C. Welwood: “Ten Years Later, the 100 Yen Shop is Still the 100 Yen Shop”

Clayton Welwood was the leader of the BC Libertarian Party from 2016-2018 and is a frequent writer and guest speaker for libertarian events and outlets. He currently sits as the Chair of the BCLP Ethics Committee.

This presentation was given by Clayton Welwood as part of the BC Libertarian Party’s “Liberty & Economics” lecture series on Sep 11, 2018.

In June this year I took a trip to Japan with my family. It was the first time I’d been there since having lived there a decade ago. A few things had changed; a couple new high-speed rail lines, a new upscale shopping mall in the suburb where my in-laws live, a lot more foreign tourists. But one thing that hadn’t changed was the cost of goods and services. The 100 yen shops still sold everything for 100 yen. Compare this to Vancouver, where everything is $1.25 at least, and plenty of items cost $3 or $4.

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It wasn’t just the made-in-China goods, which are being produced for less than ever. The cost of food and drinks in both grocery stores and restaurants hadn’t gone up, and every second or third cold drinks vending machine had a “Price Down! 100 ¥” sticker on it.

The cost of services too didn’t seem to have gone up either. Public transit fares still started around 150 ¥, a 1 hour shiatsu massage for 3000¥, and I was able to find a 4-star hotel in next to the main train station in Nara (a fairly major tourist town) for $75 Canadian a night including fees/taxes. Residential real estate prices seemed to have increased slightly.

 Japan earned a reputation internationally for being outrageously expensive during its bubble economy in the 1980’s. But after the bubble popped, price deflation then stability have been the norm. The fact is even though the quality of life isn’t really the same, the cost of living in Tokyo is significantly less than Vancouver.

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Am I saying all this to encourage you to move to Japan, or to say that Japan’s monetary system is superior to Canada’s? No, I’m just pointing out that it must be nice to not have the purchasing power of your earnings constantly eroded. Imagine how different your thought process might be regarding when to buy a home, how much of your earnings to save, or what kinds of investments to choose, if the dollar that you earned today could buy the same value of goods and services a decade from now?

Consider the newly-married couple, living in a large urban center in Canada, looking to buy a home and start a family. Both need to work full time to save for a down-payment, but each dollar they save buys significantly less house with each passing year.

 

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If they work for someone else, they’ll be expecting a raise of 2 or 3% or so per year, just to ensure they aren’t falling behind relative to the cost of basics like food (never mind the cost of housing, which is rising much faster).

 

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Or consider the 60-year-old carpenter, eager to retire and give his aching joints a rest. His government pension now seems a pittance, and won’t even cover the rent. He’s played it safe with his own savings, preferring GIC’s and Canada savings bonds, but these are yielding less than inflation and his investment advisor is urging him to shift to riskier assets. Work 5 more years or get into the stock market? It’s a difficult call for him to make. Though we may not have thought about it consciously, we’ve all felt the stress that this pressure to keep up with inflation exerts on us. Wouldn’t it be nice if we could step off the treadmill, even for a year?

 

Short of going completely off-grid, that isn’t really possible at the present time; inflation of the monetary supply has been institutionalized by the Bank of Canada. Low interest rates, set by our central bank and not the market, encourage borrowing and discourage saving.

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In past decades, interest rates were allowed to rise after the economy had recovered from recession, but now, with every level of government heavily dependent on cheap credit, the Bank has been persuaded to keep them low. Individuals have become used to the new “normal” as well, and consumer debt is now at an all-time high.

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Finance ministers can wag their fingers at the public all they want, but the fact is that government policy is the source of all this debt, and the asset bubbles in housing, equities and bonds. It’s not simply a matter of people being fiscally irresponsible; they’re responding to incentives, and if money is cheap they’ll borrow more of it. This is particularly true for land, which is seen as an asset that holds its value better than others, and hence people will borrow whatever they can to buy some of it.

 

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Why hasn’t Japan suffered the same fate of steady inflation? Their last bubble burst decades ago, and the government has been borrowing like mad since then, racking up the highest debt-to-GDP ratio in the world, so it’s not for lack of trying. It’s a question for economists to answer, and I’m not one. Perhaps the cultural propensity of Japanese people to save a significant part of their income, even if interest rates don’t reward it, has helped to keep inflation in check.

