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.

There are, of course, two critical differences between monopolistic behavior in corporations and in government. The first, to put it bluntly, is that governments have prisons and guns. They have coercive force available. Their monopolies are far more dangerous and difficult to undermine. The current flattening of Hong Kong’s freedoms is an illustration of that. The second is that in powerful government systems political power and financial power become entirely intertwined. Politics delivers money and money delivers politics. A simple contrast illustrates this vividly. According to Wikipedia, the average net worth of US Senators and Congressmen is just over $1 million. The very richest has about $215 million. They are far better off than the average American. But consider China, a truly powerful government system. There, the average net worth of their 153 parliamentarians is $4.24 billion. That’s an average, not a total. This is a country with a per capita income of $17,000 PPP (effective) dollars (the US is at $66,000).

An ossifying government monopoly is not only harder to crack, but far more corrosive than a corporate monopoly. That minimum spending will end up going through those with political clout who will then use some of those funds to ensure they remain beneficiaries of a corrupt system. It has happened time and again.

One might dismiss Yellen’s comments as a pipe dream, but this is only the latest example of U.S. financial imperialism. The U.S. dollar is the world’s reserve currency. The U.S. dominates financial clearing systems/bank transfer systems. Being kicked out of the U.S. financial system is a near-death sentence for a bank anywhere from Pittsburgh to Pyongyang. The U.S. has used this near-monopoly power to drive additional changes – strengthening its monopoly position. International reporting standards, for example, place banks globally under effective U.S. regulation (U.S. banks, on the other hand, are not under regulation by foreign governments).

I would expect that the next step in Yellen’s plan would be to threaten countries that refuse to get in line with exclusion from that monopolistic U.S. financial system. In previous attempts to impose U.S. financial rules (from sanctions to reporting) it has worked perfectly. The global frog is nearly boiled.

With this next step, the U.S. can set tax and fiscal policy globally. The only exceptions would be rogue regimes cut off from the West or so powerful the U.S. cannot bully them. Not long after, it would be able to dictate social policy as well. The resulting global ossification and self-dealing would be disastrous from an economic perspective – and from the perspective of liberty and self-determination.

But the well-meaning, know-it-betters in D.C. would experience extraordinary powers.

All of this is deeply concerning, but it doesn’t quite rise to frightening.

This is where that second news item comes into play. China, Russia, and others (e.g. OPEC and the EU) have been batting around the idea of an alternative to the U.S. dollar for decades. They’ve been wanting to set up alternative financial clearing systems, alternative reserve currencies, and all the rest. One of my favorites was an OPEC concept to settle oil contracts in what I understood to be essentially oil ETFs. The reasons are clear. They want to limit U.S. financial hegemony. They’ve failed to date. They lack the economic clout, the U.S. has played effective defense (like any good monopolist) and there hasn’t been a good enough reason (given the costs) for people to switch to any alternative.

In the case of both Russia and China, there is another problem. People don’t trust their governments. They expect Russia and China to be even more aggressive than the U.S. in leveraging this sort of financial power. They believe the Russian and Chinese currencies (and economies more broadly) are built on fabrication and are inherently less trust, and credit, worthy. If you’re being forced to choose between the U.S. and Chinese financial systems, your choice is generally pretty clear.

Nonetheless, the calculation remains. Is the cost of doing business with the U.S. system greater than the cost of doing business with the Chinese system (the Russians are just along for the ride)? If you are a stand-alone country (say the U.K.), do you believe the U.S. or China is more threatening to your success and independence?

Obviously, the U.S. financial empire provides more opportunities. Nonetheless, it is coming with ever-larger costs. The U.K. just split from the E.U. over these issues. The E.U. also dictated minimum tax rates and types – in order to prevent competition between countries. Does the U.K. want to be manhandled into another, similar, relationship?

As a smaller country glancing between the titans, it would be natural to ask whether the U.S. might not soon use its monopoly clout to fix other issues. Forget the Paris accords, the U.S. can extend itself to set international industrial and energy policy. It can outlaw wood-burning stoves in Bulgaria. How about refugees and economic migrants? The U.S. can leverage its position to force other developed nations to accept them. As an independent nation, each step is the U.S. extension of power an act of signing away your people’s self-determination to a foreign power. Your leaders may be elected, but increasingly they will have less and less actual power over (and thus accountability for) their own national policies.

As a smaller country glancing between the titans, a Chinese counterbalance in financial systems might become increasingly attractive. The digital yuan just shows one area where innovation is possible.

This is where things become deeply frightening.

As hegemonic as the U.S. system is, the U.S. is not engaging in actual genocide (mass internment and sterilization and ethnic erasure) of a minority population. The U.S. is not threatening independent and free nations who happen to have ethnic connections (e.g. Taiwan) with complete destruction. The U.S. is not crushing independent city-states. The U.S. is not erasing religious freedoms.

Yes, the U.S. is using its economic muscle to try to pressure Iran, China, and Russia. However, as with almost all sanctions in modern history (see Cuba), the effect has not resulted in the toppling of governments. While the U.S. has launched wars in Afghanistan and Iraq (and is in combat in numerous other places), the purpose of those wars is almost never U.S. hegemony. The methods may be ineffective, the effects may be entirely regrettable, but the goals have been admirable. The Chinese and Russian approaches, while understandable expressions of their national priorities and concerns lack admirable goals. There is no check on how far the CCP desire for ‘the Greater China dream’ or Russia’s desire for breathing room may extend. I had a young Chinese woman explain to me that Hungary was Chinese – because the Mongolians had once conquered it.

With Yellen’s most recent pronouncement, the concept of an alternative – even an alternative provided by a genocidal Chinese Communist Party – becomes far greater. Are you, as an independent small nation, better off sacrificing your policy freedom to the U.S. know-it-betters or looking the other way as China increases its suppression of Mongolian, Uyghur, Falun Gong, and even Christian populations? The question has already been answered in many countries: they welcome Chinese trade, Chinese investment, and Chinese support.

Yellen’s most recent pronouncement is not frightening because it threatens a future of a universal monopolistic government. That is only concerning. It is frightening because it will drive nation after nation towards the Chinese-Russian-Iranian axis. This axis is dedicated to traditional forms of ethnic imperialism, just as Germany, Italy, and Japan were in the 1930s and early 40s. The Chinese-Russian-Iranian axis is ultimately antithetical to freedom, whether it be religious, economic, or political.

As individuals, there is very little we can do. My family uses the NotMadeinChina.Directory to buy products not made under Chinese Communist Party rule. But how can we push back against U.S. financial imperialism? How can we urge the U.S. government not to embrace this sort of approach on the world stage?

The fact is, under the U.S.’s increasingly federalized and administrative governing system, there are very few tools available to us.

That is, in and of itself, a warning against the dangers of monopolistic and unaccountable government.