Category Archives: Economy

Public demonstration to denounce public stealing

The state budget (public money of the Spanish people) is plagued with items destined for subsidies of all kinds. There are public subsidies to finance private economic activities which do not benefit society nor the country as a whole. There are public subsidies for deficitary businesses that cannot stand on their own. There are public subsidies for private film industry productions that insult part of the very society which is paying for those subsidies. There are subsidies financing inefficient energy sources. Public money is also thrown away on car races, paying musicians at town fairs, paying for so-called “art works”, paying for regional politician’s whims, and paying to support politics of repression on part of the population, among many other ways of wasting many people’s efforts to earn their living.

For all of it, a public demonstration will take place this Saturday (Nov 23rd) at Madrid’s Plaza de Colón, to denounce the plundering on the middle class, as reporter Enrique de Diego (organizer of this public demonstration) has called it.

I will be out of Madrid that day, but I encourage everyone to attend the public demonstration.

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Renewable corruption

The October 24, 2008 edition of Spanish financial newspaper “Expansión” reports that the Ministry of Industry is investigating fraudulent practices in renewable energy subsidies.

What a surprise. How naive can the Ministry be?

The desire to promote renewable energy at all cost, almost obsessively, has drawn governments to offer juicy subsidies on any attempt to research or produce energy from new sources. It is all framed, of course, in the human-caused climate change dogma, which ought to make humans change our habits.

How to implement such change? By pouring loads of public money in subsidies for private companies, to make new businesses with energy sources (wind, solar, bio-fuels) which will supposedly help the planet.

There are two basic problems with such policy:

  1. It is nonsense to think that those energy sources can represent a significant percentage of the needed energy, taking into account current existing technology.
  2. It is also nonsense to think that public money will promote private initiative. It only promotes corruption.

Fraud in subsidies applications was to be expected: First of all, companies see subsidies as an additional source of income, not as aid. Secondly, those energy sources are not profitable on their own (with current technology). For this reason, serious companies, which could develop conscientious and productive work, are not going to apply for those subsidies.

However, the government must spend that money for several reasons:

  • The subsidies have been budgeted following the climate change dogma, and the dogma brings votes; the dogma must be financed.
  • Politicians like to portray themselves before the public as defenders of the planet, and they like to say they put a lot of money into it.
  • Money for those subsidies is in the budget, and the budget must never go unspent. It must be spent even if not needed, or else that manager will see his or her budget reduced, and along with it his/her relevance.

Weasel-companies are always willing to take advantage of that money that must be spent even if no real useful project exists for it. All that’s required is to justify before the Ministry of Industry a few action plans that fit in with the dogma, or that fit in with the subsidies’ manager pocket, and the subsidy is easy to obtain.

The end result: guaranteed fraud on the people paying their taxes with their work. Lots of public money have gone into private hands with no benefit at all for the general public.

If the Government intends to curb fraud and to do something for the planet, they should implement a decent energy policy, eliminating subsidies programs which are nothing but a catalyst for corruption, prioritizing nuclear energy again, and promoting respect for the environment (rather than “fighting climate change”).

Without dismantling the subsidies system, energy will be only be spent along the way to keep up a system of renewable and renewed corruption.

Let it all fall down

Governments around the world are trying out different formulae to tackle the financial crisis. They claim they are trying to reactivate the financial sector, to encourage banks to offer loans to small businesses and people, and to other banks. Other cases of government intervention are focused on preventing banks from going bankrupt.

This is all wrong. If the financial sector is in a financial crisis, let the financial sector sweat out its own illness. Any part of it that cannot survive the crisis should simply be left to die, because its demise means that it has no value. The crisis must be allowed to work as it should, promoting consolidation, discarding some old players and creating opportunities for new players to enter.

Government intervention is absolutely wrong. It is nothing but a quick fix, with lasting negative side effects, while prolonging the cost of the crisis, imposing it on generations to come. Furthermore, why should banks and other financial entities be allowed to earn loads of money for themselves (their shareholders) when the economy is fine, but they have to be helped by the government when things are not so nice anymore? Every individual and small business benefits from their work in times of prosperity, and they have to adjust to difficult times. The financial sector should be no different.

Is the problem really lack of trust among lenders? Is a bunch of public money going to help them regain trust? Not a chance. They should regain trust the old fashioned way: by going into business again (i.e., start lending) to then ascertain that customers begin repaying their loans. Why would banks feel compelled to lend again? Simply because it’s their business. The business of banks is based on risk. They take a risk lending money, and charge for that service. It’s a matter of waiting to see who can hold out longer; banks or their customers. My guess is that banks, without the gift from governments, would have needed to attract customers again sooner than those customers would have needed the loans.

