It is the same with historical accounts, and with economics. Bullshit that entertains us and appeals to our emotions becomes “factual,” even when it is obviously false, distorted, incomplete, or impossible.
For example, Hernán Cortés landed in Mexico, intent on conquering the Aztecs. History books say that Cortés met a native woman who became his interpreter. This sounds plausible at first, but it is a plot hole that needs explanation. Before Cortés landed, there had only been two brief Spanish expeditions to the beaches of Mexico. Therefore how could Cortés have met a native Indian woman who spoke Spanish? And yet, we forgive this plot hole, because we find the overall story interesting.
(In reality, when Cortés landed in Yucatan, the Mayan Indians managed to convey to him the idea that another Spaniard was already there, and nearby. When Cortés found this other Spaniard, his name was Aguilar, and he had previously been shipwrecked and taken captive by the Mayans. While a prisoner, Aguilar learned Yucatec Maya. Cortés took Aguilar as his translator, sailed up north around the Yucatan Peninsula, and arrived at the Mayan town of Potonchan on 22 March 1519. When Cortés defeated the natives there, the natives gave Cortés a peace offering of food, gold, and twenty women. One of women, called Malanale, spoke Mayan, plus the Nahautl language of the Aztecs. Therefore Cortés spoke Spanish to Aguilar, who spoke Mayan to the girl, who spoke Nahuatl to the Aztecs. No big deal, but most history books fail to mention this, and most people don’t even notice the plot hole.)
During the American war of independence, France secretly supplied the rebel colonists with money, munitions, tents, and uniforms. Benjamin Franklin spent much time in France persuading King Louis XIV to commit to the American cause. However, what kind of money did the king send? The colonists could not spend French francs. Was it gold? Gold is not money. Gold is a commodity. Why did the king’s donation of money supposedly deplete the French treasury, if the French government could create limitless francs out of thin air? I’m sure I could find the answer if I dug, but this is a plot hole that most people overlook.
And then there is the official World War II narrative, which is so full of plot holes that it’s pathetic. (The “six million” fable is only one problem with the story.) And yet people ignore the plot holes, because they find the story entertaining. (“We saved the world from Hitler!”)
All such stories have political elements. Social strata are maintained, in part, by the stories we tell each other. For example, if you point out the absurdities and plot holes in the official story about 9-11, you are dismissed as a “conspiracy theorist.”
If you question the “holocaust”™ story, you may be fired from your job. In Europe you will be sent to jail. That’s how politically charged our stories are.
For instance, if I don’t like it that people (other than me) get government benefits, then I will believe that people (other than me) are “bankrupting” the U.S. government, even though I know that the U.S. government can never be bankrupted, since the government can create limitless money out of thin air. My story is full of contradictions and plot holes, and yet I cling to my story, because it entertains me. It justifies my hatred and selfishness.
It also justifies rich people’s enslavement of me, but I would rather remain a slave than quit believing in my fiction stories.
All societies are built on stories that are mostly bullshit. Human culture consists of narratives that reflect a culture’s values and beliefs. Our notion of “reality” and “common sense” is a product of the stories we tell each other. This is as true in economics as in any other field. Indeed, economics consists of politically charged fables.
I mention all this because I just saw a story that is full of plot holes…
First of all, the Saudi government creates infinite riyals out of thin air, so why would the Saudi government need to “tax foreign residents to raise cash”? Without further clarification, this story makes no sense.
What the story fails to disclose is that the Saudis have burned through their foreign currency cash reserves, and they are desperate to obtain more foreign currency so they can buy imports of food and so on. Foreigners working in Saudi Arabia want to be paid in foreign currencies (or be able to convert their riyals into foreign currencies) so they can send some of their salaries back home to Bangladesh or the Philippines or wherever. By “taxing” them, the Saudi government recovers some of the foreign currency that Saudi companies pay to foreign workers.
Liquidity worries have also surfaced, as late last month Saudi Arabia indicated that it was considering paying contractors with government issued bonds – read: IOUs.
If this means Saudi contractors, then it is nonsense, since the Saudi government has no shortage of riyals. If, however, it means foreign contractors, or foreign workers, then this will never fly, since non-Saudis won’t accept riyals for their work, nor will they accept bonds denominated in riyals. It was probably announced to prepare foreign workers to be paid less. (“If you don’t submit to lower pay, then you will have to take bonds as payment!”)
And then we get this plot hole…
This is a plot hole because it doesn’t explain what the “pubic debt” is. If it’s in foreign currency, then it is significant. But if it is in Saudi riyals, then it merely represents riyals that investors have deposited in the Saudi central bank, in which case it’s a good thing.
Against that backdrop, although oil has rebounded off the recent lows, budgets are still light and in an attempt to help raise revenues in the short term (and transition away from dependency on oil in the longer term), the government is weighing an income tax on expat workers.
More plot holes. They mean revenues in foreign currency, but they don’t explain this.
Deputy Crown Prince Mohammed bin Salman has already taken steps to reduce spending, recently cutting fuel and utility subsidies and has proposed reducing the public sector wage bill. The kingdom is also joining other members of the six-nation Gulf Cooperation Council in imposing value-added taxation starting from 2018.
This is austerity, and it will be disastrous for the economies of Saudi Arabia and the Gulf oil sheikhdoms. Why raise taxes in the local currency if local governments can create their own currencies out of thin air?
Bahrain: Bahraini dinar
Kuwait: Kuwaiti dinar
Oman: Oman Rial
Qatar: Qatari Rial
Saudi Arabia: Saudi riyal
United Arab Emirates: UAE dirham
“Deepening the taxation base will be an important step in increasing non-oil revenue, which will likely start with a VAT first, but the discussion of income tax is notable. Introducing the income tax could support efforts to create more jobs for nationals, but if it’s not done in coordination with the other GCC countries then it will also reduce the competitiveness of Saudi Arabia to attract labor,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
As you can see, the Saudis and the Gulf oil sheikhdoms have caught the austerity bug. They claim that in order to create more jobs for Saudi nationals, so that Saudi nationals can have more money, the government must first take away Saudi nationals’ money via taxation. For example, they want to introduce an income tax. But wait…now we get this…
There are nine million foreigners living and working in Saudi Arabia said Mufrej Al-Haqbani, the country’s labor minister, and Finance Minister Assaf said that there are no plans to tax Saudi nationals.
So they are going to tax Saudi nationals, but not tax them. Plot holes galore.
Next comes this…
Whatever the outcome, it is clear that as Saudi Arabia continues to keep oil production at current levels, hoping to continue to force higher cost producers out of business. However something will need to be done in the short term in order to solve the debt levels being used to fund the budget.
Nonsense. The Saudis have cut back on oil production in order to create scarcity, which has caused oil prices to start rising again. The Saudis had no choice in this, since they must import everything except oil, and they have used up all their foreign currency. They had no money to buy imports. And indeed, oil is now up to $50 per barrel, and it keeps rising.
Regarding “debt levels being used to fund the budget,” this exposes one of the most common plot holes in economics stories, namely their failure to clarify to mention whether debt, revenue, and spending is in the local currency, or in foreign currency. This failure is intentional. Its purpose is to make you think that monetarily sovereign governments cannot create their own currency. Once you believe this lie, you will believe that there is “no money” for social programs that help average people.
Monetarily sovereign governments whose currency is not widely accepted can borrow foreign currency by selling sovereign bonds, or by selling state assets. However, regarding their local budgets in their own currencies, they do not use “debt levels” to “fund their budgets.”
The Zero Hedge blog rarely gets anything right.