The Unraveling of the US Grand Bargain
This was to be about the gatekeeping tyranny of the Publishing World, but that will have to be another blog. I started off wanting to add context via our political environment, but I kept writing, and I’m sure that I have given people offense.
Human dynamics gravitate to authoritarianism. Human beings simply cannot help themselves. Even in a Proletariat, where the workers are supposed to control things, it becomes dictatorship and substantively similar to Fascism. In the US, the owners of capital and property maintained rigid control over US politics until the New Deal which was instituted to help the destitute US population crushed by the Great Depression. Social Security was later instituted, but this was not framed as a taking—it was presented more as a government controlled 401k plan to force Americans to save for retirement (however, there are some of the Left who want to seize control of Social Security funds and redirect them as most of the older population is white, and if that happens then it would of course be a taking).
The New Deal wasn’t perfect but it essentially worked, and many in the public wanted more of it to support various kinds of social services (food, medical, income, rent, act…). There has been mission creep as Biden and other Democratic presidents (in particular) expanded social programs/economic assistance. I’m not against such programs as a rule—I think there is a need to serve the common good in complex nation states. As a counter, taxation is a kind of quasi slavery—it is the State taking ownership of one’s labor for the benefit of others. 100% taxation is nothing else but slavery where the master is the State. In the beginning, there was no income taxation and revenue was raised primarily through tariffs. But industrialization concentrated tremendous amounts of wealth into a few families while the US was getting imperial ambitions with Europe a powder keg. Taxation was for the most part limited to common benefits—it was for paying off the US national debt and interest, supporting the armed forces, protecting the country, infrastructure and other public work projects.
With the New Deal followed by President Johnson’s Great Society, the US embarked on a tricky bargain and became a flavor of socialist-democracy where the owners of capital, property, and workers kept most of their wealth and fruits of their labor (but were taxed) in exchange for an ever-expanding network of social services. The deal worked at first, and the US sustained a significant expansion of the social services network in the 1960s where the total national debt was still below 400 billion in 1970. However, even then it was clear that an unstainable bargain had been made. As the decades have moved along, the bargain has been further expanded and has been maintained through more debt where the US now stands at 38 trillion.
70% of US spending is for social services and 13% is for interest on the debt (and this will only get higher) which is mostly tied to the social services spend. 13% is for the armed forces and around 4% is other. There is not much room to redistribute the existing budget. The defense budget can be reduced, and much of that spend goes to US manufacturing (jobs) and soldiers/personnel (jobs) which means less tax revenues and potentially more customers for social services. Meanwhile, many people are wanting a further expansion of social services and/or other forms of redistribution. That there are many people who believe in such a cause is coming from a privileged mentality is ironic since this same population loves to call that out on others (but that’s a different blog).
I’m all in favor of sustainable taxation and to reallocate some wealth after core government responsibilities of defense, debt, governance, and infrastructure needs are met. The Laffer Curve models suggest up to a 70% rate but this is without consideration of property, capital and other forms of taxation. From a values perspective, I am blocked from supporting taxation where the State (all levels of government) owns more of my labor than I do especially given that the vast majority of the revenue is for redistribution and is therefore a kind of theft (my money/resources are taken and given to others essentially by force). Higher taxation will also filter into prices so although a progressive tax rate on corporations sounds good, and I strongly believe in a reasonable rate, high taxes will at some point filter in the pricing of goods and services and will reduce investment (generation of future income that would otherwise be taxed). Why would corporation X want to risk a capital project where the return was guaranteed to be low? I favor income taxes over property taxes in large part because of property appreciation. Forcing people who’ve been in their homes for a long time to sell is a kind of taking that goes against my values.
The escalating US debt and the demand for even more social services is pushing the country into a new authoritarianism. The owners of capital, property, and higher-end labor made a bargain for social services in part because it was the right thing to do and in part to prevent a tyranny of the Proletariat where their money and labor would be seized by the State. Tax revenues for all levels of government are over 25% GDP despite recent reductions to marginal tax rates. US federal tax income tax revenues as a percentage of GDP was 11.8% in 1972, peaked at 13% in 2000, fell as low as 7.9% in 2009, to 10.6% in 2023-2024 but this doesn’t include payroll taxes which pushes the figure to 18% (this doesn’t include state and local taxes). These figures suggest that there is some room to raise taxes but nowhere close to what’s needed to fund existing spend much less further expansion. To cover existing deficits, income tax rates would have to rise to around another 9% of GDP, which is an almost 100% increase. At that level of taxation, economic contraction will follow which would then also increase demand for social services which would require further tax increases but that becomes a trap as economic contraction eliminates the net gain, and at some point becomes a negative, while pushing more people into needing/wanting support services. In other words, the US cannot raise enough revenue through increased taxation to cover the existing levels of budget deficits. The math doesn’t work. That’s not to say, there isn’t room for tax increases as mentioned earlier. But I am saying that significant reduction to the existing levels of spending is required to balance the budget (the failure to do this has caused an increasing share of the budget to fund the debt). The US debt is approximately 125% of GDP and climbing—anything over 100% is a red flag.
Unfortunately, the US economy has been on a drug binge with the debt, and any serious effort to reign it in will cause a withdrawal that will be painful. But failing to do so punts the problem, which will only grow, until the issue is forced through abandonment of the US $ has a reserve currency, loss of currency value, ever increasing interest payments, and so on. Some economies have tried to devalue their debt through inflation but that is also quite painful—especially for an economy reliant on imports.
Yet many people in the US want more support services. Many people in the US think that the issue can be solved by soaking the rich. Many people think that the budget is roughly split between defense and social services spending. The hunger and entitlement of Americans who think that other Americans are obligated to fund their housing & health has helped to elect socialist mayors in New York and Seattle. Socialism is predicated on authoritarianism—that being, the State owns your labor and your resources. Laisse Faire capitalism comes down to unfair power distributions resulting in unfair compensation for one’s labor, which is a kind of authoritarianism.
The US has threaded the needle but it has done so with a lot of debt.
Unfortunately, this is unraveling and there is broad acceptance on the Left that they have the right and the obligation to take what belongs to others in a moral paradigm of entitlement and privilege where an “enlightened” State owns whatever it wants to own, takes what it wants to take, and that everyone is in effect working for the State (slavery). The Right may be forced to accept much higher taxes but as noted that will not by itself solve the budget gap. A grand bargain would be for everyone to accept less—more taxes, less social services. But who in their right mind think that’s happening? In the short term, it will be painful for everyone. And there is an American privilege shared my most everyone of I deserve whatever I can get.
Accountability is in very short supply.
My expectation is the authoritarian streak in the Trump presidency is the new normal no matter which party holds power. AI is adding pressure by eliminating middle-class jobs. Human dynamics favors a few people controlling most of the economy with a vast underclass, and we are trending in that direction. It’s hard to see how we will avoid tyranny and economic decline for the majority of citizens. For that I grieve, for unless something amazing happens in the American psyche, or a transformative change in technology that saves the day, we have entered into the fall of our civilization.
