Taxes, Free Enterprise and World Domination

 A Warning

Recently, Jamie Dimon the CEO of JP Morgan Chase warned that the dollar is at risk of losing its status as the world’s reserve currency unless the United States maintains its economic and military power. He said, 

If America is in a weakened state… like if we’re not the strongest military in 25 years and the strongest economy, we won’t be the reserve currency either. … The world will be fragmented, and it’ll be very dangerous for us.

He is right, of course, but his warning is wasted because there is no way that we can maintain the economic and military dominance that we enjoyed for many years. We cannot do so in part because the world has changed, but our inability to maintain economic and military dominance is also due to contradictions within our own political culture. Our political beliefs will make it difficult if not impossible for us to maintain our economic and political dominance in the world.

Dominating the World is Expensive

One of the beliefs that will make it difficult for us to maintain our military dominance is our belief in low taxes. Maintaining military dominance is very expensive, and we have never been willing to pay enough in taxes to cover its full cost. We have maintained our dominance using borrowed money, and we could do that for many years because our government was able to borrow money at extremely low rates of interest. Our bonds were regarded as the world’s safest investments. Our own people and foreign governments were willing to buy American government bonds even though they paid very little interest.

That situation has changed. Our bond ratings have been downgraded, and interest rates have risen. Servicing our national debt is now the largest item in the federal budget except for Social Security. We now spend more on interest on the national debt than we do on national defense. We have to borrow money just to cover the interest payments on our debt. This situation is not sustainable in the long run. If we really wanted to maintain our military dominance, we would have to pay much higher taxes than we have ever been willing to pay.

Dominating the World Would Require Limiting Free Enterprise

Our belief in the value of free enterprise also interferes with our ability to maintain economic and military dominance because maintaining such dominance is not a goal of profit-making companies. Their goal is to maximize their profits, and to do that, they have moved their factories to countries where wages are low and environmental regulations are minimal. As a result, our industrial base has been hollowed out. 

Large companies have also organized their businesses in ways that minimize the taxes they must pay. They have located parts of their businesses in foreign countries in ways that allow them to book their profits outside of the United States and thereby to avoid paying taxes here. Doing that makes perfect sense from their point of view, but it reduces the revenue that would otherwise pay for us to maintain military dominance.

Companies are able to do these things because we lack the political will do prevent them from doing them. We believe in free enterprise. We believe that companies should be able to pursue profits unhindered as far as possible by government interference. We believe that if companies are allowed to pursue profits in this way, our economy will grow, and we will all benefit. 

One result of that belief in today’s world has been that companies have moved their operations to places outside of the United States. In some ways, that has been good for Americans, at least for those who have not lost their jobs. As consumers, Americans have gained by being able to buy goods that are cheaper than they would be if they were produced here. 

However, we have also lost the economic dominance that we once possessed, and we have lost the ability to produce many of the components of the weapons that are used by our military. We depend on foreign companies to equip our military, and that means that we depend on the rules-based world order that our current administration is tearing down. 

In theory, we could rebuild the manufacturing capacity to support our military without foreign trade, but that would take years at best. It would be impossible unless we became willing to restrain companies’ freedom of action much more than we have ever been willing to restrain it in the past. 

We Must Get Used to Living in a World That We Do Not Dominate

Thus, our commitment to low taxes and our commitment to free enterprise make it difficult and perhaps impossible for us to continue to dominate the world economically or militarily. To maintain that domination, we would have to pay much higher taxes than we have ever been willing to pay, and we would have to limit the ability of companies to pursue profit by moving outside of the United States. We are unlikely to do either of those things, and so, we are going to have to learn to live in a world that we do not dominate.