Incapp.org

Dear Friends,

The Taipei Times reports that the US has frozen arms sales to Taiwan for the next year. http://www.taipeitimes.com/News/taiwan/archives/2008/07/19/2003417877 . Within the larger picture of World affairs this is curious.

The Peoples Congress in China voted unanimously to use force if necessary to compel Taiwan back. Never mind that Taiwan is a free democratic Republic, that could at any time, if it was the will of the people, to return to mainland China’s domination. That they haven’t, is clear evidence of the people of Taiwan’s will, to remain under the government of their choosing (free). Illustrating of the use of individual sovereignty, a fundamental tenet of International Capitalism.

Lets look at how another former nation that has been brought, ‘under the fold’ so to speak, has fared. Tibet was annexed by the threat of violence in the late 1950’s. Since then China has imposed upon the people of Tibet the “One child policy.” While importing non native Han Chinese to Tibet. The native Tibetans are now second class citizens in their own country… In my opinion the Tibetan people are the victims of ‘Ethnic Cleansing’ or at least Ethnic watering down. Either way, that the World turns a blind eye is flabbergasting.

Communist have never shown an aversion to the spilling of blood to make a point. Tiananmen Square is a Chinese example but there are thousands from every country that have looked up and seen the bottom of the jack boot of Communist authority. From the purges of the Soviet Union to the killing fields of Pol Pot Communists have never been able to slake their thirst for the blood of the people they “represent”.

No one can begrudge the growth that that has led to the improvement of the lives of so many people. Growth of GDP and therefore growth in the standard of living of people, is another tenet of International Capitalism. We applaud the gains made by the Chinese people. We deplore the actions of the Communist tyrants that lord over them.

With these and many other examples, what about the actions of the Communist Party in China, would lend us to believe that they have any compunction in killing thousands or perhaps even all of the people in Taiwan to bring Taiwan back ’under the fold’? To what end???

Now bring this new thought to the table of ideas. Why then given the previously stated, state of affairs, would the US so obviously abrogate the obligation that it made, under no duress, to help a free Republic defend itself from a modern Genghis Khan?

It is common knowledge that the meteoric rise in commodities prices are the result of the rapid expansion of the economies of the East Asian countries and China in particular. It’s Elasticity of supply, at some level of demand, no matter the price, supply cannot increase until new production is brought online to meet the new demand. Driving the equilibrium price up and up causing inflation.

The US has run up huge trade deficits with China. We buy the cheap goods that flood over here. When we do we pay in Dollars. The Chinese use Yuan in China. They must either trade the Dollars for Yuan on the World currency market (driving down the value of Dollars), or reinvest the Dollars back into the US economy further affecting the National Savings and Investment Identity.

The National Savings and Investment Identity is simply that; Private Investment PLUS Government Borrowing, MUST EQUAL, Private Savings PLUS Foreign Investment. So the Balance of trade is not only affected by the importation of goods but also of capital. Furthering the impact of Government Deficit spending. One can almost double the trade deficit of goods to see the real impact on the Balance of Trade when there is a major trade deficit with a single country. On the balance however if the Aggregate balance of trade is ‘balanced‘, there would be no negative effect, the effect only shows up under a large aggregate trade deficit.

This ends up putting huge downward pressure on the value of the Dollar to balance out the Trade Deficit. Giving China correspondingly huge leverage on the value of the dollar. That leverage comes with a price however. If China were to use that lever, China would loose the value of every Dollar it holds, just as would everyone else.

China need not use that lever however. The mere threat of using it, especially when the World economy is faltering in no small part because of the US mortgage meltdown, would have a chilling effect on any president. I pray that is not the case here…

Dear Friends,

Commodity prices, like food and Fuel, are on a long term upward trend because;

Close to two billion people in China and India, until now, have had to find a stick, sharpen it on a stone. Then use the stick to scratch a furrow in some rocky dry soil. Drop in a few, gnawed on, seeds and pray that an armored division doesn’t roll through the garden. That was the way they subsisted.

Now some of them have jobs and more are getting jobs. When you have a job, before you get a plasma TV, you get a bite to eat. Maybe a chicken pot pie. As people join the world economy those people are entitled to an ever increasing standard of living. Anyone who would begrudge a better standard of living to the workers of the world is a unmitigated equine’s rectum.

Now the world economy must provide the sustenance that is required for the workers that once subsisted on nothing. As more people join the planetary workforce the needs of those workers must and will be met. The old paradigm of looking to ones own county for food is getting less and less important.

When Britain used food as a weapon in the first world war it was the normal way of conducting war. In fact, that is the way Hitler justified invading the Soviet Union. “Germany has a RIGHT to feed itself!“ was Hitler’s justification. Drang nach Osten. Today however, we meet the supply needs of our enemies. Allowing the enemy to shoot at our children as they feed the children and wives of the people shooting at our children. Making the need to have ones food supply in country superfluous.

