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Drifting into Fascism

by Alasdair Macleod, GoldMoney:

Most people regard governments and their central banks as forces for the good. Financial crises and suchlike are therefore blamed on capitalism, and people believe our leaders do their best to pick up the pieces from market failures, because they are elected to promote the public good.

The reality is very different, with governments acting not in the interests of their electors, but in the interest of the preservation of the administration. And the size of the administration is proportional to its degree of control over the people, so it and its burden on ordinary people just grows and grows with ever-increasing intervention and micro-management.

The logical end-point in the reach of government is either state ownership of all private property, which is communism, or state control over what people do with their property, which is fascism. With communism discredited, the world is moving inexorably towards the latter. Every business is regulated in some way or other, and economic freedom is being progressively restricted with ever-tightening regulations.

From a government’s standpoint, lack of control over private activities equates with risk to the state and its objectives. The more that people are directed in their actions, the more certain the state’s security becomes. We see this in attempts to remove cash-money from circulation, because the use of cash cannot be controlled. It can be used for activities beyond government’s knowledge, it can be used to evade paying taxes, and it can be used to undermine a bank’s solvency. Many people who are financially aware probably thought this was a trend only to be seen in the advanced nations, but it is equally true in emerging economies, as the recent experience in India has dramatically shown.

Unfortunately for Indian nationals, the Indian government’s clumsiness in banning R500 and R1,000 notes is certain to lead to an economic and financial crisis. Looking on the bright side, it might lead to the collapse of the Modi government. If that happens, it may delay the same medicine being dispensed by other governments to nations in a similar state of development and tempted to pursue similar objectives.

An impartial observer is bound to ask, what drove Modi to be so stupid? To understand government motivation in emerging nations, it is important to realise they have become two-speed economies. The first is the modern city, requiring expensive infrastructure. Skyscrapers are shooting up everywhere, international businesses are setting up offices, an elite has been educated and qualified as accountants, lawyers, bankers, and in every skill deployed in city economies in the advanced nations. These welcome developments produce tax revenue for governments, along with expenses. Above all, they fire up a politician’s desire for further development, whether people want it or not. And their focus is turning to private sector activity which is cash-based, unbanked, and untaxed.

Even in cities like Kuala Lumpur, there is a trading underclass in which most of the population participates. Bringing these activities into the statistical and tax network would bolster Malaysia’s GDP and the government’s tax revenue. The same is true of everyone outside the major cities. Indonesia has 250 million people, most of which are unbanked, untaxed, and whose business activities are similarly unrecorded. Word is that Indonesia’s central bank is planning to do away with all cash within five years. The expected gains to the state are obvious, and one can see why politicians will favour the deployment of financial technology, such as mobile banking, to achieve these ends.

Cash is just one aspect of government control over its citizens. Tax is another. According to an Ernst & Young report, few governments “are not investigating the incalculable benefits of digitalising their tax systems”. It includes deploying software that automatically calculates taxes due. Brazil, it seems, is leading the way, with a digital software system that accesses a company’s bank accounts, financial filings, daily invoices and sales slips to calculate taxes which become immediately due. And it’s not just companies, but individuals who are increasingly subjected to this intrusion as well. The result is Brazil’s tax revenue has been increased by some 12.5% annually, without any increase in tax rates.

It appears all countries are going down this digital route. And when anyone objects about the loss of personal freedom, the response is predictable: people must be made to pay their fair share of taxes, and all tax evasion and avoidance must be stopped in the interests of the honest taxpayer. It is essentially the argument that India’s Modi put forward to justify banning the cash notes likely to be used for black market activities that evade taxation. Forget any argument about personal freedom, infringement of personal rights, or the economic benefits of tax competition.

What’s particularly concerning for the individual is the way nations appear to be ganging up together into an unelected unaccountable super-state. Surely, it’s no accident that several unrelated countries are pursuing the same objectives of banning cash, and working on plans to automate tax collection. A vital executive component, which swaps information internationally, is domestic security, with every move an individual makes increasingly tracked by video and number-recognition cameras. Further movement-tracking is through payment systems, including public transport ticketing, and mobile phones. Security tracking has been enhanced and justified because of the requirement to control and bring to justice national nasties, such as child-molesters. We can expect more moves to streamline extradition to complete state monitoring, not just for paedophiles, but for anyone deemed by the state to be worth watching.

We are already used to the state controlling the interest we pay and receive on our money. Banning cash increases the depth of this control, with savings and deposits being taxed through negative interest rates. The super-state’s cabal of central banks coordinates managed interest rate policies, either by liaising directly, or through the forum of the Bank for International Settlements. Quantitative easing, the direct control of bond prices through central bank purchases, reduces the risk that the market will challenge central bank policies, at least for the short-term.

Read More @ GoldMoney.com

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