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AMERICA -- A BANKRUPT EMPIRE
Financial instability rooted in economic "blowback" from our disastrous foreign policy.
The headline subject has been treated extensively by many others than Justin Raimondo of Antiwar.com. But you can depend on an informative and contextually comprehensive treatment of most any subject from Justin, and usually not be disappointed. In addition to being the editorial director of Antiwar.com, he is the author of An Enemy of the State: The Life of Murray N. Rothbard (2000), among other books.
The "disastrous foreign policy" in the sub-headline is actually more. It is rooted in the theory, "military Keynesianism", is that we can have guns and butter both without damaging the economy. Crazier still is the coincident assumption that the government needed to stimulate the consumption of both to avoid another depression -- in turn derived from the false theory that World War II had pulled America out of the Great Depression.
As the stock market gyrates, and Federal Reserve Board meets by videoconference to inject emergency funds into the system, Chalmers Johnson's warning that the U.S. empire is not sustainable -- that "this is the way empires end" -- resonates rather ominously.
Johnson, whose most recent book is Nemesis: The Last Days of the American Republic, the third volume in his "Blowback" trilogy, argues that military expenditures are a drain on the productive capacity of the economy, and that the mistaken idea of what he calls "military Keynesianism" will eventually be our economic undoing. The U.S. economy, he avers, has become increasingly dominated by what President Dwight Eisenhower dubbed the "military-industrial complex." Rampant militarism has diverted vital resources away from productive use and lines of research, and given other countries -- Japan and the EU -- the technological edge. This trend has also hollowed out our economic base, caused a debilitating decay in the physical infrastructure, and led to a growing debt -- that is an economic time-bomb that seems to be exploding ... now.
The idea that diverting a large portion of the economy into manufacturing and servicing things that you then blow up leads to a decrease in economic well-being is plain common sense. But common sense is sorely lacking in the U.S., and you still have lots of people believing the military spending "stimulates" the economy.
How many Americans realize the U.S. military budget is greater than that of the rest of the world combined? This does not include our "off-budget" expenditures in the Iraqi and Afghan theaters, which surpass the combined military budgets of Russia and China. For the first time, the bill for the "defense" of the U.S. -- a task left to the Department of Homeland Security, not the Defense Department -- exceeds $1 trillion. And that is just what is public: the secret "black budget" costs are unknown, and on this score Johnson advises us to heed economist Robert Higgs, who advises us to take any official Pentagon figures and simply double them.
Empires are expensive, and the American version has a peculiarly altruistic twist to it, in that, as Garet Garrett remarked, "everything goes out, and nothing comes in." We have financed it all with deficit spending, and rather than impose direct taxation -- always a risky proposition -- the powers that be have simply set the printing presses of the Federal Reserve on overdrive, creating a huge bubble that is about to pop. As Chalmers Johnson points out, the whole system is financed by massive borrowing ...
Just as the worldwide Islamist insurgency sparked by Al Qaeda is blowback visited on us by the exigencies of the cold war era, so what we are experiencing, today, is economic blowback from our reigning ideology of military Keynesianism, which has built an economy embedded with a fatal flaw.
In the wake of World War II, the fear of another great depression was rife, and this was a motivating factor in the growth of the "defense" sector -- neatly rationalized, as Johnson points out, by the Pentagon's NSC-68, a document outlining U.S. strategic doctrine authored by Paul Nitze, which proclaimed the cold war dogma of "guns and butter":
"One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living."
Except it was not, and is not, so.
Public works, in the form of ever-higher military spending, created an ever-expanding war-industry that sucked vital resources into avenues that led to a cul de sac, i.e., that had no productive use, such as nuclear bombs. Our mighty nuclear arsenal, which continues to expand even after the Soviet meltdown, represents trillions of dollars in frozen resources which go nowhere -- that is, which produce no goods, and yield no continuing economic benefits. This has led to the fatal distortion of the American economy, and the massive misallocation of scarce resources: it is the root cause of the collapse of the U.S. manufacturing sector. As Johnson puts it:
"Over time, a commitment to both guns and butter has proven an unstable configuration. Military industries crowd out the civilian economy and lead to severe economic weaknesses. Devotion to military Keynesianism is, in fact, a form of slow economic suicide."
Not only has America fallen behind by failing to modernize its capital assets and losing its technological edge, it has also corrupted its own currency. By exponentially expanding credit, the Federal Reserve is weighing down future generations with an unprecedented albatross of debt. The sheer weight is crushing the vitality out of the American economy, as military development crowds other investments out of the market. The dollar is no longer the currency of choice: the euro has taken its place. All that has to happen, as Johnson points out ... is for the Saudis and other oil-producers to demand euros instead of dollars, and we are sunk.
What is likely to stop the rise of the American empire dead in its tracks is not a sudden upsurge in the antiwar movement, the election of a rational President, and/or a sudden radical reversal by the policymaking elite after more than half a century of folly -- it is bankruptcy that will do it, long before any of these possibilities have a chance to take shape.
Not that this is anything to anticipate with glee: It means social and political disruption on a scale we have scarcely experienced before in this country, perhaps even a revolution. It surely means the end of our republican form of government, and the institution of something less free, less secure, less faithful to the teachings and traditions of the Founders. It almost certainly means the end of constitutional government in America, and the beginning of our long, slow decline -- or, perhaps, a more dramatic, meteoric descent than anyone now imagines.
The would-be "rational" President is, of course, Ron Paul. He is the only one who even acknowledges the problem, never mind proposes solutions that address the problem. Assuming he fails to get elected -- and perhaps even if he does -- it would appear American is doomed to reenact to collapse of the Soviet Union. Get some of your assets out of reach now, lest they be part of the compensation paid to America's creditors.
ANOTHER ONE BITES THE DUST
"Over the past half-century, the United States has seen its global dominance in dozens of industries slip away," writes Peter Schiff, author of Crash Proof: How to Profit from the Coming Economic Collapse. But, "One plum that we have maintained is our gargantuan financial services industry, whose contribution to total GDP more than tripled between 1947 and 2005." (Note: Not a good thing.) And now even that industry looks like it is going down for the count, at least vis-a-vis U.S. dominance. Schiff explains the why's, which have a sadly familiar ring to them.
Once upon a time America owned the automobile industry. But after several decades of excessive taxation, onerous government regulation, union extortion, and a crushing lack of foresight and innovation, we no longer dominate an industry that we practically invented. Just as Detroit no longer claims center stage in the world automobile marketplace, soon New York will lose its position at the center of global capital markets.
In the first place, the center of finance tends to go where the money is. Right now all the money is coming from Asia and the Middle East. When the United States was the world's greatest creditor nation and its largest supplier of capital it made prefect sense for that capital to be allocated here. But why should the Chinese send their savings to New York only to have it re-invested back in China? Would it not make more sense for the Chinese to allocate their capital locally rather then out-sourcing the job to us?
In the second place, when the strength of the dollar was widely regarded it made sense for global savers to allocate substantial percentages of their savings to U.S. dollar-denominated investments. This preference gave Wall Street a competitive advantage in attracting capital. However, now that confidence in the dollar has evaporated, perhaps permanently, this advantage has been lost. Further, investment in the U.S. was encouraged by America's respect for private property, low taxes, and minimal government regulation. However, this advantage has been lost as other nations have strengthened their private property laws, deregulated, and lowered taxes, while we have done the opposite. As a result, thus far this century, the returns on U.S.-based investments have far underperformed those achieved in every other major market.
Most importantly, Wall Street's reputation, once its greatest asset, is also in jeopardy. Just as Detroit lost its reputation for high quality cars, bankrupted dot-coms and worthless subprime debt are creating similar problems for Wall Street. You cannot expect to keep your customers if you continually sell them shoddy merchandise. Wall Street has spread hundred of billions of dollars in losses around the world and in so doing shattered its reputation with some of its best customers.