The financial sector should be left to its own devices to try to recover, whatever that may entail. Having governments intervene is anti-natural; it is an external factor inserted into the normal life cycle of any company that ought to survive on its own merit. Of course, earlier government intervention had its share of blame in driving the economy and the financial sector down (read: unrealistically low interest rates in the U.S. for a long time, the 1977 Community Reinvestment Act), but this is no excuse to pour millions of public money to that financial sector, or to nationalise banks left and right, as several EU countries are doing.

In summary, the situation is outrageous: rather than reducing public spending, governments have, once again, disposed of our money to use as they see fit, without any clear indication that the amounts of money they are dumping on the financial sector is going to make any difference one way or the other.

Spain's fake unemployment rates

The recent unemployment rate hike in Spain in the last month of August led the Minister of Labour to announce that Spain would end the recruitment of foreigners, to have jobs filled with Spanish manpower, and thus reduce unemployment.

The solution proposed by the Minister is action on jobs demand. In order to reduce unemployment, it is necessary to reduce the number of job seekers (act on the demand) or stimulate economic activity to generate more jobs (acting on jobs supply), although of course it is normal to act on both the demand and the supply.

Regarding demand, there are ways of acting on it. The proposal of the Minister is not preposterous, but it ignores a key factor influencing demand: unemployment benefits. This allowance is an incentive not to work: Why bother to accept a job offer that involves effort and sacrifice, if one can stay quietly at home claiming unemployment, even if receiving somewhat lower revenues than those paid for a tedious job? . This reasoning is promoted by unemployment benefits.

Aid for unemployed workers is necessary when they lose their job, but the Spanish model of unemployment aids (as in other countries) is shameful. It is inconceivable that public aid is offered for long periods of time (more than 6 months), with a monthly subsidy higher than they pay of some jobs in the labour market. In its current form, it is nothing but an incentive to stop working and sit down to rest. Indeed, many people feel they are entitled to collect “their” subsidy after working for a sufficient amount of time to accrue unemployment benefits, because this aid comes from taxes they have paid out of their payroll during their period of work. Likewise, there are many cases of workers who want to leave their jobs voluntarily, but reach an agreement with their boss to pretend a fake layoff, so that they can collect unemployment aid. An absolute lack of control allows such fraud of law to abound in the system.

It is necessary to make a study to determine how many people are actually unemployed (those who really can not find any work) and how many are voluntarily unemployed (those who do not want to accept job offers). I venture that the unemployment rate would be reduced by at least 50% should we take into account only the truly unemployed. Of course, such a study is almost impossible to carry out: How many of these forgers of layoffs, or how many of these companies who fake the layoffs will confess?

We must radically change the unemployment subsidy system, restricting it to a period of aid of about three months, gradually reducing the monthly aid amount, and cancelling it completely when the job seeker rejects a job offer. Everyone is free to accept the job they want or even to be picky about it, but the Government should not help if the person prefers to wait for another better job opportunity (whether this means better paid, more comfortable work, or whatever the job seeker may deem “better”). The Government should help only those who need help, rather than helping anyone who will welcome some aid. In this manner, unemployment allowance would fulfil its role of emergency aid to those who need it, saving money and focusing Government’s resources on real needs, avoiding the present waste of money in unemployment aid for loads of people who pretend to need it.

The Ministry of Labour is right in trying to take action on the demand for jobs, but it is more urgent to act by removing incentives to not work (unemployment aid) than to limit hiring of foreigners.

In capitalism's defence.

There are plenty of anti-capitalism opinions reflected in print, the media and on the Internet. When I read such material, I feel the need to reply in the form of an article in this blog, but I can rarely find the time.

Recently, however, I came across another such article in the blog of a friend of mine (the English text is a Google translation from the Spanish original), which has motivated me to write back.

The above-linked article presents capitalism as the source of corruption, slavery, drug trafficking, real state speculation, and several more calamities and misfortunes. It also describes capitalism as a system consisting of robbery, oppression of people, exploitation of workers, all for the benefit of just a few people (the capitalists). It even defines it as a system created by humans to cause hatred of some humans against others.

On the contrary, capitalism is not the source of evil because evil does exist independent of capitalism and independent of any other social or economic system. I will argue here that both capitalism and evil are nothing but reflections of the human being, and neither is the consequence of the other.

Capitalism is defined as:

    an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth.

