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March 19, 2025 - Epoch Times
22:48
“The US Government is a 5 million person, completely dysfunctional organization” | Peter St Onge
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There are hundreds of thousands of federal regulations, the vast majority of them.
They're crony.
They're bought by lobbyists.
And the main goal of them is either to get bailouts, to offload some of their costs onto the public, or to ban the competition.
In this episode, we sit down with economist Peter St. Ange, a Mises Institute fellow.
We dive deep into Trump's strategy to revitalize the American economy and what roadblocks may lie ahead.
What Trump is doing is that he is very good at spotting the details of a negotiation, okay, of understanding who holds which cards.
And when he looks at Europe, you know, the striking thing about really every one of our trade partners is that they need us a heck of a lot more than we need them.
Is America headed into a recession?
What are the precedents?
We've actually been through this before.
So if you look at the end of World War II, So in 1946, we demobilized 11 million soldiers.
GDP dropped by 11.2%.
Yes, it was a brutal recession in 1946, immediately followed by one of the golden ages leading up through the 1950s into the mid-1960s.
This is American Thought Leaders, and I'm Jan Jekielek.
Peter St. Ange, such a pleasure to have you on American Thought Leaders.
Thank you for having me on.
So, of course, I've been following your work quite a bit, and you're very prolific on X on social media.
And you wrote something the other week that, frankly, is quite shocking.
For every single federal regulator that's kept on the job, there's 138 private sector jobs that get destroyed.
It's hard to fathom how this could be the case.
The reason is because federal regulations One of the great myths of government is that regulations exist because there's some public need and people organize and they stand up in their local community centers and they bake cookies and somehow they power through against the man.
And in reality, regulations are bought.
They're bought by lobbyists.
And this has been true since the beginning of regulation.
They are generally bought by large incumbents.
For instance, Wall Street bankers, they have big budgets.
They use those budgets to put senators on speed dial.
And then when they need a regulation written, they call up the senators.
The people who actually write the regulations tend to be employed by those big companies.
And the main goal of them is either to get bailouts, to offload some of their costs onto the public, or to ban the competition.
If you look at 2008, for example, it's really nice.
Example of this.
So 2008 was a disgrace.
Wall Street made billions of dollars, and then by basically taking huge risks, taking gambles, hiding the gambles they were taking, and then when they went against them, they handed it all to taxpayers.
And what was cute is that, of course, the public was angry.
They were angry on the left.
You had Occupy Wall Street.
They were angry on the right.
You had the Tea Party.
And the response was that Wall Street said, We've been naughty.
We need you to regulate us.
And they wrote the regulations, of course, because who else is going to write regulations?
Wall Street knows how the financial system works, right?
The people doing the bake sales aren't going to write competent regulations.
They are going to get hustled.
So now when you look at, it's kind of a fun chart, when you look at the number of banks that were started in the U.S., it's very, very hard to start banks because there's a lot of regulations that are bought by Wall Street.
They make it almost impossible.
So they screwed up.
Something like $800 billion worth of bailout.
And in return, their penance was that they rewrote the financial rules to outlaw competition and to keep it all for themselves to monopolize finance into an oligopoly.
So the end result is that the regulations chase out our own job creators.
Peter, forgive me.
This feels to me like a very extreme position about regulations because Obviously, without any regulations, corporate America would run amok.
Having zero regulation cannot be the right answer, even if, let's say, the preponderance of regulation is indeed exactly as you described.
So where does this actual needed and valuable regulation come in?
Or is your position that it simply doesn't exist?
Doesn't exist with a caveat.
So we can ask what happened before we had the regulatory state, and the federal government was, of course, much, much smaller.
But how did you deal with companies behaving badly back in, like, the 1800s?
And that was dealt with by the tort system, so negligence rules.
So if a company was poisoning your soup, then you had a case, you could take them to court.
And then you would get compensation for that.
And that was the main deterrent against companies.
What happened is during the progressive era, so this is about 1900 to about 1915 or so, that was really the heyday of the progressive era.
Of course, it's continued.
But during that era, the regulatory state rose up.
That was sort of the creation, one of the main creations of the progressive era.
But something else they did was capture...
The legal system, specifically by trial lawyer associations, they have essentially weaponized the legal system against regular people.
So if you change it today, it would be an absolute disaster.