However, in the last few years Wall Street has not only screwed customers but their own shareholders as well. At one time all of our major investment banks ... were private partnerships. However, during the 1990s they all went public ... Goldman Sachs was the last to go public in 1999. The transition allowed Wall Street partners to cash out, transferring future risks to new shareholders. In so doing they were able to capitalize on bubble valuations, yet through lavish bonus compensation packages, still keep the lion's share of the profits for themselves. In other words they got to have their cake and eat it too. ...
To line their own pockets, Wall Street willingly exposed its shareholders to risks that it would never have assumed with its own capital. This moral hazard set the stage for the enormous losses shareholders are now suffering, and are a direct consequence of the phony profits booked in prior years. However, while shareholders are left holding the bag, Wall Street's former partners now turned employees have already walked away with huge IPO and stock option windfalls, as well as lavish bonuses paid on phantom profits.
The coming crash will plainly expose these conflicts of interest, and the reaction will be severe. In the end, finance and banking, like manufacturing, will be yet another industry lost to foreign competition. The new financial capitals will likely be in Asia, the Middle East, and Europe. New York will certainly still have a role to play, but much like Detroit, it will be but a shadow of its former self.
WHO HAS THE OPTIMISM? THE THIRD WORLD HAVE-NOTS
It is interesting how optimistic people in the traditional have-not countries are about their futures. We suspect this is due to the ultra-bubbly emerging stock markets of recent vintage. Markets make opinions. When/if the U.S. bear market goes worldwide on a sustained basis, that optimism will get reigned in. However, the betting here is that many of those countries have relatively brighter prospects that the debt-ridden U.S. or the sclerotic Western European countries.
DAVOS, Switzerland: The future looks bleak in much of the developed world. It looks bright in the developing world. Two opinion surveys released in connection with the World Economic Forum here showed optimism among corporate chief executives and the public in many emerging markets. But there are doubts in many of the world's leading economies.
In the U.S., just 27% of the people questioned in the Gallup International Voice of the People survey said they expected the next generation to be more prosperous than the current one, while 43% expected less prosperity. Fear that the future will be worse is even greater in some other countries. In France, only 11% of respondents said they expected a more prosperous future. The figures in Japan, Germany and Italy were almost that low.
But in Nigeria, a country whose oil wealth has so far done little for most of its citizens, 78% said they expected a more prosperous future. In Kenya, the figure was 67%. (All the polls were taken during the fourth quarter of 2007, before a disputed election led to instability in Kenya, and before financial markets worldwide suffered this month.)
The question asked of chief executives covered a much narrower issue -- whether they were very confident that their own company's revenue would grow over the next 12 months. In the U.S., where recession fears have been rising, 36% of the executives said they were very confident, a percentage that exceeded the figures for Japan, France and Italy. By contrast, the figures exceeded 70% in Mexico, Russia and China. In India, the number was 90%.
The confidence of emerging markets was shown in sessions at the forum this week, as participants from India proclaimed that their momentum could carry them past any downturn in the U.S. One Chinese speaker said a recession in the U.S. might bring China's growth down to 9% a year, from the 10 to 11% he expected otherwise.
"A lot of people are going to be very shocked" if a recession in the U.S. does have a major impact on Asia, said Steven S. Roach, the chairman of Morgan Stanley Asia, who has long been bullish on the region. But he also said he expected the American downturn to have a substantial impact in Asia.
THE PIRATE’S CURSE STILL OPERATES IN COLUMBIA
"Travel to Colombia," writes Eric Margolis, contributing foreign editor for Sun National Media Canada, "long a world leader in kidnapping, drug dealing and gunplay, is not for the faint of heart. What a tragedy; Colombia is a magnificent nation, with vast resources of coffee, gold, silver, oil, emeralds, and coal, with a charming, friendly people and some of the world's most beautiful women (a title shared with neighboring Venezuela)."
Margolis explains the country's seemingly intractable state of affairs in the spheres of politics, crime, and drugs.
In the 1600s, Spain's imperial expansion and European wars were dependent on silver and gold looted from Peru. Spanish treasure fleets transported tons of silver from Peru on a two-month voyage north to Panama. Mule trains carried the treasure across the isthmus to the fever-infested hellhole of Portobello. There, another fleet of galleons waited to take the silver first east along the coast of Latin America to the port of Cartagena, then to Cadiz, Spain.
Where there was treasure, there were pirates. The Spanish Main became the main hunting ground for British, French and Jamaican buccaneers, the most famous of whom was Capt. Henry Morgan. Many of these cutthroats bore "letters of marquee" from the British and French crowns, authorizing them as legal pirates to "singe the beard of the king of Spain." The British and French crews usually took a cut of 10–20% from their pirates.
These Caribbean freeboaters were murderous, filthy, cruel, men, scum of the gutter. They bore no resemblance to Hollywood’s cute pirates. ...
The Colombian government is desperately trying to develop tourist business, but it is a task as hard as sailing into the wind. A government tourist brochure cheerily proclaims, "Colombia, the only risk is wanting to stay."
Not quite. Last week, six tourists were kidnapped on the Pacific coast and the usual violence continued across this nation of 44.5 million, Latin America's fourth largest country. ...
Colombia has been racked by violence since the 19th century. From 1900–1953, two parties, the Liberals and Conservatives, massacred one another with mindless abandon. Entire villages were slaughtered in the communal madness. At least 400,000 Colombians died in what they call, "La Violencia." At the heart of this orgy of violence lay bitter rivalry between big landowners of Spanish descent, known as "latafundistas," and with Colombians of mixed or pure Indian or black blood.
Interestingly, I found a similar historic phenomena when covering the 1980s war in Nicaragua. Behind all the slogans about "Marxismo" and freedom, the struggle between leftist Sandinistas and rightist Contras was really an extension of a longtime feud between two powerful families of land barons that began in the late 1800s.
In the 1970s, Marxist rebel groups began waging guerilla war against the government in Bogota. Today, the largest of these groups, the FARC, has turned into a combination of ideological extremists, bandit army, and a major force in dealing cocaine and heroin. Hidden in the vast Amazonian forests of southern Colombia, the FARC continues to terrorize the nation, staging frequent attacks and kidnappings. FARC currently holds over 700 hostages, including two Americans who were working for the Pentagon.
Opposing FARC is the more or less democratic government of Alvaro Uribe, a hard-line right-winger who is very close to the Bush Administration and a major U.S. ally. Uribe's father was killed by FARC in a botched kidnapping.
The army and police are unable to defeat FARC's guerillas, who have increasingly turned to refining and transporting cocaine. Large landowners created their own private army of right-wing death squads, the AUC, with secret backing from the military and police. They have committed almost as many atrocities as FARC.
This week, Venezuela's mercurial leader, Col. Hugo Chavez, enraged Uribe by declaring FARC "a legitimate" movement. FARC receives limited financial and moral support from European and Latin American leftists who wrongly see it as a liberation army fighting social evil and landowners. Cocaine, kidnapping and extortion supply steady income to FARC.
No one knows what to do about long-suffering Colombia. Washington backs and finances Uribe, but rightly fears getting sucked into a jungle war in Colombia. Meanwhile, Colombians continue to suffer and live in terror. Every attempt to end the war through negotiations has broken down, but there is clearly no other way to end this frightful conflict.
The U.S., Canada and the EU should make solving Colombia's festering civil war a major diplomatic priority. Nicaragua and El Salvador's civil wars offer sensible models for resolution. Both bitter, murderous conflicts were finally resolved by power sharing that has stood up remarkably well. There is a big difference, though, between these wars and Colombia: drugs.
Margolis avoids drawing the obvious conclusion: If drugs were not an extra-legal market, then its ability to corrupt and weight down a whole country would be seriously vitiated. There are many factors at play, and a lot of momentum behind the way things stand today, but if drugs were legalized it is a reasonable conjecture that crime would decrease and politics would be less poisonous. So we can largely thank the U.S. for that critically important node in the network of misery. Moreover, the U.S.'s "war on drugs" laid the groundwork for today's national security state, as many of the losses in legal protections and privacy since 9-11 have longstanding precedent in laws and policies instituted under the pretext of winning that "war".
