When local government meets high tech sovereigns

Sometimes I think city government is sleeping at the wheel when it comes to technology and capital flows. During its lucid moments, government will fall back on its 1960s playbook of economic development by announcing plans to bring back manufacturing jobs that pay better wages than the service sector jobs that replaced factory work and eviscerated wages. This narrative may have worked in a locality that was created to take advantage of proximity to a local natural resource where factories could then convert the resources into goods for local and other markets, but for a city like a 21st century Atlanta, that narrative is disingenuous.

Atlanta’s “natural resource” today is information. Workers who know how to find, extract, organize, and distribute information are going to be the one’s who obtain employment and the higher wages that come along with work in the information sector. This demand for an information-centric political economy, I believe, is being driven by the changing tastes of capital. Capital wants its goods and services delivered conveniently and its production customized.

Information technology allows capital to target funds directly to high-value driven information entrepreneurs that can deliver a product that was designed, manufactured, packaged in, and delivered from multiple jurisdictions. Capital has no love for mass appeal. Why deal with crowded banks, malls, car dealerships, or grocery stores when extra minutes of leisure can be carved out by the manufacturing and service delivery efficiencies provided by Tesla, Uber, Grubhub, and Insta-cart.

Along with these efficiencies in product manufacturing and delivery come smaller work forces or work forces outside of the jurisdiction of local governments. Local governments have been the front line defense of investor capital from disgruntled labor. They regulate labor union speech during strikes. Where there is violence they arrest the rowdy. However, in an information age where there are a greater number of tech shops employing smaller numbers of non-unionized information workers versus a handful of large factories employing thousands of unionized lower-skilled workers, there is less demand for the police powers of local government. Disgruntled employees at today’s tech shops simply take their information knowledge somewhere else or create their own firm.

Eventually government starts tossing and turning in its sleep. It sees its “labor clamp down” requests severely diminished. Higher incomes start translating into reduced need for government services from garbage removal to security. Higher income earning citizens may consider pooling resources to support campaigns of candidates who agree to reducing tax burdens are, too the extreme, support carving out or “leasing sovereignty” to higher income communities.

Question is, how will those with no capital react to the erection of this wall of individual sovereignty?

Social programs. Money laundered through the Great Unwashed

America needs poverty. Poverty eradication proposals are head fakes. America, especially the America that was created right after the Civil War, would not be where it is today without poor people.

Since the industrial revolution, and definitely as America entered the information age in the 1960s, the products designed and built by highly educated, highly paid labor had to be consumed by a large mass of “dependents.” These people are typically wage earners who do not have the capability to be self-sufficient and hold little to no capital. The greater the mass of consumers, the larger the network used to deliver goods. The larger the network to deliver goods means the higher educated, higher paid laborer and entrepreneur faced lower costs for delivering goods.

Emancipation, reconstruction, and the Jim Crow era coincided with the growth of consumerism. The American political economy, not knowing what to do with freed slaves was willing, in lieu of distributing productive capital to them, to turn them into a mass of consumers, with a willing cadre of banks and bond holders willing to launder money through “social welfare” programs.

The food stamp program? An opportunity for bond holders to launder money by financing a program whose clearinghouses are administered by banks.

Affordable housing programs? An opportunity for bond holders to finance the construction of low cost homes with principal and interest guaranteed by taxpayers, many of whom are not in the upper ten percent.

Medicaid and Medicare? Again, bond holders are offered a guarantee that taxpayers will provide a backstop for premium payments while insurance companies collect fees for administering them i.e. WellStar and Medicaid in Georgia.

There is a reason why the poor are referred to as the Great Unwashed. It is because dirty money is laundered through their misery.

What happens when the State abandons black Americans?

In their book, The Sovereign Individual: Mastering the Transition to the Information Age, James Dale Davidson and Lord William Rees-Mogg describe the demise of the welfare state with the political changes the information age will bring about. Those who can garner, manipulate, organize, distribute, and monetize information and use today’s digital technology to deploy this new capital from anywhere in the world will be able to achieve a level of individual sovereignty such that the protection services of the old nation-state will no longer be needed. The internet, cyberspace, will be their new jurisdiction, and with capital in the form of information, they will be able to carve out a minimized or tax-free environment in whatever physical jurisdiction they choose.

