Don’t ignore the benefits elephant

We have recently see a demand for a “benefits charge card”, one which would replace cash and control the items a benefits recipient is “allowed” to purchase.

This may seem seductive to some people and for very different, often almost diametrically opposed, reasons.

Some may object to misuse of monies that were taken by force from people of limited means, often unable to afford the items being purchased, and so want to control that spending so as to defend the interests of the hard-pressed taxpayers. Others see it as a way to prevent people from purchasing things they just plain object to or deem as wrong or luxurious, such as gambling, Sky TV, alcohol or tobacco. Who knows, others might, underneath it all, just want to control people.

For a while, some years ago, I held the first view, being exercised at the taxation of the lower paid and the indiscriminate way the State appeared to both spend and distort the choices that were presented to people. At the same time I also felt strongly that those who were often demonized were, in fact, rational actors, making the most of the options presented to them and so were not, in truth, “to blame”. They played the system, but the creation of a playable system was neither of their doing nor their responsibility. They were not MPs who thrust and elbowed themselves forward as law-makers and representatives. I demand the latter behave with an internal moral compass even when the rules are absent or even contradictory, to know when to do “what is right”, for how else could they be charged with repealing bad law or creating new, good law. I do not hold the former to that.

There is an inconsistency between the overall Libertarian view that the individual is the best person to decide how to spend the money they have and the concept of a Benefits Debit Card. Benefits may not be “earnings”, but it is income all the same. So, I feel, to be consistent, if one is to say that a person is entitled to benefits of a certain amount – putting aside the issue of welfare reform for a moment and keeping everything else the same – then that individual is best, all things being equal and on average across all recipients, to decide how to spend such benefits, how to spend the income they receive, not some official, nor some righteous Authoritarian. To best ensure that welfare given is spent as well as can be overall, one must therefore leave it to the individual recipient to decide – relying on the State, some committee or a central authority is certain to result in sub-standard choices and solutions just as it occurs across the board[1].

What of the fact that the money to pay for it was taken by force?

It is bad enough that people are forced to pay into a scheme. It is worse that the money they pay in might go to others who misuse it. But what is worse still is if someone is forced to pay into a system and then, when the State sees fit to “pay back”[2] some of that money, it demands to control how that person spends it. That is, to me, the final indignity. It presumes guilt and wrong-doing before any has been done. It forces the collection of wealth and then controls how any returns are spent. I suppose this is what some think of when they say “cradle to grave”. Considering that the vast majority of benefit recipients are or have been honest, hard-working and often over-taxed souls, the idea that you then control how they spend the benefits could be seen as a form of vile, feudal, collective punishment and control.

The very idea of a “Benefits Debit Card” is but a distortion upon a distortion. It is fundamentally wrongheaded for that very reason alone. If there is an error, fix it at the root, do not try to apply a further distortion to the dysfunction, least of all a distortion that affects everyone, not just those the distortion is intending (on the surface?) to target. If the Card is meant to rope in everyone, I suppose one could assert that it does affect everyone it is intending to affect, but then the idea fails even more miserably due to the fact that it intends to control the spending of all people who have been forced to pay in.

The root problem is that we have a State-enforced, monopolistic system of legally-binding, often dysfunctional entitlements funded by coercion that plays havoc with peoples life-choices, undermining their natural common sense and common feelings of fairness and decency. There is currently almost no link between contribution and benefits. There is currently no link between the giver and receiver, even if one is willing to hold one’s nose, look the other way and disable rational thought long enough to label a taxpayer as a “giver” to begin with.

 

While it might be an exercise to see how to remove distortions to the system, such as caps to benefits income either in total or to prevent one already on benefits amassing more over time by growing one’s family, it is, when one looks at the situation as a whole, a distortion to the distortion of open-endedness of benefits. It is, again, a distortion on a distortion. While it might function as a segue from “here” to “there”, a long term solution it is not, albeit infinitely better than a Benefit Debit Card.

© Thunderchild7

The real answer to a dysfunctional coerced monopoly is to shift to a voluntary, and thus highly likely to become a pluralistic, system, where individuals may (or may not) contribute to unemployment insurance and unemployment relief charities, the former to benefit themselves and the other to benefit those who are not covered as they are. In such an environment, the individuals use true democracy at the personal level to pick their providers and mechanisms for redistribution. Unless you are fundamentally an Authoritarian, a dictator or form of totalitarian, you would agree that most people most of the time will make reasonably good choices, this should produce a better outcome than any State system could in the long run. It will not produce a perfect system to look after everyone in the ideal way, but then again what we have does not either, even though people promise that one day it could do if only, if only…, which is, basically, a conceit, a lie.

What if an unemployment insurance company decides to implement a Debit Card? People who object would shift away to other providers. Others might want to remain, willing to have that trade-off between premiums and disbursements. The same goes for charities. Some would want to see their money used that way and that is their choice. Those applying to that charity would know the situation. Other charities might not use such a mechanism, and so those who objected to controlling those in receipt of their charity in such a way could direct their funding appropriately, or found their own charity that did not.

What if people did not sign up to any form of insurance? If you feel you are in the majority in thinking this might happen and you want something done for such people and feel most other people agree with you, the answer is clear – you contribute to a charity that looks after such cases. Do not worry, the charity will be well funded by the majority of well-meaning people who agree with you, unless you are being misled by a horde of hypocrites who do not put their money where their mouth is, but prefer to see the money of others put there, instead.

A pluralistic, voluntary system would satisfy the sincere in both camps – those who want to see such controls on spending and those who do not. Those who want redistribution of a certain kind and those who want it of another, and all points in-between. Well, I say satisfy, as there are some who do not wish to see any alternatives to their own totalitarianism, but, frankly, I refuse to entertain such people.

