My Two Cents: Argentina Goofs!
Argentina has really messed up the works in the financial world wanting to nationalize private investments.
ARGENTINA – You may remember a column I did a few weeks ago about the skittish nature of capital. Well, one sure way to chase it offshore is to start nationalizing private investments. Cristina, you really have the world’s attention… in a bad way.
Who, in their right mind, would invest a penny in Argentina now?! For that matter, what are people saying about investing in Latin America? Will the fallout affect Chile? Hard to say at this point but one thing’s for sure, Argentina will suffer. What about the cheering crowd? I’d bet they are all on the government dole.
Remember, there are people who produce more than they consume and people who consume more than they produce. It’s the latter who cheer on the totalitarian economic grabs of socialist governments. They expect to get something for nothing. What about the former? Well, they just have to foot the bill. Or do they?
People are good at looking out for themselves. That’s what makes a free market work and people who produce more than they consume are going to make changes to protect themselves. Count on it. What can those changes be?
Well, one could be to work less and play more. That would reduce taxable income and this is happening a lot around the world.
Another way is to manipulate the businesses they own to use tax laws to reduce taxation. One really good way is to buy depreciable assets with lots of loans and use depreciation to protect other income. Some people do this in the millions of dollars per year.
Another is just to choose to evade the taxes and don’t worry that it’s a crime. Who knows? A government that is stupid enough to try the command economy approach is probably stupid enough to not be able to find the evaders. This, to my thinking, is not a good strategy because the evaders may be facing jail time when found.
Yet another is simply to move to another country that has less tax burdens. Argentina is not only facing the loss of investment capital but is facing the loss of producers. Let’s invite them here.