Last week’s landslide victory of the left-of-center Liberal Party in the Canadian parliamentary elections after almost 10 years of Conservative government prompted me to reflect on the implications for business. This shift in the political environment will affect individuals directly (for example, through income re-distribution schemes, government job creation and climate-change fighting plans and deficit spending) but will also have a profound impact on business, which of course will have consequences for all of us. The incoming Liberal government’s statist ideology, reflected in its plans, has implications for our flourishing.
1) Income re-distribution: tax the wealthy. The Liberals’ survey early this year indicated that increasing taxes on the rich (in Canada, you belong to the 1% if you make $200,000 or more annually) was a high priority of the electorate. So that was made a central plank of the Liberal platform, with a promise to increase taxes on the wealthy and lower them on the middle class, who they argued (against the facts) had suffered economically in the last ten years.
The problem with such “tax the rich” schemes is that the wealthy—which in Canada consist mostly of professionals such as accountants, engineers, lawyers, and physicians, as well as small business owners and other businesspeople—will have less incentive to work. Why would they strive to be more productive and create more wealth when their increased output would be taken away by the government and re-distributed to those who are less productive? Many of the ‘wealthy’ are now contemplating working less or retiring altogether.
With higher taxes, the wealth creators will also have less to invest in further production on goods and services (on which job creation and incomes of the less wealthy depend). And if capital gains are taxed more, the incentive to invest outside of Canada increases (which, admittedly, in the global economy and absence of protectionism does not matter for the long-term prosperity, only for short-term domestic job creation).
Similarly, increasing corporate taxes—in a naïve belief that they are paid by the (wealthy) shareholders, instead on the customers and employees—would merely make Canadian firms less attractive to foreign investors, thus reducing opportunities for jobs and increased prosperity to the rest of us.
2) Government ‘kick-starting’ the economy by ‘investing’ in infrastructure. Another central election promise of the Liberals was billions of dollars infrastructure spending—on bridges, roads, and ‘public’ facilities—which would ‘stimulate’ the economy and create jobs.
Despite of Keynes’ argument, government attempts to ‘stimulate’ the economy are counter-productive and doomed to fail. This is because instead of taxpayers deciding how to spend their money and the markets freely steering investment to its most productive, prosperity-generating uses, politicians in their ‘wisdom’ are making investment decisions with the taxpayers’ money. History is littered with such government boondoggles that may have temporarily created jobs but always hampered long-term wealth creation—which can only be achieved through markets operating freely, with a strong government protection of individual rights.
3) Getting on the climate change bandwagon. The Conservative government soundly prioritized economic prosperity and avoided succumbing to the climate change alarmism that has swept, not just most of the Canadian electorate but the rest of the world, thanks to the decline of reason at universities and the consequent inability of people to think for themselves. If people did think for themselves, they would discover that climate is and has been changing all the time, mostly caused by factors that have nothing to do with human activity. (For an excellent evidence-based discussion on this, please read Alex Epstein’s The Moral Case for Fossil Fuels).
The Liberals are promising to increase Canada’s commitment to fight ‘man-made’ climate change, which means restricting fossil fuel production and consumption through various measures (banning various oil and gas pipelines, enforcing carbon capture schemes, taxing production and consumption of fossil fuels more, etc.). This means restricting production and consumption of fossil fuels, on which Canadians’ prosperity and all of our survival and well-being largely depend.
Arguably, the incoming Liberal government wants to make Canadians, particularly the ‘middle class,’ better off. Unfortunately, its approach is dead-wrong. The government cannot make its citizens better off by re-distributing income or taking their money and making ‘investment’ decisions with it, whether to create jobs or to fight climate change. The only way for the government to make us better off is to get out the way and to increase our freedom (of production and trade) and to protect individual rights (through the police, the armed forces, and the law courts). Only that would increase our ability to flourish and prosper. Achieving such a government in the future would require a return to reason and independent thinking, starting with getting the government out of the education system.