Information losers, according to Davidson and Rees-Mogg, won’t like this new world. This information-based economy will challenge their welfare state “employee” status. It is a welfare state employee status because in exchange for the “work” that they do at the polls i.e. their vote, information losers are awarded with transfer payments such as Medicaid, Medicare, food stamps, and low-income housing. As the hoarders of the new capital, information, choose lower tax jurisdictions, information losers are left holding the bag containing reduced benefits, the result of a lowered tax base.

The recent tax reform legislation passed by a GOP-led Congress and signed by President Donald Trump is a small indicator of the leverage the wealthy have, especially those who make their income as sole proprietors or partners in a business where they are now beneficiaries of a 20% reduction in the taxes they would normally pay on pass-through income. Congress and the President will now have to reduce or eliminate programs made infeasible by a $1.5 billion tax cut.

There is no guarantee that tax cut goody bags will be continually given out in the future. If the GOP loses both chambers of Congress in this year’s midterms, then Democrats will pursue a rewrite of the tax reform, or at least put on a good show effort.¬† I say a good show effort because the response by the wealthy will be, “Remember the two trillion dollars we have stashed overseas? How about we keep it there?”

Black Americans are not in the information age game even though blacks over-index on social media sites and, as a proportion of their population, own as many smartphones as whites and Latinos. Black Americans are under-indexed when it comes to employment in information technology. In an article for The Huffington Post, Jamal Simmons noted that black women may be able to scrape up $36,000 for a tech start-up, but white males scrape up on average $1.3 million in start-up funds.

And while blacks and Latinos continue to represent low single-digit proportions of actual STEM employees (technologists, mathematicians, engineers), there are plenty of black consumers of entertainment content on Facebook and Instagram. This content is low value. It differs from information which can be used as an input for production.

You may ask, “Don’t blacks have a right to consume entertainment?” My answer would be, “It’s not about rights to consumer content. It’s about channeling as much time and energy into mining and distributing information that creates knowledge that solves the deep well of problems in the black community.

Meanwhile, the State apparatus that blacks have disproportionately relied on for economic support and political protection is becoming bankrupt. Based on this recent tax reform, one would not sound too cynical in concluding that the GOP was in cahoots with the plot to blow it all up.  The information winners will not think twice about leaving information losers behind.

A person living in the internet shouldn’t have to pay taxes

Nyota Uhura is on a quest to digitize herself. She creates digital product on her laptop, transmits her finished product to her clients via the internet, and gets paid primarily in cryptocurrency. Every now and then she accepts fiat currency issued by a nation-state in part because as a mini-sovereign she likes to have a reserve currency for emergency use or in case a hole-in-the-wall restaurant on a south Florida beach doesn’t accept BitCoin.

She probably spends too much time socializing in cyberspace. Facebook and Instagram keep her in touch with her brothers and sisters in Congo or her cousins in Brooklyn. As a busy creative she sends out for food via Uber Eats and uses Uber or Lyft to get around.

She is not naive about the public safety protection that Atlanta markets to its residents. She has a home security service that she communicates with via broadband. She uses her laptop as a surveillance camera courtesy of her broadband access provider. She keeps a shotgun and feels confident in her self-defense skills. If she were a pilot, she would avoid Atlanta’s biggest amenity, Hartsfield-Jackson International Airport and opt for the smaller Charlie Brown airfield.

Why then, she asks, should she even pay taxes?

Her friends rebuttal is that she should contribute to the public services that she uses to get around; that she should pay for use of the streets and use of the police protection. On a national level, she should support Medicare and the national defense, and social security because these programs help provide security for her future.

And she should be ashamed of herself for not showing the ultimate allegiance to her government by avoiding the use of America’s fiat currency. Her failure to use it, they argue, only negatively impacts the nation’s economy by devaluing the dollar through shrunken demand.