Companies would indeed poison you because you wouldn't be able to do anything about it.
They would just outbid you in the legal process.
They would have lawyers to run you around circles for the rest of your life, take away your house in the meantime.
So you really, you know...
95% of the regulatory state you could get rid of without any consequences.
That last little nugget of 5%, that is doing something.
It's very corrupt, but it is doing something at that point.
When and if we get to that point, then we can have a conversation about pairing that last bit of regulation together with legal reform, tort reform.
But until then, I think the main point, given what we're working with, is that...
You know, there are hundreds of thousands of federal regulations.
The vast majority of them, they're crony.
You can get rid of them with very little consequences, very little negative consequences, and a lot of positive consequences in terms of new entrants being able to come into the industry and create jobs and create prosperity.
Fascinating.
You know, so let's talk about Doge very briefly, right?
One of the arguments that's been leveled against Doge—I've heard a lot of positive arguments, certainly—but one of the arguments that's been leveled against Doge is that it seems too arbitrary, right?
There's too much being taken out.
It's unclear.
I'm thinking about these regulations, right?
If you're saying there's five— 5% that are doing something, 95% that aren't.
If you get rid of the wrong 5, you could create a mess for exactly the reasons you just described.
Is it possible this is the situation with Doge?
Yeah, it's always tricky if you're reforming large organizations.
So the U.S. government employs about 2.4 million civilian workers.
They have budgets, of course, about $6 trillion that they spend.
It is by far the largest organization on Earth.
Well, outside of China anyway.
It's a very, very large organization.
And so if you're trying to shrink it, if you're talking about a private company, you can just go in there and look through what's efficient, what's inefficient, and then cut the fat.
With the federal government, it's very, very tricky because they've inserted sort of all of these tripwires and traps and fake doors.
And so...
They have to go after what they're able to go after initially.
So to give an example, when you join the federal government, the first year you are a probationary worker, it's much easier to fire you.
You don't yet have all of those government union rules.
Now, what they're currently doing is targeting those probationary workers because they're the low-hanging fruit.
In a perfect world, they would not do that, right?
Instead, they would, you know, look at all of the employees and they would say, I don't care how long you've been here.
Are you good at your job or are you not?
Now, they've made a couple of mistakes.
I think they laid off, there were some nuclear inspectors or something where they rehired them within like 12 hours.
Elon has said that that's going to happen.
You know, when you throw in the postal workers in the military, you're talking close to 5 million people.
If you're trying to trim a 5 million person, completely dysfunctional organization, yes, you're going to make mistakes in both directions.
What do you think of how DOGE has been conducted thus far?
I think it's been incredible.
It's something that both parties have been trying for decades.
This is not a Republican issue.
Both Bill Clinton, even Obama, they tried to rationalize government to make it more efficient.
We know big government does not have all the answers.
We know there's not a program for every problem.
APPLAUSE
We know and we have worked to give the American people a smaller, less bureaucratic government in Washington.
And we have to give the American people one that lives within its means.
Applause
The era of big government is over.
Al Gore, famously, you know, he was going to make the government more efficient.
He was carrying around an ashtray.
It was like an $800 ashtray from the Pentagon or something.
This has been a longstanding issue that has been recognized by both parties.
And it's actually interesting.
Doge itself was created by Barack Obama.
It was called the U.S. Digital Service, USDS.
And he created that in the aftermath of the Obamacare website fiasco.
So that was very embarrassing.
And they said, okay, the federal government is dysfunctional.
We're going to create this agency whose job is to go through and find efficiencies over...
Or above all, technical efficiencies.
So this notion that Doge is some outside creation, no, it was created by Obama.
And it was created because there's a longstanding need recognized by all parties to rationalize the federal government to make it more efficient.
It's just that when it's Trump doing it, the Democrats go nuts.
When it was Clinton doing it, Clinton laid off several hundred thousand federal workers.
Not a peep.
You know, that was all about efficiency.
It made a lot of sense, is what New York Times tells us.
When Trump does it, it's literally destroying democracy.
We're going to take a break, and then we'll be right back.
And we're back with Peter St. Ange.
Let's actually talk about the economy.
We've been hearing about lots of real structural problems with the economy.
The debt, the amount of money that's been printed in the last few years, the accelerating interest payments on the debt.
