Is Our Economy Totalitarian?

Editor's Note

The first step in winning a war is to recognize the fact that you are in one. This means, first and foremost, to come to know your enemy and his goals. In a recent essay for this site, Glenn Ellmers and Ted Richards of the Claremont Institute make a compelling case that the present enemy—the “woke” or group quota regime—is a totalitarian threat, and that its aims are nothing short of revolutionary. While our own troubles may seem far removed from the hard totalitarianism of the twentieth century, Ellmers and Richards argue that the six traditionally accepted elements of totalitarianism are already present in woke America. What’s more, they identify three factors that are unique to the tyranny of the present day.

David Goldman responds to Ellmers’ and Richards’ assertion that the new regime exercises central economic control in a manner different but no less dangerous than the tyrannies of the last century. Goldman, too, sees a threat from our economic overlords in the administrative state; but no less dangerous in our current regime is the tyranny of private actors. What’s more, Goldman argues, our focus in combating the group quota regime should be not just in reducing government involvement in the economy to its lowest sustainable level, but in preserving the social and technical means necessary to sustain our economic liberty—a goal directly threatened by the establishment of group quotas in our education and our commerce. This is the eighth in a series of nine contributions by leading experts on the nine defining elements of what Ellmers and Richards dub “Totalitarianism, American Style.”

Glenn Ellmers and Ted Richards make an eloquent and powerful case that government intervention in the economy is pushing the United States toward totalitarianism. As they write:

Democrats constantly have some new way to try to nationalize industries. Healthcare and entitlement increases under Obama, student loan forgiveness and the whole suite of “Bidenomics” policies under Biden. Lastly, during the COVID era, wealth and market transfers from small, independent businesses and individuals to giant corporate conglomerates reached astounding levels, and anyone who wanted them (even some who didn’t) was mailed thousands of dollars repeatedly in the form of “direct payments” for relief during the pandemic. Government bailouts of industries, the depletion of social security, the growth of national regulations on the economy, the list goes on. The economy has been nationalizing for years in various forms.

Indeed, government direction of the U.S. economy has risen to levels our forebears could not have imagined when totalitarian regimes were seizing control of markets across Europe and Asia a century ago. By my calculation, federal transfer payments now comprise 24% of Americans’ personal spending, up from 6% just after the Second World War. They eat up 70% of the federal budget, while federal support for research and development has fallen from 11% of the budget at the peak of the Apollo program in the early 1960s to about 3% today.

But the issue is more nuanced than Ellmers’ and Richards’ essay suggests. In a recent monograph published by the Heritage Foundation (“Bean Jars, Buffalo Herds, and Bubbles: The Impact of Free Markets on the Common Good and Vice Versa”), I explained that markets are subject to endogenous bubbles and panics, which make well-defined and strictly limited government intervention—including financial regulation and Hamiltonian public improvements—indispensable. The role of government must be precisely defined and carefully limited, but it would be misleading to claim that private sector activity is always good and government intervention is always bad.

The Threat from Private Power

Indeed, private enterprise produces results as noxious as encroaching government. Google has a 39% share of digital advertising revenue worldwide, while Facebook has 18%, according to Statista. This Google-Facebook duopoly destroyed the media industry. As Lee Smith wrote in 2017:

The reality of the American media is that Google and Facebook own nearly the entire advertising market—which means that once-powerful American media brands like The New York Times, the Washington Post, the Boston Globe, and every other website you visit are more or less the equivalent of random bloggers who provide their content to Facebook for free. Does spending billions of dollars to produce a good that someone else gives away for free—without paying you a dime—sound like a good business to be in? Well, it’s not. That’s why the world’s premier publisher of Fake News is worth $350 billion—which is more than 100 times the value of the Times, the media’s most uniquely valuable brand, and 350 billion times the value of Newsweek, once one of America’s most important newsweeklies, which changed hands in 2010 for $1.

I reported in a contribution to Up from Conservatism, a 2023 essay collection published by the Claremont Institute:

The internet-enabled network effects turned the startups of the 1980s and 1990s into giant monopolies. Microsoft eliminated Lotus 1-2-3 and WordPerfect; Google became the dominant search engine; and Facebook eliminated or acquired rivals. By 2014, the revenue of the Fortune 500 companies reached 72 percent of GDP – up from 58.5 percent in the 1990s and 35 percent in 1955. In 1994 (the earliest date for which numbers are available) companies with fewer than 250 employees still provided the majority of US jobs. By 2016, large companies had 56 percent of all jobs, vs. only 46 percent for smaller companies.

Facebook and Google are so-called natural monopolies: The market needs one search engine, one word processor and spreadsheet, and one site to post cat pictures, but not many. Private social media and software companies have achieved unprecedented political power without government intervention. As Sen. Josh Hawley and others have proposed, it then falls to the government to step in to limit the power of the private monopolies that collect massive amounts of Americans’ data.

