At a Crossroads
America’s Economic Future – Growth or Dirigisme?
By Vaughn Woods, CFP, MBA
In this month’s economic update, I introduce the idea that America is at a critical juncture. The United States federal debt is now estimated to be 123% of Gross Domestic Product (GDP) as of July 15, 2024. This is only important because the higher the debt grows the slower the economic growth. Paradoxically the lower the debt the faster the growth at a time when we need faster growth to pay off or reduce the debt. Tax hikes alone are rarely enough to materially pay down the debt.
Lowering interest rates can stimulate an economy such that GDP grows faster, tax revenues increase, and the national debt is reduced relative to GDP. Moreover, raising taxes to pay down debt is a common practice among nations facing sizeable amounts of debt. The problem is that if spending continues to rise, increased revenues have little impact on a nation’s overall debt.
The strain of our national debt is the result of poor return on investment from the Iraq war, the war in Afghanistan, the Great Recession of 2008, and the Covid-19 pandemic shutdown. Thereafter numerous federal spending initiatives were put in place to offset these expenses. Today this leaves the United States economically vulnerable to taking on additional deficits in response to the provocations of our enemies and the enemies of our allies. Bottom line. Debt makes us weaker.
The federal deficit is now growing at one trillion dollars every three months. While the U.S. economy is experiencing positive and/or negative economic trends, e.g., growth is decline. Government intervention (dirigisme) is hindering our ability to build a strong post-COVID future.
Our American economy now stands at a crossroads. Warning signs of a weaker economy includes rising credit card delinquencies, high interest rates, inflation, rising unemployment, and declining consumer confidence paints a concerning picture.
The Looming Shadow of Dirigisme
Our traditional understanding of dirigisme, the government’s heavy-handed control of the economy, is fraught with slower growth, inefficiencies, and inflationary peril, especially for retirees. Printing money to pay off debt not only fuels inflation, devalues currency, and erodes the value of savings accounts. It’s a recipe for slower growth. So how did we get here?
Somehow the pandemic changed everything. A network of multi-letter agencies began calling the shots. CISA decides if your job was essential or not. The CDC decided whether landlords could evict tenants. The FDA inserted itself between doctors and their patients. OSHDA requested you to wear a mask on public transportation and airplanes. NIH agencies and health departments shut down churches, schools, businesses, and civic, cultural, and sports clubs. They directed how many people could gather in your home and whether you could be with loved ones in hospitals and care centers. The NSC directed a Covid-19 response that was militant and unconcerned with individual rights. The key question now is can we see our way out of dirigisme to grow the economy fast enough to jettison our federal debt as a potential national calamity.
America’s Forgotten Engine: Reduced Government, Unleashed Potential
History offers a compelling alternative. America’s most prosperous periods were marked by reduced government intervention. The post-war economic boom, for example, wasn’t built on dirigisme, but on the dynamism and innovation of businesses and individuals empowered to create value, generate jobs, and drive growth.
The Chevron Doctrine’s Demise: An Opportunity for Freedom
A pivotal moment of hope away from government overreach in economic regulation recently arrived when on June 28th, 2024, the Supreme Court overturned the Chevron Doctrine. This was a doctrine established in 1984, that gave federal courts the right to assign the ruling of ambiguous statutes to regulatory agencies. The Supreme Court overturned the 1984 doctrine for being a judicial invention that required judges to disregard their statutory duties. The Chevron Doctrine was seen as a presumption; misguided because agencies have no special competence in resolving statutory ambiguities. Courts do.
Unleashing Growth: A Bold Vision
The path forward demands a shift in mindset. Moving away from dirigisme and toward pro-growth strategies can foster a vibrant and competitive market, including making home ownership more accessible for young families.
Empowering Individuals and Businesses
Unnecessary regulations and bureaucratic hurdles have stifled the rewards of education, hard work, innovation, and risk-taking. This can be seen in the decline of the middle class. The middle class has declined from 61% of workers in 1971 to 51% in 2023. Both political parties claim to have a plan to help the middle class. Both parties must address their policies by streamlining regulations and simplifying bureaucratic processes.
Unlocking Private Investment
Policies that incentivize investment are the lifeblood of U.S. economic growth. This means lower taxes, which help the middle class, a simplified administration of compliance, a stable regulatory landscape where businesses and individuals can plan with a clear understanding of what regulations they need to comply with in the future. Trade free of the overreach of government incentivizes trade. It also produces unintentional benefits. These benefits are greater than those of a regulated economy.
Conclusion
The American economy is at a crossroads. The size of the federal deficit is important since most government spending has a negative economic impact. But more important is the size of government. There is overwhelming evidence that government spending is too high and that America’s economy could grow much faster if the burden of government spending was reduced. We can either choose the path of dirigisme, risking high debt, slower growth, inflation and stagnation, or we can revisit the principles that fueled our past prosperity. By empowering individuals and businesses, unlocking private investment, and ensuring fair and efficient markets; free to pave the way for future generations to believe in the American Dream.
Stay informed and engaged—our collective actions will shape the economic landscape for generations to come.
Warm regards,
Vaughn Woods, CP,MBA
Vaughn Woods Financial Group, Inc.
858.454.6900
Sources:
Pewresearch.org
Heritage.org
Investors should be aware that there are risks inherent in all investments such as fluctuations in investment principal. Past performance is not a guarantee of future results. Asset allocation cannot assure a profit nor protect against loss. Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Views expressed in this newsletter are those of Vaughn Woods and Vaughn Woods Financial Group and may not reflect the views of Bolton Global Capital or Bolton Global Asset Management. The information provided is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. VW1/VWA0302.