Moral Inversion of the Panamanian Tax Scandal

In the 1980s I worked for a private bank in London that specialised in helping wealthy offshore clients manage their investments outside their home countries. Typically these clients were successful businessmen who wanted to secure at least some of their wealth from rapacious tax authorities. We were careful with who we took on as clients, requiring every prospective customer to be introduced by someone we already knew, and we were not prepared to take on anyone whom we suspected might have obtained their wealth through criminal activities.

One of the aspects of our bank that appealed to offshore clients was that being London-based, we tended to attract less attention from foreign governments than, say, Swiss banks. Our job was to act in our clients' interests to the letter of the law and we worked on the principle that if any of the information we held to was disclosed to the UK authorities, there would be no risk of incriminating (or even embarrassing) our clients or ourselves.

So it was with great interest that I read about the hacking of the Panamanian legal firm, Mossack-Fonesca. Leaving aside the obvious incompetence that the firm exhibited in allowing their client records to be hacked (even before the advent of the Internet with its risk of hacking, we never stored real client names with their numbered account records on our computer systems), I have difficulty equating what has been revealed with the outrage from the world's media. There is nothing in the revelations to suggest that Mossack-Fonesca did anything illegal, but the outrage is not about illegality, it's about preserving the inherently corrupt system of taxation and welfare spending.

Governments all over the world have bribed their electorates with money they do not have. They have funded their bribes from borrowings and from printing money, both of which have the effect of deferring the true cost of the bribes. But we know from the recent experiences of many European nations and increasingly the United States that the borrow and spend policies cannot continue indefinitely. There has to be a reckoning - either the state cuts spending hugely or it raises taxes significantly. The problem with doing the latter is competition from low-tax jurisdictions. In a world where money and skilled workers can easily migrate, high-tax governments know they won't keep either when lower tax alternatives are available. The response of high-tax governments is to wage an economic and propaganda war on low tax countries.

The United States has been particularly ruthless in its strong-arming of low-tax nations, for example forcing Switzerland and Liechtenstein to abandon their banking secrecy laws in respect of US taxpayers under threat of seizure of their banks' assets in the United States. It has also forced countries including New Zealand to implement its FATCA regime, in which foreign governments pass laws that put anyone with the vaguest connection to the United States under scrutiny for the rest of their lives in order that the US Government can extract taxes from them (see my blog post about this here). Meanwhile, the Western mainstream media act as cheerleaders to this extrajudicial abuse of power.

There is a moral inversion to all of this - bribery and extortion by governments are considered just, while protecting what is yours is considered immoral - but that is the world we live in and I suspect its going to get worse before it gets better.

It Can't Possibly Come Down to a Bush-Clinton Fight, Can It?

The dance of the seven veils has begun. No, I'm not talking about Salome's performance for Herod Antipas, I'm referring to the drawn-out unveiling of candidacies for next year's US presidential elections. On the red side, we have confirmed candidacy announcements from Ted Cruz, Rand Paul and Marco Rubio; and euphemistic 'exploratory committee' announcements from Jeb Bush and neophyte former doctor Ben Carson. Jeb Bush is the frontrunner in the early polls. On the blue side, we have...well, Hillary Clinton. If you're anything like me, and take an interest in US politics, you're probably already groaning, "No, no, no, it can't possibly be coming down to a Bush-Clinton fight, can it? Hasn't this country of more than 300 million people got two decent presidential candidates who don't belong to one or other of these two families?"

I think it is unseemly in a democracy to be ruled by political dynasties. It's unseemly because it demonstrates democracy is not working. It is the sort of thing that happens in countries that are democratic in name only, countries like the Democratic People's Republic of Korea. The frequency with which dynasties have arisen, even in democracies are that are worthy of the name, can only be down to two factors - either the name recognition is, in itself, sufficient reason to attract voters to the candidate, or there is some form of favouritism or nepotism built into the political system. If it just comes down to name recognition, that suggests the voters are too shallow to consider real political issues. If it is favouritism, that means the voters don't really get a choice between the best candidates. Either way, it indicates democracy is not working.

Now, it may surprise you to learn I'm not a doctrinaire democrat. I believe, like Winston Churchill, that democracy is the least bad system for selecting our political leaders, and like Thomas Jefferson, I believe democracy only works effectively when it is tightly constrained. The unconstrained will of the majority is nothing but mob rule and the tendency towards this must be tempered with strong constitutional checks and balanced with strong protection for individual rights. One of the important constitutional checks in most Western nations is regular, fair and openly contested elections. The growth of political dynasties suggests that the 'fair' and 'open' criteria are not being met.

The United States desperately needs fresh political blood. That great nation is, I believe, on a path towards mediocrity. It is the most heavily indebted nation in absolute terms and has the biggest government expenditure deficit. Even in relative terms it is one of the most heavily indebted nations in the world. Unlike similarly indebted countries like Greece, the United States gets away with it because its dollar is the world's reserve currency, which means the value of its currency is inflated by demand for it as a unit of exchange. This suppresses the effect of all that debt on other economic indicators like interest rates and inflation and that means the US Government can continue to fund those deficits by borrowing and printing (electronically) more and more money to pay its debts. But sooner or later reality will catch up with America and that comparison with Greece will start to look a whole lot more real. At that point, or hopefully before it gets to that stage, Americans should hope they have better political leaders than the current crop.

And I really don't think they will be wanting a president named Bush or Clinton.