Quotulatiousness

September 12, 2014

Scottish businesses face a “day of reckoning” after a Yes vote

Filed under: Britain, Business, Politics — Tags: , , , — Nicholas Russon @ 16:04

Usually, when someone is planning to punish their political enemies, they keep quiet about it until the votes are counted. The former deputy leader of the Scottish National Party is pretty forthright about just who is going to be facing punishment if Scotland votes yes:

Former SNP deputy leader Jim Sillars has claimed there will be a “day of reckoning” for major Scottish employers such as Royal Bank of Scotland and Standard Life after a Yes vote.

Speaking from his campaign vehicle the “Margo Mobile”, Mr Sillars insisted that employers are “subverting Scotland’s democratic process” and vowed that oil giant BP would be nationalised in an independent Scotland.

Earlier this week, a number of banks, including Lloyds Banking Group and RBS, said they would look to move their headquarters south of the border in the event of a Yes vote.

Mr Sillars, who earlier this week claimed he and First Minister Alex Salmond had put their long-held personal differences behind them to campaign together for independence, also revealed that he would not retire from politics on 19 September but said he would be “staying in” if Scotland became independent.

He claimed there is talk of a “boycott” of John Lewis, banks to be split up, and new law to force Ryder Cup sponsor Standard Life to explain to unions its reasons for moving outside Scotland.

He said: “This referendum is about power, and when we get a Yes majority, we will use that power for a day of reckoning with BP and the banks.

“The heads of these companies are rich men, in cahoots with a rich English Tory Prime Minister, to keep Scotland’s poor, poorer through lies and distortions. The power they have now to subvert our democracy will come to an end with a Yes.”

If I had any investments in Scotland, I would be calling my broker to review them in the light of this pretty specific set of economic and political goals for an independent Scotland. It won’t be a safe place to invest any kind of retirement savings if Sillars represents more than a fringe of the SNP.

June 27, 2014

FATCA puts “private-sector assets on a bonfire so that government can collect the ashes”

Filed under: Bureaucracy, Cancon, Law, USA — Tags: , , — Nicholas Russon @ 00:02

In The Economist, a look at the looming deadline for non-US financial institutions to start turning over all their data on their US clients to the IRS:

FATCA stands for Foreign Account Tax Compliance Act, an American law passed in 2010 to crack down on the use of offshore banks, particularly in Zurich and Geneva, to hide taxable assets. The law, part of which takes effect on July 1st, is the most important and controversial development in decades in the international fight against tax evasion. It is feared and loathed by moneymen because of its complexity, its global reach and the high cost of compliance. One senior banker denounces it as “breathtakingly extraterritorial”.

The US government is so worried that US citizens are stiffing them for “their share” that they’re willing to risk blowing up the financial lives of millions of Americans living and working in other countries just to get those theoretical “missing” taxes. I started to type “ironically”, but I really mean “typically” the measure will cause great hardship for law-abiding Americans and do little to inconvenience the scofflaws.

The financial industry is struggling to work out which funds, trusts and other non-bank entities count as “financial institutions” under the law. There is also confusion over who is a “US person”. The definition is broad and includes not only citizens but current and former green-card holders and non-Americans with various personal and economic ties to the United States. Some Canadian “snowbirds” who travel to America for part of each year could be caught in the net, says Allison Christians, a tax professor at McGill University. As the complexities of implementation have grown apparent, the American authorities have had to extend several deadlines. Banks, for instance, will get a two-year moratorium on enforcement as long as they are striving to comply.

FATCA has already sent a chill through the 7m Americans who live abroad. Thousands have been told by their local banks and investment advisers that they no longer want their custom because it is too much hassle. Many others will now have to spend thousands of dollars to straighten out their paperwork with the IRS, even if they owe no tax (and most do not, since they will have paid a greater amount abroad, which counts as a credit against tax owed in America).

[...]

