Sunday, 10 April 2016

Papers in Panama aren't the problem, you are

Everyone likes to know the secrets of the game and I bet the journalists who worked on the Panama Papers are feeling happy with themselves.

Last week, the nasty, corrupt elites were exposed hiding money in offshore trusts using shell companies in a tiny Central American country no one really cares about. Now we get to feel vindicated that our economic pain and suffering isn’t our fault after all. Phew. “See, it was Big Business and the 1% the whole time! Didn’t we say so?”

Well, no, actually, we didn’t. Having a vague hatred of rich people doesn’t qualify as a reason for action, nor even as a coherent ideology. In fact, from the outside, it just looks like jealousy. And from my experience, nothing substantive is ever done to fix the underlying problem (if there is a problem) in scandals such as this. I can already see the firm at the centre of the scandal being scapegoated, so the rest of the grey system avoids the public spotlight.

Think about how no one remembers any of the bankers in 2008 aside from Bernie Madoff. Even worse, without jumping on Wikipedia, I bet the reader can’t name a single person Mr Madoff stole from in all his years of pyramid scheming. So why did we hear about him? More importantly, why were we given the play-by-play of his arrest and trial? That was the whole point – to throw us a carcass so other bankers could move their assets to Panama. Oh, the irony.

This present scandal reeks of politics. This doesn’t mean I agree with Russian President Vladimir Putin about a conspiratorial attempt by Washington to break his international reputation. A bunch of other high-profile world leaders’ sneaky assets were found in the files too, not just his. What truly smells funny is how perfectly these papers fit the narrative that the 1% are to blame for every ill in the world. I didn’t buy this line in 2008 and I still don’t buy it today.

Some of the complaints are legitimate, however. The hiding of potentially trillions of dollars and taxes approaches an existential threat for the nation state concept. If a government cannot fund its projects, then it will cease to exist.

But all of those hidden trillions were gathered over decades, and over that time, governments compensated for this missing money by printing more cash. In fact, in only the past 10 years the world has added more money than has ever existed. All that new money flowed somewhere, because what’s the point of money if it isn’t used to buy goods and services?

This leads me to think that maybe the people we should be blaming aren’t (just) the trust-funders. I don’t see security camera footage of St Heliers residents peeling on balaclavas and walking into state treasuries to steal trillions of dollars of cash and bonds. It actually appears they earned their riches.

Sure, some are legacy accounts, while some accounts are illegally syphoned money from developing states (no one should be surprised that Mr Putin and others possess billions of dollars). Yet the majority of elites are people who built their fortunes the old-fashioned way: with business.


Of course, that process isn’t popular in the modern world. But understand that fortunes can’t be made if no one buys goods and services. Which brings all of us into the firing line too.

Some of the blame must go to advertisements training us to want things we don’t need, and to the propaganda of debt. Yet none of that is reason enough to blame the financial troubles on the Panama rich whose only role was being on the front end of the long economic conveyor belt. Just because most people’s role is to buy useless goods or to have really cool iPhone apps (“look, this one turns my face into your face!”), doesn’t absolve us of blame for our indebtedness by lumping it all on the few who sell us those products.

In fact, I’d suggest the consumer is more to blame for the current economic malaise than Apple or Nike. (Apple is used here as a placeholder for “large multinational”). Those companies only churn out plastic junk because people buy it. So Apple takes our money and – since the whole point of capitalism is to find clever ways to pick other people’s pockets – Apple executives figure out how to avoid the government picking their pockets by funnelling the earnings through Panama. And the only response the public can muster is complaining that some people are rich while others are poor?

No one asks whether their desire for an iPhone helped make this happen. Instead, we get calls to tighten laws, send the Feds to Panama and vote in better politicians to stop it happening again.

Well, how did that work out the last time? These havens have been known to the general public forever. They are not a secret. People have been lobbying for stricter laws against them for decades, and yet, here we are. Tax havens now have more money on their books than at any time in history. And the panacea, apparently, is to make new rules and laws? Madness.

So we want to change the rules? Ok, who's going to make those rules? Politicians? Judges? You? Seriously, how'd that work last time? And the time before that? And before that ...? If the solution is to increase taxes the result will not be that the rich pay 6-10% more from their estate. The result will be that the rich will pay nothing extra because they will spend money to find legal ways to avoid paying more tax.

And then what? The problem isn’t solved. We’re just moving problems around. If citizens keep handing power to someone else, they will always lose because rules are made by the elites. The game is stacked so if something needs changing, why don’t you do it yourself?

“Yeah? You and whose army, buddy?” That’s exactly my point. The mistake is to think you can TAKE power. This is going to sound strange, and you probably won’t like it, but, if you try to win against this system using force, nothing will change because the old system will simply be under new control. And guess what the new people will do? It won’t be redistribution.


"So the answer is change, then?" How can the answer be change when we don’t even know what the question is.

If we want change, the only thing to do is refuse to play AT ALL. That means stop voting, stop activism, no more new laws and don’t try to get anyone arrested. Not voting is a vote – against the system. Do nothing to encourage the system, or you will be to blame when all that changes is the paint job. This process is called "passivism" (the opposite of pacifism: it doesn’t take control of the system, it wishes to replace it). This is the only way out of this mess.

