  But a costly one.  As total war tends to be.  And with more empire to manage and protect, Britain needed a larger standing army.  And a larger Royal Navy.  Costing even more money.  Especially in North America.  Where there was a lot of Indian activity on the frontier.  It only seemed fair to King and Parliament that their American colonists paid their fair share.  And the taxation started coming. 

The king needed money.  And the landowners in England were already overtaxed from years of war.  Taxing them further could cause problems in Parliament.  Because they had representation with their taxation.  But there was a lot of untapped wealth across the Atlantic Ocean.  The American colonies.  And they had no representation in Parliament.  So they would tax them to replenish the royal coffers.  And to help maintain the sprawling empire.  So they taxed.  And the Americans balked.  Then Parliament passed some acts to punish the colonists.  One thing led to another that led to a shot at Lexington that was heard ’round the world.  The American Revolution for independence from the British Empire was on.  And it, too, would be costly for Great Britain.  Eight more years of war.  And it would end with the loss of the American colonies.  Worse, it gave the French some ideas that led to the French Revolution.  And, ultimately, Napoleon.  That would plunge Great Britain back into another costly world war. 

Rhode Island:  Smallest State but Biggest Pain in the Ass

But Great Britain wasn’t the only nation with a large war debt.  The new United States of America also had a huge war debt.  And her finances were a mess.  People had debts.  States had debts.  And the Confederation Congress had debt.  Millions borrowed from Holland and France to fight the war.  And money was owed from before the war.  Including to British merchants that had to be honored for America needed trade with the British Empire.  And the protection of that trade provided by the Royal Navy.  So a lot of money was owed to a lot of people.  Which a lot of people didn’t have.  State legislations passed debtors’ laws that provided some relief to debtors by making it okay for them not to repay their loans.  Of course, this destroyed the credit markets.  Because people won’t loan money if the law says no one has to pay it back.  Worse, states were printing their own currencies.  And forcing people to accept it as legal tender.  Even though it wasn’t worth the paper it was printed on.  States were charging import duties on interstate trade.  Other states were charging some states more for their goods.  The love was gone.  States circled the wagons.  The war was over so they said screw the confederation .  It was a mess.  And soon after the war the economy was collapsing.

The United States was the Rodney Dangerfield of the international community.  It got no respect.  And most thought it was only a matter of time before they fell on their face and rejoined the British Empire.  The new nation needed legitimacy.  Which is hard to do when you’re broke.  You have no army or navy.  And the individual states were making their own treaties.  Making their own currency.  Collecting their own tariffs.  Life was simpler for the rest of the world when the Americans were British Americans.  For then she had a single seat of government to treat with.  A single currency.  A uniform tariff.  The Articles of Confederation just wasn’t getting it done.  So there was a drive to revise them to address some of these shortcomings.  Such as a national tariff to help pay down the national debt.  But one of the shortcomings was the revision process itself.  Any change required unanimous consent.  Which was a problem when it came to tariffs.

You see, tariffs are a source of revenue.  Imported goods come in on ships.  That have to dock.  In a port.  Before they offload a customs official reviews the manifest.  And verifies the cargo.  It’s simple math.  You have a list of what’s on a ship.  You apply a tariff.  Get your money.  Then you let the ships unload their cargo.  It’s very straight forward.  All you need is a port.  Which Rhode Island had.  And she refused to give up her right to collect those tariffs.  Because they collected a lot of revenue.  From her merchants.  And from all the merchants in the land-locked states that used her port.  It was very lucrative.  Her taxpayers loved it.  Because someone else was paying their taxes.  They were getting a free ride.  Thanks to those tariffs.  Which was great for them.  But it almost doomed the fledgling new nation.  Because whenever the Confederation Congress tried to amend the Articles of Confederation to include a national tariff, Rhode Island always voted “no.”  She refused to give up her cash cow.  Even if it meant the collapse of the new nation.  (Eventually delegates would meet in Philadelphia in 1787 and write a new constitution to replace the Articles of Confederation.  And some 100 years later America became a superpower.  No thanks to Rhode Island, of course.)

The EU and their Mercantile Emissions Trading Scheme

A clever government is always trying to think of ways to get other people to pay for their excessive spending.  And by ‘clever’ I mean devious.  To find some dumb bastard to pick up their tab.  Preferably not their own taxpayers.  Especially taxpayers who vote.  Because that’s the funny thing about taxpayers.  They don’t like paying taxes.  They will because they understand certain public goods require public funding.  Like an army and a navy to protect their nation from foreign enemies.  They’ll pay for these because they don’t want to be invaded or have their cargo ships boarded by pirates on the open seas.  But they’re not going to willingly pay for a big fat welfare state.  Not if they have to make sacrifices in their own lives so others don’t.  That’s just slavery by another name.  People just don’t like oppressive governments that take their money.  Or their liberty.  But if they could get some nice government benefits without having to pay for them, why, that’s a different story.

This is a lesson governments have learned well.  This is the basis for socialism (from those according to ability to those according to need).  And the progressive income tax (the more you earn the more you pay).  You get the smaller group of rich people to pay more than their fair share.  Then you take their money and spend it on the larger group of poor people who will forever love you.  And vote for you.  It’s a sound theory.  Until you can’t raise taxes anymore without throwing the economy into recession.  Or causing a taxpayer revolt.  So advanced nations that can’t tax anymore have found other sources of revenue.  Thanks to global warming.

Global warming is a hoax created to impose more government control over our lives.  To create more fees.  And a font of new taxation.  The University in East Anglia led the charge in this false science.  Leaked emails have since proven that they did play with the numbers to advance their agenda.  Though debunked it still has deep roots in the UK.  And Europe.  They refuse to let it go because of the riches it promises to deliver.  And with the UK and Europe suffering debt crises, they need those riches.  And the European Union is acting bold.  And extralegal.  They created an Emissions Trading Scheme (ETS).  Anyone that produces carbon dioxide has to pay for that privilege.  And that ‘anyone’ is pretty much everyone in industry and transportation.  By buying permits that ‘allow’ you to emit this product of combustion.  Including all international flights flying into EU airspace.  Which the non-EU airlines have a problem with.  Who are already struggling under the high cost of fuel.  But the EU is standing firm.  To save the planet.  And coincidentally pouring vast sums of money into their coffers.  So they can transfer the cost of their irresponsible government spending to non-Europeans buying tickets to travel to Europe.  But this can’t end well.  Other nations will respond with some measures of their own to ‘tax’ EU planes coming into their airspace.  Worse, when they can no longer sell the fraud of global warming to a gullible people, the nations who bought those permits may want their money back.  To help with their own irresponsible spending.  And with the sums involved, they will no doubt exhaust no legal avenues.  Perhaps even exploring other avenues.  Something extralegal.  Just like they did in the EU when they set up their ETS.

Spend First, Pay Later, then Suffer the Consequences

That’s the problem with spending first then trying to figure out clever ways to get someone to pay for that spending later.  Politicians tend to look at short-term benefits.  Not long-term consequences.  Had Great Britain known what the ultimate price would be for their tax policies they no doubt would have pursued a different course.  And avoided the 8 years of the American Revolutionary War.  And the subsequent Napoleonic Wars.  Which all added up to quite the pretty farthing.

Of course, Great Britain’s woes go back to the costly Seven Years’ War.  Which grew out of a trade war.  Resulting from the mercantile policies of competing empires for overseas colonies.  And trade.  The EU’s ETS is sort of a throwback to those mercantile policies.  That may very well result in a trade war itself.

Funny how history repeats.

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