FATCA is about “putting private-sector assets on a bonfire so that government can collect the ashes,” complains Richard Hay of Stikeman Elliot, a law firm. Mark Matthews, a former deputy commissioner of the IRS now with Caplin & Drysdale, another law firm, argues that the effort put into hunting offshore tax evaders is disproportionate: the sums they rob from the public purse “look like a pinprick” compared with other types of tax dodging, such as the under-declaration of income by small businesses.

June 12, 2014

Winnipeg Grade 9 students successfully hack Bank of Montreal ATM

Filed under: Business, Cancon, Technology — Tags: , , , , — Nicholas Russon @ 08:00

“Hack” is the wrong word here, as it implies they did something highly technical and unusual. What they did was to use the formal documentation for the ATM and demonstrate that the installer had failed to change the default administrator password:

Matthew Hewlett and Caleb Turon, both Grade 9 students, found an old ATM operators manual online that showed how to get into the machine’s operator mode. On Wednesday over their lunch hour, they went to the BMO’s ATM at the Safeway on Grant Avenue to see if they could get into the system.

“We thought it would be fun to try it, but we were not expecting it to work,” Hewlett said. “When it did, it asked for a password.”

Hewlett and Turon were even more shocked when their first random guess at the six-digit password worked. They used a common default password. The boys then immediately went to the BMO Charleswood Centre branch on Grant Avenue to notify them.

When they told staff about a security problem with an ATM, they assumed one of their PIN numbers had been stolen, Hewlett said.

“I said: ‘No, no, no. We hacked your ATM. We got into the operator mode,'” Hewlett said.

“He said that wasn’t really possible and we don’t have any proof that we did it.

“I asked them: ‘Is it all right for us to get proof?’

“He said: ‘Yeah, sure, but you’ll never be able to get anything out of it.’

“So we both went back to the ATM and I got into the operator mode again. Then I started printing off documentation like how much money is currently in the machine, how many withdrawals have happened that day, how much it’s made off surcharges.

“Then I found a way to change the surcharge amount, so I changed the surcharge amount to one cent.”

As further proof, Hewlett playfully changed the ATM’s greeting from “Welcome to the BMO ATM” to “Go away. This ATM has been hacked.”

They returned to BMO with six printed documents. This time, staff took them seriously.

A lot of hardware is shipped with certain default security arrangements (known admin accounts with pre-set passwords, for example), and it’s part of the normal installation/configuration process to change them. A lazy installer may skip this, leaving the system open to inquisitive teens or more technically adept criminals. These two students were probably lucky not to be scapegoated by the bank’s security officers.

May 14, 2014

Not fewer entrepreneurs – fewer resources for entrepreneurs

Filed under: Bureaucracy, Business, USA — Tags: , , , — Nicholas Russon @ 13:51

This image showed up in a post at Coyote Blog a couple of days ago, and it’s an indication of the decline in new business formation in the United States:

US becoming less entrepreneurial 1978-2011

Increasing bureaucracy — especially at the state level — undoubtedly contributes to that depressing chart, but it’s far from the whole story:

Home equity has historically been an important source of capital for small business formation. My first large investment in my company was funded with a loan that was secured by the equity in my home. What outsiders may not realize about small business banking nowadays is that it is nothing like how banking is taught in high school civics. In that model, the small business person goes to her local banker and presents a business plan, which the banker may fund if they think it is a good risk.

In the real world, trying to get such an unsecured loan from a bank as a small business will at best result in laughter. My company is no longer what many would call “small” — we will do millions in revenue this year. But there is no way in the world that my banker of over 10 years will lend to my business unsecured — they will demand some asset they can put a lien on. So we can get financing of equipment purchases (as a capital lease on the equipment) and on factored receivables and inventory. But without any of that stuff, a new business that just needs cash for startup cash flow is out of luck — unless the owner has a personal asset, typically a house, on which the banker can place a lien.

So, without home equity, one of the two top sources of capital for small business formation disappears (the other top source is loans from friends and family, which one might also expect to dry up in a tough economy).