ESCAPEARTIST SHORT TAKES
Continuing our catchup on noteworthy EscapeArtist.com articles, below are selected summaries from the November/December 2007 issue of Escape From America (issue #97). For a quick introduction on the e-magazine's publisher, read the first two paragraphs of this Offshore News Digest entry. Article summaries are essentially verbatim -- caveat emptor (Latin for "Visit and check out carefully before buying").
Relocating Abroad ... Ahhhhh! -- The expatriate is sure to ride the emotional rollercoaster after arriving in the host country, and a great majority of these ups and downs has to do with cultural differences. Cultural differences are here to stay and are what make life interesting. If you arrive in a new country with your ethnocentric thinking cap on, then all you are going to get is a lot of migraines. (Also, article summarized in this edition of Offshore News Digest, under the same heading as the article title.)
Sailing To Paradise -- You are sitting there watching something on the tube or plasma screen, and you see this ad for retirement. They almost all have one thing in common. There is a scene of a sailboat and some tropical island in it. And you think "That would be nice." Well yes it would, and here is how you get from here to there.
Things To Consider Before Retiring In Mexico -- When you talk to some here in Guanajuato who are from different regions in Mexico, they have some very firm convictions about the differences between the local culture and the culture of their home regions. Recently, we talked with a lady from Zacatecas who works in a local business. She confirmed what we have been told over and over again about the difference between the people of Guanajuato and those from Zacatecas. She was a bit adamant about the differences in the two peoples. (Also, article summarized in this edition of Offshore News Digest, under the same heading as the article title.)
Buenos Aires in the Spring -- Buenos Aires, now an international travel destination, offers good value as well as the seduction of living in a bygone, slower-paced era. Entranced tourists shop, sip coffees in open air cafes, take tango lessons, dig into thick slabs of beef, drink the rich red local wines, and visit Evita's grave in Recoleta. An Argentine friend recounted to me how surprised she was to learn that most tourists visit only Buenos Aires.
How to Get a Brand New Seaside City -- Bulgaria is a small Eastern European country with a population of only 7 1/2 million people, and recently was welcomed into the European Union. Since 1997 the country has been on the path to economic recovery following several years of economic decline; but despite that local salaries remain small and commensurately, properties are cheap compared to the rest of the Union.
Myths and Misconceptions about Healthcare and Health Insurance -- One of the biggest misconceptions that many people have in regards to health insurance pertains to the need for a policy. Many individuals believe that despite not having a health insurance policy or plan that they will be able to obtain the healthcare services that they need and will be able to avoid any serious health conditions. In reality, because of this lack of insurance, people who do not hold a health insurance plan are more likely to forgo vital healthcare treatments, often with serious consequences, including death.
The ABC's of Teaching ESL (English as a Second Language) in Taiwan -- There I was sitting on my barstool drinking a properly drawn Guinness at my favorite watering hole on O'ahu, resting my 63 year old bones, when into the pub strolls my old buddy Nathan, who has been sequestered at a college in Taiwan teaching English for the past two and a half years. After several Guinnesses and catching up, the conversation turns to teaching English in Taiwan.
In addition, here are several summaries from the November/December 2007 issue of Offshore Real Estate & Investment Magazine (issue #33).
10 Reasons Why Montevideo's Ciudad Vieja is an Excellent Offshore Opportunity -- Ciudad Vieja is a community within Montevideo, the capital city of Uruguay. It is called Ciudad Vieja (the Old City) because it was the original walled citadel of Montevideo founded by the Spanish in 1726. As Montevideo grew to a city of 1.4 million, Ciudad Vieja became rundown and forgotten. However, like many communities in the world with historic significance and period architecture, Montevideo's Old City is turning around.
Costa Rica -- For Retirement, Vacation Living or Investment -- Costa Rica is an alluring place for many people. With a terrific climate, stable and democratic government, proximity to the U.S., lower cost of living, and many outdoor and cultural activities, it is no wonder this country only the size of West Virginia remains one of the best in the world for a vacation, retirement and investment.
Wiping Your Face -- The international real estate game is tricky. Cumbersome. Risky. Most of my total investment portfolio is in international real estate, but, typically, I would advise that you probably should not put more than 10% to 25% of your overall investment portfolio into foreign property.
WORLD BUSINESS TAX UPDATE
This article from the Jerusalem Post discusses two major internation tax issues: (1) Chinese corporate tax reforms, whose major purpose and feature is to equalize the treatment of foreign and domestic companies; and (2) some eccentricities of the EU Value Added Tax policy.
Chinese tax reform: ... The new Corporate Income Tax Law establishes a unified 25% tax rate for almost all enterprises in China, whether domestic or foreign owned. This supersedes a 33% standard income tax rate for domestic companies and 0% or 15% or 24% for certain foreign invested enterprises. ...
Various existing tax reductions applicable to "hi-new tech" enterprises, especially those located in National Hi-Tech Industrial Development Zones, will now be implemented nationwide. ... Infrastructure projects and environmentally friendly projects are entitled to a 3+3 tax holiday, i.e., a 3-year exemption followed by a 3-year 50% reduction starting from the first year in which the company receives its operation income. Projects involving agriculture, forestry, animal husbandry and fishery can be entitled to a complete exemption or a 50% reduction. ... Companies engaged in the recycling business can be eligible for a 10% reduction in taxable income. Enterprises purchasing special equipment that is environmentally friendly can claim 10% of the purchase price as an income tax credit in the year of purchase.
A 10% withholding tax will be imposed on passive income, including dividends, royalties, interest, capital gains, etc., which is equivalent to the treaty rate offered by many tax treaties to which China is a party, including Israel. Until the end of 2007, China did not impose withholding tax on dividends. Complex treaty rules apply to capital gains.
With regard to transfer pricing, the required documentation includes contemporaneous pricing policies, calculation methods and explanations, comparables, profit levels, etc. The documentation must be submitted by the taxpayer within the deadline imposed by the tax authority.
The 25% corporate tax rate, now uniformly applied except to certain favored enterprises, does not appear to be particularly low, especially when applied to foreign investment. But evidently the Chinese government thinks the country is an attractive enough destination that they do not have to compete too hard on the tax rate. They are probably correct. "Biker investor" Jim Rogers certainly thinks so.
The European Union allows countries to choose their own standard rate of VAT as long as it is at least 15%. In practice, the standard rate is usually in the 15%-25% range.
Under the EU "VAT Directive 2006/112/EC" of 28 November 2006 the supply of services is in principle taxable at the supplier's place of establishment. However, several exceptions to this general rule have been introduced. In particular, electronically supplied services, supplied by non-EU suppliers (e.g. Israeli companies) to private consumers in the EU, will be taxable at the place where the customer resides or has a permanent address. For example: If a Swedish private consumer makes use of an Israeli on-line library, 25% Swedish VAT will have to be paid on the amount the Israeli company charges.
There have been some well publicized cases of non-EU service and Internet suppliers basing themselves in Luxembourg or Madeira to qualify for a low 15% rate on supplies to private customers across the EU.
The ECOFIN Council of the EU has just reached political agreement on new "place-of-supply" rules for EU VAT on business-to-business (B2B) and business-to-consumer (B2C) transactions in services.
Commencing in 2010, VAT on B2B supplies of services will generally be accounted for in the country of the customer through the application of the reverse charge (self-VAT assessment by customers). But for B2C supplies of services, the general rule will continue to be where the supplier is established.
However, it is only in 2015 that B2C supplies of telecoms, broadcasting, and digitized services will become subject to VAT in the customer's country of residence.
