The world economy is in need of disruptions

Last week, the budgetary initiative of United States President Donald Trump’s administration, dubbed the “One Big, Beautiful Bill,” was successfully passed into law. This development prompts us to reflect on the current state of global economies, even as the intense criticism surrounding the bill may be misguided.

Looking at macroeconomic data, it becomes obvious that most economies are terminally ill. Like lung cancer patients who continue smoking, policymakers in governments, central banks and financial institutions persist with flawed strategies that caused this crisis.

The global economic malaise

Public debt has reached alarming levels, yet instead of downsizing, governments continue to over-administer, exerting excessive control and imposing overregulation. This approach is not only costly and unsustainable, but it also suffocates the economy like a python. Businesses are hindered by a bloated public sector, which increasingly lacks the necessary service component, while also struggling with insufficient funding due to excessive taxation. The expanding public sector also drains the economy of essential labor and talent. Such a strategy erodes freedom and self-responsibility.

Most policymakers seem fixated on squeezing every last penny from citizens and businesses through arbitrary tax policies, which only frustrate genuine reform efforts. The alternative often involves increasing hidden debt, disguised under various labels, such as Germany’s Sondervermogen (special assets) or shifting it to less accountable supranational levels, like the common European debt. These are the very practices that would land any businessperson in jail immediately. If such strategies are considered legitimate, then perhaps we should consider awarding a posthumous Nobel Prize in Economics to the American financier Bernie Madoff.

Most policymakers seem fixated on squeezing every last penny from citizens and businesses through arbitrary tax policies, which only frustrate genuine reform efforts.

 

However, compliant economists are quick to provide a “scientific” fig leaf for this dubious game. They have developed Modern Monetary Theory, claiming that governments can incur unlimited debt. This idea is highly questionable. Proponents may rely on resulting inflation, blaming market failure and inequality as convenient scapegoats.

Be cautious! Straying from established policies will lead to harsh criticism and defamation, even if the changes are reasonable and yield impressive results. This is exemplified by Argentina under President Javier Milei.

Argentina’s turnaround

Argentina is fundamentally a wealthy country, however, decades of socialist policies have driven the nation to widespread insolvency, leaving about 60 percent of the population in poverty, with monthly inflation rates of 25 percent (which equates to an annualized rate of 300 percent).

Since the Milei administration took office 18 months ago, sweeping reforms have been implemented, sharply reducing laws and regulations, to foster a thriving market economy. As a result, the poverty rate has fallen to 30 percent and is projected to decrease further. The budget is now balanced, inflation is declining and the economy has grown by over 5 percent so far this year, with promising signs of sustained growth. What is unfolding in Argentina is not a miracle, but the result of applying practical market principles and promoting freedom.

These measures could serve as a global remedy. Yet, stubborn ideologists are not ready to acknowledge them, even when facts demonstrate their success.

When President Trump presented his one big, beautiful bill, which aimed to address government spending and taxes, economists and policymakers swiftly decried it. In this instance, the addition of debt, certainly negative, was viewed as a major issue. Unlike previous administrations that accumulated debt primarily through subsidies, such as those in former President Joe Biden’s Inflation Reduction Act for projects favored by the government, Mr. Trump has focused on reducing taxes.

Again, we see an ideological disregard for the facts. While subsidies are tied to government-linked initiatives, tax cuts can promote investments driven by market forces. Empirical evidence proves that planned economies tend to misallocate resources more frequently than market-driven ones. If tax relief can trigger productive investments, it has the potential to boost both the economy and the tax base. In contrast, subsidies often benefit rent seekers rather than delivering sustainable economic results.

Instead of dismissing the Trump administration’s bill outright, we should give it a fair chance and see how it plays out.

Our fragile economic situation calls for unconventional, market-oriented and innovative thinking. Europe could certainly benefit from a leader like Mr. Milei.

This comment was originally published here: https://www.gisreportsonline.com/r/global-economy-disruptions/