At the same time, basically since inauguration, inflation—and I have this by quite I don't even understand how that works,
given the reality of the previous years, given the amount of money printing and so forth.
So can you give me a picture of what you think the economic reality for the US is right now?
So that's a big question.
There's a lot of parts to it.
Here, breaking it down.
Okay, so you've got three numbers that I think people really care about.
One of them is inflation, one of them is growth, and one of them is jobs.
And if we start with inflation, the big story at the moment...
Is that we've got this overhang from the Biden administration.
The numbers that we're getting right now are really the tail end of Biden's numbers.
And the reason is that it takes a while to collate most of these statistics.
So the numbers that we've been recently getting have been sort of the final report card for Biden.
Those have been pretty bad.
So Biden's final month.
Inflation rate was an annualized 5.7%.
That was his parting gift to Trump.
Economic growth, GDP growth, was about 2.3%.
That's fairly good.
There's a big caveat there, however, which is that if we go back through the Biden administration, about half of economic growth has just been increases in government spending.
That is not sustainable.
That's not actually creating prosperity.
It shows up as GDP, but it's not creating prosperity.
So if you discount for that, then we're probably closer to about 1.2%.
Which is pretty bad because the population grows about 1.2%.
In other words, that's flat.
That is stagflation.
So 5.7% inflation per capita, 0% economic growth.
Biden gave Trump stagflation.
And the problem is that it takes a while to turn those around.
So traditionally, for example, when you look at Federal Reserve interest rate cuts, which is the main way that the Fed tries to influence inflation, there's a delay of about 12 to 18 months on those.
Those take...
Quite a while to work through the economy.
That means that if Biden handed Trump stagflation, in theory, the first 12 to 18 months of Trump could still have all that inflation in it.
So how do you fix that?
How do you bend the curve on it faster?
The main way you do that is cutting government spending.
You can cut government spending or you can try to grow the economy very quickly.
Spending, they've been trying very hard to do that with Doge.
Democrats have been fighting every step of the way.
Some of that has been through lawfare, for example, trying to force them to hand out U.S. aid money, things like this.
On growth, which is the other way to do it, That also, it usually takes a while, right?
It takes a while for people to start a new factory or to drill a new hole for oil.
So Trump is trying to accelerate that as quick as possible.
And so the question is, over the next six to nine months, let's say, before the new companies kick in, when we still have the overhang from Biden's tagflation, I think that's really the danger zone.
That's what, you know, when you look at the stock market, for example, when it's...
Somebody called it a kangaroo market.
It's not a bull market.
It's not a bear market.
It's a kangaroo.
It's all over the place.
A lot of that has to do with the market trying to figure out what they think is going to happen in the next six to nine months under Trump.
You mentioned there's two approaches.
One is that you can cut spending.
The other one is you can create prosperity.
When you're doing the cutting spending side of things, you mentioned that a significant portion of the Jobs growth, for example, and the economic growth was actually that government spending in the first place.
So you're actually cutting the economy itself.
So it almost seems like you have to do the other part, the increasing prosperity.
Otherwise, you're going to end up in a dark place.
Or correct me if I'm wrong.
You're going to end up in a recession, right.
So if you look at Argentina, for example, Javier Malay has been a model.
For what Doge is aiming to do.
And Javier Malay came into an economy that was going through hyperinflation.
The real economic growth was in free fall.
It was just an absolute mess in Argentina.
And what he did was slashed the federal government.
He campaigned with a chainsaw.
And maybe viewers have seen him afuera throwing out ministries from a whiteboard.
He cut 6% of GDP.
In government spending, which in U.S. terms is like cutting close to $2 trillion in annual spending.
Massive cuts.
So he cut 6%.
Now that means that on paper, GDP is going to go down by 6% because GDP includes government.
Now what actually happened in Argentina is that in that first year, GDP growth only went down by 3.5%, meaning that the private sector almost immediately jumped in and made up for half.
Of all the government cuts.
One year later, the projections for Argentina's GDP now are around 8% growth, right?
So in other words, what happened in Argentina, you cut $1, the private sector immediately grew by 33 cents, and then the following year, it grew by like $1.50, right?
So it's incredibly good for the prosperity of the country.
Your cancer is a strong word, but you are losing fat.
And you're losing fat fast.
