When the Feds Tell You Bend Over …

Dow up 70 on Wednesday. Gold down a little. Not much to draw our attention.

So, today we conclude our reminiscences from our recent trip to Ireland to attend Kilkenomics, a festival of stand-up comedy mixed with economics. First, a clarification: Although some of it takes place in pubs and taverns around the charming city of Kilkenny… and although audiences enjoy the mix of the dismal science and comic relief washed down with pints of Guinness… most of the real drinking goes on outside the event.

The event itself draws an impressive list of the “who's who” of economics. Some of whom were quick to get on your editor’s case…

I can’t believe you compared government employees to rapists!” one of the speakers – a former Goldman Sachs stockbroker – began.

That’s ridiculous. They’re there to protect people. What about policemen? Firemen? Not to mention the people who saved the economy from another depression?”

Well, stick with us a minute,” we enjoined. “We’re just trying to understand the real nature of government regulation.

Is it something where you can ‘just say NO’? Or is it something where you’re gonna get… (we hesitated a moment…. the sentence we were about to complete required the f-word… the audience would get it… but we’re not an f-word kind of guy)… where you’re gonna get screwed, whether you like it or not?”


Going Along with the Program

The Irish women bought on the slave market after Dutch pirate Morat Rais’s raid on the town of Baltimore were taken into Ottoman harems, either as concubines or servants. There they were protected – by guards, eunuchs, regulators – and ultimately, by the Ottoman army. But what kind of protection was it? Could they “just say NO”?

They were not even asked. They had been bought for the pleasure of their owners. As far as we know from first-hand accounts, they didn’t have to be forced to submit. They went along with the program, like travelers in a TSA line… or taxpayers enduring an audit. When the feds tell you bend over… you have no choice. That is very different from a market economy – where you might be compelled by necessity or by desire, but not by naked force.

Surrounded by the silks and sunshine of Algiers, the Baltimore women may have looked on the bright side. Rather than contemplate a lifetime of sex-slavery, they may have thought they had gotten a reprieve from the prison of hard work and the relentless cold, dark and damp of Ireland.

Besides, getting to share the pasha’s bed was an honor. If it brought children, the children might inherit the pasha’s money and his position; and their mother might become ruler of the harem.

Many European women made what must have been happy marriages in the Islamic system. Many became rich and powerful. Many felt their new masters treated them better than their husbands back home. And when, 14 years later, a warship from Britain arrived in Algiers and negotiated the Baltimore slaves’ release, only two women – out of an original 34 – wanted to go back.


A Supple System

 For men, if they weren’t sold off into hard labor, slavery in North Africa could be similarly supple. Slaves could practice their own religions. They spoke their own languages. They were free to operate their own businesses. They could make money. They could learn skills and fill important roles in almost all industries.

Some became slavers – like Jan Jensen, who became Morat Rais, whose son Anthony used the family name Van Salee and moved to New York. With the profits of the white slave trade, he was able to buy a substantial part of what is today Brooklyn.

Some slaves became traders and financiers, buying and selling goods from all over the Mediterranean. At least one amassed a fortune while still a slave. Some, like Miguel de Cervantes and Captain John Smith of the Virginia colony, got away. Others didn’t want to get away.

Algiers was an advanced economy with a standard of living considerably higher than in London or Paris – unless you were a slave. Part of the reason for its prosperity was probably the relative freedom it allowed its slaves.

Slavery came with many contradictions and nuances. In North Africa as well as North America, it prospered in what were otherwise successful market economies. And in both places, it was reinforced, regulated and subsidized by the government.

Poor whites in Alabama paid (modest) taxes to help support the government, whose main challenge was to control slave labor. Few poor whites probably realized it, but they were victims of involuntary servitude, too – forced to subsidize the slaveholders by paying some of the costs of policing their slaves.

Likewise, on the Barbary Coast a vast and confusing web of levies, fees, commissions and taxes was used to maintain the garrisons that kept slaves from escaping.


Against the Public Interest

Do we have to spell it out?

In every industry, in every epoch, the regulators and the regulated – the parasite and the host – share the same goal: to connive against the public interest. Armed with the police power of the state, they don’t take no for an answer.

Government was complicit in the slave trade at every level. How slaves were to be marketed, employed and disposed of was typically codified by the legislature and enforced by the police.

Runaways were captured at taxpayer expense. Punishments were established by government employees… and often administered by them. Most important, government bore much of the cost of policing slavery, making it a viable institution long after it should have disappeared.

But today, slavery has been abolished in most of the world. We still have wage slaves… and tax slaves. But chattel slavery has largely disappeared. Progress has been made. It is not an eternal cycle of cooperation followed by violence, after all. Over time, cooperation increases.


Cooperation Pays

Why is that? Because cooperation pays. And the more civilized a society becomes the more essential it is to cooperate. By contrast, violence pays badly. You might be able to whip a group of field hands to keep them on the job, but their output would be minimal.

Only at the most rote tasks is slave labor a practical alternative. In modern industries it is not competitive. Imagine slaves coming up with a marketing strategy. Imagine slaves driving trucks. Imagine slaves in the accounting department. Imagine slaves in Hollywood, rewriting scripts. Imagine them in the pharmaceutical industry, conducting double-blind tests. Imagine them with chain saws clearing power lines.

Compared to properly incentivized free workers, with stock options and healthcare plans, equipped with the latest machinery and trained to use it, slaves can’t compete. Several inconclusive experiments have been conducted on the issue.

Germany ran much of its industry on slave labor during World War II. The Soviet Union operated a quasi-slave economy for decades. The Japanese used prisoners of war on various projects.

And Napoleon tried to reintroduce slavery to French possessions so he could use forced labor on sugar plantations. This effort failed so miserably that France not only abandoned the whole project, it sold Louisiana to the United States.

Slavery didn’t pay. By the end of the 19th century, it had been abandoned almost everywhere. This makes us wonder about our modern form of government. Does it pay? Is it transitional too? Will it, too, disappear, like slavery? Maybe. But wait. Who won the argument back in Cleere’s bar in Kilkenny?

“You think regulators are going to keep capitalism on the straight and narrow? Ha ha ha…” we said.



The above article is from Diary of a Rogue Economist originally written for Bonner & Partners.

Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.





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