The level of government intervention in our economy and society is rapidly approaching its saturation point. It is now no longer possible to do much of anything without political considerations dominating the decision to act.
Whether you risk being in breach of a long list of obscure laws, face a vast compliance burden that makes the activity pointless to pursue, face politically favoured competition, are subject to selective enforcement of rules, or have to grease the wheels in order to get anything done, the government now has so many of its fingers in so many pies that there is no pie left to eat.
This has terrible implications for our prosperity in the future. But I better explain what I mean…
Alternatively, if you’re not in the mood for a long-winded explanation, try helping a child open a lemonade stand on your street corner. Then you can learn the hard way what I’m on about…
For those of us who have an inkling of what’ll happen to children attempting to be entrepreneurial and decide to stay safely on computer screens instead, here are some examples of what I mean from around the world.
Australia’s new gas code, which had halted new gas developments out of fear, is now likely to find support from producers…after certain exemptions for certain gas developers…but not others.
Did you get your exemption from such government policies which make business unworkable?
The car company Ford recently received a US$9.2 billion loan from the US Government to help it develop EV manufacturing plants. Others competing with Ford went without.
Did you get your government loan to support you?
Here in Australia, but I presume elsewhere too, businesses can’t start up unless they’re in the right development zone for their chosen industry, whether it’s aquaculture or wind farms. Not necessarily by law, but by inconvenience and costs, which are only relaxed in the permitted areas, making those industries only viable there.
Of course, the government makes such favoured zones seem like a benefit. But they’re really an imposed cost on the rest of the country.
Are you in the right development zone for the work you do? Or are you disadvantaged by being subject to the full flight of the law and regulation?
While new nuclear energy remains banned in many places around the world, burning Canadian wood is a popular form of environmentally friendly energy in Europe.
But burn your own local wood in your own house to keep warm, and you’re in deep trouble with the government…
Not satisfied with promoting EV manufacturing with loans and subsidising EV sales, governments are now imposing petrol and diesel car sales bans in the future.
But will there be enough EVs for all of us? Or will some have to go without them as copper, cobalt and lithium spike in price? No doubt governments won’t have trouble securing car fleets…
Bank failures are a political decision now too. If your bank supports cryptocurrencies, beware, because the government is far more likely to let it fail than a bank that supports green tech ventures.
The same distinction applies to smaller banks versus the large ones, with central bankers initially only backing systemically important banks, badly disadvantaging the rest, and causing deposit flight from them and into larger banks.
Has the government been selectively supporting businesses and disadvantaging others in your life?
It’s not just governments that are busy meddling in such ways. Central banks have been busy too. Reuters reported the US’ Federal Reserve has been adding vast holdings of US corporate bonds to its portfolio…amid high inflation!
‘The US Federal Reserve added US$1.33 billion in bonds of individual companies from 22 June to 30 June including iPhone maker Apple Inc AAPL.O, beer-producer Anheuser-Busch ABI.BR and travel booker Expedia Group EXPE.O.
‘The bond purchases, all on the secondary market, bring the Fed’s holdings of individual corporate bonds to US$1.59 billion, according to the latest of what will be monthly reports to Congress on the Fed’s emergency lending facilities to nurse the economy through the coronavirus pandemic.
‘In all, the Fed’s portfolio included 330 issuers, led by US$26.9 million of Verizon Communications VZ.N bonds, US$26.3 million of AT&T IncT.N bonds, and US$25.5 million of Apple bonds.
‘Holdings also included US$3.2 million of Expedia and US$10.1 million of Ford Motor CoF.N, whose debt rating was downgraded to junk after the coronavirus crisis hit.
The list goes on, including vast holdings of Blackrock-listed ETFs, which earns Blackrock lots of juicy fees.
I don’t know about you, but they haven’t given me any of this money…nor have any Fed officials subscribed to our newsletters, as far as I know…
Central bankers dishing out support for some companies’ bonds over others is a direct intervention in the structure of our economy. Being backed by the government is one thing. Being backed by a central bank with a limitless budget is far more impressive.
Is your employer backed by a central bank? Or are you amongst those at risk while also suffering from inflation?
It’s worth noting that many of the corporate names getting such individualised support from the central bank are of certain ideological leanings, based in certain political hotspots such as electoral swing states, and are at risk of competition from smaller more nimble businesses which donate less to political campaigns and spend less on lobbying…
Do you work in such a politically protected company?