 

[1] I think the housing situation in this country would be improved dramatically if Housing Benefit was folded into benefits and people all had to rent in the market at market rates and the end to State and State-subsidized housing.

[2] yes, money is not in truth “paid back”, for the entire system is a massive, unfunded and rotten-to-the-core Ponzi scheme that would be illegal for any other entity to run if it were not run by The State. No, I withdraw that – it does not even qualify to be a Ponzi scheme, for even Ponzi schemes expect people to pay in before they join.

Towards Sound Money

The segue, how to get from here to there, has been a major part of my thoughts regards Libertarianism. One area is the issue of Sound Money and how to get away from a fiat system.

The route is well trodden: Free Banking, sound money and, ideally, gold-backed offerings.

Free Banking – the ability for entities to set up their own currencies and offer currency competition is basically the beachhead against a de-facto fiat currency geographic monopoly. In addition, banks should not be allowed to get away with the sleight of hand that is the fractionally-reserverd “demand deposit” account, however, without telling customers that their bank statement is just a record of lending to the bank and that the bank cannot guarantee to repay that amount on demand. This is basically down to an issue of misrepresentation, of basic contract fraud.

In all honesty, I do not believe enforcing transparent contracts in itself will solve anything. People will be blind to it. “Free” bank accounts offering near-current services will be offered and life would return to “normal”.

So, Free Banking in itself is likely not to be enough on its own. There needs to be Sound Money, even better, a fully-backed gold currency.

While a State-run gold currency can be a tempting option, it flies in the face of consistent Libertarian reasoning. If it will be viable, other entities will try, so State involvement is a distortion. If it is not, how to justify and fund a loss-making endeavour? Either way, it is still none of the State’s business. The only exception might be if the State decides to set up its own currency for the storage of its own wealth, so as to be independent of privately-run vaults. It would need good justification for doing so, but cannot be dismissed out of hand.

But what of migrating the existing currency from fiat to gold? As discussed many times, and most recently for me, here, the shift of a particular currency from fiat to gold has many obstacles. Apart from the basic logistical ones of conversion, pegging, convertibility and bank runs during the transition, the very concept of Free Banking and/or hard currencies are anathema to the State. It prevents governments from practicing invisible taxation via inflation and of pushing spending today onto the earnings of children as yet unborn.

Logistics are trifles compared to the politics of hard currency backed by gold that strips the State of arbitrary, opaque power. The State will not let go of such power unless it is prised from its cold dead hands.

There is no point just moaning about this or dreaming that the State will suddenly not think of its own narrow vested interests – solutions are required. Well, I want a solution, even if nobody else does!

A Taoist Approach

Taoists have been said to be the worlds first Libertarians. We need to not just think of a frontal assault, but work around the problem to achieve our goal. Not the end of fiat money, but an end to being forced to use fiat money and thus robbed by its controllers.

Setting up a new currency requires Free Banking and that, in turn, requires, I believe, a Libertarian victory in the polls or the overthrow of the State, for the reasons I have given above. Before even a chance of that, we are likely to descend into chaos if, or it is increasingly looking to be, when, the fiat money system collapses in on itself. I fear that the replacement of our existing system will not be kittens and cushions. It is as likely to be disorder, corruption and risk of a “Strong Man” gaining power to bring “order”. We have seen how Libya and Egypt have turned out. We saw how a convulsing Russia panned out from 1917 and Europe a few years later. In other words, it is unlikely to be very pretty.

But what if we could allow people to use gold as a store of wealth without all the downsides – risk of counterfeiting, storage and transportation? Something that applies to individuals, banks and to international and national trade alike.

One Potential Solution

I envision a series of vaults containing gold reserves accessible via a charge card.

As with currency reserves now, entities would conduct transfers between each other at a series of central clearing and settlement vaults, netting off transactions unless absolutely necessary, by electronically re-allocating the ownership of the gold intra-vault and inter-vault. Of course, lending of depositors’ gold to satisfy short term inter-bank or inter-vault shortfalls is not an acceptable mechanism unless the depositors are aware of the limitations on access and, one would suspect, commensurately rewarded. All parties would work to ensure as little lending as possible is needed, so as to reduce the need to secure sufficient time deposits of gold in advance. To lend without permission, to say gold is on demand when it was not, would be fraud and theft.

There would be no notes or specie in general circulation. The accounts would be accessed via a charge card. Just as a Sterling or Dollar-denominated credit card can buy goods in another currency, your gold card could buy goods denominated in any currency. All the apparatus for charging and conversion exists already. We have the means here and now to handle such operations.

All transactions can be performed in gold. If the seller wants to redeem in currency, then they have the option to do so at the point of exchange. It would smooth the adoption of the system if the seller could know precisely how much they would get in fiat currency, if that is what they wanted. Therefore, the option to have the sale performed by the buyer at that moment should be provided.

And what has Peter Schiff of First Pacific Capital done?

Peter Schiff has, via First Pacific Capital Bank, created a “real” gold and silver card, which is linked to a personal gold or silver trading account. It requires you to first buy your gold in this account, then sell your gold or silver to charge up your card in a particular currency when you wish to purchase something with it.

Half-way is better than no-way

The First Pacific Bank does not function as a clearing and settlement operation for gold exchange, and so its Gold Card relies on fiat currencies for the actual transaction. Each account is just for buyers, so direct buyer-seller transactions are not supported. However, the logical progression is there for all with eyes that see and wits about them. Introducing this card will stimulate others, who are in a position to do so, to make the logical steps necessary and provide more integrated services.

The vision of transferring wealth denominated in gold, electronically, from anywhere to anywhere, to use it to buy goods almost universally, has made a big step forward. The ability to be free from rapacious controllers of monopoly fiat paper currency gets closer.

Peter Schiff should be applauded.