That was the conclusion of a 2020 report by the U.S. Congressional Subcommittee on Antitrust:

To put it simply, companies that once were scrappy, underdog startups that challenged the status quo have become the kinds of monopolies we last saw in the era of oil barons and railroad tycoons. Although these firms have delivered clear benefits to society, the dominance of Amazon, Apple, Facebook, and Google has come at a price. These firms typically run the marketplace while also competing in it—a position that enables them to write one set of rules for others, while they play by another, or to engage in a form of their own private quasi regulation that is unaccountable to anyone but themselves. The effects of this significant and durable market power are costly…. these firms wield their dominance in ways that erode entrepreneurship, degrade Americans’ privacy online, and undermine the vibrancy of the free and diverse press. The result is less innovation, fewer choices for consumers, and a weakened democracy.

Where Government Does Harm

Ellmers’ and Richards’ observations are broadly correct, especially concerning the threat posed by “Bidenomics.”

One horrible example of government bungling is the Biden administration’s CHIPS Act, which mandates “$52.7 billion for American semiconductor research, development, manufacturing, and workforce development. This includes $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in R&D and workforce development, and $500 million to provide for international information communications technology security and semiconductor supply chain activities.”

The CHIPS Act is a catastrophic failure.

With the prospect of subsidies in view, Intel planned a major fabrication plant, or fab, in Ohio, but earlier this year announced that it had canceled the project. The Taiwan Semiconductor Manufacturing Company (TSMC), won’t open the first of two promised plants in Arizona until 2025, and delayed the second until 2026 or 2027, citing shortages of skilled labor. Samsung plans a Texas fab but delayed its opening by at least a year and is now considering delaying the project indefinitely. Korea Times reported on March 13:

Samsung Electronics invested $17 billion (22.3 trillion won) for the construction of a chip factory in Taylor, Texas. … But the company is widely expected to shoulder a bigger financial burden — as much as $8 billion for the plant’s construction — due to soaring material and labor costs there.

“The U.S. investment plans apparently pose a growing financial burden for global chipmakers and any other manufacturing players making facility investments there,” an official from a local chipmaker said. “Few would have predicted that both the labor and construction costs would rise at this alarming pace.”

The CHIPS Act started a construction boom, but the United States lacked the infrastructure and skilled labor to meet the subsidy-stoked demand. An all-time record 450,000 construction jobs were unfilled as of January 2024. The jump in construction job openings since 2020 coincided with an unprecedented 40% increase in the cost of new industrial building construction.

Skilled labor shortages are one part of the problem. The Biden Administration’s obsession with Diversity, Equity, and Inclusion (DEI) is another. Matt Cole and Chris Nicholson wrote in March that DEI has “also infected the supply chain that makes the chips powering everything from AI to missiles, endangering national security…the CHIPS Act is so loaded with DEI pork that it can’t move.” The authors explain:

The Act contains 19 sections aimed at helping minority groups, including one creating a Chief Diversity Officer at the National Science Foundation and several prioritizing scientific cooperation with “MSI’s”—minority-serving institutions. A section called “Opportunity and Inclusion” instructs the Department of Commerce to work with minority-owned businesses and make sure chipmakers “increase the participation of economically disadvantaged individuals in the semiconductor workforce.”

Group Quotas and Our Economic Crisis

DEI has been a contributing factor in the failure of the CHIPS Act. It has been disastrous for America’s capacity to produce and innovate. DEI has metastasized like a tumor that consumes other resources. If we continue down the present course, the deciding question may not be whether we want to preserve a free economy, but whether we are able to.

The United States awards about 230,000 bachelor’s degrees in engineering and computer science each year, compared with about 1.2 million in China. 

In 2022, the U.S. had 31,780 engineering teachers at colleges, universities, and professional schools. Diversity, Equity and Inclusion administrators, the Heritage Foundation found in a 2021 study, have grown so fast that “DEI staff levels were 1.4 times larger than the number of professors in these universities’ corresponding history departments.”

University	DEI Officers	Engineering Professors
Michigan	163	411
Virginia	94	142
Ohio State	94	418
Virginia Tech	84	392
Stanford	80	278
Maryland	71	206

The University of Virginia has two DEI officers for every three engineering professors, and the University of Michigan has two for every five. 

But the biggest problem at U.S. engineering schools—excluding a few top-rated schools—is finding students qualified to major in the subject at the undergraduate level. A key indicator of student demand for engineering programs at highly rated state universities is the engineering school acceptance rate.  For many of the best state universities, the acceptance rate is 50% or higher, indicating an absence of demand for the major. Only 6% of American undergraduates major in engineering, compared with 33% in China and Russia.

Our universities hire diversity managers rather than engineering professors. Except for the Ivy League and a few top-tier schools, universities can’t find enough qualified high school graduates to fill their engineering programs.