“Actually, that sounds like the perfect way to let the mess carry on”. You don't understand. When a few elites make the rules, it becomes impossible to use the system against itself. Only very stupid people think elites are stupid. Of course, redundancies will be created to avoid the system being changed from within. But the answer is that YOU have to stop. Because, if everyone individually stops, then the system loses oxygen.

I get that people are mad about Panama but if you do not stop, what will we say when it all happens again? "Oh, we just need better politicians/judges." How many times does this have to happen before we realise that the entire system of democracy and financial economics is built precisely to allow this outcome? Again, it's not bad politics – politics is the problem. The only way to win is to not play.

Before we get too angry about Panama and demand John Key make amendments, think about how hard true change would actually be. Starving the current system by standing still and refusing to participate is the only way out. That’s really hard. Are you sure you want this “change”? Are you prepared for the second- and third-order effects?

But no one is thinking this far ahead because, for it to work, we’d have to find a replacement politico-economic system while avoiding the trap of creating the same damn thing again by accident. Yet the above is the only way out: if enough people practice passivism, the system starves. The power to create a better system will then flow away from it and toward the passive. If this path isn’t taken, then you don’t really want change.


Most people’s problem with the Panama Papers scandal stems from a mercantilist view of the world. They think there is a fixed amount of wealth so, when someone has inordinate wealth, then logic suggests others have less. But this is incorrect. Currencies have a built-in failsafe called the “printing press.” And I don’t mean the machines churning out $100 notes. The real safety is the media.

Anything written is canon because a journalist says it is. The more complicated an infographic on bonds, derivatives or liquidity, the less likely the reader will verify its figures. Readers take the writer’s word because who has the time to research with all these cool apps to play with! Yay, Angry Birds.

As a result, no one hears the true extant amount of money. And that is key. Judging by crime movies, trillions of dollars is probably buried or sitting at the bottom of lakes after drug deals went wrong. Not to mention all the notes and coins burned, crushed, trapped or melted over the years. It’s probable that not even central banks know how much money exists.

So talking about inflation or deflation keeps people believing that money actually exists and has an effect. But it doesn’t. Prices are set by supply and demand and manipulated by economists who also have no clue about how much money there is. If enough people knew that money doesn’t exist, then the whole game comes crashing down.

Besides, governments don’t really care about tax havens. They’ll just print more money. It doesn’t matter who grabs the cash, the new money eventually must be spent on goods and services. Billionaires want to live in mansions, right? Well, the IRD can tax the purchase of a house. Lots of loopholes in real estate? Ok, the IRD will tax vehicle, carpet or swimming pool purchases. Loopholes here, too? Then no one avoids paying taxes on utilities. And what about the staff salaries? My point is, the IRD knows taxes aren’t only drawn from earnings. It will get tax, even if it takes more time.

And with national debt mountains across the developed world growing every day, taxing the top 1% another fraction won’t help. In fact, by my count if tax havens are thrown at the mountain it wouldn’t scratch a single year’s social expenditure. The problem at the heart of the modern economy isn’t paying back debt, it’s figuring out how to keep the money coming so no one grows desperate enough to tear down the power structures. Visa is happy to keep that game going, and $100 notes never stop printing.

That’s why the Panama leaks aren’t good for our sanity. It maintains the illusion that money is the measure of all things. If some people have lots of money, then their lives must be important, and we begin thinking of ways to pick their pockets. While I appreciate the sentiment, the problem is the framing. If money is the only measure of a good life, what happens when we get enough? Will there ever be enough? And what sort of ethics will we utilise to justify taking money from others? Would that make us better people or worse? How do you know?


The Panama Papers dangerously reinforce in our broken brains that personal financial failures aren’t really our fault. And if we could only find ways to compel billionaires to redistribute their money, then everything will be alright. Do you see? You are being lied to, by yourself.

The public has demonstrated clearly that it knows absolutely nothing about economics, government finance or personal finance. So even if redistribution happens, New Zealand still won’t be producing a sufficient amount of goods the rest of the world wants to buy. Seriously, other than dairy, finance, legal services and real estate, what does New Zealand export that anyone wants? That’s the true problem. If we produced more real products, then no one would care about the Panama rich.

The Panama Papers supply us only with a fresh excuse not to fix our own problems by blaming everything on the 1%. I can’t think of anything more damaging or perpetuating.

If you think your wage is set at $35,000 because a bunch of rich people steal money and yet, instead of learning how they earned so much by studying tax loopholes, all you do is sit on the couch and play video games, then the problem isn’t tax havens, the problem is you.


Unknown said...

Good for you that you draw the line at $35,000.00. What about the poor the hungry the homeless around the world, what about those that have no idea what video games are all the while the deserving wallow in their corrupt game of hide the next million.

The problem is not 'you' they problem is the selfish ideology of perpetuating greed over global harmony for humanity though a inherently corrupt system, a procedural dynamic of poor value structures with interacting web of chain reactions that are inevitably oppressive.

Anonymous said...

Looks like this article fell on at least one set of draf ears.

I'm sure your idealized uncorrupt system has already been attempted and is way worse for everyone involved than our current system.

Also "the selfish ideology of perpetuating greed over global harmony for humanity" might be my favorite hollow platitude of recent memory.