April 2, 2014

People are less inclined to shop or bank online after NSA surveillance reports

Filed under: Business, Government, Technology — Tags: , , , , , — Nicholas Russon @ 08:46

Among the side-effects of government surveillance revelations, ordinary people are deciding to be a bit less involved in online activities, according to a new Harris Poll:

Online banking and shopping in America are being negatively impacted by ongoing revelations about the National Security Agency’s digital surveillance activities. That is the clear implication of a recent ESET-commissioned Harris poll which asked more than 2,000 U.S. adults ages 18 and older whether or not, given the news about the NSA’s activities, they have changed their approach to online activity.

Almost half of respondents (47%) said that they have changed their online behavior and think more carefully about where they go, what they say, and what they do online.

When it comes to specific Internet activities, such as email or online banking, this change in behavior translates into a worrying trend for the online economy: over one quarter of respondents (26%) said that, based on what they have learned about secret government surveillance, they are now doing less banking online and less online shopping. This shift in behavior is not good news for companies that rely on sustained or increased use of the Internet for their business model.

[...]

Whether or not we have seen the full extent of the public’s reaction to state-sponsored mass surveillance is hard to predict, but based on this survey and the one we did last year, I would say that, if the NSA revelations continue – and I am sure they will – and if government reassurances fail to impress the public, then it is possible that the trends in behavior we are seeing right now will continue. For example, I do not see many people finding reassurance in President Obama’s recently announced plan to transfer the storage of millions of telephone records from the government to private phone companies. As we will document in our next installment of survey findings, data gathering by companies is even more of a privacy concern for some Americans than government surveillance.

And in case anyone is tempted to think that this is a narrow issue of concern only to news junkies and security geeks, let me be clear: according to this latest survey, 85% of adult Americans are now at least somewhat familiar with the news about secret government surveillance of private citizens’ phone calls, emails, online activity, and so on.

March 29, 2014

The “Lehman Sisters” wouldn’t have been more risk-averse, actually

Filed under: Business, Economics, USA — Tags: , , , — Nicholas Russon @ 10:56

Tim Worstall looks at the occasional claim that if Lehman Brothers had actually been “Lehman Sisters” (that is, an organization with much higher female participation), then they would have taken on less financial risk and therefore not have been the trigger to the financial meltdown:

… there’s very definitely an element of truth to this: but the final story is rather different from what is commonly assumed. It’s only if financial organisations are completely female, or completely male, that risk is reduced. Adding more of either gender to an organisation actually increases risk.

[...]

Mixed gender environments increase risk tolerance in both men and women. So adding women to an all male institution increases, likely, the risk that organisation will tolerate. And so does adding men to an all female one. Not just because the men sway the average but because both men and women become more risk tolerant in the presence of the other sex.

Thus it would be correct to say that Lehman Sisters would have been less risk tolerant than Lehman Brothers. But the reality of what there actually was at the firm was that it was a mixed gender environment and so more risk tolerant than either of the single gender hypotheticals would have been. It is gender diversity itself that increases risk tolerance, reduces risk aversion.

Which leads to an interesting thought. Everyone generally agrees that banking as a whole has become more risk tolerant, and thus more fragile, in recent decades. These are also the decades when women have made significant inroads into that area of professional life. Which leaves us with something of a conundrum. We generally believe that fragility in the banking system is a bad idea. We also all generally believe that gender equality is a good idea. But that gender equality of women going into finance and banking seems to increase the fragility of the system given that rise in risk tolerance from a mixed gender environment.

February 18, 2014

“No-one knows where the Canadian dollar is going”

Filed under: Cancon, Economics — Tags: , — Nicholas Russon @ 10:13

In Maclean’s, Stephen Gordon assures you that there is no mastermind at work, determining what happens to the Canadian dollar:

The Canadian dollar fell from 97 cents US to below 89 cents US in the weeks following the Bank of Canada’s decision to shift its monetary policy stance away from a tightening bias. (It has recently rebounded to hold steady at around 91 cents as I write.) These developments have provided additional fodder for those pundits who are in the habit of offering their views about where the dollar should go and/or where it will go (the two are separate issues). These views fill up media space, but they shouldn’t be taken too seriously. The foreign exchange market is one where the “semi-strong“ form of the Efficient Market Hypothesis holds: movements in exchange rates cannot be predicted using publicly-available information.

