Saturday, 28 September 2013

Gold Price: LBMA Gets Its Crystals Balls Out in Rome


 
LBMA conferences have a tradition of everyone guessing the gold price one year hence, and the average being offered back as some kind of guide to professional sentiment, writes Adrian Ash at BullionVault.
 
You know the idea. Anyone trying to guess how many sweeties there are in a jar – or inflated balloons squashed inside a car, say – will likely be wrong. But average out everyone's guesses, and your answer can prove weirdly right.
 
Forecasting the future then, this wisdom of crowds might help as well. Especially if the guesses are made by industry players, taking a punt at where they see – for instance – the gold or silver price sitting one year from now...updating
 

Thursday, 12 September 2013

The Real Law of Wages


 
ONE OF the oldest fallacies in economics is that the amount of work done should be reflected in the amount of pecuniary reward received for doing it, writes John Phelan at the Cobden Centre.
 
How can it be fair that someone who slaves away for hours slicing kebab meat in a kitchen on a sweltering day earns £6.19 per hour while someone who kicks a football around for a few hours a week gets £2,040 per hour?
 
In fact, the amount of work we do is not commensurate with how much we are paid. Nor should it be. In the late 18th century for every bit of effort the average Indian textile worker put in he or she was paid just one sixth of what a British textile worker was paid for the same amount of effort because the British worker, with their greater capital stock, produced six times as much with that given amount of effort. Whatever our gut reactions, what wages reflect is not the 'effort' of the worker but their output and the market's and the employers subjective valuation of that output.
 
When deciding whether or not to hire, and at what wage, an employer will only employ that person if they think doing so will add more to turnover than to costs and they will not pay that person more than he or she is expected to add to turnover. To pay more would mean that that the employer is paying to employ that worker. This is the real Iron Law of Wages.

India's Gold Currency Controls


 
WHAT'S GOING on in India over gold imports is nothing new, writes Miguel Perez-Santalla at BullionVault.
 
We've seen it over and over again throughout struggling economies. Blocking inflows of gold, to try and stop outflows of capital, is called currency control. These attempts to control movement of currency are very common when a government is faced with problems like India's. They actually create a more crippling environment than the one they are put in place to improve. And make no mistake, controls on the movement of gold is a control on the movement of currency.
 
Gold has always been and will always be the safe haven of choice when people lack confidence in their government. Lacking confidence doesn't only mean that they're not certain they'll perform well, but it also may mean that they don't trust their government to operate in their best interest. Starting with allowing economic freedom, and defending the value of the currency.
 
What are these currency controls recently put on gold in India?
  • They've prohibited and restricted loans to customers on gold bullion;
  • They've raised the import tax on both gold and silver to 10%;
  • The sale of gold may only be made to jewelers or bullion dealers to supply the jewelry industry;
  • Gold importers must ensure that 20% of all gold imported is to be exported as product.
Oddly enough, the Reserve Bank of India and the government are so concerned with the balance of payments that they miss the most important responsibility they have. It is not to control the outflow of capital, but increasing the inflow of capital. Free trade, when enabled both ways, will find an equilibrium that will benefit all parties.
 
India's finance minister Palaniappan Chidambaram is attempting to do just that, but in the interim the laws that they put in place are hurting one of their key industries, the Indian gold jewelry trade. Estimates vary, but one puts the jobs at risk of being lost if the controls stay in place at half-a-million. This will force the people in that industry to search out other solutions.
 
Trying to interpret the government's regulatory actions has caused foreign investment in India to plunge over the past year, while capital expenditure at home may fall further in the future. Because as usual, when a country attempts to control business, then business goes elsewhere.
 
The chairman of Cipla (a large pharmaceutical company), Yusuf Hamied, in a recent interview with the Indian business newspaper The Business Standard, said that thanks to India's unpredictable tax regime, "All big Indian companies are going abroad. The time has now come for us to say goodbye to India."
 
Why not blame gold? From 2011 to 2012 India's gold imports increased nearly 50% to an estimated $57.5 billion. Of course, this does hurt their account deficit and it is something they should be concerned with. But their attempts to close the gap by controlling gold flows are again the wrong tack to take.
 
What happens when governments impose restrictions is that they also increase crime. With a 10% duty on gold, the profit to smuggle gold bullion into India has increased. Though some of the smuggling will be caught, much will make it into the country representing a loss of revenue to the government. Ten percent is just too high of a spread to be borne by the Indian public and market for which the gold is intended.
 
