A successful society should have a dedicated administration, a legal and auditing sector to ensure compliance, and functioning controlling systems. It should also provide an efficient social security system, but one that is still based on personal responsibility.
In several countries, welfare programs have become overly expensive and inefficient. A flood of laws and regulations have been issued under the pretext of reducing risk. This was yet another excuse to enlarge the public sector, which now accounts for an unhealthy proportion of the economy in many countries, sometimes close to 50 percent. As a result, the professional sector responsible for ensuring compliance, like lawyers, auditors and surveyors, has also grown excessively, harming the production and service industries to an extent.
High levels of public spending are creating unsustainable debts. Also, talent is disproportionately drawn to the public and controlling sector, leading to additional overheads for the real economy, businesses and employees. This gives states ill-advised possibilities to influence and control society and the economy, and it creates a wonderful playground for oversized government and bureaucracy.
All this is combined with byzantine, frequently contradictory and overly complicated tax rules. Because of their ambiguous nature, they allow authorities to make arbitrary decisions. These ineffective systems are extremely costly for both governments and taxpayers, especially businesses but also individuals.
Tax regulations, and all the disclosures they require, have become an instrument of control for governments, whose scope probably exceeds what some authoritarian systems used in the past. But taxation alone was not sufficient to justify these exaggerations.
When the sovereign debt crisis broke out a new remedy was found. Interest rates had already been low since the early 2000s, in order to eliminate the necessary downturns of the economic cycle and to relieve governments from rising interest costs. No one cared that these measures destroyed the savings of many, especially affecting pensioners. Central banks are now going even further and have started buying the bulk of government debts. Shockingly, even the International Monetary Fund has been encouraging countries to spend more.
This course of action would give governments and supranational organizations total control over societyMr. Thomas Piketty and other self-proclaimed economists now propose that central banks write off all sovereign debt, provided that countries spend the equivalent amount on social and green projects. But where will this money come from? One thing is certain: this course of action would give governments and supranational organizations total control over society. We can also see that the state administration (under the executive) has appropriated powers that should be reserved for parliament. The Covid-19 crisis has exacerbated this phenomenon. Individual freedom, self-determination and personal responsibility would be sacrificed – in short, an ideal Marxist reality.
The pro-debt economists, politicians and media forget what money is: a means of exchange for goods and services and a mechanism to store value between transactions. Sound money is based on the value of all underlying transactions. If the volume of money drastically exceeds this amount over a long period of time, its inherent value will be eroded.
Even if many modern economists deny it, inflation will appear. We have already seen, as a result of the virtually nonexistent cost of capital and interest rates, incredible inflation of assets, including real estate, equities, company participation, art and so forth. This artificial increase in value explains much of the increasing inequality, ultimately the price of having an oversized government.
Although most low and middle-income households were already feeling pressured before the pandemic, the prices of consumer goods have not yet started rising sharply. The reason for this is twofold. First, the new money remained in the financial system (with the asset inflation and rising on-paper inequality mentioned above). Second, businesses became more efficient and productive, offering products of improved quality and some more environmentally friendly products at the same price, which is a type of healthy deflation. But this situation may not last.
Even more money will be pumped out by the United States Federal Reserve and the European Central Bank. Covid relief is legitimate to a degree, if it is delivered quickly and in the right amount to small and medium-sized businesses. But, alongside the green economy, it is now being used as an excuse for money printing. It is doubtful that these resources will be used efficiently – it would be the first time in history that a large-scale government investment project is successful. Healthy changes in the economy cannot be achieved by throwing in unproportionate amounts of money. Let us hope I am wrong.
Some of this money will reach citizens. Once demand exceeds supply, inflation will hit, as it does when consumers’ money to be spent (demand) exceeds the real supply capacity of the economy. This is what we are facing.
Inflation appears to be around the cornerIn recent times, the money supply in the eurozone has increased by some 15 percent per year, while pre-Covid GDP was growing at a rate lower than 2 percent – a significant disparity. Fewer and fewer people are employed in the productive part of the economy in relation to the public and compliance sectors. It is also worth noting that, in Europe, the number of people entering the workforce is not high enough to compensate for the rate at which people are retiring. And SMEs, the backbone of the economy, are suffering, sometimes even closing, because of Covid-19 lockdowns. Inflation appears to be around the corner.
A famous Marxist-Leninist strategy was to grind down the bourgeoisie with inflation and taxes. This is happening now. The result could be a loss of cohesion in free societies, and there are signs that this is taking place already. The clearest symptom is the progressive loss of trust between the governing political and bureaucratic elites and the broader population. Governments are becoming increasingly controlling. So-called “political correctness” as well as exaggerated concerns over Covid-19 and the environment, are not only being used to curtail civil rights, they are also gradually limiting freedom of expression.
This is a dream situation for neo-Marxists. Free societies are in danger.