Nyota expected the canned rebuttal from her friends and family. She responds, however, with a rebuttal they are not prepared for, one based on value. Being coerced by a false sense of duty and obligation to pay for sub-par protection services makes no sense to her. She hasn’t bought in on the police’s public relations campaign that they are there to protect the public and would like her taxes reduced by whatever the city assesses as her contribution. She has no enemies in Russia, North Korea, Syria, Afghanistan, Iraq, or Iran other than the enemies created by U.S. policy. Since she didn’t create these enemies, she would also like her taxes reduced by the amount of her contribution to these services.

Nyota pays a sales tax when she eats a cheat meal at McDonald’s. She also contributes to the transportation tax when she pays her Uber driver for a lift to the grocery store. She literally works in another jurisdiction, cyberspace, and because of this, Nyota believes she should not have to pay a federal income tax, especially to a government that provides low value protection services.

A strong legal and political argument will have to be crafted and promoted to bring about these changes, but at least Nyota is thinking about exit.

Bitcoin doesn’t threaten U.S. position as a tax and customs jurisdiction

Back on 16 November I posted a brief post opining on whether the federal government would go after Bitcoin, the cryptocurrency that has appreciated immensely in value this year. I wrote that if anything, the Federal Reserve would consider issuing there own digital currency. Federal Reserve Bank of New York president William Dudley alluded to the central bank issuing its own digital currency back on 28 November although nothing definitive has been set.

Readers should bear in mind that the primary role of the United States government is to conduct a resource extraction and protection scheme over its physical jurisdiction. To carry out these main functions it taxes citizens and businesses. Bitcoin is property and where an investor enjoys gains from the sale of that property, the United States Treasury will be there to collect. According to a 2013 report by the General Accounting Office, right now the biggest tax problem surrounding cryptocurrency is ensuring that taxpayers either investing in or using Bitcoin for transacting commerce are aware that they may be liable for taxes.

Fortunately for taxpayers investing in or using Bitcoin, the Internal Revenue Service does not have the resources to implement a tax compliance approach specific to virtual economies and virtual or cryptocurrency. The GAO recommended that at the least the IRS use a low cost information distribution approach, its website, to make taxpayers aware that they may be liable for income taxes as a result of investing in cryptocurrency.

Whether you agree with Warren Buffet’s assessment on Bitcoin, something that isn’t real and producing no dividends hence scheduled to implode, what’s real is that the Internal Revenue Service is ready to collect.

The new cyber society will see the poor pay more for government

I sense a major “cost shift” for tax payers over the next twenty to fifty years as the more affluent of United States citizens move more of their survivability activities into cyber society versus current brick and mortar society.

I believe one key will be the use of cyber currency by an increasing number of service providers and producers. Less dependence on fiat money and more reliance on a block chain that cuts out the middleman providing for faster payment systems. In addition, the affluent are re-imagining the use of public infrastructure by using it less frequently or more efficiently. Think drones, driver-less & fuel efficient vehicles, or the delivery of groceries via Instacart.

The affluent will also find more innovative ways to provide security, from improved security technology to private police forces. In short, as the affluent pursue an increasingly self-sovereign approach to life, they will make the case for dishing the traditional services of the State while arguing that their tax burdens should be less. Why support police and road services that hey hardly need. If anything, they will argue, let us reduce our tax bills by the amount that we spend on providing these services for ourselves.

For low income individuals and a large proportion of communities of color, they will experience the burden of the “cost shift” as tax jurisdictions pass on the costs of providing traditional State services to these communities. These communities will not be able to bear the burden given their low incomes. Services will be reduced as traditional government finds itself facing competition from non-State actors financed by the more affluent.

The State will react violently at first. It will create laws designed to slow down the affluent’s abandonment of the traditional State system. It may, ironically, use net neutrality laws to slow down deployment of the advanced networks necessary for delivering services to taxpayers leaving the system. It will further reduce renewable energy subsidies to residents that generate electricity at their residences.

I don’t expect the State’s attempts at holding sovereign individuals hostage will be successful. The attempts will invalidate the State’s arguments that it represents democracy when the actions to squelch freedom are the furthest from the truth.