I guess I’ll consume the state mandated amount of treats and feel bad about it in a manner I’m prescribed to feel guilty about. That’s makes me a morally good person. I consume the right amount which is too much but I flagellate myself which its okay.
I don't agree that this is a universal truth, even regarding the hard indisputable biological needs you're talking about. Much less regarding softer needs like social interaction. There have been plenty of hermits throughout history who have by all accounts been content with their lifestyle.
Some people need social interaction to be happy or content, sure, that's fair. But not everyone does. A coworker of mine has severe insomnia. She probably hasn't had enough sleep to truly meet her biological needs for years. And yet, she still leads a life in which she feels happiness and contentment at least sometimes. I can't, of course, claim to speak to her feelings with any more specificity than that.
And here is where I see there being value in asceticism. By cutting out various pleasures and thinking about where that leaves you, you get a better feel for what your needs actually are.
I'm a little too baby-brained to have read enough Laozi to speak on this, but I've read a decent bit on buddhism and I agree that this sounds buddhist. The "middle way" that the Buddha taught was between hedonism and asceticism, a rejection of both to pursue something more moderate. I think, that's what I remember anyway.
A lot of what you've said here I've already accounted for (I know, I'm sorry I am very unclear :soviet-bottom: ) People's needs differ and change from person to person, as I've stated. Many hermits don't need social interaction at all, but would be completely miserable without various texts, rituals, or other activities, depending on the hermit. Take away a party goer's parties, and they'll be sad. Take away a monk's meditation, and they will be too. These are the same phenomenon, only really differentiated by an aesthetic (yes, I spelled that correctly) distaste for one activity/'need' or the other (from an abstract, philosophical perspect- Obviously those two activities have a lot of differences).
I don't think denying yourselves pleasures to find out what your own needs actually are really counts as asceticism. That just seems like an effective practice taken in pursuit of the "sane hedonism" I mentioned in my comment. I think calling it asceticism is understandable, yes, but actually kind of dangerous, because it implies that it's some sort of philosophical obligation or entire lifestyle by itself. Trying to moralize it could lead to it being counter-productive. Like, if you experience extreme discomfort but feel like you need to improve yourself now because happiness comes "entirely from within", you'll push yourself through a lot of suffering for a very low chance you'll "improve" yourself. But if you keep it in mind as a self-improvement exercise, you'll be able to use it to it's most effectiveness
Finally, and I think this is where the disagreement actually is, I would disagree with your definition of happiness. Certainly, struggling to survive despite not meeting one's goals AND feeling occasional joy at the same time is entirely possible, but this isn't really happiness. It's a momentary feeling that usually comes about from a slight improvement in circumstances or some other small joy. To go to my "genitals-regrowing-and-being-cut-off" example, a man who has their balls cut off over and over again would feel happiness once in a while. Probably when the pain is less than usual. But I wouldn't call that an actually happy person, just someone's who's surviving through their current situation, and being appreciative of the extremely minimal respites available. This is definitely a virtue, but it's not enough for happiness by itself.
And please do not confuse what I'm saying with some sort of disregard or criticism of self-improvement or even religious or spiritual lifestyles- Quite the opposite. What I am seeking to do here is point out that people have biological and psychological limitations, and, to a certain extent, push back against the hyper-efficient mindset that capitalism instills in a lot of people (Interestingly, the problematic elements of asceticism can be observed with the overlap between asceticism and techbro culture), which tries to insist that human beings only need to survive and not thrive.
Momentary joy can be created within, and so can it come from without, but actual happiness can only exist as a fusion of the two. A man who tells himself he needs nothing to be happy and denies himself everything and hides in a shack is going to be miserable, and so is someone who thinks that they can get true happiness by riding a stock line to infinity or having infinite cakes. Both of these people are trying to do what they think of as "what they are supposed to do" to be happy, and not actually what makes them happy.
This entire philosophy becomes more clear when you realize that the self and reality around you exist in a permanent, interconnected relationship. Your happiness (as in stable happiness, not momentary happiness), just like everything else, cannot be changed by focusing on only one or the other. It would be like trying to destroy capitalism without getting rid of various societal issues, and like trying to get rid of societal issues without getting rid of capitalism.