From: allin
Scott Bessent, former Treasury Secretary, outlines how current economic policies contribute to widespread anxiety and erode the American Dream through economic disparities. He also details proposed strategies to address these issues and foster a more equitable and prosperous future for America.
The Dislocation of Main Street and Wall Street
Bessent highlights a significant disconnect between the real economy (“Main Street”) and the financial economy (“Wall Street”), arguing that this “dichotomy” has adverse “distributional aspects” [00:11:11]. This gap has been exacerbated by policies he describes as “endless stimulus, endless spending” [00:12:12], particularly during a period of economic stability rather than crisis, which he deems “very cynical” [00:12:26].
Erosion of the Middle Class
The “Main Street versus Wall Street” divide has led to policies that “eviscerated the middle class and really the bottom 50%” [00:13:55]. This occurs because:
- Inflation and Purchasing Power For those without assets, rising inflation reduces purchasing power, as wages do not keep pace with increasing costs [00:14:04].
- Asset vs. Non-Asset Owners Individuals with assets like stocks saw their wealth inflate, while those without assets, and often with debt (e.g., credit card debt), faced rising costs without corresponding income growth [00:14:10].
- Everyman Index The “Everyman Index” indicates that the cost of living for the bottom 25-50% of wage earners has risen significantly faster than the Consumer Price Index (CPI), affecting essential goods like used cars, car insurance, rent, and groceries [00:14:28].
This situation is described as “unstable” and capable of leading to “great civil issues societal issues” [00:15:00].
The Beleaguered American Dream
Bessent asserts that current economic conditions have effectively “end[ed] the American Dream” [00:16:33]. Traditionally, the American Dream has meant children making more than their parents, owning a home, achieving financial security, and having a purpose in work that allows for family support without needing multiple jobs [00:16:46]. However, this ideal is increasingly out of reach:
- Intergenerational Mobility The rate of children earning more than their parents has fallen from 90% post-World War II to approximately 50% today [00:16:52].
- Unaffordable Homeownership The policy of encouraging homeownership, seen as central to the American Dream, has inadvertently created an “unsustainable housing bubble” [00:18:47]. Much of the middle class’s net worth (around 60%) is tied to a single asset—their home [00:18:31]. Policies designed to inflate home values to create a sense of progression have made homeownership unaffordable for most [00:18:49].
- Scarcity and Hopelessness Scarcity, exacerbated by tight zoning laws and limited access to prestigious education, creates anxiety and a “sense of hopelessness” for those who feel they can never escape student loan debt, afford a home, or see their income grow [00:19:33].
A Plan for Economic Recovery and Affordability
The administration aims to address these issues through a “three-legs-on-the-stool” approach to economic recovery that is “not inflationary [and] is sustainable” [00:27:07]:
1. Government Deleveraging and Efficiency
The primary goal is to reduce the federal debt and deficit without causing a recession [00:22:56]. The target is to return to a long-term average deficit of 3-3.5% of GDP by 2028 [00:23:09].
- Spending Problem, Not Revenue Problem The U.S. government’s federal revenue averages around 18%, but spending under the Biden administration rose to 25%, significantly higher than the normal 21-21.5% [00:23:27].
- Shedding Excess Labor A key component is to “shed excess labor from the government” and improve government efficiency, rather than cutting essential services [00:26:16]. This is about “government efficiency, not government extinction” [00:45:07]. The goal is to make government run better with fewer people and lower costs [00:45:16].
- Combating Waste, Fraud, and Abuse The administration is focused on identifying and quantifying waste, fraud, and abuse within government operations [00:40:30]. This includes scrutinizing long-term contracts with private firms that derive most of their revenue from the government, identifying them as “grift” [00:46:28].
- IRS Reform The IRS is targeted for “revenue enhancement, privacy, and customer service” [00:49:10]. This involves using technology like AI to streamline tax filing and combat politically motivated audits [00:49:18].
2. Private Sector Releveraging through Deregulation
To offset government deleveraging, the plan involves deregulating the financial system, which is currently seen as a “regulatory corset” [00:26:21]. This will allow the private sector to “relever” [00:26:38].
- Bank Regulations Re-examining and potentially reducing capital requirements for banks, especially smaller community banks, which currently face the same stringent rules as large institutions like JPMorgan [00:33:08]. This is crucial because small and community banks are responsible for a significant portion of small business loans (40%) and all loans (70%) [00:35:54].
- Impact on Lending Deregulation aims to increase lending velocity by private lenders, leading to greater economic activity [00:34:37]. The fact that much lending has been pushed outside the regulated banking system is seen as evidence of overregulation [00:35:28].
- Treasury Bill Yields Removing regulations like the supplementary leverage ratio, which imposes a capital charge on banks for holding Treasury bills, could significantly lower Treasury bill yields, saving billions annually [00:38:19].
3. Reordering the International Trading System and Economic Incentives
The third leg focuses on boosting real wages for working people and invigorating the middle class [00:27:34].
- Tariffs and Onshoring Using tariffs to bring other countries “into line” and create an economic incentive to onshore manufacturing jobs and supply chains back to the U.S. [00:28:06].
- Low and Predictable Taxes Implementing tax cuts, which, when combined with reduced government spending, deregulation, and a reordered trade model, are theorized to accelerate economic growth and increase overall government revenue despite lower rates [00:28:26]. The current tax regime renewal is viewed differently by CBO scoring models, which treat spending as permanent but tax cuts as temporary [00:31:01].
- Cheap Energy Prioritizing cheap energy is seen as critical for reducing overall costs, stimulating manufacturing, and ensuring energy security [00:28:45]. This involves streamlining permitting processes, particularly for fossil fuels and nuclear energy, to attract private investment that may have long-term payoffs [00:57:18].
- Sovereign Wealth Fund The administration aims to create assets for the American people rather than just accumulating debt [01:00:27]. This includes exploring the establishment of a sovereign wealth fund, learning from best practices globally, and mobilizing federal assets such as energy leases and government-owned land for development [00:53:29].
- Addressing Affordability A new “affordability czar” will be appointed to identify “quick fixes” in supply chains and address the anxiety caused by high costs [01:08:46]. This includes reforming the housing sector by addressing outdated building codes and encouraging modular or prefabricated construction to reduce costs and increase speed [01:04:13]. The federal government could also incentivize proper building hygiene and material choices in high-risk areas to lower insurance costs [01:07:53].
Challenges and Optimism
Despite the political difficulties of implementing such changes, particularly in dealing with “vested interest[s]” and lobbyists [00:43:22], Bessent expresses confidence in the disciplined approach of the Republican Congress and the strategic vision of the administration [00:41:17]. He believes that increased transparency about government waste will build public support [00:46:40] and that the American people will not allow these efforts to cease [00:47:31].