The best way to meet the needs of the new workers is to turn to Capitalism and the global economy. There are smart people all over the world. As they plug into the world economy their productive capacity will be available to the world economy. Ideas will flow freely and our needs, as people, will be met with increasingly lower unit cost and greater production, until equilibrium is met. That is the fundamental force of Capitalism. Where there is a need, there is a profit, where there is a profit, Capitalism will meet the need. Especially in basic commodities like food and energy that naturally foster perfect competition among suppliers.

The best way to short circuit this natural trend is to implement some poorly designed governmental regulation distorting the marketplace and creating friction to meeting the needs of the worlds workers. In this case the action of one nation effects the rest of the nations. The larger the nation the greater effect… Most nations, at this time, on Earth have regulations that distort the commodities markets.

Governments and poorly educated people want protectionist regulation. When that regulation inevitably leads to the needs of the people not being met the knee-jerk reaction of those same people is to point the finger of blame at the Market.

Someone needs to tell the governments of the world that when you point at someone else… there are three fingers pointing back at you.

Dear Reader,

It seems to me that Instituting the Manifesto of the International Capitalist Party’s system of funding government would be difficult. More so for a rich country than for a poor country. The difficulty would be met at the end with an enormous payback, as I have explored before.

A rich country is assumed to have a well developed economy. With long standing institutions and well worn practices when it comes to taxes and finance. A nation that is wealthy also has a stable government. (A nation without a stable government is not long wealthy). These circumstances build up momentum in an economy. Like a gyroscope the built up moment of inertia makes it hard to change the orientation of laws regarding taxation and regulation. A wealthy nation also spends a lot of money. When the government spends 20% twenty percent of GDP and GDP is measured in the Hundreds of billions or trillions that is a huge amount of money to transition into trust spending.

A poorer nation would have a comparatively easier time. Poorer nations have less stable governments and probably have recently undergone political convulsions. The Department’s of government will be new and ductile instead of old and brittle. The methods of taxation will have been mercurial. Even though a poorer nation probably spends more of it’s GDP perhaps 25%-40% twenty five percent to fourty percent, with a GDP that is measured in the tens or hundreds of millions it isn’t that much money to transition into trust spending. Plus being poor in and of itself means that markets are undeveloped. Undeveloped markets don’t resist change like developed ones do.

In either case a phased transition would be in order. The poorer country would have to successfully implement the other parts of the Manifesto before the transition would take place. The economy and government must be stabilized and the populace must have the basic necessities met. These are preconditions to starting transitioning into trust spending.

A constitutional amendment is another precondition. Without this control later governments will find it too easy to find a reason to spend all the trust money. Near sightedness is a perpetual problem with the Elite. They always want to look like a hero today… let others deal with the aftermath.

A final note about potential positive externalities. With a successful transition to trust government spending the money spent by government would contribute to real GDP. With tax as you go deficit spending, at best, government is a minor drag on GDP. But most often government tax and spend policies serve to produce a huge amount of friction in the economy and sometimes even in peoples daily lives. The Elite will never let taxes go away, there are always good reasons to spend someone else’s money, but they will be less onerous and won‘t have the sand in the gears effect of deficit spending.

Dear reader,

I was wondering what would be a possible consequence of funding government using the means outlined in the Manifesto of the International Capitalist Party.

The first thing that came to mind is the fact that the “National Savings Identity” would be flipped upside down. The National Savings Identity is simply that, Within a nation, “Individual Savings plus the Inflow of Foreign Capital must equal Government Borrowing plus National Capital Investment.”

Were government to be funded by the means outlined in the Manifesto of the International Capitalist Party, the National Savings Identity in a nation would be changed to “Individual Savings plus Government Savings must equal National Capital Investment plus Investment in Foreign Countries Markets.

This would inevitably lead to a positive Balance of Trade. Balance of trade being the Outflow of Goods and Capital minus the inflow of Goods and Capital. It would allow a Nation to import huge amounts of goods with no negative Balance of Trade implications. Further opening the National markets to International trade would make available to the people the production capacity of the World in the form of Goods and Services. Improve the standard of Education and the populace would be more able to take advantage of this state of affairs. The standard of living would be greatly improved.

Unless growth were to be phenomenal, (20% or more), the Capital available to National Firms that want to upgrade would be available. National GDP growth would be unrestrained by lack of Capital for investment. With Capital for Investment overseas, comes International expertise. Making International expertise available to National Markets. Again leading to reducing friction to the real growth in GDP.

It would be tough to implement, (more on that later), but the results, once made apparent, would be impetus for other countries to implement our policies.