January 10, 2013
Lately I’ve had a ton of friends and family writing me about visiting Chile.
“We’re fed up with this place,” is how the emails usually start. People are hitting their breaking points and starting to consider their options abroad.
There are a lot of fantastic places to be. Chile is certainly one of them. It’s beautiful, optimistic, full of opportunity, cost effective, civilized, and free.
But the one issue people seem to have is the language barrier. Most of the emails I receive also say something like “… but I don’t speak Spanish!”
Big deal. Learning another language is not rocket science. With a vocabulary of just 100 words– I, you, he, she, go, do, see, eat, etc.– you can do just fine.
That being said, I sprung for Rosetta Stone’s language software for a few friends, just to help them along.
Now, Rosetta Stone has an instant download option; they don’t need to send you any software in the mail, you can just buy and download directly from their site. Easy.
So imagine my surprise when I got to the checkout screen, entered my credit card information, and the system added 8.25% sales tax, simply because I was using a credit card with a billing address in Texas.
This seemed crazy to me. I’m a consumer in Chile downloading software over the Internet from a company based in Virginia. None of the transaction touches Texas, yet the State of Texas had its hand out for a piece of the action.
So I backed up a screen and used my Hong Kong PayPal account. Hong Kong has no sales tax, no VAT, nada. And poof, the sales tax disappeared from my order. Simple.
(Anyone can do this– it takes about 90-seconds to establish a Hong Kong-based PayPal account…)
This little episode really underscores a key theme worth repeating: technology progresses much faster than laws do… so the system we all live under is completely antiquated. And easily defeated.
Most of the legal and policy framework in the West still operates under a 20th century paradigm, and there are examples everywhere. Tax policy, for instance, is decades old. It completely fails to take into account digital commerce.
Our global financial system is an artifact of the last century… from the way a tiny banking elite sets interest rates, to how nations around the world MUST use the dollar and US banking system as part of international trade and commerce.
All of that worked just fine in the 1950s. But in the digital age, money can flow across borders in an instant. Entire currencies and lending operations (bitcoin, digital crowdfunding) can exist outside of the system. Hell, I was able to defeat the taxman with a simple PayPal account.
It’s clear that the current system is woefully, laughably outdated.
Now, if a business fails to adapt to changing technology, it perishes. With governments, though, old, useless laws can stay on the books for decades. Yet eventually, the chasm between policy and technology becomes so vast that it FORCES a complete reset. Or collapse.
As an example, the Ottoman Empire was so hobbled by ancient regulation, the first printing press wasn’t introduced until 1729, three centuries after its invention.
Together with its massive debt level, rapid currency debasement, and completely outdated (and counterproductive) system of tax farming, the Ottoman Empire began a death spiral into history’s dustbin.
The West today is in a similar position– heavily indebted, printing money like crazy, and operating under outdated systems and policy frameworks.
We’ve seen how this movie ends. It would be foolish not to expect a major reset in the way the world does business… starting with an abandonment of the US dollar as the global reserve currency.
Will it start happening in earnest this year? Possibly. But even if not, you won’t be any worse off for reducing your exposure to a crumbling, deeply flawed system.