Ownership

The essence of the human being does not differ one bit from the other living creatures: Humans need to feed to survive, and they need a space to live in. From prehistoric times human beings needed to obtain food for themselves, and their “family” (I’ll use this term to refer to those other human beings he or she had to feed). The very action of “obtaining” the food represented an amount of effort and work employed by an individual. The investment of time and effort in obtaining that food already grants that individual ownership over that food.

The concept of ownership is linked to the existence of other human beings, who may be very willing to simply take the food that their neighbour obtained after employing time and effort. In other words, it is necessary to create the concept of private property (ownership) to provide the hunter humans some guarantee that they are not wasting their time and effort in chasing animals down to get food. In the absence of other humans around, private property is meaningless. However, as soon as other humans are around, protection is needed from stealing. Private property becomes a necessary concept that must be acknowledged by a community of human beings in recognition of the effort, time or resources that one individual has employed to obtain something else. Everything has a value for an individual, and it has a value for others, who would find it far easier to steal what other humans obtained or produced rather than employing effort of their own. This is a key difference between humans and most other animals: humans can see the value of the work done by others, and can plan to take advantage of the effort of others, while other animals cannot. Other animals taking food from humans are moved by the availability of that food, or its being easier to grab than other food available in the environment. Moreover, humans recognize value in items other than food: tools, materials, and other goods can also be sought after by other humans (who did not produce them). Therefore, the concept of “property” is need by humans only in relation with other humans, not in relation with other living beings.

Because the human being is a social being, living in communities with other humans, “ownership” is an absolutely necessary concept to take into account to study or define human relationships.

Economy

Another natural trait of humans is their tendency towards simplifying tasks. If someone employed their time in producing rice crops and others in fishing, wouldn’t it be easier for both to exchange some of each other’s production rather than both becoming farmer and fisherman?. Barter emerged as a natural way of obtaining a variety of types of food, hard to obtain otherwise due to lack of time, resources or skill. Land, production tools and other items would be equally exchanged in the same manner. One problem of bartering was the perceived value of goods. With time, this system evolved to eliminate differences in value perception of different goods, and a common token of exchange would be adopted, to represent equal value to all users of the token system: one token might represent two packs of rice, or one fish. These tokens are nothing but money: a single coin that has a value agreed by all its users. Trading of rice for fish came to an end, and trade of coins for fish, or coins for rice became the norm. Thus the birth of money, as a natural evolution of bartering.

Money is a mere token of value, common to all people who produce and consume different types of goods. Money is a reflection of human nature, since it represents trade of goods among humans.

Whether we are considering rice-for-fish trading or monetary transactions, it is all an economic system. From the Greek roots of the word, “economy” means village (or household) management. That is: management of the community, of one’s house in terms of the resources needed to keep the village or household running. Such resources are the food needed to feed people, the tools need to produce or catch food, the materials to build shelters, etc..

I.e., an “economy” is also a concept inherent to human nature. By mixing the use of money (common token system instead of barter), the economic system based on money only makes the management of one’s household more convenient, as it greatly reduces complexity to obtain needed or wanted goods. Nature’s tendency towards simplification can also be seen in this evolution and creation of economy based on the common token system.

Capitalism

Therefore, from the very human nature emanate two basic facts that have since ruled human societies:

  1. On the one hand, the recognition of an individual’s work and its products is a must. Hence, private property and ownership.
  2. On the other hand, the economic system emerges as the natural way to cooperate in the production and exchange of goods among humans.

Capitalism derives from these two basic facts: Private property of goods and means of production of goods, and an economic system that permits the management of wealth for individuals and organizations. In a typical capitalist system nowadays the means of production and exchange of wealth are in private hands, in the exact same way as with humans in the stone age.

Current capitalist structures, far more complex than the structures required to cover the human’s initial basic feeding needs, are nothing but the natural evolution of a system made of human beings, due to the nature of those very human beings. The system experienced an increase in complexity by several orders of magnitude over thousands of years, due to several factors including population increases, improvements of tools and techniques, production increases, trade, communication with other peoples, etc…

So far I have established that capitalism derives from human nature. This fact is neither good nor bad in itself. It is a fact, and I believe that the fact that capitalism is in effect in most of the world goes to show that nature cannot be fought. Non-capitalist systems are anti-natural because they clash in one way or another with the nature of the individual elements that make up the system, the human beings. Sooner or later, any system that attempts to impose customs which conflict with its elements’ nature, will collapse.

Evil

The evil that some like to ascribe to capitalism effuses from humans, not from capitalist systems or structures.

Another trait of human nature is its capacity for goodness, greed, kindness, envy, self-improvement or advantage-taking. These forces drive human actions, and human societies are shaped by the supply of each of these forces which can be found in the group. These forces are always present, regardless or the system or organization that relates humans among each other.