What I am quite certain of is that having interest rates set by market forces of supply and demand is much more sensible than leaving it to central planners. Government price controls reached a high during the second world war and have slowly been removed in the decades since, but somehow we can’t seem to shake the price control on the most fundamental commodity of all: money.

There are however three inter-related myths that need to be dismantled before Canadians will start to question the powers of the central bank:

  1. Economic growth (as measured by GDP) is necessary
  2. Economic growth is a result of spending
  3.  Spending can be stimulated by central banks setting interest rates low and governments borrowing lots

It helps with this sort of thing to think of an economy not in terms of dollars, but in terms of real goods and services that have value; in Frederic Bastiat’s terms, they help people overcome problems. To illustrate the difference let’s say that you want to call a friend in Japan. You can use the phone, and pay long-distance charges to your carrier, or you can use a free app on your mobile. If you use the phone line and pay $5, this gets added to GDP. If you use the app, you still make the call (maybe with the added bonus of video), but nothing is added to GDP. In a sense, we’re all economically better off than we were 20 years ago when such apps didn’t exist, and the long-distance charges were higher, regardless of whether GDP went up or down.

What makes us better off is innovation and productivity increases, not simply growth. GDP can grow because of a spending spree on military hardware, or from a bad wildfire season, or an uptick in cancer rates, none of which makes us wealthier in any meaningful way. So be wary next time you hear a talking head going on about how we can boost economic growth.

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If we agree that economic growth isn’t the best goalpost then we should immediately be sceptical of #2. So, if real wealth is the sum of the goods and services available in the market that help us to overcome problems, then what does injecting more money into that market result in? You guessed it…higher prices. This makes some people better off, but not society as a whole. If, however, more goods and services are produced, all other things remaining equal, the prices of those goods and services will go down, which means we get more stuff for the same amount of money. Production is the real economic stimulus, and consumption (spending) is the secondary effect.

When we see that it’s increased production that makes us better off, then low interest rates appear more as a mixed-bag than a cure-all. If those lower interest rates entice producers to purchase capital, hire more staff, and expand production, then great, we’re better off. But what if firms just use the cheap credit for buy-backs of their stock, or to engage in financial speculation, or hire high-priced lobbyists to advocate for tax code changes that help their industry? For government spending fueled by cheap credit, the results aren’t any better. If they use the loans to have a new highway built, there’s some benefit to private contractors that are hired for the work, and to motorists when it’s complete. But very little of the growth in government budgets are due to these kinds of infrastructure projects. More often than not, ministries grow their payrolls significantly while not making significant progress on the ills they set out to cure.

 
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The best case in point is public education—the number of administrators in provincial capitals has ballooned to tens of thousands, while the student population has remained stable and their performance on standardized tests has stagnated or fallen. Insofar as employees leave the private sector to work in the public, the effect of government stimulus spending harms the productive economy by diminishing its talent pool. The expansion of government programs into new area can also crowd out existing businesses and non-profits delivering those services, making the users of those services more likely to be dependent on public programs in the long term. Another long-term consideration is that someone will have to pay these loans back eventually, and I don’t think the politicians and bureaucrats are going to offer to contribute a share of their pensions to do so. No, it will come in the form of higher taxes, tariffs, licensing fees, and traffic fines.

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Or the government may decide to print billions to cover the debt, which would make the single-digit inflation we’ve discussed so far look like a walk in the park. In any case, the end game ain’t pretty, so we need to do what we can to address these issues before the day of reckoning.

If we can see through these three myths, and encourage our fellow citizens to do so as well, we can open up space for an honest conversation about who should be setting interest rates. Cost of living increases are a frequent topic of conversation everywhere you go in Canada and I think this is a good opportunity for us libertarians to talk about how the monetary system and government taxation and regulation contribute to this.

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In particular, a new CD Howe Institute study has shown that the cost of such regulation makes housing in Vancouver cost around double what it otherwise would. Certainly there are other factors at play (including the fact that people from all over the place want to move to coastal BC), but when it comes to cost of living, government policy is the major driver, and the one that we can do something about without inviting ethical dilemmas. If a of couple decades without government-mandated inflation hasn’t harmed Japan, maybe it’s time for Canada to give it a try.