If everyone really believed that the Canadian dollar will end up at (say) 85 US cents, then everyone would sell CAD at its current price to buy USD, wait for the price of USD to increase – which is the same thing as waiting for the CAD to depreciate – and then sell at the higher price. But if everyone does that, the CAD would be bid down to the point where it is no longer profitable: 85 cents. This is why you should take predictions about foreign exchange movements with a grain of salt: if you could actually predict them, the last thing you’d do is tell anyone.

This doesn’t mean that exchange rate movements are completely random: some of the fluctuations can be ascribed to variations in the ‘fundamentals’. But what really drives these movements are the unexpected changes in the fundamentals. And unexpected changes are, by definition, unpredictable. The most reliable forecasting model is a random walk: the exchange rate next period is the current exchange rate plus a white noise error term. The best prediction for where the exchange rate is going is where it is now.

January 27, 2014

FATCA and the “toxic citizen” problem for Americans working abroad

Filed under: Bureaucracy, Law, USA — Tags: , , , , — Nicholas Russon @ 11:04

Emma Elliott Freire explains why she and other Americans living and working in other countries feel like they’re being treated as “toxic citizens”:

The [travel] books tend to emphasize romance and adventure. As an American who is actually living abroad, though, I’ve found that the reality is quite different. My fellow Americans back home sometimes regard me with suspicion, and I feel like my government considers me a “toxic citizen.”

The US is one of two countries in the world that taxes its citizens on the income they earn while living abroad. The other is Eritrea. Every single other country bases its taxation on residency, i.e., you only pay taxes where you live and work.

Americans are required to file an annual tax return with the IRS when they’re abroad — even if they don’t owe any money. They’re also required to file a form called an FBAR to declare their foreign bank accounts. An undeclared account incurs a $10,000 fine.

As you might expect, international tax accountants get a lot of business from Americans. One tax accountant based in Amsterdam told me his American clients take their filings very seriously. “If they get the IRS going after them, they have a real problem,” he says.

His clients are the savvy ones, though. In my experience, many Americans who move abroad are not aware that they need to file. The US government does precious little to inform its citizens of their obligations in this area. Over several years, I’ve been informally asking Americans I meet abroad if they file their US taxes. Most of them told me they don’t. They only file and pay taxes in their country of residency. They assume that’s enough. But, in fact, they have unwittingly become lawbreakers. If they move back to America, they could find themselves in quite a bit of trouble.

The IRS is enforcing new rules passed in 2010, which extend US taxation laws to non-US banks that deal with American citizens. To no great surprise (except perhaps to the legislators themselves), a side-effect of this is that many banks are closing existing accounts and refusing to accept new business from American would-be customers:

The IRS is currently implementing a new law called the Foreign Account Tax Compliance Act (FATCA). Basically, FATCA requires every bank in the entire world to report the account information of its American clients. So every bank in the world is becoming an agent of the US government. It’s still unclear how FATCA can be implemented because in some countries it violates national privacy laws. However, FATCA stipulates that any foreign bank that fails to comply will be subject to a 30 percent withholding tax on its US income.

HSBC now requires “Mother, May I” letters from British customers for large withdrawals

Filed under: Britain, Business — Tags: , — Nicholas Russon @ 09:32

HSBC has irritated some of their British customers with a new requirement for justifying why large cash withdrawals are necessary before authorizing them:

Stephen Cotton went to his local HSBC branch this month to withdraw £7,000 from his instant access savings account to pay back a loan from his mother.

A year before, he had withdrawn a larger sum in cash from HSBC without a problem.

But this time it was different, as he told Money Box: “When we presented them with the withdrawal slip, they declined to give us the money because we could not provide them with a satisfactory explanation for what the money was for. They wanted a letter from the person involved.”

