My standing with libertarianism: II
In part I, I laid out my current thoughts about libertarianism. In this post, I apply my thinking to the current political environment. Before discussing this environment, it’s important to lay out the previous era from which we appear to be emerging.
The Post-World War II Era
Since the end of World War II, the United States has been among the pre-eminent global powers. After the fall of the Soviet Union, it became the sole superpower.
During this period, American political life was defined by several attributes:
A strong, centralized administrative state, that offered, among other things, welfare benefits and other legal protections to Americans;
A global military power that protected client states worldwide, but especially in Europe and Asia;
Home of the global reserve currency (US dollar) and the global reserve asset (U.S. Treasuries); and
The world’s most powerful central bank (US Federal Reserve).
From these pillars, the United States was the pre-eminent power across the globe.
Nevertheless, the US incurred certain costs while maintaining such a regime. While libertarians have tended to focus on the costs arising from central banks which resulted in business cycles, the US incurred other costs unique to its situation.
According to a paper published by Stephen Miran before becoming the nominee to become Trump’s Chair of the Council of Economic Advisers, the US’s position in the global trading system led to the continued, and structural, decline in American manufacturing.
The decline occurs because foreign investors have historically had an inelastic demand for reserve assets (US Treasuries). These investors purchased the assets from the dollars received through the US’s persistent current account deficit. This leads to the dollar from being valued higher than they otherwise would be, leading to foreign goods persistently being cheaper than American goods. As a result, the share of American manufacturing as a percentage of global trade continues to decline, which means international trade never gets balanced. Meanwhile, the US government is incentivized to maintain persistently large fiscal deficits, because it is near certain it can obtain relatively cheap financing due to the constant demand from overseas investors.
As one can see, this structure cannot continue indefinitely. It doesn’t make sense for the US to maintain huge trade and fiscal deficits while American manufacturing declines and simultaneously underwriting global defense. Meanwhile, notwithstanding Europe’s and Biden’s efforts to contain Russia and China, both countries have emerged as champions of their respective spheres of influence. Moreover, notwithstanding the US’s position as global hegemon, if this trend continues, the federal government will be on a trajectory towards bankruptcy.
The Emerging Multipolar Era
Given the position in which the US finds itself, it appears the Trump administration intends to make a number of significant changes in American policy. These changes are based on the recognition that neither the American fiscal nor trade deficits can (or should) continue indefinitely. Trump also recognizes that not only can the US act as the global hegemon, but that China and Russia have spheres of influence that the US should respect. Milan referred to these changes facetiously as the “Mar-A-Lago Accords.” Among the changes Trump appears to be seeking include the following:
Significantly reducing federal government expenditures;
Calling foreign governments to spend much more on their own defense;
Altering the composition of federal income (i.e., taxation) from internal taxation to external taxation, primarily through tariffs;
“Monetize” the federal government’s balance sheet, primarily through the revaluation of gold held on its balance sheet and the development of a strategic wealth fund; and
Convert the Treasury debt held by foreign governments into century bonds with a gold convertibility feature.
A Libertarian’s Analysis of the Transition
While the US will not be turning into Ancapistan tomorrow, many of these moves are steps in the right direction. Finally, there is an American administration in place that seeks to observe the world for what it is, rather than attempting to impose a worldview that doesn’t correspond to reality. It is amazing what this one simple step will do to bring down the temperature in global politics. The only people who are upset by Trump’s most recent moves are those that have benefited from the status quo for the past twenty years.
It has been extremely encouraging that Trump’s aggressive moves since being inaugurated have caught Democrats and the rest of establishment completely flatfooted. While we should be expecting counter moves from them at any time, it is refreshing to actually get some breathing room from utopians who have ruled over us while pretending that they can create reality as they see fit.
While we have been trained to believe tariffs are bad, they may be a reasonable substitute to direct income taxation, especially if Trump is successful in reducing the size and scope of the federal government.
Trump’s plan to aggressively reorient American policy is a long shot. Then again, taking a chance to improve the federal government is a much better alternative than continuing decades-long failure. He has been quite successful so far, and we have just passed the one month mark. Hopefully, Trump will be able to keep building off of these successes.