If you cut 6%, it takes time to build the muscle.
Going by Argentina, it was surprisingly fast.
But yes, in the meantime, you did have that 3.5% drop.
Now, Argentina does not have a very robust welfare state.
We have an overgrown welfare state in this country.
You're eligible for Medicaid, for welfare, for unemployment benefits.
So, you know, if we have something like a 3.5% recession here, it's not going to be nearly as bad as Argentina because we have that.
Large welfare state.
Now, we've actually been through this before.
So if you look at the end of World War II, so 1946, we demobilized 11.2 million soldiers.
It was an enormous, that was close to 10% of the entire population.
It was close to a fifth of the workforce.
So we demobilized them because the war was over.
And GDP dropped by 11, I'm sorry, we demobilized 11 million.
GDP dropped by 11.2%.
And yes, it was a brutal recession in 1946, immediately followed by one of the golden ages leading up through the 1950s into the mid-1960s.
Trump is surprisingly aware of American economic history.
He's talked a lot about the period before the income tax, for example, the 19th century, when the government subsisted almost exclusively on tariffs.
There was no income tax.
There was no Federal Reserve.
He's surprisingly familiar with these things for a president.
I think he's far more intellectually curious than, say, a Barack Obama, certainly than people give him credit for.
But yeah, I think he's interested in the 1950s economy.
And in many ways, demobilizing our overgrown federal leviathan, I think, is very similar to demobilizing after a war.
So you mentioned tariffs instead of taxes.
And this is something that I know that the executive branch has been looking into.
I think the president has mentioned this specifically.
Let's talk about tariffs.
How do you view, for example, this big new approach that the president has been touting, and we're about to see how it's going to work or not, is these reciprocal tariffs.
In situations where there's a significant imbalance in terms of what tariffs are being levied, they're going to be equalized based on what the other side is doing.
What do you think is going to happen?
A tariff fundamentally is similar to a sales tax, and it's a tax on imported goods.
The trick is that, generally speaking, other countries are putting a lot more tariffs on us.
Now, they're not all sort of tariffs written out on paper.
A lot of them are non-tariff barriers, so they'll block our imports by claiming some environmental or some health rule.
Many of them are VATs, which are a type of income tax or a type of sales tax that most countries in the world impose.
Those hit our goods.
If we sell stuff to France, but then France exempts its own products.
So there's a variety of barriers that countries put on us.
And for Europe, for example, they tax us at roughly 18% more than we tax them.
What Trump is doing is that he is very good at spotting the details of a negotiation.
OK, of understanding who holds which cards and then seeing whether he can get a better deal.
And when he looks at Europe, you know, the striking thing about really every one of our trade partners is that they need us a heck of a lot more than we need them.
So to give a flavor, something like one to two percent of the American economy is producing for export to Canada or to Mexico.
On the other hand, one fifth, 20 percent of the Canadian economy.
is producing for export to the U.S. One third of the Mexican economy is producing for export to the U.S. That means that we have massive leverage over these countries.
Now, we could just make them dance to entertain us, but specifically what Trump is interested in doing is getting them to lower those barriers.
And what he's saying is, if you get rid of your barriers, we'll get rid of our barriers.
But in the meantime, we're going to calculate how much we think you're tariffing us with those non-tariff barriers and the VAT tax and all this.
And we're going to put the exact same on you.
And so because the U.S. economy is so important, right?
Mexico cannot give up a third of its economy.
They'll have riots.
They can't do it.
And so what Trump is sort of doing is recognizing the enormous leverage we have over these countries.
Now, that's not even to speak of the military.
So there's a number of countries in the world that only exist because the American taxpayer covers their bills.
For military.
This is true of Europe.
It's true of Japan.
Korea.
Certainly it's true of Taiwan.
It is outrageous that any of these countries should have any trade barriers whatsoever against us, given what we give to them.
So he is putting countries into line when they've been abusing the U.S. in the past.
Well, Peter St. George, any final thoughts?
No, just to say that, you know, if you look at what a difference it's been since 2021, the dark days of COVID, this is one for the history books.
We are living history right now.
Well, Peter St. Ange, it's such a pleasure to have had you on.
Thank you.
Thank you for having me on, Jan.
Thank you all for joining Peter St. Ange and me on this episode of American Thought Leaders.
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