Let us take for example communism, which imposes an artificial rule stating that all people must have equal wealth, with the goal of ensuring that all people can see their needs satisfied: food, shelter, education, etc… In such a system no one is allowed to do work or produce as much as they please, but rather must conform with the established “quota” of work and goods allocated for all people. This is unnatural because on the one hand restricts and negates people’s desires for improvement (self or group), while on the other hand forces upon people the load of supporting the living of crooks taking advantage of society. Other anti-natural systems have ceased to exist as well, like feudalism, for it also restricted people’s freedoms.

Capitalism vs. others

These economic systems have truly used slavery (feudalism), have blatantly experienced corruption and robbery (communism), and above all have oppressed people, restricting their ability to pursue their own well-being, while failing spectacularly in defending the well-being of the general public.

Capitalism, on the other hand, is the natural expression of human interactions. It does suffer from the bad qualities of humans, like any other system, but its lack of anti-natural laws makes it the system with the least flaws and the best suited to play well with its components: humans.

Oil prices, carriers and the Spanish government

The recent increase in oil prices affects all transport. Air, ground and sea transportation, passenger and cargo alike, have seen their costs rising in the last few months.

Analysts have provided several theories on the causes behind the oil price hike. Some put the blame on the credit crisis in the USA, others blame oil producers, others point at the US Federal Reserve, and others remind us of the significant increase in energy demand. I am not going to analyze the reasons here.

This week Spain saw a strike by some truck drivers (apparently about 20% of them), demanding Government intervention to help their activity, after fuel price increases are rendering their business a loss-making operation. Their strike blocked major communication roads around the main cities in Spain, causing long traffic jams, and making it impossible for loads of other people to carry on with their own jobs.

These few truck drivers seem to think they are the only ones affected by oil prices. Many other people actually need gas fuel as well to drive to work, and are equally paying for gas at the same price. Costs are increasing for everyone.

Private businesses, such as the truck drivers’ own job, must not receive help from the Government. When faced with adversity, these striker drivers resort to demanding help from the Government while showing complete disregard to other workers and people through their road-blocking actions, and through their boycotting other truck drivers who chose not to adhere to the protest. The striker’s lazy and cowardly attitude towards their own problems is unacceptable. Clearly the transportation business was profitable when they decided to enter the business. Now that conditions have changed for the worse, they expect external help instead of adapting themselves to the new circumstances.

I know ex-truck drivers who left the business because they could not make a living with it, and moved to another type of job. People in other sectors, including house service, agriculture, engineering, and financial services, to name a few, have the personal drive to move forward through trouble, to adapt and adjust by changing jobs if needed. The few who are unwilling to adjust are usually (also on this occasion) the noisiest, but this is no reason to listen to them.

The natural solution to the carriers’ problems is simply to increase their transportation fees as a result of their increased cost. If their fees are fixed by collective agreements, then they must renegotiate if they wish, but Government intervention is not be to asked for, and public funds must not be used to help this or any other private sector.

If prices of goods must increase as a consequence of higher transportation costs, so be it. It’s only natural. To intervene on pricing, on the other hand, would be wrong. The Government must attack the problem at its root: supply and demand of energy. If they cannot affect demand, then they must act on supply, building new energy-producing plants. Spain’s proud and capricious socialist Government, of course, has no plans for this.

Delocalization

“Delocalization”: a term used to refer to companies moving factories or other operations from their usual locations to new ones.

People (politicians included) like to complain about companies “delocalizing”, and taking jobs away from their region (be it a town, province, country or a continent). They love to argue that the departing company is only moved by profit and has no sensibility for society and the local community.

However, “delocalization” is actually an illusion built on the illusion that things will not or should not change.

Businesses (whether a local business or a multinational opening a new factory or branch) establish themselves in a particular location, at a particular point in time, when it is in their interest. Likewise, new conditions may drive the business to move to another location.

It is not reasonable to expect companies to stay at a given location. “Delocalization” is not such. “Delocalization” seems to imply an intrinsic requirement for businesses to be attached to a certain place or certain people. This is an unfortunate misconception that needs to be extinguished.

People, politicians and public administrations need to think in the context of an ever changing world, discarding any temptation to rely on well known, local structures. A community or society which attempts to tie businesses down (for example, by imposing fines in case of relocation) will only drive businesses away and will limit job opportunities for itself.

Rather than denouncing “delocalization”, efforts should be directed at making local communities competitive, to face new challenges instead of merely deflecting problems (competition) that are sure to come back.