A recent article by Bloomberg details how gold-smuggling gangs from the Middle East are now entering this business. Some Indian jewelers are willing to buy from anyone that can bring them lower cost gold, because it enables them to keep their business running. Otherwise they can only live off the scrap metal they receive from the marketplace.
 
Banks and traders halted imports of gold bullion during August, after the central bank linked inbound shipments to re-exports. So gold supplies have become difficult to come by. But the recent collapse of the Rupee by 18% has increased the amount of gold being turned in for cash by Indian households, who are also faced with a "credit crunch" caused by the rising financial crisis. And so once again, gold – which their government informs them is not a proper investment – has saved the individual by providing liquid funds just when they're needed.
 
How does this affect the external gold market? The answer so far is very little. The market in China is constantly growing and China's gold demand may overtake Indiaas the largest consumer in the near future. Physical demand for gold coins has been strong globally. But India's traditionally strong period of festival and wedding demand now running to Diwali in November will likely see much lower gold imports through official channels.
 
Of course, gold will still flow where it is needed. The controls that the Indian government has established have done little to stay the hands of investors.
 
It's almost too simple to believe that the government cannot recognize where their focus should be. India's gross domestic product growth rate has been on decline since 2011 from a high of 9.3% to currently 4.4%. Capital outflows, distrust of government regulations, and the inability to get businesses active in India are the primary causes of this government's troubles. If the business environment were to be improved then the economy would grow as well. The people themselves would reinvest into their country.