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My main point is that central bankers aren’t wise enough to know what the price of money should be. Like the price of anything, interest rates should emerge naturally from the voluntary actions of lenders and borrowers in a free market.

We could take one more jab at government money creation and question the validity of the fiat currency system, but we’ll save that for another lecture in this series.

 

 

 

Make Your Voice Heard – BCLP AGM 2018

 It’s that time again, Libertarians.
To register for this event and to renew your membership, click here.
Ever wanted to get into politics and help change the world? Do you LOVE Liberty enough to do something about it?

You are invited to our forthcoming Annual General Meeting and Leadership Convention, which will take place on October 6th 2018!

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This is an important meeting as members will be electing a new Party Leader and Deputy Leader, in addition to the entire executive team and board of directors-at-large. We hope that you will be able to join us as we report and reflect over our activities of the last year. This AGM is also the occasion at which the board of directors as well as the Party President and Vice-President will be elected.
Now is a good time for you to consider whether you want to play a role in the essential, interesting and rewarding work that our board and leadership carry out. In addition to the business of the AGM itself we are also delighted to welcome this year’s returning guest speaker Tim Moen, the Leader of the Libertarian Party of Canada, as the keynote speaker for the meeting.
For more information and to register be sure to check out the event by CLICKING HERE!

 

C. Welwood: “Low voter turnout in municipal elections”

Low voter turnout in municipal elections

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Hello Jerome,

Thanks for passing this article along. It’s interesting to know what the voter turnout percentages are for municipal elections the North Shore. It’s also good to see that you care about the health and accountability of our political institutions. I do as well, having grown up in the City of North Van and now living in the District.

I appreciate hearing your thoughts on compulsory voting and proportional representation, and it’s good there is more talk about this sort of change lately. But I remain skeptical about their power to improve our political system. Though they could bring some improvements, these changes do not, in my opinion, go to the core of the issue–that some people rule others, without the consent of the ruled. This wouldn’t be such a big deal if governments stuck to basic functions like the founders of western democracies intended. If our rulers focussed on providing justice, policing, national defence and some public transportation infrastructure and environmental protection, and otherwise let us govern our own lives, I could wouldn’t make a big fuss about the absence of consent of the governed. However, today’s governments do not content themselves with providing basic public services; they want to set the direction society moves in, draw up elaborate plans, and extract the necessary funds from the populace to implement their vision. Democracy is supposed to guide that vision, but the idea that any one vision is suitable for all citizens is a dangerous fallacy, and it is unjust to force those who have alternative visions to submit to that of the majority. To make it worse, our elected politicians do not even have a mandate from the majority of the voters, as your example of the tiny margin of citizens who actually voted for seated councillors shows.

Government should stick to providing services that benefit all citizens; otherwise politics becomes a battlefield of special interests vying for the power of the state to implement their vision of society over competing visions. To me, the only way to get out of the mess we’re in is to reduce the size and scope of government. It would also help to push powers down from the federal to the provincial government, and from the provincial to the municipal, and perhaps even down further, to neighbourhood citizen assemblies. The reason for this is that we have a much better chance at the local level of holding politicians and bureaucrats accountable. Furthermore, if most of decision-making power is held at the local level, citizens stand a better chance of finding another jurisdiction that governs in a way they prefer, and moving there. This ability of citizens to “vote with their feet” can be another mechanism to hold government accountable.

Given all of this, I do not find it surprising that voter turnout is so low. People are deeply cynical about our political system, and correctly see that at the federal and provincial levels, the major political parties are not very different from one another on matters of substance, and in any case can’t be trusted to keep their campaign promises. At the municipal level, I think most voters understand that no matter who they elect, property taxes will go up, density and traffic will increase, and the bureaucracy to support these will grow. What I believe many of these non-voters are waiting to hear is a vision of society that puts them in the driver’s seat. Such a vision would mean the removal of laws that impinge on their authority to make decisions over their own lives and property. It would also lay out some mechanism that gives them a meaningful voice in those decisions that require the agreement of the community (e.g. what kind of public infrastructure to build). I believe that such a vision of a free society that relies on limited government, personal responsibility, and civic engagement at the local level will inspire more and more people to vote for alternatives to the status quo and build and strengthen a plurality of voluntary institutions that allow citizens to work directly with one another to achieve their visions of society.

