Further to the initial article and my previous post here some further questions have been asked by a reader.  I’ll break each down and discuss it in turn.  The questions assume that the information provided within the article is correct (and I’ll assume the same.)  The questions are as follows:

  1. Given that this situation of high tech startups with stacks of investor capital is only going to continue in other sectors, what can we do to ensure that market efficiency is optimal?
  2. What do you think the role of government is in protecting against this form of dumping?
  3. You have written about the transition to a full digital currency – do you think there is a case for this, given the international structure of companies like Uber, who are difficult to audit, and could be more efficiently taxed in real time?

I’ll take each question in turn here.  As I specified previously, there is a lot to discuss within the article itself:

Given that this situation of high tech startups with stacks of investor capital is only going to continue in other sectors…
Actually, I don’t believe that this trend will continue.  I suspect that the trend is nearing the end of its run.  This has a lot to do with the global money supply and market moves. This is somewhat complex theory which delves into monetary economics.  I can, of course approach this in another article but in short governments have been complicit in creating a huge surge of money, and a lot of that money has spilled over into the equities space.
…what can we do to ensure that market efficiency is optimal?
To take the second part of the first question, I would point out that this suggests that governments want markets to be efficient.  Governments have a long history of involving themself in the market mechanism.  Often just through being well-intentioned, but sometimes also through vested interests (see here for direct evidence of governments steering markets and remember, this is quite likely a coordinated effort across geographic regions.  If you steer the monetary supply, you steer every transaction in every market; for better or for worse, this is a reality in which we live.)
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A UK Government billboard ad.  Since the ad the UK has given themselves the powers to hunt income in private bank accounts.
Despite this I would say that a well-intentioned government could regulate this type of behavior through antitrust legislation.  I’ve written legal papers on antitrust legislation before, and the difficulties of applying this across borders- of course it becomes extremely difficult to apply competition laws if you have foreign allied governments furthering their international agendas and empowering corporates by leaning on their allied governments.  Google is likely to be one such case if it goes against US foreign policy wishes.
What do you think the role of government is in protecting against this form of dumping?
The government, as a supposedly elected body, has a mandate to protect its citizens from market inefficiences and abuse of market power.  Whether this is practical in reality remains the subject of debate.  I think I’ve touched on how it should be achieved.  Given that government employees have apparently been watching pornography in the office, I don’t have very high hopes for the sort of necessary market power reducing graft being done any time soon.
Perhaps it’s worth pointing out that an individual who is willing to show apathy in the face of a serious issue is as guilty as the individuals perpetrating the negative issue.  Where antitrust regulation and market power is concerned, the same general principle is true, and change must arise from propert governance. We could probably bring Voltaire into it again:
“…So long as the people do not care to exercise their freedom, those who wish to tyrannize will do so; for tyrants are active and ardent, and will devote themselves in the name of any number of gods, religious and otherwise, to put shackles upon sleeping men.”
Or Plato:

 “But the chief penalty is to be governed by someone worse if a man will not himself hold office and rule”

I’ll avoid the moral aspect moving forward.  There’s a lot that could be said and much has already been said by me here.  The final question is interesting.
You have written about the transition to a full digital currency – do you think there is a case for this, given the international structure of companies like Uber, who are difficult to audit, and could be more efficiently taxed in real time?
This is a complicated question.  Transition to a global electronic currency by the major economies has two dimensions.  On one hand, yes, hiding capital from government would be much more difficult.  In essence you would have a closed loop and every single transaction into the system would be recorded and reported.  So yes, it could be more efficiently taxed. I believe that bankers and government would love to transition to this sort of system. It would prevent bank runs, it would prevent tax avoidance etc.
On the other hand you must understand that much of human history has been fought between the desires of governance and the desires of the people- the two often diverge in interest.  Ceding liberty for security leaves populations in a paradoxical situation, whereby you trade the threat of external risks for internal risks.
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Don’t participate in non-taxable economic activity.  It is really, really bad.  It’s so bad in fact, that we’ll add it to our GDP calculations.
Electronic currency, with the increased efficiency and taxation that it brings would signal the death knell of the market mechanism.  Governments have been systematically dismantling the free markets over the course of the last century and this would be the end of it.  It is likely that there would be a rapid rise in “criminal” activity in the black market.
True entrepreneurs would likely avoid participation in the above ground economy altogether- if the game is rigged against you, don’t play.  I expect a transition to electronic currency with the current incentives that government has would be the end of individual prosperity for quite some time.
If there is any question as to where public preferences lie, just take a look at all of the media articles which call for increased taxes as well as advertisments rife everywhere. There will always be loopholes for the wealthy and affluent- they write the rules.
Perhaps we should be worried about precisely who it is that the governments intend to tax.  Smart and wealthy people will always find ways to avoid laws- particularly in a corrupt system, and once an electronic currency system is in place, the tax hikes are just as liable to be on the average citizen.
There is no question that most wealthy people owe the societies which they have accumulated the wealth in.  You simply cannot profit from economic activity at expense of everyone around you. The question really lies in why electronic taxes are being called for. Given the cadre of bankers and politicians jumping on board at a time when our failing social systems are yet to be addressed, I remain a skeptic.
We have a least one mathematically unsound major government program running in the form of pension schemes.  This is widely accepted by Nobel Prize winning economists like Friedman, Samuelson and Krugman.  We have mathematically unstable systems like public national healthcare systems, and mandatory healthcare insurance schemes.  Both of these need to be addressed as a matter of necessity, not as a matter of desire.  We can quite literally eat every ounce of true value-adding economic activity through hiking taxes if we do not.
ponzi1.jpg
If you’re running a private Ponzi Scheme, you will be locked up in cuffs and ostracized like Bernie Madoff, however, if we’re operating one it is in your best interests as a taxpayer.
Furthermore, even if governments are not corrupt and are largely well-intentioned there is no single government who has ever been right about everything in human history. Often governments create multiple mistakes (unintended consequences) for every one thing they try to do.  Even Milton Friedman who reluctantly accepted the modern currency system pointed out as much.
Hopefully that helps.
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