Sunday, 9 October 2016

The World's Most Necessary Diet

The problem with the narrative about all the unpaid tax and all the ways the government is not getting the funds it needs to pay for these ever-expanding services is that the real issue is not being addressed - and that is that the State is far too large with far too much economic liability for public services for which it is struggling to pay now, and has no chance of paying in the future.

Unfortunately this short falling perpetuates because the majority of the people are exacerbating the problem by failing to address the size of the State and how it can give itself over to the more efficient and less burdensome private sector.

To make it clear with an analogy, imagine a mother who started feeding her son cheeseburgers at a young age. After a while she started to feed him too many, and eventually he became morbidly obese as he was eating 24 cheeseburgers a day. Her son's eating habits had got out of control, and had become a burden on the household because she could no longer afford to keep him in that many cheeseburgers.

In order to generate the burger funds she tries everything; getting a second job, doing car boot sales at weekends, even begging her friends for a loan whenever she saw them. Alas, the solution in this situation is obvious: far from trying to locate the funds to feed this horrid cheeseburger habit, what the boy's mother needs to do is get her son on a more balanced diet so he can lose weight and live more healthily. It's by helping her son live more healthily that she will at the same time free herself from the economic burden of having to fork out for 24 cheeseburgers per day.

Similarly, by way of analogy regarding its excessive size, in order to save the public sector from its economic obesity we need to stop feeding it cheeseburgers and give it a more balanced private sector diet of market principles, lighter regulation, lower tax burdens and a greatly reduced bureaucracy that's small enough to put our hands around its throat the moment it becomes too aggressive. Consider this every time you want to see more tax paid, heavier regulation, further price controls, quantitative easing and renationalisation - they are like cheeseburgers being fed to an already morbidly obese boy. 

This blog post and analogy comes at a time when earlier in the week I read the latest report from the McKinsey Global Institute, which says that total world debt may well have exceeded $200 trillion by now - the majority of which is not generated by free trade between willing agents, but by politicians hamstringing the financial economy with excessive regulation, price controls, tax legislation, tariffs, and the tens of billions of dollars in employing the bureaucrats that underwrite it all.

Even if there is a slight exaggeration in that figure - and there may well be - it's still a damning indictment, because to understand why so much of this is counterproductive for the economy, you have to understand that when left to its own devices with only very light regulation, the global economy tends towards the principle of parsimony - that is, the law of least effort.

Just as nature's laws find themselves running according to the principle of maximum efficiency, so too would economics if it were left to the principles of economic laws based on prices, supply and demand. You may object that unlike chemical elements, economics involves that complex and erratic phenomenon known as human behaviour, but that's not a valid objection, for as Adam Smith reminds us, the invisible hand acts as a social mechanism that channels collective objectives toward meeting the needs of the people that make up that society, by ensuring competition between buyers and suppliers, which channels the profit motive of individuals into providing products that society desires at prices which are rarely above cost.

Note: What I'm going to finish with is only a rough approximation from my own sparse and scattered data studies in life in general - it is just something for you to ponder - but in terms of the entire global economy, based on what I've been reading in the past ten years or so, the global imbalance between trading in the supply and demand market is probably somewhere between 65% and 75% of the total size of financial transactions in the world. Just to be clear, that 35% to 25% excess doesn't include public sector industry, that is purely the excess created from all the extraneous credits and debits from things like increasing money supplies, price controls, debt interest, and so forth. On the global balance sheet, that amounts to literally trillions of pounds of an imbalance - the vast majority of which is caused by interference in a market that primarily need only rely on the price signals of supply and demand.