A core principle of Marxism—the socialist system upon which is founded the more authoritarian political systems of communism and progressive fascism—is government ownership of the means of production. This economic policy, aimed as a dagger at capitalism, happens to be the avant garde economic policy position taken a couple of times now by the Trump administration. It is the same position advocated in the larger context by the self-described communist candidate, Zohran Mamdani, who is running for mayor of New York City.
The Trump administration recently took a stake in MP Materials Corp in an effort to onshore rare earth mineral mining and refinement. The particular interest is production of the seven heaviest of the 17 total rare earth minerals which have enhanced value to the electronics industry and defense. Currently, China exercises a stranglehold on world supply. $400M in equity financing was provided to Mountain Pass. The US government now holds about 15 percent control of this company in preferred stock.
Reportedly, the Trump administration held discussions with Intel Corporation’s CEO Lip-Bu Tan about having the US government take a stake in the company. Details haven’t been forthcoming. Intel makes high-end logic chips (e.g., GPU’s, CPU’s) but has been under market pressure due to product innovations from Nvidia and AMD. NVIDIA and AMD are fabless semiconductor manufacturers, relying on Taiwan Semiconductor Manufacturing Corporation for fabrication of their designs. Relying in part on US taxpayer largesse, TSMC is building US fabs. Intel’s manufacturing is in-house and in the US. Intel has a hand inside the taxpayer’s wallet, too, thanks to the CHIPS Act. Bleeding edge (i.e., the absolute cutting edge) semiconductor fabrication in the US is considered a national security priority by the Trump administration.
Government interference in business is not a new phenomenon as regulatory and tax policies attest. The Bush administration led a $500M bailout of the financial services industry in 2009 benefiting banks, pension and mutual funds, and insurance companies. The concept of “Too Big to Fail” was established. Unfortunately, our government has doubled down on this concept with extensive mergers of smaller banks into larger ones. What could go wrong with more of the same? Our government—whether elected politicians or bureaucrats—has no concept of the learning curve.
Similarly, the Obama administration’s bailout of Chrysler and GM preferentially benefited automotive unions in a contortion involving federal control of the companies to manage bankruptcy proceedings. One result was Chrysler bondholders, who normally would have been first in line in a bankruptcy, were stiffed. Shortly after reorganization, it was estimated taxpayers would lose $10B-$15B net on this venture. Rather than a government takeover, the best recourse would have been for Chrysler and GM to go through well-established bankruptcy proceedings from whence they would have emerged leaner and more viable having jettisoned incompetent management, inattentive shareholders, and with restructured or pared debt. Unfortunately, the Trump administration has learned no free enterprise lesson from this or the earlier escapade.
In any case, government should not be in the business of business. To the contrary, the US should divest itself of any holdings in MP Materials. Any equity stake in Intel should be foregone. Fannie and Freddie should be privatized. The government should get out of the student loan business. CAFÉ standards should be eliminated since the government has no business being in the car business. The Monument Lands—which were land-grabbed by the government for its oil shale—should be sold off to the public. The Department of Interior should be divested to the respective states as park lands and timber rights sold to that industry. Banks need to be broken up and implicit government guarantees withdrawn. And, the Fed should divest its portfolio of all private holdings.
The Trump administration has taken admirable actions already by reducing regulations, shortening bureaucratic review and licensing approval cycles, and preventing escalation of personal income taxes. DOGE was an admirable exercise but the financial impact is relatively small compared to the budget deficits being run. However, profligate spending still is the watchword in the District of Columbia.
The root cause of all of our economic problems is the huge government debt that accumulates with each budget deficit. The loose monetary policy of the Fed causes monetary inflation when financing the deficit. Based on the last couple of months, the annual deficit will be a record at over $3T. A massively smaller government is needed to avoid businesses being further crowded out of the financial markets. The interest paid on our government’s debt is an increasing fraction of our budget and exceeds national defense and Medicare spending. Unfortunately, neither the White House nor Congress has the least interest in addressing deficit spending. This attitude is so pervasive in the District of Columbia that actions have been initiated to form a new political party, the America Party, that would emphasize fiscal discipline as a priority in putting American interests first in the world.
The Trump administration has put tremendous pressure on the Fed, and, in particular, its chairman, Jerome Powell, to reduce the overnight lending rate. The thought is that such action will precipitate the decline of general market interest rates which would spur the economy. However, the law of unintended consequences could apply. Although energy prices were down 1.1 percent in July, food was flat. Core inflation—ignoring energy and food—actually went up to 3.1 percent (against the Fed target of 2 percent). Producer price inflation rose to 3.3 percent.
In a split decision, the Fed just voted to reduce the overnight lending rate in September. The speculation is that this might be by 50 basis points. However, with inflationary pressures swelling in July, the market might react in the opposite direction to what is wished. The market might interpret an easier money policy will result in yet higher inflation and so market interest rates need to go north. The Fed will have unleashed an evil genie which subsequently will require significantly higher interest rates to capture and contain.
Making the American economy great again requires the government to stop crowding out the capital businesses seek. The government should not own the means of production for anything. For the benefit of the country, the government needs to eschew socialism but do everything possible to strengthen capitalism.
