Journal of a Wayward Philosopher
Politics is Already Dead
October 14, 2015
Hot Springs, VA
The S&P closed out today at $1,994. Gold closed up at $1,187 per ounce. Oil closed at $46.59 per barrel, and the 10-year Treasury rate closed at 1.98%. Bitcoin is trading around $252 per BTC today. My attention is currently focused heavily on the gold sector in the equities market. Many gold stocks were beat up and left for dead, having fallen 90% from their previous high. This sector has steadily traded higher over the past few weeks, including a brief pull-back, potentially indicating the gold sector has formed a bottom. Has the next gold stock bull cycle begun? It could be a big one.
Little Maddie celebrates her first birthday next week! Wife Rachel has been hard at work planning the party. She has been very busy picking out decorations, sending out invitations, putting together a food menu, picking out outfits (Madison's and her own), getting her hair cut, wrapping gifts, cleaning the house, ordering her husband to clean the house, and acquiring all necessary items from the store. I notice a twinkle in Rachel's eye as she talks about the birthday celebration with excitement. Madison couldn't care less.
With wife Rachel in frantic planning mode, I take the time to savor the onset of Autumn here in the mountains of Virginia. As the leaves slowly transform into majestic shades of yellow, orange, and red, I casually work to stack wood in the garage and get kindling ready for winter. I sit and enjoy a Harvest Pumpkin Brew as the early Autumn breeze gently blows fallen leaves down the gravel driveway. Soon we will take Maddie to the pumpkin patch, and we will purchase apples from the local orchard to make Apple Cider. What a glorious season!
In my previous journal entry, I suggested that technological advancements were rendering many established institutions obsolete. I want to build on that suggestion from a slightly different angle today.
I took a brief reading break last night to turn on the Democratic Presidential Debate later in the broadcast. I was just in time to hear Bernie Sanders emphatically state that the young people of this country need to rise up and demand free education from all public colleges and universities. He seemed to honestly believe, passionately I may add, that free university education was a distinct possibility if kids were forceful enough in their demand for it.
It wasn't clear to me whether Mr. Sanders wanted to force universities or the federal government to foot the bill so I visited his 'issues' website to find out. Mr. Sanders wants the federal government to "tax Wall Street speculators" to pay for everyone's college. So Bernie wants to use the power of government to steal from some people to pay for other people's college education.
The immorality of theft aside, this is an Industrial Age concept that cannot work in the Information Age. I'll explain in a minute, but first I have to give Mr. Sanders a little bit of credit. At least he is passionately pointing out the fact that the American system of higher education is turning kids into debt-serfs. In the ten minute time period within which I watched the debate, Bernie also called out the prison-industrial complex that is locking up huge numbers of people for non-violent offenses. The United States has by far more prisoners in jail per capita than every other country in the world. That probably shouldn't be the case in the "Land of the Free". Bernie is also right that there is a lot of corruption on Wall Street, but he seems to miss the fact that most of the corruption exists in collusion with the federal government and the Federal Reserve System. In fact, the cronyism on Wall Street can only exist with the help of the federal government and the Federal Reserve.
Alas, if Mr. Sanders only understood how the market system worked he would be in a position to propose real solutions which do not call for government theft and violence. Of course, if he did understand free market capitalism he would not be appearing in the Democratic debates... or the Republican debates for that matter. Instead, he would realize that politics is already dead.
To illustrate why I fervently believe politics is already dead, let me expand upon my Information Age comment from above. In response to dear Bernie's free college solution, I suggested that using brute power and force to achieve an end-goal was an Industrial Age concept that does not work in the Information Age. Let me clarify this point using an example.
On December 30, 1936 members of the United Automobile Workers union (UAW) forcibly seized two of General Motor's main plants in Flint, Michigan. The UAW was demanding higher pay for the workers, and they shut down the machines and turned off the assembly lines in these two plants to force GM to meet their demands. The drama unfolded over many weeks and it included clashes of violence. Seeing little progress in forcing their demands, union activists seized GM's Chevrolet plant in Flint on February 1, 1937. By seizing and closing GM's key factories, the workers paralyzed the company's productive capacity and effectively held its capital ransom. As a result, General Motors eventually capitulated and met UAW's demands. Power and force won out over markets and commerce in the end.
It is this triumph of power over markets that fueled the massive growth of the nation-state throughout the twentieth century. While Americans are quick to pay tribute to their country's founding principles, few notice the fact that the United States has ballooned into a gargantuan centralized nation-state that has a hand in virtually all aspects of citizen's lives... which is pretty much the opposite of what America was intended to be. It is largely forgotten that the American colonists revolted against what amounted to an estimated 3% tax rate under King George III. Today, many Americans pay out half of their income in taxes across the board and the federal government still runs twelve to thirteen figure deficits every year. This same dynamic exists in most of the developed countries of the world as well. National governments all grew to be fantastically large in the twentieth century by using power and force to regulate the market system and extract its wealth.
Fast forward to present day: technology, microprocessing, automation, robotics, and the internet have drastically reduced the number of factories in existence, especially in developed economies. Even those companies that still deal heavily in manufactured products have a much smaller employment roll, and they are far less vulnerable to force and violence as they once were. I will support these statements with another example.
Beginning in 1993, the UAW launched a lengthy strike against Caterpillar in an attempt to force the union's contractual demands upon the company. In response, Caterpillar farmed out much of its low-skill work, closed inefficient plants, and invested nearly $2 billion on computerized machine tools and assembly robots. The union ultimately called off the strike after seventeen months when it became clear that it would be unable to force its demands. Caterpillar used the strike to drive labor-saving improvements and came out of the strike needing two-thousand fewer employees to meet the same production goals. It became clear to manufacturers for the first time that markets now trumped force.
