Saturday, February 15, 2014

Brutal on the Population

See the Wall Street Journal opinion piece Mi Amor, I Shrunk the Peso by Mary Anastasia O'Grady (February 2nd, 2014). The article is about Argentina's devaluation and history of devaluations, but there are also notes from an interview with Irish Finance Minister Michael Noonan. Here is what caught our attention:
"Marking down the currency is the least-painful path for the state when it cannot meet its obligations. But as Mr. Noonan pointed out, it's brutal on the population. Devaluation reduces the purchasing power of the nation. Real wages and the real value of nest eggs belonging to ordinary people are cut from one day to the next. 
What is worse, Mr. Noonan observed, is that few countries go through a mega-devaluation only once. 'It becomes a habit.'"
We suspect that the rich in Argentina keep their wealth in commodities or in external financial instruments denominated in strong currencies. Or perhaps they own strong external currencies outright. Otherwise we do not see how they could remain rich in global terms. Owning the Argentine peso is clearly not the way to secure one's wealth.

To us this is yet another example of the rich using arbitrage to transfer our wealth to themselves. See for example our post Take from the Poor about how this is done. Based on what we see in Ms O'Grady's opinion piece, the rich in Argentina have been playing this game and "brutalizing" the Argentine population (to use Minister Noonan's word) for about two hundred years.

This means that the rich marginalize themselves. They "raise" themselves "above" local populations, becoming more citizens of the world than citizens of any particular nation. It is a side-effect of putting oneself in a position to take advantage of arbitrage.

Several points come out of this line of thought. First, if one is concerned about the stratification of society, it already exists. The rich think of themselves as being on a higher level. Therefore the issue is not so much how to prevent stratification but how to structure it in a reasonable way to prevent abuse.

Second, multiple worldwide currencies and markets already exist. The problem once again is how to structure them in reasonable ways to prevent abuses like the ongoing "brutalization" of the Argentine population.

Third, capitalism as it is now conceived will not fix itself. Capitalism is working as designed. We see in Ms O'Grady's article that the rich in Argentina have been taking advantage of that for a few hundred years.

One way to see the central problem is that the rich want to elevate themselves above the rest of us, but not so far that they cannot still control our economies for their own profit. says that we should complete the separation by moving them into their own markets with their own currencies. Then we will be able to negotiate with the rich on a more equal basis and prevent abuses like the Great Recession and the devaluation in Argentina.

The way capitalism should be.

Socialism for the socialists and capitalism for the capitalists.

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