Another Bailout of Lenders, This Time in Ukraine

The IMF is lending $18 billion to Ukraine’s government, so that it can pay one small part of its huge debts. The money will go to the lenders, which include banks, mainly in Europe, and other investors in Ukraine’s bonds. This will not stem Ukraine’s economic decline. The IMF’s price includes higher taxes, which will make it worse.

There are several possible recipes for reviving Ukraine’s economy. One of them is to mimic the German miracle. Ludwig Erhard understood how to do it. See here and here and here.

Another avenue is to repudiate the debt and start over again with sound policies that basically disallow the government from borrowing anything except perhaps seasonal borrowing against that year’s tax receipts, to be cleaned up for at least one month each year so that there’d be a no-debt period.

As a general rule, no government should ever borrow anything on a permanent basis. Allowing that is to allow a government to spend now and tax future generations. Clearly it has a huge incentive to do exactly that if it can borrow in anything but seasonal debt. One state after another then gets into the situation of either excessive debt or a depreciating currency or both.

One of the more amazing things about the world at present is that the major robberies accomplished by its states are done right out in the open and celebrated. Furthermore, institutions like the IMF that fail time and again, even report their failures in great detail before repeating them anew. For example, the IMF has a 51-page report explaining its failures in its Greek loan program.

Another amazing thing is that people like Erhard are ignored. Here is a government official who has succeeded in creating an economic miracle in Germany and who has explained how he succeeded in lucid prose. Any country’s government can imitate what he did, but they do not. And the IMF is an added inducement to ignore appropriate policies that encourage economic growth.

Why do the world’s states for the most part do the wrong things with respect to the people they supposedly serve and ignore doing the right things for those same people? This occurs because they are nomenklaturocracies. They are captured by bureaucracies and by a class of people who come to own the government and use it for their own interests and purposes. The people at large lose control over their government, if they ever had it in the first place.

When people recognize this and understand that their voting has no real influence, they should not immediately rush out into the streets and demand a new government. As long as the state remains, any of its administrations or governments will replicate the process of stealing power for itself. A new nomenklatura will arise. The only permanent solution is to delimit what the state’s powers are or eliminate the state entirely. Hoppe tells us that a state’s powers cannot be limited if it made into a monopolist in power to tax. I quote

“If the state is defined as the institution that has the right to impose taxation and has the compulsory territorial monopoly of jurisdiction, then it is easy to show that this sort of institution is inherently incapable of providing what these classical liberals want the state to provide, that is protection and security.”

This is correct. If there is to be a state, its power to tax must be limited if its creators don’t want to be exploited. This is why long-term borrowing should be disallowed, because that is a license to tax in the future and will cause exploitation. Furthermore, if some persons form a state, it cannot be on a territorial basis unless they themselves own that territory. It has to be for themselves only and not others. Anything other than that makes the non-supporters of that state into subjects against their will.


7:35 am on March 27, 2014