Mr Cotton says the staff refused to tell him how much he could have: “So I wrote out a few slips. I said, ‘Can I have £5,000?’ They said no. I said, ‘Can I have £4,000?’ They said no. And then I wrote one out for £3,000 and they said, ‘OK, we’ll give you that.’ ”

He asked if he could return later that day to withdraw another £3,000, but he was told he could not do the same thing twice in one day.

He wrote to complain to HSBC about the new rules and also that he had not been informed of any change.

The bank said it did not have to tell him. “As this was not a change to the Terms and Conditions of your bank account, we had no need to pre-notify customers of the change,” HSBC wrote.

As you might imagine, this new policy drew strong criticism, so the bank issued the following statement yesterday:

As a responsible bank we must track all financial transactions. Cash presents more risk, and in particular financial crime risk, than other payment methods. It also leaves customers with very little protection if things go wrong. Therefore, we need to monitor particularly closely movements of cash in and out of the banking system. This is why we ask our customers about the purpose of large cash withdrawals when they are unusual and out of keeping with the normal running of their account.

Since last November, in some instances we may have also asked these customers to show us evidence of what the cash is required for. However, it is not mandatory for customers to provide documentary evidence for large cash withdrawals, and on its own, failure to show evidence is not a reason to refuse a withdrawal. We apologise to any customer who has been given incorrect information and inconvenienced.

H/T to BenK for the links.

December 18, 2013

Bank of England switching to plastic from paper

Filed under: Britain — Tags: , , — Nicholas Russon @ 09:41

Following the example of Australia (and more recently, Canada), the Bank of England will be printing bank notes on plastic from 2016 onwards:

Winston Churchill concept art for 5 pound note

Mark Carney, the governor of the Bank of England, has formally announced that Britain will switch to using plastic banknotes in 2016, ending 320 years of paper money.

After a public consultation in which 87% of the 13,000 respondents backed the new-style currency, the Bank said it would introduce “polymer” notes, as it prefers to call them, in two years’ time, starting with the new £5 note featuring Winston Churchill in 2016 and the Jane Austen £10 a year later.

Speaking at a press conference in the Bank’s Threadneedle Street headquarters, Carney said: “Our polymer notes will combine the best of progress and tradition. They will be more secure from counterfeiting and more resistant to damage while celebrating the history and tradition that is important both to the Bank and the nation as a whole.”

The move follows Carney’s native Canada, where plastic notes are being rolled out, and Australia, where they have been in circulation for more than two decades.

Carney launched a public consultation on polymer banknotes, seen as cleaner and more durable, shortly after arriving at the Bank this summer. However, the Bank’s notes division has been considering plastic money for several years.

I’m still not convinced about the Canadian polymer banknotes: they tend to stick together much more than the paper notes did and they are reportedly susceptible to “fusing” together in high heat.

December 15, 2013

Wall Street’s dream matchup in 2016 – Christie vs Clinton

Filed under: Business, Politics, USA — Tags: , , , , — Nicholas Russon @ 10:27

Sheldon Richman says the big money folks on Wall Street know who they’d like to see at the top of the tickets for the 2016 presidential election, and they might just get their way:

If you share my belief that the major obstacle to the free society is the national-security/corporate state, 2016 is shaping up to be a year of apprehension. The Wall Streeters, who are among the biggest advocates of partnership between big government and big business, are looking forward to a presidential contest between Hillary Clinton and Chris Christie, a contest the bankers can’t lose.

They have already discounted any populist rhetoric Clinton may need to fight off a primary challenge from, say, Sen. Elizabeth Warren. As “one well-placed Democrat” told Politico, “Wall Street folks are so happy about [having Clinton run] that they won’t care what she says.”

[...]

In Clinton, then, we have a friend of the bankers and a friend of the military-industrial complex, since as secretary of state she was an advocate of a muscular foreign policy, including intervention in Libya. (When she was in the Senate she voted to give George W. Bush a blank check to invade Iraq, and when she was first lady, she pushed Bill Clinton to drop bombs on the Balkans).