For B2C suppliers of telecoms, broadcasting, and electronically supplied services, the 7-year delay in implementing the place of supply changes will give comfort to those businesses currently located in VAT-favorable locations such as Luxembourg or Madeira. However, suppliers in less favorable locations -- such as Israel or an EU country with a high VAT rate -- should now review their position in light of the current VAT rules remaining in place until 2015.
The EU tries to mimimize distasteful competition among EU members with regard to VAT rates by mandating a 15% minimum. This constraint has been largely nonbinding, we see, but not completely. As with any cartel, the incentive is for members to try and cheat on the agreement -- in this case by taking advantage of certain loopholes. As long as no one else cheats the volume/price tradeoff usually works out for the cheater. In this case the chief whip-cracker -- the cabal of EU head honchos in Brussels -- is not one of the cartel members per se, and it has remedies for enforcing the agreement not available within a voluntary confederacy. Witness the ECOFIN Council's revised rules.
It will be an ongoing spectator sport to watch the EU try to arrogate power to the center, away from the member states, as the U.S. federal government did so successfully once the Constitution had been ratified. Unlike the U.S., the EU has no equivalent to the U.S. federal military forces. Yet.
LANDMARK DECISION BY THE UK’S HOUSE OF LORDS LEAVES HMRC FACING £1 BILLION IN VAT CLAIMS
Businesses in the UK are being urged to examine their records, possibly as far back as 1973, to see if they have a case to reclaim overpaid value-added tax after a landmark decision by the House of Lords on Wednesday.
The dismissal of an appeal brought by HM Revenue & Customs against VAT claims made by Conde Nast Publications Ltd (CNP) and Michael Fleming means that businesses can now claim back under-recovered VAT which they failed to file claims for before the Government introduced a new and much shorter time limit for reclaiming overpaid VAT in late 1996.
However, Gerry Myton, VAT partner at PKF accountants and business advisers, believes that there could be only a six month window of opportunity to submit a claim, as the Lords ruled that it would be lawful for HM Revenue and Customs to introduce a prospective cut-off "with adequate warning for claims."
Tax experts suggest that cases related to the ruling are expected to cost the Treasury as much as £1 billion in claims and interest, in addition to vast administrative resources needed to process them.
Myton commented that:
"This ruling is hugely significant; overpayments of VAT before the introduction of the three year cap on 4th December 1996 (or 1st May 1997 for certain claims) are still live, so it is not too late for businesses to check their records and submit claims. For tax overpaid after December 1996 (or 1st May 1997 in some cases) the three year cap will apply so claims can only be made within 3 years of the overpayment."
He continued: "VAT was introduced in 1973, so there are potential claims going back that far to be made. The only issue is whether calculations will be made on a compound basis as that will significantly increase the sums payable. ... Given HMRC's attitude to this over the years, businesses should be entitled to compound rather than simple interest but it may be necessary to go back to court to get that principle established. Currently I have a number of clients who are taking legal action before the VAT and Duties Tribunal on that point." ...
On 4 December 1996, the Government first introduced a new three year time limit for reclaiming VAT over-declared on sales (output tax). This was introduced with retrospective effect, and without any transitional arrangements to allow taxpayers to correct earlier errors on their VAT returns.
A few months later, on 1st May 1997, a further three year limitation period was introduced with immediate and retrospective effect for VAT on business costs (input tax). Before this date there was no time limit.
According to Deloitte, the problem with this legislation was that if, for example, a business paid VAT to a supplier on 1st January 1990, it would have been entitled to claim a refund of the VAT from HMRC at that time. However, if it failed so to do, HMRC (or the Inland Revenue, as it was then) had not previously imposed any time limit for making the claim at a later date. By the time of the new regimes, introduced on 4th December 1996 and then 1st May 1997, HMRC maintained that the new law allowed them to block any such claim made after these dates, because it would have been made more than 3 years late. ...
Following the case law of the ECJ in the Marks and Spencer case, the Law Lords have held that although the Government may impose a three year time limit, it cannot introduce it without allowing taxpayers a reasonable time to check their records and to claim input tax which they were entitled to claim before 1 May 1997, but had not yet done so. The House of Lords has now ruled that HMRC were not entitled to block this type of claim, and should prospectively legislate for a specific transitional period to allow claims to be made for overpaid VAT incurred before the cap was introduced in 1997.
This is all highly irregular by today's standards. One branch of a government rules that another cannot pass an ex post facto law that effectively confiscates assets without due process. Governments routinely steal as a matter of course -- it is what a government does (when they are not inflicting bodily harm) -- but apparently this time they were a little too unsubtle about it.
SWITZERLAND YIELDS NO GROUND IN TAX DISPUTE WITH EU
Switzerland is not a member of the European Union, but the EU nevertheless continually pressures Switzerland to go along with its latest schemes to bring more money and power to the EU. Switzerland bent but did not break on fully implementing the EU's Savings Tax Directive. It finally agreed to withhold a part of the interest earned in Swiss bank accounts by EU citizens and hand it over to the citizen's home country tax authority. But Switzerland did not agree to report the identity of the citizen to the home country. (Some EU countries received the same deal.) So Switzerland maintained its reputation for defending client privacy, albeit at a cost. At least it bought its clients more time to move their assets to safer jurisdictions before the next big proposal from the EU arrived.
Now the EU has a bee in its bonnet about certain Swiss cantons' tax policies. The nominal venue is the forum for adjucating disputes within the 1972 "Free Trade Agreement" between Switzerland and the European Community -- now superceded by the EU. (Any "free trade" agreement that is longer than a paragraph that says, in effect, "We agree not impede the exchange of goods between our respective country's citizens," is suspect from the get-go.) The real dispute resolution will depend on whether the EU is able to impose greater costs on Switzerland than the benefits Switzerland receives from the offending tax policy. We shall see.
Representatives from Switzerland and the European Commission [have] resumed a dialogue on the EU's assessment of certain cantonal company tax arrangements. The meeting, which took place in Brussels, was the second round of talks on a tax dispute which erupted last year when the EC threatened to launch legal proceedings against Switzerland, ostensibly in an attempt to bring it into compliance with the 1972 Free Trade Agreement between the European Community and the Swiss Confederation.
The EU has claimed that it expects "movement" from the Swiss on the issue by the next meeting in April. However, Switzerland's version of events appears to be somewhat different, with a Federal Finance Department statement explaining that: "The second round of dialogue led to a better understanding of the respective viewpoints but without achieving convergence."
According to this statement, the second set of technical discussions seemed to follow a similar pattern to the initial talks on the matter, which were held in November 2007: Firstly, the Swiss delegation rejected the applicability of the 1972 agreement between the EC and Switzerland to the cantonal company taxation regulations in question; secondly, the EU interpretation that the tax regime in question restricts trade in goods between Switzerland and the EU or in some cases distorts competition was challenged; and thirdly, the Swiss emphasized that domestic and foreign revenues are taxed in the same way, and are therefore not discriminatory, as claimed by the EU.
The EC considers certain cantonal tax arrangements for holding companies, as well as joint enterprises and management companies, to be forms of state aid which are not compatible with the 1972 Free Trade Agreement.
NEW STUDY SUGGESTS BUSH’S TAX CUTS DID NOT FAVOR INVESTOR CLASS
The ever-informative Tax-news.com reports:
A new report by a non-partisan research institute offering a revisionist view of Bush's tax cuts has argued that they do not, as is commonly thought, benefit the wealthy more than low- and middle-income groups.
As Congress debates whether to renew tax cuts enacted early in the George W. Bush presidency, as well as various economic stimulus plans, critics have labeled the measures as "tax cuts for the rich." But a new report from the National Center for Policy Analysis (NCPA) claims that the Bush tax cuts have, by all measures, made the tax code more progressive.
In fact, the report concludes that every major tax change, under Republicans and Democrats, over the past two decades has increased the share of taxes paid by the wealthiest Americans. "It is politically popular to say that tax cuts benefit the wealthy," commented Michael D. Stroup, a Stephen F. Austin University economist who authored the NCPA report. "The accusation does not match the reality."
