Thursday, February 3rd, 2011
How much more of central planning can one take? Well it seems that at some point one has had enough. Of course, bad ideas can go on for a long time but after what was once called “a long train of abuses” by Thomas Jefferson, the state has more and more difficulty clinging to power. If we take the case of Egypt, it was a disaster waiting to happen as all the ingredients were there:
2/3 of the Egyptian population is under 30 and suffering high unemployment – not good to have young men idled…
Egypt once could feed itself until the Soviets (another great collectivist idea) came and built a dam on the Nile that prevented it from flooding the banks into fertile lands.
Now Egypt is a top importer of food – wheat especially – that it buys with US dollars. Now to buy in US dollars Egypt needs to print Egyptian pounds to buy dollars which fuels domestic inflation. Plus, add the petro dollars that they are sitting on (oil exporter) which are losing their purchasing power – thanks to Bernanke’s printing press – it is not a pretty picture. Add to that the fact that QEII money has to go somewhere – bidding up commodities is one of the outcome making matters worse. Yes those countries could depeg their currencies from the US dollar and let their currency appreciate (it’s not guaranteed) to offset inflation but then de-pegging from the US dollars has different implications one of which is a reduce need in buying US debt… This is a currency war after all and it’s nothing new. All countries are manipulating their currencies (race to the bottom) in some ways but manipulating the reserve currency has far more reaching effects as we witnessed in the last week.
It seems that private enterprises can not decide in Egypt to import or produce whatever is best for their customers – the state needs to control the food import (in this case or it could be the control of production which would not be better) so they can subsidize bread for example. Before the events this week, the government had already indicated that they would have to make a trade off between subsidizing bread or energy. Not unlike the French Revolution – the population came to think that the state will feed them.
Mix that of course with technology like the internet where people can see what is going on in the world and connect very easily and rapidly with one another and the state has trouble keeping up.
At the core of this is the relationship between people and government. To govern – the rulers need the consent of the governed – a reality that many rulers forget until there are millions of people at their doors. Still many people in our so called “middle of the road” economic system in the West think that more government is needed when more freedom is the only thing that can improve anyone’s well being. It has been proven again and again.