“And if the banking class is delighted with Clinton lately,” Politico notes, “the feeling appears mutual.”

Wall Street’s first choice on the GOP side is apparently Chris Christie, the governor of New Jersey. He had his own meeting with the big-money crowd in July 2011. Politico calls him “the candidate with the best chances at winning the support of bankers in the next presidential election.”

At that 2011 meeting: “Henry Kissinger [!], the former secretary of state, stood and pleaded with the governor to enter the presidential race for the good of his country. Christie would, of course, resist their pleas, becoming perhaps even more alluring to those on Wall Street as a prospect for 2016.”

November 10, 2013

Latest federal initiative shows “patronising contempt, arrogant presumption and impressive stupidity”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas Russon @ 13:39

The federal government is launching a program to help “ordinary Canadians” become better at managing their finances. Richard Anderson points out the amusing aspect of this:

I sometimes wonder if the hacks who put out these releases aren’t giggling to themselves the whole time, amazed at what they’re getting away with. You work for a Conservative government that wades through a sea of red ink every year. This same government has no credible plan to deal with the entitlement crisis, except point out how we’re less screwed than the Yanks. So naturally you go about lecturing the common folk on how to balance their chequebooks. This is like the morbidly obese diet coach of legend.

We see here a unique combination of patronising contempt and arrogant presumption that does not, so far as we have been able to determine, exist outside of Ottawa. Even the Soviets assumed that an ordinary adult could balance their personal budgets without being lectured to by a full time commissar. Then again they were communists, not nannies. Herein lies the great difference between the totalitarian projects of the last century and the petty authoritarianism of this one, the end result. The communist, fascists and Nazis envision a new man who would change the world. Note the underlying assumption: Man.

At some point, after rigorous indoctrination, the boy would become a man. The modern nanny state assumes that the boy never becomes a man, he’s always a boy needing to be hectored to and monitored. As the press release notes: “…brushing up on the basics of money management at any age and will include events for Canadians of all ages.” No matter how old you get, the federal government will be there to tell you how to manage your affairs. That generations of Canadians did this quite well without government involvement never comes up.

Growth forecasts continue to over-estimate Canada’s actual economic progress

Filed under: Cancon, Economics — Tags: , , , , — Nicholas Russon @ 12:12

In Maclean’s, Debbie Downer Colin Campbell takes a survey of the state of Canada’s economy:

A key qualification for landing a job at the Bank of Canada, it seems, is an unfailing sense of optimism. In 2009, the bank forecast the economy would grow 3.3 per cent in 2011. It grew 2.5 per cent. In 2011, it said the economy would grow 2.9 per cent in 2013. It will likely be just 1.6 per cent. Now it says the economy will grow 2.3 per cent next year. How likely is that? The bank has consistently viewed the economy through rose-coloured glasses in recent years, perhaps believing its low-interest-rate policy will eventually bear fruit. Rates have been held at one per cent for three years now. But the economy seems only to be getting worse.

It grew 0.3 per cent in August, Statistics Canada said last week — mostly attributed to a familiar crutch, the oil business. Elsewhere, things aren’t looking up. A new TD Bank report said corporate Canada is “in a slump,” with profits down 16 per cent from their post-recession peak in 2011. Some observers point out that Canada is still doing better than Europe and Japan. But so are most countries that aren’t in a recession, from South Africa and New Zealand to Equatorial Guinea and Guatemala. After breezing through the recession, Canada is back to old habits: hoping its fortunes (i.e., exports) will rise along with America’s comeback. But the U.S., too, is back in a rut. Last week, the Federal Reserve said it would continue with its $85-billion-a-month bond-buying stimulus program.

With the economy sputtering, Ottawa has meanwhile remained preoccupied with fiscal restraint and balancing the budget within two years. So, with neither low interest rates nor government spending providing a boost, the outcome seems predictable: Official growth forecasts will look nice, but will keep missing the mark.

