Tuesday, January 8, 2013

A Visit From the Ghost of Christmas Future

[This article originally appeared on the blog of mises.ca, on December 29, 2012]

John C. Calhoun divided the citizenry of a country into tax payers and tax consumers. Ludwig con Mises concluded that the anti-capitalist society (socialist and interventionist) is one of everyone against everyone, since as a result of the lack of economic calculation there will always be a shortage of desired goods and services in this type of society. Since in an anti-capitalist society income gets redistributed, then, what one needs to be is a tax consumer.

Over the course of the past year or two, civil unrest has dominated the most indebted countries of the European Union. There, the tax consuming masses have repeatedly walked and vandalized the streets of their cities in order to force politicians to renege austerity measures. While all this was going on, the government of my native Republic of Macedonia kept assuring its own people that their country was far from any crisis. Yet, on Christmas Eve Macedonia joined other European countries when its first budget related protests took place (see photo to the right).

There is a twist to the Macedonian story and one that may be of use to us. The protest itself took place when police officers physically threw out members of the Opposition (a wide coalition led by the Social-democrats) for filibustering the vote on the 2013 Budget. However, as has become practice in Macedonia, every opposition protest has been met with a ruling party sanctioned (and paid-for) counter-protest. The photo shows two sets of demonstrators separated by a police cordon.

After the fall of Communism, Macedonia adopted a very liberal (in the classical sense) Constitution in 1991, which unlike that of, say Canada, sanctifies private property and the market economy. It follows that Macedonia should be in the company of Singapore and Hong Kong in terms of economic freedom and prosperity. It is not. Under Communism there was 100% employment (though as the line goes, nobody worked), so there was no need to keep track of the unemployment figures. Since Constitution, the unemployment rate has consistently hovered around 35%. The reason for this dissonance between theory and reality is the fact that private property has continually been trampled upon and the free market was never allowed to operate. Thus, the vast majority of jobs in Macedonia are provided by the government, while whatever private sector jobs are there, they are provided by crony capitalists. Political connectedness rules the day, because politics rules the economy.

The governments in charge between 1990 and 2006 (which comprise the current Opposition) more or less kept to the same policy of distributing welfare to the unemployed, in the form of food stamps, humanitarian assistance, and the like. The present Government which took power in 2006 has been employing the New Deal (FRD/Hitler) method of expanding the administration, heavy subsidization of agriculture and building monuments and sports arenas. A telling point as to how much the administration has grown in the past 6 years is the fact that there are now bureaucrats for whom there are no offices or bureaus. They are forced to spend their workdays (which mostly consist of glorifying the Government on Facebook and Twitter) in coffee shops and taverns!

Inevitably the government took to growing its money supply to finance all the falsified growth. Local economists inform that the M2 has nearly doubled between August 2006 and December 2012, going from 66 billion to 121 billion denars. The influx of new money provided for a period of false (yet moderate, nonetheless) prosperity. A detailed description of what went on in Macedonia is unnecessary to the present discussion. All we need to know here is that despite having its own currency, Macedonia’s reserve currency is the Euro, and that since its market economy was never allowed to operate, the country relies heavily on imports. Indeed, since the Government subsidizes tobacco farming, a disproportionate number of farmers grow it (and not enough of it either) and not market desired foodstuffs which have to be imported (the Government pays higher-than-market prices for tobacco, so it cannot turn a profit by exporting it); since the Government subsidizes the steel industry, manufacturers in other fields are discouraged to enter simply because they carry the tax load. Thus, the country really relies on foreign loans from the World Bank, the IMF and Eurobonds in order to make due.

As the vicious circle of debt driven inflation goes, you always need more debt. And, since Macedonia is no US of A, it cannot borrow quite as easily as the US does. There are still some rules in place for Macedonia: one being that it cannot receive its latest loan of roughly 250 million Euros without passing next year’s budget. This brings us to the point of our story: the budget related protests and counter-protests as a manifestation of the political means of running an economy over the market approach.

Having smelled a potential electoral win in seeing that the government is broke, the Opposition has moved to block the passing of the 2013 Budget in order to block the latest loan. Here is what might be an episode of a visitation from the Ghost of Christmas Future for us: pensioners, bureaucrats and other state employees gathered to protest the Opposition’s move, while its would-be bureaucrats met them on the other side of the police cordon in a fight of everyone against everyone for the booty of the public purse.

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