Don Wilson: “Über for the Mensch”

I am a wanderer. It seems I can not long sit still. My greatest encouragement is that there is no path behind me.

“We kings ourselves have become false, draped and disguised with the old faded pomp of our ancestors, show-pieces for the stupidest, the craftiest, and whosoever at present traffics for power.”

– Nietszche, Thus Spake Zarathustra

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There is a morbid pathology in the mind of government and its acquiescent supporters. Carpooling for money is illegal. A dysfunctional taxi monopoly is fiercely and explicitly guarded by law. Not only are these things permitted, but they pass with little protest – or worse, garner support from otherwise intelligent-sounding persons.

Picture this: you live in New Westminster and commute to Abbotsford. You post a message on Craigslist, or at your office on a corkboard: “Carpool from New West to Abbotsford for $10”. You get a positive response. Another worker is going the same way and is willing to throw in $10 to help with costs. This whole interaction is completely mundane and beneficial. Yet the authoritarian attitude is so pervasive that the right to violently prevent you from completing this transaction is not just proposed, but simply assumed.

Services like Über and Lyft promise seismic shifts in the transportation of people and goods. We can no longer permit incipient authoritarians to root into the most trivial but fundamental aspects of our lives and halt the progress of technology and innovation.

The perverse mind-set of the passive-aggressive authoritarian gives us aberrant anachronisms like the Passenger Transportation Board, the gatekeeper for all commercial transportation in the province. The board fixes prices and even determines if a business is allowed to operate or not, such as in February of this year when a bus company was prevented from operating a bus line between Victoria and Nanaimo.

I picture this board as part demented soothsayer and part Cerberus, the mythical, multi-headed dog that guards Hades and prevents the dead from escaping the underworld. I imagine their price-fixing meetings: the bunch of them surrounding a crystal ball, cinched up tight in leather restraints; red, swollen faces hanging upside down, whispering odes to David Carradine into a top hat, from which I can only presume the correct price or permissible bus service emerges. How else could they divine the “correctness” of a price for a bus line, or the existence of a new service, in the infinitely complicated marketplace that is always unfolding into the future. How else could they know how to properly decide what is right and what is wrong on our behalf?

The appropriate public policy on these matters is “mind your own business.” If you don’t want to take an Über, don’t. If carpooling is too dangerous for you, travel by some other means. Otherwise, leave the rest of us alone.

Neeraj Murarka: “Decentralization in Switzerland”

Neeraj Murarka was the BC Libertarian Party’s 2017 candidate for Burnaby-Lougheed. He’s also the co-founder and CTO of local blockchain startup Bluzelle.

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I absolutely love decentralization. It is the key to the business I run, which is one of the biggest passions of my life (other than being a pilot and Libertarian).

Decentralization means that instead of a model with a centralized power authority controlling a system and making decisions with limited oversight, you have a collection of equals all competing in a collaborative exercise, the outcome of which is a decision that achieves the same goal as would be achieved if you had a single authority, except this time, you have competition between different parties and no absolute control.

Let’s look at Switzerland. You have not really a country (yes, technically, it is one) but 26 cantons. The only thing they really share is a military, foreign policy, and currency. Apart from that, they have different taxes, laws, and even languages (to some extent). They actually compete with each other. Imagine… competition within a country where the parts of that country are each incentivized to NOT be lazy and complacent but to actually innovate and make an effort to be better than the others in an effort to strengthen your own economy, etc? That’s what Switzerland is. Competition at the cantonal level. If you are a politician in a canton and don’t perform, you are thrown out pretty fast thanks to the very rapid and frequent referendum process that ensure people are held accountable.

Finally, there is no real president/PM. The country has a round robin of people who represent it on the world scene, but no one person gets to have that role for some lengthy term. If you don’t perform in your role as that representative, you don’t get do it again. Most importantly, that person, while in that role, still has NO more power than the rest of the people in the round robin — everyone is equal.

We need to decentralize. We should have all the ridings competing. All the provinces competing. And we should not have some guy in Ottawa sitting on his high horse for 4+ years making idiotic decisions none of us agree with.