E The Biggest Misstep Of 2021

My eye was grabbed by two headlines this morning. First, China has launched an all-digital currency. Second, Secretary Janet Yellen announced a desire for a global minimum tax level.

The implications of these two stories are deeply frightening.

Let’s start with Treasury Secretary Yellen’s pronouncement. The current U.S. administration wants to raise taxes. In order to prevent a loss of competitiveness, they want other governments to do the same. Put another way, while they would decry a corporate monopoly developed to ensure minimum returns for companies and their employees and shareholders, they want exactly that for governments.

Setting aside the question of whether government regulation of monopolies is necessary or desirable, there are a few generally accepted problems with monopolies. Aside from pricing issues, when monopolies are released from normal competitive pressures, they ossify. They become less efficient and less innovative. They squeeze out competition that might undermine them and they gradually grow more and more bloated and less and less effective. This leads many monopolies to a natural collapse (unless they have government backing). Before the collapse, they exacted quite a price on their customers and their society. Ask anybody who’s had to deal with a national phone company and you’ll get the picture. Oligopolies, formed by multiple companies that cooperate to form an effective monopoly, lead to the same result.

Photo by Eric Prouzet on Unsplash

An oligopolistic international taxation system would suffer from these same effects. Innovation would die. Lest you imagine innovation in government isn’t important, consider the stories of Hong Kong, West Berlin, and even Amsterdam. Those individual city-states broke with the governing approaches of the larger societies they were a part of and ended up revolutionizing – in a tremendously beneficial way – how those larger societies functioned. West Berlin in terms of political freedom, Amsterdam in terms of religious freedom, and Hong Kong in terms of economic freedom. This is one reason why it is so critical for China to crush Hong Kong – they are no longer interested in this sort of innovation.

With Yellen’s program, governments, hardly sources of innovation, would lose any need to compete with one another financially. In order to have effective international minimum rates, the types of taxes would need to be set. Before long, everybody would be marching in lock-step. Yellen’s statement didn’t stop with taxation. She suggested that countries spend minimum amounts on social welfare and other programs. These too would be gradually forced into lockstep, killing innovation in other areas of governance. As individual governments lost independence, their rulers would be increasingly unaccountable. After all, international forces, not elections, would govern policy

We’ve already seen some vestiges of this. Innovative partially privatized social security systems (e.g. in Israel) violate the structures of the U.S. tax code. Israelis with U.S. citizenship (and thus U.S. tax filing requirements) are thus locked out of using these partially privatized systems. Down the road, the U.S. could define social security spending as falling into the appropriate bucket for the general welfare but exclude privatized social security. The result? Countries developing innovative approaches to pensions (or other social programs) would be in some form of violation.

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Barry Hochhauser 1 day ago Member's comment

I would never trust an all digital currency from China.

Joseph Cox 1 day ago Author's comment

I wouldn't. Then again, the paper currencies in the West are being effectively pumped out in massive volumes. Does this raise trust issues too?

John Fitch 3 days ago Member's comment

Really interesting article that addresses a lot of problems I wasn't aware of. But none of these sound like there are real options available to solve those problems.

Joseph Cox 2 days ago Author's comment

This is the kind of powerlessness that feels like stability from the top even as the foundation upon which everything is built turns to quicksand.

Dan Richards 5 days ago Member's comment

Sadly, with the attack on the Capital Building, it seems like too many people want to topple our own government!

Joseph Cox 4 days ago Author's comment

That too, as with the protests against police, are perhaps symbols of how a distant and powerful a government feels unaccountable. The urge to centralize weakens self-determination over an increasingly overwhelming part of our lives (regulation). This is one reason I've suggested neighborhood-level police management.

Bindi Dhaduk 6 days ago Member's comment

Have a link to exactly what #Yellen said? I hadn't heard it.

Kurt Benson 6 days ago Member's comment

I'm amazed Iran has managed to hold out this long. I thought for sure that Covid would be the straw that broke it.

Joseph Cox 6 days ago Author's comment

The religious fanatical supporters of the regime (and the corrupt masters of it) are the only ones with guns. It is an awful hard regime to topple.