According to the report, the progressivity of the tax system can be measured in four ways: (1) The share of taxes paid by different income groups, (2) The share of income paid in taxes, (3) The change in taxes relative to the change in income over time, and (4) A comparison of inequality of income to the inequality of taxes over time.
Looking at the first three measures, the report found that:
- The top 1% of income earners pay more than one in every three dollars the IRS collects in taxes. From 1986 to 2004, the total share of the income tax burden paid by the top 1% of earners grew from 25.8% to 36.9%, while the total share of the tax burden paid by the bottom half of earners fell from 6.5% to only 3.3%.
- During the same period, the percentage of income the top 1% of tax filers paid in federal income taxes rose from 18.3% to 19.6%. By contrast, the percentage of income the bottom fifth of tax filers paid in federal income taxes dropped from 0.4% to zero.
- The income share of the top 1% rose 7.7 percentage points, from 11.3% to 19%, while their income tax burden rose even more, by 11 percentage points, from 26% to 37%.
The final measure compares the inequality of income to the inequality of taxes paid over time among all income groups. This measure is the "progressivity index", and is a numerical representation between 0 and 1. The closer the index value is to 1, the more progressive the tax system. According to the report, from 1990 to 2000, the progressivity index increased from 0.476 to 0.617, during a period where marginal tax rates increased but capital gains tax rates fell. From 2001 to 2004, under George W. Bush's tax reforms, the tax progressivity index continued to rise from 0.608 to 0.664.
"Its important when discussing tax reforms to consider how the system reacts, because of the great discretion high earners have in how they earn income and therefore pay taxes," observed Stroup, concluding by suggesting that: "Bush's reforms have helped diminish the income gap between rich and poor, rather than make it worse."
That conclusion is definitely open to question, to the degree it really says anything at all. (Bush's "reforms"? That hardly sounds "non-partisan".) The distribution of income -- which is what Mr. Stoup is presumably alluding to with the term "income gap" -- and the progressivity of the tax code are sufficiently different issues that the conflating of the two smacks of sophistry.
More interesting to us is the 1986 vs. 2004 numbers. "The income share of the top 1% rose 7.7 percentage points, from 11.3% to 19% ..." The top 1%'s tax burden, in terms of percentage points, may have gone up "even more", but that is irrelevant. Last time we checked, one consumes and saves out of absolute after-tax income, not relative income. A more meaningful question is what happened to the after-tax income share of the top 1%? And did the so-called Bush tax cuts have any effect on that share after they were instituted?
It is not made clear whether pre- or after-tax incomes are used in calculating the quoted income shares. If after-tax, the 1%-er's huge share increase from 11.3% to 19% is all you need to know. The rich got relatively richer. QED. What if that huge gain was pre-tax? The average federal income tax rate the top 1% paid rose from 18.3% to 19.6% -- a small increase. The after-tax income share of the top 1% rose markedly in either case.
The tax code may have become "more progressive", but without doubt the rich made out just fine over the 19 year period when it came to spendable dollars. The bottom 20%'s average tax rate fell from 0.4% to zero, but that was chump change in actual dollars. Did the Bush tax cuts help sustain this trend in the early 21st century? Perhaps, by cutting the rates on dividends, etc. As they same in academia, more research is needed.
"[E]very major tax change, under Republicans and Democrats, over the past two decades has increased the share of taxes paid by the wealthiest Americans," says Mr. Stroup. He might have added -- but didn't -- that the sum and substance of government policy, under Republicans and Democrats, over the past two decades has increased the after-tax share of income collected by the wealthiest Americans. (a) Is this later conclusion not the more important one? (b) Do the wealthy care if their margins go down slightly if their sales volume explodes? (c) Is anyone surprised that the trend kept right on going when either party was in power? (d) For extra credit: Explain which party serves the interests of the ruling class more effectively. (Trick question. There is really only one party.)
Note: This is not to say that they government should be redistributing income from the "rich" to the "poor". But it should certainly not being doing the reverse.
RUSSIA SLAMS “ILLEGAL” FRENCH BANK ACCOUNT FREEZE
Oh my! Russia's government feels no compunction about stealing whole companies (Yukos), or for having summarily changed the terms of an oil drilling deal (with Shell Oil) in what amounts to an expropriation of assets. But do the same thing to them, and for much smaller amounts, and it is "illegal". As always, it depends on whose ox is being gored.
Russia will appeal against an "illegal" French court order freezing the bank accounts in France of several Russian organizations, the finance ministry said ... "The Russian side intends to protest the court order on the freezing of bank accounts of Russian organizations ... The Russian Foreign Ministry has already sent a note to the French authorities," the ministry said in a statement. The ministry said the freeze was an "illegal seizure of Russian assets."
The accounts were blocked after a request for compensation from Swiss company Noga as part of a long-running dispute over payments allegedly owed to the company by the Russian government, officials said. Citing a French bailiff's order, RIA Novosti news agency said the accounts included those of several Russian state companies including arms monopoly Rosoboronexport, as well as of government ministries. ...
"French court officials in Paris blocked the bank accounts of Russian organizations in several French banks on January 2," the finance ministry said, adding that some of the accounts belonged to Russia's Central Bank. "Lawyers for the Russian side say that the freezing of the Central Bank accounts constitutes a direct infringement of Russian banking legislation" ...
Noga concluded an oil-for-food deal with the Russian government in the 1990s worth around $1.5 billion (€1.3 billion). The Swiss company alleges Russia never fulfilled its side of the deal. Noga has since tried to reclaim the sum by seizing Russian assets abroad.
French authorities briefly seized a Russian sailing ship moored at a French port in 2000 in a bid to reclaim the money and Noga lawyers also tried to lay claim to two Russian jets at an air show outside Paris in 2001.
This financial account freeze is pretty standard fare when it comes to government actions against private individuals and companies. The government vs. government nature of this action is unusual, and certainly amusing at one level.
PAYPAL RESPONDS TO IRS SUMMONS FOR USER ACCOUNT INFORMATION
From Snopes, dedicated tracker of urban legends and other rumors with some momentum behind them, we are informed that the claim that PayPal has e-mailed notices to users stating that they will be providing their account information to the IRS is indeed true. An example email from PayPal to an account holder is:
Dear (NAME REMOVED),
PayPal has received a summons from the [IRS] requiring us to produce various account records, including data related to your PayPal account. PayPal understands the summons relates to the IRS's offshore compliance program in which the IRS has sought information about offshore credit card accounts from a number of companies.
Your privacy is extremely important to PayPal. PayPal is obligated, however, to turn over the requested data. PayPal has been ordered by the U.S. District Court for the Northern District of California to provide the information to the IRS, and PayPal expects to begin providing this information to the IRS on January 10, 2008. The summons and court order both issue from the United States District Court in an action entitled: In The Matters of the Tax Liabilities of John Does, Case No. CV-05-04176-JW.
If you have any concerns about the disclosure of this information, you should consult with your tax or legal advisor. You may have rights in connection with the summons, including the right to seek to prevent the IRS from obtaining some or all of the information. The statute of limitations that limits the time in which the IRS may assert tax liabilities against you may be suspended beginning on the date which is six months after the IRS served the summons upon PayPal and continuing until PayPal finally resolves its response to the IRS. See 26 U.S.C. § 7609(e)(2).
PayPal cannot provide you with legal advice. If you have questions concerning the summons and court order, we encourage you to contact the IRS, your tax advisor and/or your attorney.
If you wish to contact the [IRS] regarding this matter, they can be reached at (215) 516-4777.