Wednesday, 4 September 2013

Anarchy, Or Life Without the State


How life without the state, aka anarchy, is the basis for a civilized society...
The POSITION that there need be a state is too often taken for granted, writes Chris Mayer in The Daily Reckoning in this, the second part of his interview with Crispin Sartwell.
The main body of Sartwell's book Against the State is dedicated to destroying the arguments for a state from the likes of Hobbes, Rousseau and Hegel. In fact, one thing that becomes crystal clear in reading Sartwell's book is how bad the classical theories of the state are.
"Amazingly bad," Sartwell said. "It's shocking, really. The way the book came about was that I taught a basic political philosophy course for three or four years. Every time I read Rousseau, Locke or Hobbes...I'm saying to myself, 'This is so bad. Don't people realize how bad this is?'
"I think what goes wrong is that these figures – Locke or Hobbes or Hume – are so secure in their position [that there must be a state] that all they have to do is wave in that direction and people will follow.
"One function of anarchism, it seems to me, is to put forward challenges to them. There have been some who have tried. Robert Nozick at least tried to articulate an alternative. There have been people who have tried to bring anarchism to the mainstream, but it's always been marginalised because it sounds so crazy to people."
I asked Sartwell what he thought was the stronger argument for anarchism: a moral argument against force and violence or a more utilitarian defence based on outcomes.
"I think the moral argument is the stronger," he said. "That's the center of my commitment, anyway. The problem with utilitarian arguments is how do you really judge? Look at what's happening now. How do you really know what the effects of what the US government is doing now are going to be, say, over a century? You can't really know. I like to turn those utilitarian arguments around on state. You start talking about the disasters of states. Holocausts. Genocides. World wars."
In his book, Sartwell cites the work of Matthew White on the mass killings of the 20th century. It's a blood-soaked indictment against states. Safe to say it's hard to imagine such large-scale slaughter happening in a world without states.
"It's not completely unimaginable,' Sartwell ventured, 'but you have to have a very organized body of people to come up with nuclear weapons or the Final Solution. It's going to have to be something that is, in effect, a state anyway. And in fact, the only bodies of people who have perpetuated death on such a scale are states."
I agreed that the moral arguments are stronger. I mentioned one of my favourites, Lysander Spooner (1808-1887), to whom Sartwell makes reference in his book.
Spooner is a good old-fashioned natural rights-based anarchist, relying on the language and concepts used by the Founding Fathers and Enlightenment figures that man has certain inalienable rights.
"Spooner is so amazing on that," Sartwell agreed. "You give him some minimal concept of natural rights, and everything else flows from that. It's almost Euclidean. As a philosophy professor, I worry about its conceptual underpinnings. I can't formulate a philosophy that makes natural rights obvious."
Sartwell puts forward a moral argument for anarchism in his book. I like one example he uses. He writes how he knows he doesn't want to be tortured, so he assumes others don't want to be tortured either.
"You don't have to have a concept of natural rights to say that," Sartwell points out. "But natural rights are a compelling way to formulate why that should be."
This brought us to one of Sartwell's favorites, Josiah Warren (1798-1874), a remarkable figure and a wonderful human being in the anti-authoritarian tradition. Josiah often gets credit for being the first secular American anarchist.
Sartwell has edited a great book of his writings with a lengthy and useful introduction as well as various notes. I highly recommend this book. (It's called The Practical Anarchist: Writings of Josiah Warren. A true labour of love, Sartwell edited all of Warren's writings and pared them down to a healthy sample of the most important ones. What remains are sparkles of clarity and one of the most extreme individualist philosophies you will find in American letters.)
Warren too builds his individualism on moral grounds. "He grounds it on the reality of human individuality and the reality of human differences," Sartwell explains.
I mentioned that Warren is the first secular anarchist in America, at least that we know about. But many people don't know the history of anti-authoritarian thought in America and how much of it sprang from the Protestant Reformation. Sartwell explains the fascinating link:
"I have a certain reading of this American libertarian or anti-authoritarian tradition that does trace from the Protest Reformation. Luther's teaching was that each person is his own priest and that there need be no hierarchy between a believer and the believer's god. It was a very radical idea. And very anti-Catholic, obviously. Although there are elements of that kind of dissent even from the very early days of Christianity.
"Luther himself allied with the state powers and princes in northern Europe to survive the onslaught of the Catholic Church, which is why the Reformation was more successful than other rebellions had been previously. But many radical figures in the Reformation extended that kind of anti-authoritarianism to political institutions. This would include groups that later came to the US, such as the Mennonites; Anabaptists; and, even later, the Quakers.
"These are radical groups that came here with an individualist kind of ethos. So there was an immensely complicated religious geography in early America. But it is primarily British Protestant of one sort or another. This is central to the whole American political tradition and central to the idea of natural rights. John Locke, for example, comes from a Puritan background. But this early American anti-authoritarianism is a more emotional, focused, and less educated version of individualism, and it is faith-based...
"It is a way of articulating individual rights in the early republic that focuses on religious practices and respect for different practices and different believers. This yields an entirely different conception of what a human being is on Earth and what a human being owes to any authority. Each of us is equally assigned the task of our own conscience and conducting our own moral life.
"For example, a Quaker believes, 'My conscience is not answerable to any outside authority.' This thought drove Lucretia Mott [a great 19th-century feminist and abolitionist], drove early feminism and early abolitionism, and is secularised in Thoreau's Civil Disobedience...
"This is the history I'm trying to uncover, not that I'm the first to try to do this. I want to draw out these connections in early 19th-century reform movements... And you can see this also as the growth of libertarianism. It is a very noble history, actually."
We also talked about various figures, such as William Lloyd Garrison (1805-1879).
"William Lloyd Garrison is a fascinating figure. He is one of the most important political figures in 19th-century America. He is an absolute pacifist, one of the first to articulate it, and a radical individualist of this very Protestant variety. He's over-the-top for Jesus. Lysander Spooner, by contrast, is a deist or an atheist, perhaps... He's got a completely different orientation, but still emerges out of the same tradition and has the same basic commitment to individualism."
We then talked how many of these anti-authoritarian figures tended to be on the right side of history.
"They tended to be," Sartwell said. "Absolutely. You can't be an individualist and be an advocate of slavery, not with any consistency, anyway."
In his excellent introduction to his book on Josiah Warren, Sartwell writes almost poetically about the beauty of individualism as against the abstractions of statists:
"Every abstraction from the world is...an abstraction from the world, a digression or diversion from it, and a devaluation of it. For millennia, we have been bundling things together to try to comprehend them; now the point is to appreciate their strangenesses, their excesses to categorization. Individualism is an attempt to remake the world by affirming it."
Although Sartwell is describing Warren's philosophy, I offered that this sounded a lot like Sartwell. As the old saying goes, there is no political philosophy, only autobiography.
"Yeah, that sounds like me. Josiah Warren goes far with individualism. It's not just a philosophy for him. It's a metaphysic. He appreciates things in their specificity. You see the same thing in Thoreau. His commitment to the specific observation of the real world is total.
"That's what he's interested in. It's a whole way of comporting yourself in the universe. It's about really understanding the position you are in and not covering it up with abstractions."
Such noble thoughts seem a long way from the Snowden-Manning-Abu Ghraib-drone fest we live in today. We finished our conversation where it began, marvelling at the backlash to Snowden and the encroachments of state power."
"What would Thomas Jefferson think of that?" I said. "What would Thomas Paine think? Is this our American tradition?"
"Not enough people are asking those questions anymore!" Sartwell said.
When I said we were perhaps fighting a rear-guard action as anarchists, Sartwell said, "Maybe not. Maybe we're the future."