An uncomfortable thesis runs through American public debate today: the empire, as we knew it, is in decline. There is no need to turn that into catastrophe or apocalyptic prophecy. One need only look at the historical cycles described in detail by authors such as Ray Dalio: a power rises, consolidates, stagnates, and eventually gives ground to another arriving with greater dynamism. Today, that emerging power is China. Washington, meanwhile, faces two problems that feed into each other: a national debt that continues to grow and an economic inequality that has fractured the social contract among its citizens.

The fracture has a brutally simple symptom: most Americans live paycheck to paycheck, without enough room to cover basic expenses comfortably. It is not just a statistic. Behind it lies a paradox that is difficult to ignore: the more government has tried to create services intended to help people move upward—education, healthcare, housing—the more expensive those same services have become. Higher education shows this particularly clearly. The wide availability of government-backed student loans may have helped loosen some market constraints and facilitate an administrative expansion that now absorbs a considerable share of university spending, without any straightforward link between that increase and a commensurate improvement in education. That is the problem: when public intervention greatly expands purchasing power without correcting incentives and cost structures at the same time, it can end up making more expensive precisely what it was meant to make accessible.

How, then, should the success of a nation be measured? GDP growth is not enough. Nor are aggregate measures of wealth. What matters is how many people each year manage to cross a very specific boundary: to stop depending exclusively on the sale of their time and labour and become owners of capital as well, able to derive income from their own assets and savings.

That transition is, at bottom, the real American dream.

Not the accumulation of consumer goods. Freedom from dependence on the monthly paycheck.

Setting an ambitious target—for example, having two percent of the population cross that boundary each year—would reveal far more about social progress than another macroeconomic figure. A society can become enormously richer in aggregate terms while a considerable share of its citizens remains dependent on the next paycheck. The wealth exists. What is missing is a path broad enough to enter it.

Here the argument becomes more uncomfortable. The risk appears when redistribution ceases to be a limited corrective mechanism and allows a majority, without effective limits, to claim a growing share of a minority’s wealth: taken to that extreme, the system weakens the incentive to accumulate capital and narrows precisely the path toward owning it. Everyone remains a permanent worker.

And something more than money is lost with it.

What is lost is an essential form of freedom: individual agency to alter one’s own economic destiny.

Capital flight in response to tax increases or threats, and the mobility and avoidance responses observed around wealth taxes, point in that direction. Confiscatory taxes on wealth do not necessarily solve the problem. They may simply drive away the very capital they were meant to tax.

But none of this amounts to a blind defence of the fiscal status quo. There is an asymmetry worth correcting: earned income should never be taxed at a higher rate than gains from capital. Nor does that mean capital........

© The Times of Israel (Blogs)