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The entirely reasonable collapse of the Empire πŸ”—

One of the more impactful books I've read over the years is Charles Adams' For good and evil: The impact of taxes on the course of Civilization [Free podcast covering much of the same at mises.org]

All empires eventually succumb to collapse, and the story is universally the same. Bad fiscal policy leads to worse tax policy, which leads to mass flight by productive capital when it can no longer be employed profitably.

Most Americans are not alarmed by this (as I have been for over a decade) as they don't understand both how truly extreme the level of flight from the USA has become and how American "Allies" are doing everything they can to gain from our loss. They also do not realize that the American bureaucratic regime is blindly blundering into the exact same traps which doomed their predecessors.

I see plenty of people talking about the signs and aspects of this de-industrialization (which, given all of our societies are industrial means this is actually collapse). Some are mad at the places that offshoring benefits. Few put together that there has to be a compelling reason why the nation with the most productive workers in the world wouldn't also have the most production in the world. There has to be a pretty high level of mitigating factors that make it not worth the trouble.

The hottest topic for this last decade has been Base Erosion and Profit Sharing (BEPS for short). The ability of US multinationals in particular to avoid taxation via clever and lawful use of small NATO satellite states (whom are also OECD and WTO members) has lead to great consternation among our elites, but only because of it's first-level effects (lowering of the US Government's revenue).

The reality is that the second level effects are far, far more dangerous. The mitigation efforts applied to combat BEPS have all had the unintended? consequence of offshoring the actual productive capital to a third jurisdiction, which has essentially created a (near) perpetual stalemate in this tax cold war.

Both the haven and the 3rd Jurisdiction (usually with cheap labor) profit from this and will frustrate all efforts at stopping it save measures they would regard as more profitable. Unlike the majority of concerns with "globalism" this requires no shadowy cabal, just a bunch of people acting in their own self interest.

There are only two options from here for the US Government.

  1. Lower expenditures, so that existing taxes even with avoidance is acceptable (or lower them such that avoidance is mostly unnecessary)
  2. Impose a global financial panopticon, bribing and cracking skulls the whole way
I'll give you one guess which one they're gonna go for. The crisis point will most likely be losing a war due to the supply chain breaking down thanks to this distortion in where capital is employed thanks to bad tax policy. It sounds like the "Mothership" over at the CFR and all the pentagram types are all busy working on getting into a war with China sooner rather than later, so this might come within a decade or so.

In Adams' book, he described my second option as essentially being what the Romans imposed. Diocletian went so far as to outlaw paying taxes in cash, and insisting in being paid in kind (as it could not be debased, and was infinitely harder to smuggle than coinage). One can hardly see the "global tax cooperation" measures done by the OECD (where all bank account activity of signatories' subjects are 100% available to all other members) and the idea of outlawing cash as being little more than a high-tech Diocletianism.

This will simply accelerate the existing capital flight, as no sane person wishes to live in a cashless society. The possibility of having your funds easily seized to prevent you from funding your legal defense is quite simply a non-starter. This is why FATCA resulted in such a huge uptick in citizenship revocations (but which has fallen off now that we have this OECD global FATCA). Things like Operation Choke Point have not soothed fears in this department; instead it has made it clear the threat to capital is very real and serious.

If you really want to get down to it, this is the Bear case for the US Dollar, and the Bull case for crypto. However, this will play out over a far longer timeframe than anyone can remain solvent. This is essentially going to result in a century of crisis at the least for America. Personally, I'm laughing (all the way to the bank) because it's so obvious. Hedge accordingly.

Yeah, I know it's worse than just tax policy. Regulatory policy is an equal (if not worse in many market sectors) reason for offshoring. People can want manufacturers to build in things the market won't bear all they want; it won't change the fact they'll have to drop some other features to accomplish that at the market clearing price. "Made in the USA" is the primary feature that was dropped.

Regulatory was also an important factor in many other Imperial collapses, including the Romans. This was because all regulation is essentially a minimum-price control. As you might imagine, outlawing production of non-substitute goods at the market clearing price is real smart. The 100% failure rate of wage and price controls continues.

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