The PayPal Legal Team
Snopes then goes on to explain that the above was not part of a spoofing scam, as many alleged messages from PayPal have been (typical would be something like: "There is something wrong with your PayPal account. Please send us your user name and password so we can fix it," etc.):
Origins: Many PayPal users received an e-mailed notice like the one quoted above at the beginning of 2008 and were justifiably skeptical about it, because spoofing messages from PayPal is a common scheme employed by scammers. However, this notice is not part of a phishing attempt or some other scheme to steal funds by cracking PayPal accounts; it is a legitimate advisory to PayPal users that some of their account details will be provided to the Internal Revenue Service (IRS).
Back in 2006, the IRS won approval from a federal court to ask PayPal to turn over account information for American taxpayers who have bank accounts, credit cards or debit cards issued by financial institutions in various foreign countries -- sites commonly used as tax havens by persons seeking to evade taxes through hiding income in offshore accounts.
The IRS's summons provided background details:
The request for information is an outgrowth of an IRS effort, begun several years ago, to trace money that American taxpayers hold offshore to avoid paying taxes. The IRS said many of those taxpayers access their money through credit and debit cards. The tax collectors have already obtained information from some credit card companies, merchants and payment processors. ...
In some cases, the IRS obtained credit card numbers but could not identify the cardholder. The IRS said PayPal might be able to lead the tax agency to those individuals.
The IRS also hopes PayPal can help them identify currently unknown taxpayers and their payment cards, as well as offshore bank accounts, that might be evidence of tax evasion.
The IRS has asked a federal court for permission to serve a "John Doe" summons on PayPal as part of a clampdown on tax evasion using offshore credit and debit cards. The IRS petition says: "The records requested in the summons will identify the holders of bank accounts at, or payment cards issued by banks in, the listed jurisdictions."
Everyone is on notice that the IRS is continuing its efforts to identify tax evasion effected by means of offshore credit/debit cards -- hardly surprising. Using offshore cards for this purpose falls under the ill-advised category of "reducing" taxes by means of "secrecy".
For one, this is just a bad idea even if the probability of success were reasonably high. The cost of putting one's affairs on legally sound footing while reducing taxes is low enough that it just plain makes sense to do it that way. Moveover, rigorous attention to detail here will carry favorably over to other parts of one's business management and life as a whole -- and the reverse.
For two, PayPal is a U.S. institution that is easy for the IRS (or other U.S. government arm) to serve a summons to and otherwise pressure. Any transactions cross-linking a PayPal account and an offshore credit/debit card are open to routine discovery by the IRS. This would be true of any U.S. company in principle, and financial institutions such as PayPal are particular susceptible to IRS "fishing trips" such as this recent one. As the IRS reported, there were cases where they had "obtained credit card numbers but could not identify the cardholder." Even if the card-issuing institution had no U.S. presence, when the IRS makes a specific request for information, e.g., when the account number and holder are known, the institution is likely to accede.
There is a great line from the 1981 modern-day film noir Body Heat that applies here. The main male character Ned Racine (played by William Hurt) is advised by old friend Teddy Lewis (Mickey Rourke) against continuing down the path he is plainly going:
"Any time you try a decent crime, you got 50 ways you can f**k up. You think of 25 of them and you're a genius. And you ain't no genius."
Looking at so many stupid tax tricks out there, it is unclear to us that many take the time to think of one. This applies to many so-called tax shelters, of recent and ancient vintage, which had no (in fact, negative) economic substance and whose represented tax savings were of dubious legality. People see "tax savings" and stop thinking.
ST. VINCENT AND THE GRENADINES PUBLISHES NEW INTERNATIONAL BUSINESS COMPANIES ACT
St. Vincent and the Grenadines has published its new IBC Act 2007. Here are some of the more interesting provisions:
W.I.L. offers St. Vincent IBCs (application starts here). The flexibility offered by the latest adjustment to the IBC Act is noteworthy. Competition among offshore jurisdictions to offer innovative features in their legal structures such as trusts, IBCs, foundations, LLCs, and hybrids is intense. SVG has looked at its competitors and responded intelligently, by the looks of it.
Keep in mind that there is no one-size-fits-all solution that applies to every business or other financial situation. In addition to a legal structure's features, one also wants to consider matters such as the stability of the jurisdiction and its resistance to outside pressures. Before deciding that an IBC is the best solution for you, check out our quick introduction to IBCs here.
SOFTWARE PIRACY TO COST GOVERNMENTS BILLIONS IN TAX, SOFTWARE ASSOCIATION STUDY CLAIMS
The U.S. and U.K. can expect to lose out on billions in tax revenues and tens of thousands of new jobs if no action is taken by their governments to crack down on software piracy, according to a new report commissioned by ... the Business Software Association. The company that conducted the study had a pretty good idea of the conclusion they were hired to come up with. But let us look at how they arrive at their preordained destination. It will surely have some comical aspect to it.
The study notes that the information technology (IT) industry is already a major contributor to the American economy. In 2007, the U.S. spent nearly $458 billion on IT goods and services including computers, peripherals, network equipment, packaged software and IT services. That spending accounted for 3.4% of GDP, supported more than 314,000 IT companies with 2.9 million IT industry employees, and helped generate $485 billion in IT-related taxes.
Yet the IT sector's contribution to the U.S. economy would be even greater if America's 21% PC software piracy rate could be lowered to 11% by 2011, the study revealed. Such an improvement would add highly skilled jobs to the work force, support the creation of new companies, lower business risks, and fund government services without a tax increase.
Moreover, reducing software piracy has a "multiplier effect". According to IDC, for every $1 spent on legitimate packaged software, an additional $1.25 is spent on related services from local vendors such as installing the software, training personnel, and providing maintenance services.
It is a little hard to know where to begin here. For starters, if the effective price of software goes up, is it not logical that demand would go down and -- with less product to create and produce -- the number of people employed by the industry will decrease? With less product out there, fewer follow-on and ancillary services will be purchased, thus leading to a negative "mulitplier effect". Presumably the software industry thinks its revenues will increase if piracy were magically reduced. Some would flow through to the bottom line as profits while some will go to labor and other factors of production. With higher profit margins, more entrance into the software industry would be encouraged, leading to lower prices in time. How the hypothetic scerario would play out is to a large degree indeterminate a priori -- too complicated for a nice-sounding press release.
Taking the study's logic to its absurd end, if consumers were forced to pay more for any product or service, the "country" or "economy" would benefit. Granting, for imagination's sake, that this would indeed lead to more employment and investment in the favored industry, it would be yet another version of the classic "broken window fallacy" identified by Frederic Bastiat. The benefits of consumers paying up for product X are visible: the aforementioned activity (Hooray ... activity!) generated among producers and suppliers of X. The invisible cost -- the opportunity cost -- is all the sales not made and profits not earned by the dispersed and largely unknowable businesses where the consumers' monies would otherwise have been spent. Of course these businesses would have no lobbyists carrying the torch for them. They do not even know who they are.
The legality or morality of the piracy is not the issue here. The affected industry calling in the government cops to do their bidding on the basis of phoney public benefits is.
"When countries take steps to reduce software piracy, everyone benefits," noted Robert Holleyman, president and CEO of BSA. "With more and better job opportunities, a stronger, more secure business environment, and greater economic contributions from the already robust IT sector, reducing software piracy would deliver tangible benefits for governments and local economies."
The costs of the "steps to reduce software piracy" are to be assumed by that great ficitious entity known as the government -- who knows who, but mostly not the software industry. The tangible benefits, if any, will accrue to the software industry and those that serve it. This is all you really need to know.
CAN OPENOFFICE.ORG DO THE JOB?
OpenOffice.org is a -- perhaps the -- major competitor to Microsoft Office when guaged by features and overall quality. It is freely available to boot. A Free Software Magazine blogger, who works for a charity, looks at whether OO.o is good enough for his exployer's purposes:
I have been using OpenOffice.org since it was called StarOffice 5 and have used it exclusively at home since before OpenOffice.org 1. [It is now up to version 2.3.] Currently at my workplace we use Microsoft Office XP (well, except for the IT team who mostly use OpenOffice.org!) but we are looking to upgrade to OpenOffice.org sometime in the near future. ...