Engineering School	Acceptance Rate (2022)
Iowa State	91%
University of Missouri	85%
South Dakota School of Mines	81%
University of Alabama	74%
Texas Tech	68%
University of Pittsburgh	67%
Texas A&M	64%
University of Wisconsin	60%
Ohio State	57%
Colorado School of Mines	57%
University of Washington	53%

Iowa State, ranked number 46 in the U.S. News rating of engineering schools, accepts 91% of applicants. University of Missouri, in 99^th place, accepts 85%. And Texas A&M, ranked number 10, takes 64%.

The answer to the question of what went wrong with American education is “everything,” from the distraction of smartphones and social media to substandard instruction. In Europe, a bachelor’s degree in mathematics is required to teach the subject at the secondary school level. American schools make do with a few courses in “math education.” But a major factor in the deterioration of grade school mathematics instruction is the increasing emphasis on equality of outcomes. 

To persuade more mathematicians to teach mathematics, high schools would have to pay math teachers more than, say, gym teachers. Presently they earn almost identical salaries. The teachers’ unions, founded on the principle that all forms of teaching are equal, would object strenuously.

In the pursuit of equality of outcomes, though, mathematics instruction has been dumbed down in many parts of the country. San Francisco eliminated accelerated math instruction in middle and high schools in 2014. The school boards of Troy, Missouri, Tulsa Oklahoma, Cambridge, Massachusetts, and many others followed suit. In 2023 the California State Board of Education proposed to delay algebra instruction until ninth grade. That schedule, the board claimed,“affirms California’s commitment to ensuring equity and excellence in math learning for all students.”

The destruction of mathematics education by DEI has occurred at both the state and local level. It can’t be reversed quickly enough to make a difference except at the federal level. In 1957, the National Defense Education Act responded to Russia’s leadership in the space race after the launch of Sputnik by offering low-cost student loans and subsidies for university instruction in mathematics, science, and foreign languages. As a result, the number of engineering bachelor’s degrees soared from 143,000 in 1955 to a peak of 350,000 in 1985, before falling in the 1990s.

The dumbing-down and diversification of American education undermines manufacturing. A commercial firm that recruits manufacturing workers advises prospective applicants to acquire proficiency in decimals and fractions, coordinate geometry, and trigonometry. In 2009, 34% of US eighth graders tested at “proficient” (26%) or “advanced” (8%) on the National Assessment of Education Progress test. By 2020 that had fallen to just 24%, with 20% at “proficient” and 4% at “advanced,” according to the National Center for Education Statistics . The 20% who are proficient in mathematics almost certainly will go on to university rather than apply for manufacturing jobs.

That’s at least in part because industrial production and employment in January 2024 were lower than in January 2007, just before the 2008 financial crisis. Manufacturing pay in constant dollars hasn’t risen since 2009. Our stock of manufacturing capital equipment hasn’t grown in 20 years. And even at depressed levels of employment, manufacturers can’t find skilled workers. America’s trade deficit remains close to $1 trillion a year, and America’s net foreign asset position, now at negative $18 trillion, continues to drift further into negative numbers.

Robert Lighthizer, President Trump’s trade representative, wrote in his book No Trade is Free: “Stable manufacturing jobs are a primary way for people without college degrees to comfortably support themselves, while enjoying the sense of dignity and pride that comes from making things.” That’s how it used to be, and how it should be – but not how it is now. 

The average hourly manufacturing wage after adjustment for the Consumer Price Index hasn’t grown since 2009. When real hourly manufacturing wages fell by nearly 10% between 2021 and 2023 due to inflation during the Biden administration, manufacturing job openings reached the unprecedented one-million mark, before coming down to a still-elevated 600,000 as real wages improved.

The Big Picture

To be sure, the skilled labor shortage isn’t the only obstacle to U.S. manufacturing. Excessive regulation and a tax code that favors “capital light” industries, such as software, at the expense of capital-intensive industries present stumbling blocks to manufacturing investment. America has an industrial policy that discourages industry.

It’s a vicious cycle. Companies don’t invest enough in new equipment, productivity stagnates, wages decline, and workers won’t take low-paid manufacturing jobs. The National Association of Manufacturers worries that the United States will be unable to fill 2.1 million manufacturing jobs by 2030. 

But manufacturers haven’t invested in new equipment. The rate of growth in the U.S. capital stock of manufacturing equipment, according to the Federal Reserve, fell to nearly zero after the 2008 crisis and hasn’t recovered. Real wage growth in manufacturing parallels the change in the capital stock, just as the textbook tells us: More investment means more productivity and higher wages, and vice versa.

These are the results of corporate policies that prioritize group quotas and DEI over the conditions that preserve economic liberty for the American people. The diversity regime has subsumed skilled labor, and American workers and consumers are left to pay the price: high school seniors are left unprepared for rigorous engineering programs, manufacturing jobs open for an absent class of workers as real wages fall, and production remains stagnant. Before the nation can build things, it needs to train workers. This fact is at irreconcilable odds with systems of education and hiring that prioritize identity quotas over merit. If we hope to preserve a free economy in the face of a rising China, we must reject not just the totalitarian temptation in our own country, but the DEI ideology that now undergirds it.