Four decades after Ronald Reagan’s philosophy of lowering taxes and shrinking government first took hold -- culminating in Donald Trump’s 2017 tax cuts -- Joe Biden is turning U.S. economic policy in the opposite direction. In a BIG way.
Over the past 14 months, Congress passed three pandemic-relief packages that injected almost $5 trillion into the economy. According to the President’s latest plan, we’ll add an additional $1.8 trillion in spending and tax credits on initiatives from education and childcare to paid family and medical leave.
Economists from the left and right have profoundly different opinions on whether this will benefit or damage the U.S. economy, and there is little certainty over how much of the package President Biden will be able to navigate through Congress given Democrats’ razor-thin majorities and staunch Republican opposition.
However, the myth that higher taxes won’t hurt the economy or that they haven’t hurt the economy in the past needs to be dispelled. That is patently false, as evidenced by big-government-loving western Europe’s 1.3% annual growth rate since 1992 compared to America’s 2.4%.
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The reality is that government has a woeful track record of administering large programs. The Federal government employs 2.8 million bureaucrats. The number of higher-earning government workers skyrocketed under George W. Bush as a function of the build-out for the war on terror, which necessitated the creation of new agencies such as the Department of Homeland Security, and then it kept growing under Obama. As the bureaucracy has gotten larger and larger, the less capable it has become of doing anything, and the more room it has for leaks and waste, and the bigger the attack surface is for criminals.
Between 1956 and 2000, 19 significant pieces of legislation were passed, which is an average of about one big accomplishment every two years. Prior to this year, only three major laws were passed by the legislative process in the previous twenty years: two of them were knee-jerk reactions to 9/11 and one was an abject failure — the Affordable Care Act (ACA).
The ACA was disastrous. The end results of Obamacare were that insurers were forced to write policies that they didn’t want and that the people who took those policies got coverage that 99% of doctors refuse to take. At the end of the day, ACA coverage proved to be essentially useless for anything but emergencies, and the insurance companies transferred all the costs onto all of us who already had insurance by jacking up our annual deductibles 30-40%.
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The government’s single biggest expenditure line — more than 50% of the entire budget— is for the Department of Defense. All four branches of our military-- the Army, Navy, Air Force and Marines— have now failed audits for three straight years. That’s more than half of our budget, and they just can’t explain where all the money goes with any level of accuracy.
It’s amazing, and it’s loudly reflective of the sheer magnitude of the unaccountability of our national leadership and our citizenry’s collective indifference.
It’s why our last several Presidents have resorted to so many executive orders— because it is the only tool available to legislate in an effort to control all of this chaos. It’s also why both the Democrats and Republicans have each adopted totalitarian thought control tricks and censorship techniques such as virtue signaling, political correctness, opinion shaming, right-and-wrong moral frameworks, and character assassinations of those who disagree.
It’s why Facebook, Apple, Amazon and Google all became vastly more powerful than the United States government — because the latter became impotent while the former became omnipotent. Our government can’t even defend our own First Amendment rights against censorship from the mismanaged and barely profitable Twitter, for crying out loud.
Lastly, this is why capitalistic dictatorships like China have been running circles around the U.S. for the last decade. China is now applying calculated doses of pain to shock our gridlocked Western world into believing that the old, American-led order is ending.
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That philosophical shift in our nation is almost complete. Coming alongside offsetting tax hikes and spread over 10 years, the net financial impact of the American Families Plan is likely to be modest and may even become negative over time. Everybody knows that, but we have apparently subjugated ourselves to the socialist view that financial well-being should only be a small part of what Congress uses to gauge overall economic success. Legislators now intend to evaluate equality as well, which is why the plan is ultimately just another political gambit over which we can all argue for a good year or two.
Put it all together, and you’ve got rampant economic waste (we cannot pass an audit on 50% of our spending); total unaccountability (no laws are getting passed and there is no plan ever to pass an audit); and a deep philosophical move to the left (that is already well underway).
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When you find yourself in a particular market environment that persists for a long time, it can begin to feel like the characteristics of the current moment are simply the ordinary and obvious status quo, especially for newer market participants who haven’t ever been torn apart by staying too long past the end of a trend.
If you’ve made money buying the same group of crypto coins for twelve straight months, how can I ever convince you that Elon Musk really wasn't kidding the other night on SNL and that on the thirteenth month you could lose it all? If you’ve been buying out-of-the-money calls on ARKK for a year and collecting profits every time, how can I convince you that you don’t have a system, that you have nothing more than a lucky streak? Suffice it to say that what’s working today will not be what works in the next phase of this economy and that Admiral Boom and Mr. Binnacle will not be providing a double charge of powder to signal the shift change.
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