US Government Policy: Why The ‘Big State’ Is The Main Threat To Economic Security – OpEd


The age of global hypershift welcomes us with open arms, ruling out the possibility of going back to the way things were. 

The hypershift, a fundamental change in global social relations and their configurations, was the logical consequence of a faulty redistribution of production and consumption on a global scale. This was the result of the policies of developed countries, based on an expansion of the state’s redistributive mandate. Hence we have an increase in public expenditures and an unrestrained stimulation of consumption in the developed countries, i.e., a permanent increase in public leverage, with credit money, effectively public money, rather than productivity growth, as a means of increasing needs. 

This configuration was made possible by globalization – the separation of global production and consumption. Developing countries ensured the growth of consumption and the diversity of consumption preferences of the population of developed countries through debt financing on the one hand, and the development of their own production, whose products met the demand in developed countries, on the other. This allowed developed countries to expand their own consumption and focus on the service and technological economy, and for developing countries to ensure the growth of production and exports as the main factor of economic growth in general. 

With the ultimate development of such a paradigm, significant imbalances began to emerge.  

First, consumption, actually provided by the state through monetary stimulation, social and other government spending, led to a decrease in effective competition and tied agents to state resources. This, in turn, caused the expansion of the state, which obviously distorts market exchanges and reduces the efficiency of economic processes: the state, as we know, is the most inefficient economic agent, able only to collect rents and redistribute public goods in the least optimal way.

Second, the growth of developing economies, through the growth of production that supports the consumption of developed countries, has led to an increase in the welfare of their own populations and their purchasing power. The cost of production rose, which was one of the triggers of global inflation. Covid failures in supply chains simply accelerated inflationary processes, based on the increase in production costs and, as a consequence, the need for even greater monetary incentives from the governments of developed countries to maintain hyperconsumption as the basis of the economm ic growth of their own economies and the stability of the positions of the dominant political elites. 

Third, two of the three largest producing countries and resource donors are autocracies, whose regimes are forced to make decisions about development vectors under the “ceiling of possibilities. This occurs when the low-base effect is exhausted, the benefits of cheap production have been eroded by rising prosperity, and the need to move the economy to a “technological” paradigm for continued economic growth competes with the desire of regime elites to hold their own positions. The transformation of the economy from productive to technological requires appropriate institutional and political liberalization, which, in turn, inevitably leads to a weakening of the positions of the current power elites, who are not ready for competition and rotation. Thus, the authoritarian regimes of the two largest of the resource and production economies have chosen to tighten the institutional political order to retain and strengthen their positions, while simultaneously and inevitably adopting a conflict strategy in relations with advanced “technological” economies.

This choice of the trajectory of the two largest productive and resource economies is superimposed on the corresponding distortions in the economies of developed countries, where in fact the leftist quasi-socialist policy orientation of the last 20-odd years leads to logical and obvious negative consequences, expressed in high inflation and dependence of agents on state resources. 

Threats from the tightening authoritarian regimes of producing countries and commodity donors are changing the established global distribution of consumption and production and forcing developed consumer countries to shift production back to themselves or to friendlier developing countries to ensure their security. This inevitably changes the very structure of the global economy and is in fact a shock to developed countries that have transformed the structure of their economies from “hard economics” to “brain economics” for decades. 

Now there is an urgent need to develop appropriate norms, procedures and conditions to stimulate the development of local production and industrial replay. However, the governments of developed countries, which have been pursuing leftist socioeconomic policies for a couple of decades, continue to act within their flawed logic, trying to stimulate the necessary industrial development with old, but unkind Keynesian methods: expanding government spending, subsidies, protectionism and increasing the fiscal and regulatory burden.

Why don’t these methods work? The answer is very simple: because if you want to outpace the development of productive industries, you must give business the right incentives, the essence of which boils down to one thing – “reducing” the state, reducing regulations and taxes, and inevitably bringing consumer power to productive capacity. But this is a painful process, especially after decades of monetary and credit binge and continuous etatism. 

Prosperity by government fiat is not just a path to recession, it is a path to depression, where socialist economic policies of consumerism will inevitably threaten necessary reindustrialization and create even more imbalances, turbulence, and global threats. 

Protectionism, as a state policy, is the worst way to stimulate our own production as opposed to stimulating competition through increased market freedom and fiscal liberalization.

It is an economic axiom, but the Biden administration, which plans to force the use of only American materials and components in the development of huge public infrastructure projects, seems still to be thinking in yesterday’s terms. 

What will such barriers lead to? Even without the implication of global negative consequences, it is safe to say that for the U.S. economy itself, protectionist policies with the former regulatory-distributive state mandate will cause a lot of trouble.

First, there is the rise in prices. Despite rising production costs in the producing countries, production in the U.S. is much more expensive. And given the Administration’s current policy vector, there is no indication that local production will become cheaper – this requires tax and regulatory easing, as well as other measures to maximize competition and industrial entrepreneurship. We see nothing of the sort now, or in the Government’s plans. 

Second is the exogenous reallocation of resources from established and competitive global U.S. companies to subsidize local production. We return to the old but immutable rule: as opposed to stimulating market competition, subsidies and government redistribution are the most inefficient way to develop business and industries as a whole, ultimately leading to depression and the creation of zombie companies that live essentially at the expense of the government. And the state in the economy is a failure of development and organic growth. Now the state wants to take more from those who still managed to resist its unrestrained expansionism, and give to those who are ready to lean on the warm shoulder of the state and insert a catheter for a subsidized “subsidy” drip.  

Third, industrial replay is a long process, and shortages will be inevitable if the directive is to use only American materials. Globalization has configured the flow of exchanges and technology in a certain way, and disrupting these linkages by government directive rather than by intensive expansion of productive market business activity within the United States will lead to shortages of both technology and components and materials. Exchanges are effectively rebuilt through the market rather than through government directive regulation.

Fourth, the technological level of production and final goods and objects will inevitably fall because, as previously mentioned, technological global integration has distributed zones of competence and specialization. Government guidance and spending to concentrate all specializations within a country is the worst way to do it.

Global hypershift, based on the greed of powerful political elites and corresponding policies of continuous state expansionism, including credit expansion and extrastimuli of consumption, dictates the need to strengthen national economic security through industrial relocation back home. But the only, quick and effective way to do this is to abandon the government’s usual policy of “prosperity by decree” and the de facto centralization of wealth redistribution, where economic agents are increasingly dependent on the state rather than on their own skills and competitiveness. 

Yet, judging by the Biden Administration’s plans, the former expansionist policy remains the main strategic discourse. This mismatch between today’s global changes and the leftist political agenda of the government could have very unfortunate consequences in the not-so-distant future. 

The government is still willing to accommodate candle makers’ requests to prohibit people from opening night shades in house windows during the day because these makers have to compete with the sun. 

As Reagan said, the worst thing you can hear is the phrase, “Hi, we’re the Government, and we’re here to help you.” 

Unfortunately, we’ve been hearing that for decades and continue to hear it today.

Paul Tolmachev

Paul Tolmachev is an Investment Manager, Economist and Political Analyst. He is Certified Professional in Philosophy, Politics and Economics (PPE Program), Duke University. Paul is serving as a Portfolio Manager for BlackRock running $500 million assets under personal management. He also is a visiting research scholar at The Hoover Institution (Stanford University), where he researches political economy and social behavior, specializing in the analysis of macroeconomics, politics, and social processes. Paul is a columnist and contributor to a number of international think tanks and publications, including, Mises Institute, Eurasia Review, WallStreet Window, The Heritage Foundation,, L'Indro, etc.

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