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Government Robbing YouWe have been annoying all our readers time and time again with the notion that taxes are simply toxic to any free market because free markets are optimized systems. Any tweak from a "higher authority" and free markets begin to underperform. The simplest explanation as to why taxes are so toxic is because they destroy capital that would otherwise have been available for productive purposes.

Alas, we have been told point blank that we never present any numbers. Fair enough. Our entire team rolled-up their sleeves, pulled out their best XL spreadsheets and compiled a set of numbers from the usual suspects (the IMF). Once done we mapped our strategy with military precision-like diligence and crunched the numbers. Days went by while we waited for the results…well… actually a few seconds but days do sound impressive right? And so without any further delay we present to you the wealth that was stolen from your pocket!


In order to obtain an approximately tolerable set of numbers we had to work with two assumptions. They were:

The GDP does represent a measure of wealth, however inaccurate it may be (see GDP Keynessians Vodoo Economics).

The numbers the IMF provide are somewhat reliable (probably not true because they are the "official" numbers provided by countries but we don't have any other numbers).

World's Uber-Real GDP (URGDP)

What is the URGDP? We needed a more-or-less stable measure of world wealth and the GDP is not. First off, nations have monumental amounts of public debts that need to be subtracted from the GDP. If we are going to measure wealth, it is unfair to count debt as wealth. So the first step was to subtract Public Debt from GDP. In order to make comparisons fair we need to remember that in a free market there are no governments and hence there is no public debt, only private which we did not take into consideration.

Then we had to remove the effects of inflation. We did so by using the US GDP Deflator. This was more or less acceptable considering that the yearly world GDP was calculated in current USD.

And the final step was to divide the previously obtained number by the world population. This is how we arrived at the URGDP which is the real wealth in constant dollars per person in the entire world. You can see this number in the graphs below in blue.

Free market Uber-Real GDP (URGDP)

In order to estimate what the URGDP would have been should governments would not had intervened; we simply took the above URGDP and performed a compound interest calculation of about 2% per year. Why 2% per year? Because studies performed in economies based on real gold standard where governments had very little influence in markets indicated that the average GDP growth per year oscillates between 2 to 3 %. As we wanted to take the most conservative path, we assumed the lower boundary. We also assumed that there were no economic crisis because, historically speaking, crises in almost-free markets were typically short and shallow. You can see the Free Market URGDP number in the graphs below in red.


The results of these calculations can be seen in the graph below.

Real GDP vs Free Market GDP #1

As you can see the amount of real wealth that was destroyed by governments since 1980 is staggering. A simple estimate indicates that about 2.8 times or 280% of wealth was prevented from having occurred. Try this. Multiply your current salary for 2.8. That's the amount of money that you should be earning if you would have been working since 1980. Now, remember that this 2.8 times we are talking about is not funny money but real wealth. You could have bought 2.8 times more goods and services than what you can today!!!

Alas you are not convinced. Fair enough. In a feat of ludicrous conservatism, let's say that the free market growth was overestimated by 75%. Let's say that the real yearly free market growth was of only 0.5%. If we re-calculate this growth, we obtain the graph below:

Real GDP vs Free Market GDP #2

As you can see, the amount of wealth that was never allowed to be created since 1980 is in the order of 1.7 times or 170%. What this means is that you are earning 70% less wealth (real wealth) that you should be, all thanks to the actions of governments. Happy yet?

One more thing

But since we are in a roll, let's not stop here. Let's add a trendline to the actual URGDP. To make it simple, let's make it linear. You can see this result in the graph above represented by a black thin line. What the equation representing this line tells us is that every year the URGDP per person in the entire world is losing (that's right losing) about 7 cents of USD. Every year thanks to the action of government you are losing about 7 cents of your average wealth. Now 7 cents per year does not seem like much, but if we calculate what this 7 cents represent in terms of real wealth lost every year, we get the plot below.

Lost Wealth Due To Government Action

As you can see, thanks to the action of governments we lose anywhere between 1.5% to 5.1% of our wealth every year. That's right. Real wealth. Every year. Again this does not look like much but consider this. If you would have stored 100 dollars in gold in 1980 and the free market would have grown zero percent over the last 25 years (something incredibly improbable), you would still have your 100 dollars. Instead, what you have today is about 70 dollars. Those gold dollars represent real wealth, not fiat money. Over the last 25 years you lost, in the absolutely best case scenario, about 30% of your wealth. Feeling sick yet?


We now know that thanks to government action we have lost anywhere between 1.7 to 2.8 times the amount of wealth that we should have. Over the last 25 years. Can you imagine what would have happened if we would to perform this calculation going back 50 years? Or 100 years? Or 150 years? The loses would have been astronomical.

If you feel that since 1980 you are going nowhere fast, that you are always trapped in a rat's race without exit, that you are working for peanuts and barely make a living, now you know why. The URGDP is going down babe! Down, down, down. The truth is that we are not getting wealthier no matter how hard we work. No matter how much we try.

Remember, is not that we have to make any assumption about the free market for this trend to be true. We can easily assume zero growth in a free market scenario and this trend would not change one iota. This trend down is nothing but pure consequence of government action. Period.

What governments are doing can't even be qualified as regular robbery but must be called for what it is: brigandage (brigandage refers to the life and practice of brigands: highway robbery and plunder, and a brigand is a person who usually lives in a gang and lives by pillage and robbery).

But we have socialized medicine. And social programs. And safety nets. And equality. And social justice. Fair enough. But at what price? The truth again is that we have all those things (even assuming they are sustainable - which they are not) at the price of our future. Should the free market would have been allowed to develop unabated, we would not need all those programs in the first place! We would have been able to afford all that and more, directly from our pockets!

Yet people do not see it. People do not believe it. That's OK. People are driven by time preference and as such they prefer a meagre sandwich today as opposed to an opulent lunch tomorrow. It is for this very reason that political evolution cannot happen until the time preference barrier is pierced through economic devastation. When not even a peanut can be had today there is nothing to lose waiting for a different tomorrow.

If you are one of those disbelievers (and chances are you are), here, have a peanut as a reminder of your future. We are now done. Just one thing. When the time comes to eat that peanut, remember that that's all your get. You may now thank your government for it.

Note: please see the Glossary if you are unfamiliar with certain words.

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