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Letters by a modern St. Ferdinand III about cults

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Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands.  Cults everywhere:  Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...

Tempus Fugit Memento Mori - Time Flies Remember Death 

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Tuesday, September 4, 2007

Anglo-Saxon market dynamics simply work

Governments do not have any legitimate role to distort markets.

by StFerdIII

Trade matters in more ways than most realise. The law of unintended consequences is relevant. Trade is a transformative agent at every level of society. Mores, culture, wealth, business and state organisations are all impacted by market forces. As trade compresses time and national differences, it will in aggregate, increase a society’s wealth. The winners will outnumber the losers. Firms will rise, fall, and disappear. Others will take their place, invent new offerings and create shareholder wealth. So it goes as well with states, regions and cities. Trade is a brake on state corruption and coercion. The less trade there is, the worse off society will be.

Nokia once produced rubber boots, it is now the pre-eminent mobile phone firm in Eur-Asia. Google did not exist 6 years ago. IBM’s main line of business was cheese cutters until 1940. Ireland was a wasteland until economic and tax reform created a business haven servicing the Euro-market. Chileans and Dutch learn English as a second and ultimately most important language. Russian programmers build US back-office systems. British based institutions are one reason why 300 million Indians are out of poverty and part of the global supply chain. Estonia spawned Skype, and Icelandic companies are buying UK supermarket chains. Market economics are being used in Africa and elsewhere to save environmental areas. US private charity outpaces Euro-government giving by 6:1. Anglo-Saxon market dynamics simply work. The dynamism, capital and in some sense, the self-regulating ethos of the system, is superior to any competitive form of societal organisation.

The problem with Globalisation, even in the tepid form we have today, is that it produces losers. Those who lose jobs, or who are made redundant have a lot of political support. Populists will rush to their defence with cries of national glory, values, and cultural uniqueness. Programs are erected to help out the losers from competitive markets ranging from welfare redistribution, to job-training, to protectionist tariff and non-tariff barriers. Agricultural and manufacturing trade are both prey to political mis-management. In reality we have mercantilism not free or fair trade globalisation.

The rich world currently spends about $400 billion per annum protecting farmers, shutting out third-world product and which leads directly and literally to the deaths of thousands of poor farmers each year. Tariff rates on manufactured goods now rest at about 5% on average in the industrialised world, down 90% from 1970 levels, yet non-tariff and environmental barriers lead directly to trade distortion [as do regional trade agreements demanding intra-region sourcing requirements]. Regional trade agreements are beneficial but not if they discriminate against non-regional producers. Sadly every single regional free trade agreement in the world today [about 70] does precisely that. The costs to consumers and to market innovation are enormous.

The EU for instance keeps an external tariff that fosters internal market development but keeps out lower cost product. The result is that in many sectors EU consumers pay 30% or more than their US counterparts. Fifty per-cent of the EU common budget is spent on agricultural supports – to placate France and Spain [about $150 billion per annum]. The costs to the average Euro-family from these distortions is at least $4000 per annum. In Canada various marketing [price fixing] boards force Canadians to pay 40-50% more for dairy and livestock product than US consumers a few hours away. This totals thousands of dollars of lost economic purchasing and investment power that the Canadian economy could sorely use. In the US, vote buying programs for farmers fritter away about $60 billion, most of it to large agribusiness while cheaper Central American agro-exports are denied entry. There is nothing moral about buying votes with other people’s money while non-state [and politically irrelevant] producers are condemned to penury. Mercantilism is the economic tool of political realism –and there is little that is moral about such a program.

Post World War Two was stabilised by American empire protection and the Bretton Woods system of financial stability linked ultimately to fixed exchanges and the gold standard. International integration and economic progress was guaranteed by the Bretton Woods order, as economic assimilation made compromises with the burgeoning welfare state, under-girded by the stability of the gold standard. Moderate trade and investment increase was thus balanced by less than moderate increases in domestic socialism. Thanks to government mismanagement, deficit spending, and the Vietnam war, the gold standard had collapsed by 1971 and was pronounced dead by the oil crisis of 1973. Fixed exchange rates simply do not work when economies, budgets, interest rates and national economic cycles collide or are radically different. The EU economic area is another example of this fact [Germany has nothing in common with Spain for instance].

The Bretton Woods system and our current global ‘boom’ illustrate 2 important points. First, states and citizens benefit most when economies are open with labour, and capital being flexible enough to cross national boundaries. Second, governments are disasters and distorters when they try to manage economies to maximise political gain. The Depressions of the 1930s and 1970s are testimony to that fact. Governments do have a role to help those who are hurt by economic integration. Training, education and tax breaks can be used to aid those hurt by trade. But governments surely don’t have a role when political vote-buying supersedes the interests of citizens and tax-payers. Yet sadly this is exactly what occurs in every single country today. Populism and markets do not mix.

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