November 2, 2013

FATCA may have significant (negative) influence on Canadian law

Filed under: Business, Cancon, Law, USA — Tags: , , , , — Nicholas Russon @ 11:00

In Maclean’s, Erica Alini tries to explain just what the US Foreign Account Tax Compliance Act (FATCA) is, and why Canadians should be very concerned about it:

To say that FATCA is controversial is an understatement. The law is so complex and onerous to implement that some foreign banks have reportedly kicked out their U.S. clients in order to avoid dealing with it. Americans living abroad are queuing to give up their U.S. passports over it. The other problem with FATCA is that it asks foreign banks to do things that are often illegal in their home countries, such as passing on certain private information.

It has caused a stir in Canada as well, but the press here generally portrays it as something that affects only dual citizens and green-card holders. Given the number of Americans who live in Canada, that would be enough to make it a big issue (and a big headache for Ottawa). But the truth is FATCA has the potential to touch a much larger number of unsuspecting Canadians.

[...]

In general, what you get for signing an agreement to enforce FATCA is a pledge that the U.S. will do its best to share some of its information on your country’s potential tax cheats. You read that right: Not a duty to reciprocate your efforts, but a lame “we’ll try hard” promise. That’s because the U.S. government does not, at the moment, have permission to force U.S. banks to share information with foreign governments. Only Congress can change that.

That sounds bad enough, but it gets worse for Canada. We are the exception — the only country with which the U.S. has an automatic information-sharing agreement. Now, the trouble with FATCA is that it demands some new information: Not about the Canadian assets and incomes of people who live in the U.S. but about the assets and incomes of people who live in Canada but might have some ties to the U.S. While Canadian taxation, thankfully, is based on residency — you owe the CRA if you’ve been living in Canada — the U.S. has started demanding that its citizens file taxes regardless of where they live.

One of the unforeseen effects of this legislation is that it’s been making it much harder for US citizens to do business in other countries or to work in other countries for extended periods of time. If foreign banks refuse to allow US citizens to open accounts, you’re imposing significant costs and extra inconvenience on people who are in no way attempting to hide assets or income from the IRS. As with so many government initiatives, it probably won’t inconvenience actual criminals all that much, but will primarily impact ordinary — innocent — US citizens.

October 8, 2013

In defence of savings

Filed under: Economics, Government, History — Tags: , — Nicholas Russon @ 10:49

Keynes notoriously thought savings were bad … that a penny saved was a penny “prevented” from working its “magic” in the economy. Gregory Bresiger explains why Keynes’ notion has become the unspoken understanding of most Americans:

Our grandparents believed in the value of thrift, but many of their grandchildren don’t.

That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passé. So today, under the influence of Keynesian economists who champion government spending and high levels of consumption, thrift has been devalued.

“The growth in wealth, so far from being dependent on the abstinence [savings] of the rich, as is commonly supposed, is more likely to be impeded by it,” according to John Maynard Keynes’s The General Theory of Employment, Interest and Money.

“The more virtuous we are, the more determinedly thrifty, the more obstinately orthodox in our national and personal finance, the more incomes will have to fall,” he writes. “Saving,” Keynes wrote in his Treatise on Money, “is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption.”

But saving, pace Keynes, isn’t “negative.” It is deferred consumption. “The great producing countries are the great consuming countries,” writes Benjamin Anderson in Economics and the Public Welfare. More importantly, high rates of savings will lead to higher productivity, which would benefit our children and grandchildren, classical and Austrian economists have explained.

“We are the lucky heirs of our fathers and forefathers whose saving has accumulated the capital goods with the aid of which we are working today,” wrote Ludwig von Mises in Human Action. Saving, ultimately, is consumption, writes Detley S. Schlichter in Paper Money Collapse. “By setting aside some resources for meeting financial consumption needs, we invest them.”

Nevertheless, Keynesian ideas dominate the Obama administration and mass media. Most politicians, including Republicans who often pretend to be friends of thrift and self-improvement, are tacit or overt Keynesians. That’s because politicians, whether they have studied Keynes or not, generally love the idea of cheap money. Most delight in spending taxpayer dollars. They believe this is the way elections are won.

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