So what needs does a charity like ours have with regards an office productivity suite? It will come as no surprise to hear that they are nothing out of the ordinary. All users need a word processor, about 10% need a spreadsheet and an increasing number "need" a presentation program. By the way I feel that perhaps Impress will have the hardest job infiltrating the users' psyche because "PowerPoint" is now a ubiquitous noun for both the application type and the documents produced on it. Our users have no need of something like Access because we do our database properly (!) ...
Word processing: I would say that most of our users' word processing needs will be perfectly met by Writer. The interface has a familiar feel and you can get up and typing within seconds. Opening documents sent by other organisations will probably not be any bigger an issue than it is now. We often get sent MS Works documents (ugh) which Word cannot open -- and for which there is no plugin -- or an OpenXML/Word 2007 file. In those cases it is fairly trivial to ask the sender to send it Word 2002 format or -- if they can -- in ODT. [OOo's XML-based format.]
There are one or two bits that I am less confident my users' will accept on first glance: Styles, Tables, [and] Mail merging. The first two are purely educational issues. I am confident that given proper tuition they will soon adapt to the -- in my opinion better -- way of working with styles within documents. ...
As you would expect the majority of our spreadsheet use takes place in the Finance team. While I am confident Calc can take what most users throw at it I am less sure about the -- frankly -- huge and complex documents used by our Finance team.
The fact that Calc recently had the maximum number of rows increased is a help (although in the bragging stakes Excel 2007 boats a million row maximum now) but I am less confident about bringing all the macros across.
Spreadsheets: Still the macros themselves are not that complex and can probably be rewritten for Calc if needed. The problem there again is time and Calc's ability to handle large size files with multiple lookups and references (although, to be fair, Excel 2002 is not great with its own memory handling).
Presentations: The only real issue here is probably embedded video -- not that my users make much use of it when creating presentations. Often we are sent presentations by others to use or create derivative works from. These can have embedded video and it must be said that they often bring new ways of death-by-powerpoint. This is likely to be a minor issue but it is one of those things on the "would be nice" list.
So what do we really need? So looking back at all that, I would say the prognosis is good. Which probably explains why we are now looking at OpenOffice.org as a serious upgrade from MS Office XP. Undoubtedly education is needed but it would be if we went to MS Office 2007 just as it was when we went from MS Office 97 to 2002.
Mail merging -- particularly from a single-usage data-source -- is a big issue though and if you ask me it needs attention from the OpenOffice.org team. The mail merge process needs to be more intuitive, less obstructive, a bit more explanatory and a lot shorter. ... What we really need is a fluid-flow, step-by-step, hand-holding wizard which walks the user through using a single-use data source, inserting the mail merge fields and producing the final merged documents. I do not want this to hold back the migration to an otherwise perfectly excellent piece of software, so perhaps the answer will lie in some Basic scripting. ...
The biggest obstacle to software migration, other the the cost of (re)training users and the IT department, is often the proprietary file formats and stored procedures used by the existing software. No blanket statements are possible here; however, OpenOffice.org is a viable and economic alternative to MS Office in many instances. We have been using OOo at W.I.L. for several years now, and it is satisfactory for our purposes.
An article comment also noted that later versions of MS Office need higher spec machines than OOo. For example, Office 2007 requires Windows XP-SP2 with a published minimum of 256MB of RAM while OOo 2 will run on Win98 with 128MB RAM.
10 TECHNOLOGY INDUSTRY PREDICTIONS FOR 2008
UK's tech industry The Inquirer rubs the crystal ball and comes up with a few "more or less cautious assumptions" for 2008. Here are the most interesting ones (to us):
2. Intel's hibernation
After wiping the floor with AMD in the past 18 months, Intel has it easy these days, almost too easy. It is obvious to see what the absence of proper combat in the CPU arena brings: boredom. The lack of sparking innovations in this sector got most hardware websites reviewing budget CPUs and writing articles about overclocking God-knows-what. AMD put a brave face and got back to the drawing board and we can expect them to recover nicely. But until then, Intel has the crown, whether we like it or not. And they know that. That is too bad, because whether it is because of design problems or simply because they do not have a serious competitor, they keep a rather relaxed timeline on new top products. Intel simply does not have any reason to hurry things up. And that is OK for now, since uber-CPUs are up for grabs at bargain prices.
AMD on the other hand will probably use 2008 to pick up the gauntlet and teach Intel some comeback lessons. Some claim the new Opteron isn't so bad, especially in the power consumption segment, while the Phenom proves to be an able contender in the value sector. But what will happen with AMD's financial situation? While Intel can afford three more market defeats, AMD can barely handle one. Let's all hope we'll have a serious competition out there at the end of this year, no matter who's the winner.
3. Less freedom
The past years have statistically proven that efforts are continuously mounting towards an all-out offensive against all sorts of online or real life liberties. While an Orwellian society is still out of the question, we should all expect the big names in DRM and such to push things even further against online information sharing. And, as some money-hungry leaders get even more preoccupied with controlling the masses and everything which moves online or offline, expect less freedom everywhere.
4. XP's triumph over Vista
The number one question is ... will we really be forced to switch to Windows hasta la Vista? Even though Microsoft is putting all efforts into that, apparently, the more money they invest, the greater the resistance to their born-handicapped child. Will really pulling the plug on XP this summer solve anything? First of all, there is still a good chance that Microsoft will change its plan. Secondly, millions of people across the world use XP without the need for live updates and such without the slightest problem. Even Windows 98 lingered on a while at good percentages after it got its ticket to heaven from the Vole. [The Inquirer's pet name for Microsoft.] 2008 may very well see the good old XP holding the front against the lumbering sack of confirmation dialog boxes also known as Vista.
5. The rise of Solid State Drives
If 2007 represented the commercial introduction for end users of the SSDs, 2008 may very well be the breakout year for these devices. Last year was dominated by the first attempts of various companies to produce and market SSD and things were rather chaotic, with very confusing price ranges, availability and performance. It is to be expected that this will all be sorted out until the last days of this year and, as the hardware manufacturers iron-out some of the imperfections of the technology, we will see a much broader offer in both spectrums of interest, price and capacity. In the future, we will probably use SSD for our OS partitions and magnetic drives to store high volume data.
8. MySQL to shine
Sun's acquisition of [database engine] MySQL puts them in a very comfy position in the world of software developers. Java is still being used across the globe with a constant popularity, defying Microsoft's monopolistic efforts. The fact that MySQL now has such an illustrious master will probably be good for everybody. Sun became quite [open source friendly] lately and this seems to be working out nicely for them. What is most important is that Microsoft's SQL Server might be facing some very heavy fire quite soon. MySQL was popular enough without Sun's involvement, but a good capital injection together with some know-how, strong business partners and vast opportunities might bring MySQL to heights not previously suspected.
10. That incredible news
Haven't you heard it? It is unbelievable, fantastic, shocking, amazing and unexpected. You bet we are going to hear about it sometimes this year. It is impossible to guess what it is and will come out of the blue and strike us all senseless. Each year in the IT world holds at least one of these bombs. That is the beauty of the game, not knowing when it will hit.
CAL THOMAS: CLINTONOMICS II
Usually conservative -- in the modern-day security-surveillance state supporter sense Cal Thomas -- sounds like a property rights-defending libertarian here. Unfortunately he does not normally extend the exemplary logic against government intervention displayed here to interfering with the affairs of other countries.
Recessions happen. The stock market rises and falls. The question ought not be about how the market is doing today, but about its net gain over the years. Investing is about long-term economic commitment, not short-term gratification.
During the slugfest that was the Democratic debate in South Carolina on Monday night, Sen. Hillary Clinton proposed a "quick fix" that would damage the economy at least as badly as Richard Nixon's wage and price controls, or efforts by the government to reverse the Great Depression, which arguably was caused in large part by government intervention in and manipulation of a free market economy.