For many years since the aftermath of the 2008 financial crisis, mortgage borrowers in the UK had to be stress tested for interest rate hikes. The idea was to avoid the sort of interest rate crunch the country now faces alongside Australia. They didn’t want a repeat of 2008, after all…
But just in time for when interest rates were about to skyrocket, that stress testing was withdrawn by the Bank of England. This allowed a select group of borrowers to be sucked into the wonderful combination of unaffordable mortgages and falling house prices. They literally couldn’t have timed the removal of the constraint worse…or is it better, for the banks who would have had a harder time finding lenders?
Here in Australia, it’s the same story with relaxing lending standards on the agenda for the last three years.
According to The Australian, mortgage costs are now rising nine times faster than rents, but those providing rental accommodation are demonised and renters are the ones dominating the discussion for financial support.
Are you amongst those clamouring for financial support, or amongst those facing a hit nine times larger?
In the UK, a spate of bank account closures has been focused on certain high-profile people with certain ideological leanings (and their families), certain industries and certain views. I’ve been interviewing Nigel Farage, who has led the fightback after becoming the first high-profile victim who is unable to get a new account at all, leaving him stranded.
Of course, nobody has banned Farage from getting a bank account. Instead, the technique of discrimination and cancellation is far more nefarious. The EU introduced politically-exposed-person (PEP) legislation, which put the onus on the bank to monitor those who are susceptible to bribes or corruption, which supposedly includes Nigel’s mother…
The real point is that PEP legislation imposes regulatory cost burdens to the point that it is no longer good business to bank PEPs like Farage. And so, the banks do the political censorship for you.
It’s a great example of how this sort of thing works in practice and at arm’s length from the government.
The best example of what I mean by all this can be found in the nuclear industry. There, the government has combined impossibly severe and expensive safety demands with the need for an incredibly long-winded and expensive permitting process, that then needs government financial backing to get off the ground because of all the unnecessary costs imposed by the government in the first place.
It’s the ultimate combination of Ronald Reagan’s famous quote:
‘Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.’
While nuclear may be the best example, the attempt to reach net zero is going to become the most important over the next few years. If everything we do is going to be included in the carbon equation and must net out to zero, then the government has a grip on our entire life. It all becomes subject to government rules on net zero.
Where we can go and what we can do each day depends on whether we can afford to offset the carbon it will create. And good luck with that given how involved governments are in such schemes…
Only those who are willing to skirt the laws can prosper these days. But I better not detail too many examples of that…I might implicate politicians and central bankers…
Consider this, though: when Russians use cluster bombs, it’s a war crime…but US defence manufacturing needs a boost, so cluster bombs for Ukraine it is…
Now, to be fair, a lot of this is not exactly the central planning we feared in the 80s. It isn’t open communism or socialism where actual ownership of assets is transferred to the state — ‘you’ll own nothing and be happy’ was a rallying cry long before the World Economic Forums began using it, remember.
No, today’s version is more nefarious than that. It is straight out of Ayn Rand’s novel Atlas Shrugged instead:
‘When you see that in order to produce, you need to obtain permission from men who produce nothing — When you see that money is flowing to those who deal, not in goods, but in favours — When you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — When you see corruption being rewarded and honesty becoming a self-sacrifice — You may know that your society is doomed.’
She didn’t mention subsidies, favourable loans, printing money to buy certain companies’ bonds or the plethora of other interventions which governments have come up with over the decades since Atlas Shrugged was published.
She did, however, perceive the type of light touch that we face, which is tipping the scales everywhere. She foresaw that government would make it ever more difficult to do business without exemptions from government policies, generous government grants and loans, and a few politicians in your pocket.
It’s extremely high levels of political involvement that is the underlying issue — I call it political saturation. It reminds me of the Cultural Revolution in China and Communism in Russia in the sense that there were political officers involved in all aspects of life. Everything was couched in political considerations rather than reality.
Funnily enough, we can even identify many of the characters in Rand’s book today.
Francisco d’Anconia is played by Elon Musk, a master of using the interventionist’s own policies against them to enrich himself and expose their absurdity, for example.
John Galt is played by Satoshi Nakamoto — the creator of Bitcoin [BTC] who lives in hiding.
You get the idea…
The lesson of Atlas Shrugged (and Russian and China) is that, at some point, the parasite that is the government has outgrown its host and they both get into trouble. I think we’re approaching that point. The point of political saturation, where all activity is frozen in fear and confusion, as the Aussie gas industry was until it got its exemptions.
The question now is no longer ‘who is John Galt?’ but ‘where is
Editor, The Daily Reckoning Australia Weekend