President Biden unveiled a budget plan and new tax policy initiatives for 2024. These initiatives are apparently part of a political battle with Republicans who say they intend to limit the $31.4 trillion increase in government borrowing if the Administration does not cut government spending. The President’s initiative has proven to exceed all expectations and perceptions about the normality of economic policy and the stimulus of a growing market economy.
The Biden Administration’s new tax plan is a complete madness amid the global erosion of established economic and geopolitical relations in the world – an erosion that has resulted from the irresponsible, mercantilist policies of the left-wing Keynesian government of the last 20 years or more. The most succinct name for this policy is aggressive etatism.
At a time when there is a clear need for productive relocation back to consumer countries, particularly the U.S., to strengthen national security in the face of tightening authoritarian regimes in major productive and resource economies, the Biden Administration is making decisions that can only be described as disastrous. Instead of stimulating intensive development of domestic production, positive expectations of economic agents, entrepreneurship and free competition through liberalization of tax policy, simplification and winding down of the regulatory overhang, maximum decentralization of redistribution of benefits, reduction of government spending and budget deficit and, in general, reduction of government….The Biden Administration wants to further expand the government regulatory mandate to levy and finally gut the pockets of the most successful and productive
That’s not even dirigisme – that’s real Soviet Bolshevism.
The left-socialist agenda has become dominant in the political elites of the modern American state over the past 20-odd years. In essence, this agenda represents a growing usurpation of the rights of a free society by a bureaucracy and political entrepreneurs whose underlying goal is to maximize their rights in the application of state leverage in budget control, regulation and rulemaking in their favor.
As a result, the state has achieved the hypertrophy of two important externalities: the Squeeze Effect and the Cantillon Effect.
The first negative effect, the Squeeze Effect, is the distortion of the market environment and fair competition by the extraordinary expansion of state activity in the economy, where competitive advantages are concentrated on the side of the state as the obvious resource and legal dominant, and on the side of those who are closest to state resources.
The second negative effect – the Cantillon effect – is essentially the main source of material inequality through unequal redistribution of benefits in favor of political elites, the bureaucracy and economic agents with access to state resources and the opportunity to benefit from state decisions first.
These externalities actually contribute to the fact that the State constantly strengthens its position as the source and basis for the welfare of economic agents, replacing the mechanisms and principles of the free market, and thus the conditions for the existence of a free civil society.
In fact, this, in fact, does not differ from the principle of building authoritarian regimes and even tyrannical dictatorships – the question is the degree of rigidity, speed, as well as the strength and stability of restrictive social mechanisms and institutions. The essence is the same – the powerful political entrepreneurs and related social and economic agents reduce the restrictions on their rights from society by any means and expand the potential of their abilities to control the budget and redistribute public resources. This is precisely what the Biden Administration’s new tax plan is designed to do.
As I mentioned in a series of articles about the Hypershift and the need for a “right turn” (https://wallstreetwindow.com/2022/12/global-hypershift-the-causes-of-dramatic-instability-and-what-lies-ahead-paul-tolmachev/ and https://wallstreetwindow.com/2023/02/global-hyper-shift-trends-probabilities-and-opportunities-paul-tolmachev/ ), the current challenges of changing the world economic and geopolitical order require a rejection of the socialist paradigm of Government policy, built for 20 years in the mode of globalizing economic chains and shifting the economy to a zone of exclusive consumption. Intensive economic development and economic growth based on the expansion of consumption provided by growth and diversification of production cannot be effective and sustainable under the conditions of hyper-state and the actual centralization of redistribution. The history of the USSR and other dictatorships, the nature of which is based on the centralization of all social and economic processes in favor of the dominant group, the bureaucracy serving it and affiliated economic agents are vivid examples of this. This includes the disastrous effects of the crisis of 1929, the effects which were caused in large part by the ruinous centralizing policies of the Roosevelt Administration and which became known as the Great Depression.
Effective growth and development of production, which expands and nourishes consumer preferences and opportunities, are achieved under conditions of free market entrepreneurial competition, when producers are protected above all from Big Government itself with its perpetual and exorbitant greed. This greed in fact represents the personal utility maximization of the bureaucracy and political elites. At the same time, long-term planning and increased entrepreneurial confidence are only possible under conditions of transparent and stable institutional rules and incentives, which include, among others, a liberal tax policy. Efficient manufacturers need to understand that Big Government will not take, break, or corrupt them. But that is exactly what Big Government has been doing for decades.
The distribution of goods can only be effective within a horizontal market exchange between economic agents, outside of vertical centralization and state planning. This is the axiom and basis of a normal competitive market economy as the only existential paradigm for the existence of a free and prosperous society in general. Any other forms of social organization are an evolutionary backwardation, a return to mercantilism, feudalism and further back in history.
But the most important thing is that the expansionist, or rather racketeering policy of the Big State – namely, those rent-seeking entrepreneurs and budget managers working for them, constantly expanding their rights and opportunities – in the form of draconian expansion of taxes and ripping off the most enterprising, efficient and productive in favor of the least efficient, enterprising and productive, entails two extremely negative consequences.
First, it would increase the proportion of the population who rely on the state rather than on their own abilities, industriousness, talents, and entrepreneurial spirit. This is the kind of society that Big State wants to see: dependent, loyal, submissive, and, until the moment of collapse, grateful for “a piece of bread. Note that this is exactly the kind of society that all authoritarian regimes build.
Secondly, it will mean that the political elites and the bureaucracy – actually rent-seeking entrepreneurs – are pushing the limits of their ability to control the budget and enrich themselves at its expense even further. The tax hikes proposed by President Biden’s administration are nothing more than the taking of money from those who earned it by producing goods by those who have the initial goal of parasitizing the producers without producing anything on their side. This means that the social contract is undergoing significant changes: government is becoming more and more like the sedentary bandit Mansour Olsen, who simply exploits society in his own interests and makes voluntaristic decisions about how much and to whom the benefits will be distributed.
Centralizing the distribution of wealth is not at all the task of the state managers hired by society in a liberal market democracy. The main purpose of government is to ensure the strict and precise observance of the mechanisms and corresponding social and economic institutions that ensure the inviolability of the natural rights and freedoms of the individual as the basis of existential and ethical values and socioeconomic processes in society. For this purpose, in the liberal-democratic construction of the social structure, power is limited to mandatory turnover and adversarial mechanisms that create a system of checks and balances.
In this construction, the domain and beneficiary of all processes – economic, cultural, normative, etc. – is the individual and society as a whole. In the same construction that Big Government imposes on us, the government becomes the main beneficiary: it is the government that gets the maximum opportunities and macroeconomic rights by increasing the budget through increased fees from producers, i.e., from business.
President Biden is going to reduce the $10 trillion budget deficit not by increasing productivity, promoting competition and entrepreneurship, inclusive growth of welfare and consumption, but by robbing some in favor of others, and primarily the government as the main budgetary interest holder.
Nothing else but creeping socialism can be called.
Leviathan breaks the bonds. But then, how can we complain about production and resource autocracies drifting toward dictatorship when the freest country in the world is being devoured by a Big State?
I can vividly imagine the face-palm of the Founding Fathers watching this mess from Eternity.