Sen. Clinton said that as president she would "have a moratorium on home foreclosures for 90 days to try to help families work it out so that they don't lose their homes." She would also "have an interest rate freeze for five years, because these adjustable-rate mortgages, if they keep going up, the problem will just get compounded. And we need more transparency in the market."
Then, in a version of George McGovern's guaranteed minimum income proposal that helped sink his 1972 presidential candidacy, Clinton said, "I think we need to give people about $650, if they qualify -- which will be millions of people -- to help pay their energy bills this winter." ...
Sen. Clinton said that as president she would inject government more into the economy and rely less on market forces. She specifically mentioned income inequality and economic excesses, such as executive-pay packages, which she termed "offensive" and "wrong."
What is offensive and wrong is her notion that government is better than free markets at producing wealth and spurring economic growth, when just the opposite is true. The best way to rein in "excessive" executive pay is for stockholders to do it, not the federal government. And Sen. Clinton's proposed $650 gift to those who "qualify" is no better than the Bush administration's proposed cash handout to everyone. That money will most likely be spent on products made in China ...
Markets do best when government mostly leaves them alone, but Sen. Clinton, who along with her husband has made -- and Bill still makes -- millions off their notoriety and the selling of his presidency, are set for life, so what do they care? They can pretend to care for "the little guy" even while taking steps that harm everyone but themselves and their rich friends.
Income redistribution is socialism no matter what other label is attached to it. There is a Commandment (the Eighth) against stealing, but when government does it, it is called taxation. The results are the same. The person out of whose pocket the money comes no longer has access to what he has earned, and the person (or government) that takes the money often wastes it on things of which the earner would not approve.
The economy is adjusting because of greed, because of mortgages people could not afford and should never have been given, and because adjustments are normal in a capitalistic system.
HOW FREE IS THE “FREE MARKET”?
Imagine watching some TV show, DCPD Blue perhaps. The show episode leads off with a murder, and a suspect with a smoking gun in his hand is apprehended near the scene of the crime. A ballistics test shows the gun fired the fatal bullets. No one else's fingerprints are on the gun handle but the suspect's. His fingerprints are found on the bullets too. The suspect then claims ... he was framed! He accuses one Mr. X, who was not even in town when the murder happened, of being the one who did the dastardly deed. The detectives and cops then spend the rest of the episode investigating Mr. X. They rough him up and tell him he must have done it, and no confession is even necessary. The show concludes with the revelation that Mr. X did indeed do it, but without explaining how. Nor is it explained why the evidence pointing to the original suspect was misleading.
Question: How interesting and credible would this plot be? (More than most TV fare, but we digress ...) Yet, substitute in government for the suspect, the free market for Mr. X, and for the detectives and cops substitute government and its media and academic acolytes and concubines, and you have exactly this movie plot. Jeffrey A. Tucker explains:
See if you can spot anything wrong with the following claim, a version of which seems to appear in a book, magazine, or newspaper every few weeks for as long as I have been reading public commentary on economic matters:
"The dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise ... But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of global warming. Regulation ... is suddenly being demanded from unexpected places."
Now, a paragraph like this one printed in the New York Times opinion section on December 30, 2007 -- an article called "The Free Market: A False Idol After All?" -- makes anyone versed in economic history crazy with frustration. Just about every word is misleading in several ways, and yet some version of this scenario appears as the basis of vast amounts of punditry.
The argument goes like this: Until now we have lived in a world of laissez-faire capitalism, with government and policy intellectuals convinced that the market should rule no matter what. Recent events, however, have underscored the limitations of this dog-eat-dog system, and reveal that simplistic ideology is no match for a complex world. Therefore, government, responding to public demand that something be done, has cautiously decided to reign in greed, force us all to grow up, and see the need for a mixed economy.
All three claims are wrong. We live in the 100th year of a heavily regulated economy; and even 50 years before that, the government was strongly involved in regulating trade.
The planning apparatus established for World War I set wages and prices, monopolized monetary policy in the Federal Reserve, presumed first ownership over all earnings through the income tax, presumed to know how vertically and horizontally integrated businesses ought to be, and prohibited the creation of intergenerational dynasties through the death tax.
That planning apparatus did not disappear but lay dormant temporarily, awaiting FDR, who turned that machinery to all-around planning during the 1930s, the upshot of which was to delay recovery from the 1929 crash until after the war.
Just how draconian the intervention is ebbs and flows from decade to decade, but the reality of the long-term trend is undeniable: more taxes, more regulation, more bureaucracies, more regimentation, more public ownership, and ever less autonomy for private decision-making. The federal budget is nearly $3 trillion per year, which is three times what it was in Reagan's second term. Just since Bush has been in office, federal intervention in every area of our lives has exploded, from the nationalization of airline security to the heavy regulation of the medical sector to the centralized control of education.
With "free markets" like this, who needs socialism?
So, the first assumption that we live in a free-market world is simply not true. In fact, it is sheer fantasy. How is it that journalists can continually get away with asserting that the fantasy is true? How can informed writers continue to fob off on us the idea that we live in a laissez-faire world that can only be improved by just a bit of public tinkering?
The reason is that most of our daily experience in life is not with the Department of Labor or Interior or Education or Justice. It is with Home Depot, McDonald's, Kroger, and Pizza Hut. Our lives are spent dealing with the commercial sector mostly, because it is visible and accessible, whereas the depredations of the state are mostly abstract, and its destructive effects mostly unseen. We do not see the inventions left on the shelf, the products not imported due to quotas, the people not working because of minimum wage laws, etc.
Because of this, we are tempted to believe the unbelievable, namely that government serves the function only of a night watchman. And only by believing in such a fantasy can we possibly believe the second assumption, which is that the problems of our society are due the to the market economy, not to the government that has intervened in the market economy.
The abstract nature of the state's depredations might explain why the average citizen is gulled/lulled into the naive view. But there is absolutely no excuse for academics and other so-called scholars, never mind for the policy makers who actually legislate or execute the interventions, believing the fantasy. And it appears that some really do believe, e.g., Paul Krugman in the New York Times among others. Kevin Gutzman wrote in The Politicially Incorrect Guide to the Constitution that something in the typical intellectual finds the idea of the philosopher king appealing. And once installed in the position, they believe their own press releases.
Tucker procedes to explain how the current housing crisis has government's fingerprints all over it, top to bottom. And also how the very idea that government intervention is an effective, never mind efficient and humane, approach to solving complex problems is a nonstarter: "Anyone who has experience with public-sector bureaucracies knows that they cannot do anything as well as markets."
In one respect, the New York Times is right: there is always a demand for economic intervention. The government never minds having more power, and is always prepared to paper over the problems it creates. An economy not bludgeoned by powerful elites is the ideal we should seek, even if it has a name that is wildly unpopular: capitalism.
Those who directly benefit from intervention would naturally be expected to support and rationalize the intervention. More surprising is the wide support it enjoys by those it actually hurts. It goes beyond ignorance, to an unquestioned faith in the beneficence of government and the maleficence of the free market. It brings to mind the Kierkegaard quote that "People demand freedom of speech as a compensation for the freedom of thought which they seldom use."
Why the Beltway Libertarians Are Trying to Smear Ron Paul
The hysteria that is energizing the campaign to smear Ron Paul and his supporters as "racist" is reaching a crescendo of viciousness, as the Beltway "libertarian" crowd revs up its motors for a righteous purge. Writing in the online edition of Reason magazine, David Weigel and Julian Sanchez (the latter of the Cato Institute) aver that the whole brouhaha is rooted in a "strategy" enunciated by the late Murray N. Rothbard, the economist and author, and Llewellyn H. Rockwell Jr., founder and president of the Ludwig von Mises Institute, designed to appeal to "right-wing populists" ...
Reason, of course, in its new incarnation as the official organ of the libertarian movement's aging hipsters and would-be "cool kids," vehemently opposes reaching out to middle and working class Americans ...
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