Opinion from a Libertarian ViewPoint

Posts Tagged ‘rigged’

How Governments Rigged the Game against Workers | Mises Wire

Posted by M. C. on December 9, 2020

Voluntary: done or undertaken of one’s own free will.

Coerce: to pressure, intimidate, or force (someone) into doing something.

Kyle Ward

Usually, actions can be easily categorized as voluntary or coerced. You choose where you work. You are coerced into paying taxes. However, long-standing concepts such as “wage slavery” challenge this simple classification. While socialists use this term to justify greater force and coercion (akin to southern US slaveholders), there is nonetheless a kernel of truth here. The truth is this: the rules are rigged. Social media encourages catchy slogans over detailed exposition, and arguments like “taxes are voluntary” and “wages are slavery” are quickly rewarded with internet points. Both comments are mirror images of the same proposition: that wages and taxes are either both voluntary or both coerced. You can choose, the argument goes, to avoid paying taxes by not working and not buying consumer goods. Pointing out that one must work to live appears to prove that you do not work voluntarily but only under duress: to avoid starvation.

Shallow arguments like these can be quickly brushed aside by simply referring to the definition of the terms:

Voluntary: done or undertaken of one’s own free will.

Coerce: to pressure, intimidate, or force (someone) into doing something.

The corner drug store offers a reward for work: money. The government threatens imprisonment to collect taxes. While this is enough to address newly minted socialist undergrads on Twitter, it fails to address underlying issues raised by more thoughtful scholars.

A Free Economy vs. an Interventionist Economy

In a free market, employment is clearly not slavery, but states everywhere reduce and limit the freedoms of employers, employees, and consumers. While this may not reduce wage earners to a state of slavery, market arrangements in an interventionist market such as this are not quite voluntary either.

The Marxist tradition has expended a lot of effort to classify societies into various modes of production, e.g., slavery, feudalism, and capitalism. These modes, while currently out of favor, generally sought to highlight key features and relationships that differentiated one mode from another. As socialist David Graeber put it:

in the case of [the] slave mode of production, the exploiters directly own the primary producers; in feudalism, both have complex relations to the land, but the lords use direct jural-political means to extract a surplus; in capitalism, the exploiters own the means of production and the primary producers are thus reduced to selling their labor power.

The presence—or lack thereof—of “outside options” (the ability to earn a living outside of formal wage labor) is critical for socialists when describing coercion within capitalism.

How Government Intervention Changes the Rules of the Game

Imagine a small merchant who runs a corner drug store. Now imagine that a massive corporation seeking to limit competition uses the state to make self-employment prohibitively expensive; more people will be forced to turn to wage labor. This serves to increase the size of the labor pool, reduce wages, and reduce competition from small firms.

Another example is the AB 5 legislation in California, which temporarily disrupted the gig economy before voters overturned it with Proposition 22. Ignoring the stated motivations, the actual impact was to drastically restrict the ability of people to work for themselves as independent contractors.

Consider other ways the governments can restrict the choices of wage earners:

  • Central banks: an inflationist Federal Reserve, for example, that steadily drains the purchasing power of small savers by printing new money used to buy corporate assets.
  • Covid restrictions that close the corner store while allowing big-box retailers to remain open.
  • Regulations that favor employee-based health insurance, and thus insurance is cheaper as an employee than as an independent worker.
  • Regulatory capture is well understood in free market circles. It’s only a small stretch to see how in some cases this could coerce more workers into going into wage labor than would naturally exist. 

This is not simply theoretical. A fascinating study out of UCLA measured the effect in the British West Indies of plantation owners using the state and legal coercion to restrict the outside options of former slaves and thus secure a steady supply of cheap labor. Return to plantation owners was highest where they could successfully lobby to restrict homesteading (or “squatting”) of abandoned land. They also used the tax code to benefit themselves at the expense of small plot holders. The same spirit of coercion, if not the exact same tactics, were used in the American South after emancipation to keep former slaves on plantations.

Underneath the vapid squawking of woke Twitter parrots, there exists a real issue: the incentive structure is being manipulated to hide coercion beneath the guise of free will. The rules are rigged. Let us not be tricked into defending a current system we do not support. Author:

Kyle Ward

Kyle Ward (@dkyleward) is a data scientist with degrees in engineering and statistics. He uses machine learning and econometrics to inform transportation and redistricting decisions. He avidly consumes all things Mises institute on his (almost) daily runs.

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The day I found out it was all rigged | The Daily Bell

Posted by M. C. on September 24, 2019

By Simon Black

The most exciting stories from the morning’s newspapers were reviews of the upcoming Iron Man 2 film.

But all that changed at around 2:45pm when, without warning, the stock market crashed, and the Dow Jones Industrial Average dropped 1,000 points within minutes.

It was unprecedented… especially because there was absolutely no reason why stocks should have fallen so much.

It’s not like Apple had declared bankruptcy, or the Central Bank had jacked interest rates up to 50%. Up until that point it had been pretty quiet in the markets.

As it turned out, the reason behind the crash was that the investment banks’ fancy trading algorithms had gone completely haywire.

Several of the largest banks had developed autonomous software that was capable of trading billions of dollars without the need for human beings.

And at 2:45PM that day, their software started to fail… inexplicably selling stocks to the point that prices collapsed nearly 10% in minutes.

They called it the Flash Crash, and, even though stocks had largely recovered by the end of the day, the banks lost an enormous amount of money.

Then something interesting happened. Within a few days, the major exchanges announced that they would CANCEL many of the trades that took place during the Flash Crash window.

In other words, they were handing the banks their money back.

I never forgot that moment… because I received an email from my broker informing me of the news.

They were canceling a profitable trade that I had placed during the Flash Crash window, effectively giving it back to the banks.

When the banks’ trading algorithms performed well and they all made money, the profit was theirs to keep.

But when the software failed and the banks lost money from their own mistakes, the exchanges gave them a do-over.

Sadly that episode only begins to scratch the surface of all the ways that the market is rigged against the little guy– high frequency traders, brokerage rehypothecation, manipulation of interest rates, exchange rates, and asset prices, etc.

It’s not to say that there’s no opportunity in the market for individual investors–…

The numbers that really matter are the valuations, i.e. how expensive is a company’s share price relative to its earnings, assets, sales, etc.?

To put things in perspective, the average Price/Earnings ratio across the companies in the S&P 500 Index is now 26.36.

If you flip that number around, it means that the current profits of the average company in the S&P 500 are just 3.8% of its share price.

That’s pretty pitiful; it suggests that investors are paying way too much for shares, and receiving far too little profit in return.

Historically, today’s level is nearly 70% more expensive than the S&P 500’s long-term average Price/Earnings ratio.

And the only other times in history that it’s consistently been this high were just prior to the 2008 crash, the 2000 crash, and the 1929 crash…

Consider that, since the Flash Crash of 2010, the Dow Jones Industrial Average has returned about 12% per year…

So, yes, there are options out there that can generate strong returns while you wait for the right buying opportunity.

All of this goes back to the major theme we started talking about last week: AVOIDING BIG MISTAKES.

Financial markets are fickle. If/when stock prices fall, they can fall fast… and hard.

Last month, for example, shares of a retail conglomerate Steinhoff International fell more than 60% in a day, and 90% in a week.

Ask yourself how you and your family would be affected if your stock portfolio lost half of its value? And would that impact be worse than missing out on another 20% to 50% increase in stock prices?

It’s a question only you can answer.

But if your instincts are leading you to safety, it might be time to consider taking some money off the table and seeking safer alternatives…

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