Kurt Benson 6 days ago Member's comment

Wasn't that the same case throughout the Middle East during the Arab Spring? Numerous governments were toppled, though not all thrived as a result.

Joseph Cox 6 days ago Author's comment

No, those other regimes rarely had the religious backing - quite the opposite actually. They didn't have people trained and ideologically committed, with their lives if need be, to support them.

Look up the Basij militia.

The Iranian system is brilliantly designed with elections giving some semblance of control as the first line of defense, a self-selecting body of actual religious governors (Supreme Leader and Council of Guardians) and then street-level religious thugs (Basij) able to be the final line of defense if need be with support from a corrupt special military-religious force (the IRGC). The Basij are the guns machine-gunning protestors from the back of motorcycles. The IRGC are the ones torturing and hanging them (or in the case of young women, raping and shooting them because there is a law against executing virgin women).

There are no run-of-the-mill soldiers who will just turn on the regime and the government is *not* stupid. They've learned from the Arab Spring, the Color Revolutions, 1989 and all the rest.

As I see it, the only way out is to arm the population. Literally air drop caches of arms on neighborhoods known to be more liberal in their thinking.

Kurt Benson 6 days ago Member's comment

Then I stand corrected. But air dropping weapons is a pretty radical step.

Joseph Cox 2 days ago Author's comment

In my opinion, dropping weapons and giving oppressed people a chance at self-determination is far better than starving them with sanctions that lead nowhere or launching invasions that rarely solve anything.

Texan Hunter 6 days ago Member's comment

But what's the alternative?

Joseph Cox 6 days ago Author's comment

Eventually war with the Persian *people* - who don't deserve it.

Danny Straus 6 days ago Member's comment

Aren't at least some of these governments elected by the people in actual elections? For example, when given democracy, the people of Gaza voted Hamas, a terrorist organization into power. They don't need guns to drive them from power, they simply have to stop supporting them and vote for someone else.

Joseph Cox 6 days ago Author's comment

Danny Straus You have to have elections more than once. The last Palestinian elections were in 2006. The elections in Iran are particularly beautiful. The Supreme Leader and Council of Guardians (and other groups) determine who can run. Then those who are elected have limits in the areas they can do - the Supreme Leader has the power to overrule many many things. So you have elections, but everybody knows they are a mirage. Even in places with regular and free elections there are deep problems. People vote by ethnic affiliation. Then those ethnicities fight it out on the next level up. There are often few cross-ethnic parties. By ethnicity, I also include religious identities, irrespective of religious belief. I actually wrote a thriller about these relationships and how to improve on them. It's called The City on the Heights and is available on Amazon. https://www.amazon.com/dp/B075WVM711/

Danny Straus 6 days ago Member's comment

That's crazy. So Hamas won and then simply ended elections and never had them again? Wow, that's one way to stay in power. I had thought I had read that the Palestinians were having elections this year and that it would be the first time in 4 years but were delayed because of Covid. Is that not correct? America only has elections once every 4 years.

Joseph Cox 6 days ago Author's comment

Danny, I believe the Palestinian constitution calls for elections every 4 years, but it doesn't work out that way. Hamas won Gaza in 2006 and then expelled the Palestinian Authority (as in, tossed people off buildings). But the PA kept control in the West Bank. They haven't run elections since. As the saying goes: "One man, one vote, one time."

It looks like they might run these elections, but both Hamas and the PA are weaker due to an increasingly shared perception of corruption.

That all said, the election priorities aren't quite the same as they might be in, say, Illinois. A significant segment of the population is dedicated to permanent conflict. It is my hope, with the UAE accords and the Arab Ra'am Party (which indicated it would seek pragmatic alliances) doing so well in the Israeli elections (and maybe even forcing the Israeli center-right to cross ethnic bounds), that the ethnic fissures will be supplanted by a more pragmatic approach which can open the door to numerous longer-term solutions.

Ayelet Wolf 6 days ago Member's comment

I'm not sure how "fair" any of those elections are. Nor how often they are. It's difficult to stand up to a government that can shoot you on the spot, or toss you in jail without a trial and then throw away the key.