What has not yet been realized is that this dynamic is not unique to the manufacturing industry. Markets and commerce are now superior to power and force throughout the modern economy. The $15 minimum wage that our misguided hero Mr. Sanders is calling for will do nothing but put automated order machines and robotic burger flippers in every fast food restaurant in the country. Retail companies will replace the salesmen with self-checkout machines and contract two private security guys to guard the doors. Or they very well may close their stores completely and send out an email referring previous customers to their website for online shopping. Meanwhile the unemployment filings will shoot through the roof.
Markets even triumph over the mighty nation-state today, but the nation-state does not yet know it. Here's a supporting example: Apple, IBM, and Microsoft currently have roughly $1.95 trillion in foreign earnings legally parked offshore in low-tax countries. Why? Because the U.S. government maintains one of the highest corporate tax rates in the world and these companies do not want to send 35% of $1.95 trillion down the tax rabbit-hole to be filtered through layer upon layer of bureaucracy and special interests. So the capital is instead employed in places where it is better treated.
Similarly, corporate inversion has been a big trend recently. This is where multi-national corporations relocate their legal domicile to a low-tax country, usually while maintaining material operations in the higher-tax country of origin. Modern technology has made it possible for companies to structure their affairs in a way that minimizes their exposure to force and theft. The result is the flow of capital and economic activity to the places where markets are most respected.
Even more exciting, this dynamic is not exclusive to large multi-national corporations, but markets can trump power for individuals now too. The Internet and instant communication has destroyed the gatekeepers in most industries while placing the power of unlimited networking capacity into the hands of the individual. The independent media has pulled back the curtain on the propaganda machine that is mainstream news coverage, empowering individuals to make better decisions based on a real understanding of global markets and current events. Homeschooling is more effective than ever before thanks to online curriculum of all shapes and sizes. This is empowering parents to provide an infinitely better education for their children than what would otherwise await them in the public school system.
Peer-to-peer business models, global freelance marketplaces, cryptocurrencies, and crowdfunding all make it easier than ever for individuals to find a niche and earn income by engaging in commercial activity both locally and globally with less regulatory resistance. It is also well within the individual's grasp to contract Virtual Assistants at an affordable rate to help scale entrepreneurial activity with limited resources. I contracted a Virtual Assistant to do market research for me while I was completing The Individual is Rising so that I would have a marketing plan ready to go upon publishing. I would never be able to hire help if I had to go through the official employment process; there's just no way I could afford to comply with minimum wage, OSHA, Obamacare, and who knows how many other government mandates and regulations.
Technology is also enabling individuals to insulate themselves from force and theft in cyberspace. Virtual Private Networks (VPN) can encrypt your internet connection so that you can conduct your online affairs in security and anonymity. Reputable VPN services housed outside of an individual's political jurisdiction further insulate people from force because the VPN would not be subject to demands from the individual's government. Additionally, it is now possible (though not easy for Americans) to open an offshore bank account online. It is also very easy for anyone to buy and sell precious metals in foreign markets, and even store precious metals in audited/allocated vaults in a foreign jurisdiction. These are services that were only available to the wealthiest of the wealthy traveling to the country in question just a few short decades ago. Paired with cryptocurrencies like Bitcoin, individuals can employ these strategies to shield some of their money from their home government in a manner that is 100% legal. Perhaps this may seem unnecessary currently, but a quick look back at Greece last June shows why it is important to have some money outside of your political jurisdiction. You want to have access to your money if the banks close and capital controls are implemented because your government has run up too much debt that it can't possibly repay.
If you really wanted to take individual sovereignty to the next level, Flag Theory lights the way. Flag Theory is about "planting flags" in numerous countries to increase individual freedom and prosperity. The idea is to have residency in one country, maintain a passport from another, have a business in a third country, warehouse assets in a fourth, own land in a fifth, and secure your data in a sixth country. Now this is a tedious process, but it is 100% legal if done correctly. Most people are not interested in going this far to insulate themselves from government force and theft, but there are a growing number of people who are doing this. Flag Theory may be the ultimate example of how markets and commerce triumph over power and force in the Information Age.
Politics is already dead. It is dead because politics can no longer overpower commerce when individual actors are determined to prevail. The politicians will continue to go about their business as usual for as long as possible, but the show is going to be over sooner rather than later. These nation-states that grew so fantastically large in the twentieth century by pillaging markets and plundering the very people they were supposed to protect are already broken institutions by their own standards. All of these governments are now burdens on the economy and social society. That's why every developed government in the world is drenched in debt it cannot possibly pay back. It's why more than twenty central banks have cut interest rates in 2015 - some sovereign rates have even gone negative! It's why the prominent central banks seem to be taking turns at launching quantitative easing programs in an attempt to goose the financial markets and consumer spending for a little while longer. But none of their funny-money antics have brought back the status-quo the nation-states have come to know and love.
A fiat currency crisis looms as the day of reckoning draws nearer. When that day comes, the nation-state will not go quietly into the night. It will lash out with all of its might in an attempt to conquer the market for good. The poor people who are unprepared or in the wrong place at the wrong time will feel the dying nation-state's violent wrath. The market will just shrug from a safe distance and go about its business because it transcended politics and the nation-state long prior.
The nation-states are not likely to disappear entirely, just as Rome did not disappear when the Roman Empire fell. But as Rome was only nominally significant after the fall, so too will the nation-state fade into the background. It will then understand politics is already dead.