GoldMoney is no longer Gold Money

By Bron Suchecki, on December 22nd, 2011
Digital Gold Currency Magazine is reporting that GoldMoney is suspending the ability to make and receive payments in precious metals to or from other GoldMoney customers due to the “global increase of compliance requirements for payment service providers.”

This capability was the key differentiator of GoldMoney to other online precious metal storage businesses. It is an unfortunate development for gold standard advocates.

The decision was not entirely driven by increased regulations as GoldMoney also indicate that “our customers’ use of the metal payments and currency exchange services is not significant.” Looks like a case of disporportionate compliance effort for GoldMoney on something that didn’t drive business.

Interesting then that customers have voted and said they aren’t really interested in gold as money. Possibly this may change if those customers are faced with high inflation or banking system instability, but it will be hard for GoldMoney to restart the functionality and catch up with any regulatory requirements in place at the time (assuming there is any regulatory tolerance for alternative payment systems at that time).

Freegold anyone?



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This Isn’t Promising

By Simon Grey, on November 14th, 2011
From the WSJ:

In 2009, households headed by adults ages 65 and older possessed 42% more median net worth (assets minus debt) than households headed by their same-aged counterparts had in 1984. During this same period, the wealth of households headed by younger adults moved in the opposite direction. In 2009, households headed by adults younger than 35 had 68% less wealth than households of their same-aged counterparts had in 1984.

As a result of these divergent trends, in 2009 the typical household headed by someone in the older age group had 47 times as much net wealth as the typical household headed by someone in the younger age group–$170,494 versus $3,662 (all figures expressed in 2010 dollars). Back in 1984, this had been a less lopsided ten-to-one ratio. In absolute terms, the oldest households in 1984 had median net wealth $108,936 higher than that of the youngest households. In 2009, the gap had widened to $166,832.

Assuming everything goes well economically (i.e. no wasteful wars or general market shenanigans or things of that nature), each generation should be wealthier than the one that preceded it.  This is due primarily to capital accumulation.  Each generation usually improves its intellectual capital, enabling it to make great market gains by increasing efficiency or by saving up capital, which is usually passed on to successive generations, which they then build upon.

For example, the general cost of living has decreased radically over the years, as measured by the amount of time it takes to earn the money necessary to purchase things (cf. Myths of Rich and Poor by Cox and Alm).  The cost of basic staples has declined, as has the cost of housing and clothing.  The cost decrease for the latter is especially significant once quality improvements are considered.  The decreased cost of living should make it easier for each successive generation to accumulate wealth since they need not spend as much time satisfying basic needs, all else being equal.

That this is no longer the case suggests that things are no longer equal. There are many causes of diminished generational wealth, such as increased increasing regulation, which now imposes higher compliance costs than before.  Government interference in general has imposed high costs, and has been redistributive as well.  Much of the wealth-destroying mechanisms now currently in place have been enacted by earlier generations.

In essence, a good portion of the current wealth inequality that exists is not due to the current generation’s laziness, nor is it an anomaly.  Rather, the poor prospects the current generations are the results of prior generations’ intentional destruction of wealth.  This does not bode well.



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Hidden Taxes

By Simon Grey, on May 9th, 2011

The U.S. plant will employ 100 people, and more than a year ago the company bought a former liquor warehouse outside of Baltimore, thinking they would be open in nine months. But it’s 13 months and counting. Xu and Wang have already spent $1 million more than planned and they don’t yet have an occupancy permit.

The storage room Wang and Xu budgeted to cost $25,000, would have cost $250,000 to comply with the city’s requirements, so the company will not store as many fragrance oils on site, making it more difficult to meet orders.

The building has to be equipped with fire sprinklers and handicapped restrooms. In total, code compliance is estimated to be 30% of the $3.5 million the company has spent on the plant.

One oft-overlooked tax is that of compliance costs. Quite simply, compliance costs refer to the costs of meeting regulations set forth by the government. As this story indicates, compliance costs can be quite expensive, and in many cases prohibitively so. I suspect the main reason why compliance costs are overlooked when discussing tax policy is because compliance costs are largely invisible.
In the first place, the government does not directly receive money from compliance costs. In fact, ensuring that businesses and individuals have complied with government regulations usually costs the government a decent amount of money. Plus, the only ones who profit from regulatory compliance are those who sell products that ensure compliance. It is probable that there is a significant amount of corruption associated with this, but it does not necessarily follow that the government profits from this, either directly or indirectly. (Certain government officials may profit from regulatory corruption, but it seems highly unlikely that said officials use their illicit gains to, say, reinvest in the government. It seems more likely that they simply pocket the money for themselves.)
In the second place, compliance costs aren’t always recorded by businesses and individuals because there are times when it is impossible to tell how large a role regulatory compliance plays in a purchasing decision. For example, a fast food restaurant may decide to replace its ice machine. The restaurant will pay for the ice machine, and will thus bear some of the cost of the machine. However, since it is impossible to tell what sort of machine, specifically, the restaurant would have purchased were there no regulations with which to comply, we cannot be certain how much regulations cost the restaurant, if at all.
Finally, compliance costs remain invisible because they are hard to measure, in total. The sale of gasoline provides a perfect example of this, for it is impossible to say how oil refinement regulation compliance impacts the final cost of gas, how pump safety standard compliance impacts the price of gas, and so on. Compliance with these different regulations and standards occur at different points in the supply chain and, as such, the costs are assessed at different points in the supply chain. They have a cumulative effect, to be sure, but determining the extent of these costs is a fool’s errand, particularly if one tries to do so on a per-unit basis.
At any rate, the lesson to take away from this is that the cost of regulatory compliance should be part of the debate on taxation. That the costs are hard to see and difficult to measure doesn’t mean that the costs don’t exist. Nor does it mean that the costs should be ignored. Thus, when it comes to tax policy, regulations should be fair game.


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