John Maynard Keynes gave us the idea that governments could spend their economy back into prosperity, so he bears some blame for the current mess; but we shouldn’t dismiss everything he said. Keynes pointed out in his 1924 book Monetary Reform why governments like inflation: it generates more revenues for them as effectively as tax increases, but without the bad press. And governments that use the graduated income tax get a double boost: not only does inflation increase their take by raising the price of everything (which in effect cancels out the increased revenue for spending, but nevertheless allows the government to buy back its bonds with devalued dollars), but it automatically bumps taxpayers into higher tax brackets.
That’s one reason why a flat tax makes sense: it eliminates one of the temptations for government to debase the currency. But, alas, it does not eliminate them all.
Economists know that a society gets less of whatever it taxes, and more of what it subsidizes. Policies that tax income diminish the incentive to create wealth; policies that subsidize indolence and dependency cause more and more of the population to look to the government to take care of them.
For those reasons, income should not be taxed at all. Government revenues should only come from taxing expenditures (the more you spend the more tax you pay, encouraging thrift), fees, licences and duties. But that’s an issue for another time. What we need to discuss now is: if the global economy is unraveling, what should Ottawa do?
The biggest dangers from a global melt-down (which more and more experts see on the horizon) are two-fold: if the economies and currencies of Canada’s customers collapse, they won’t be able to buy what we produce; and because our economy is so intertwined with the world (and especially the USA), our currency and economy are very likely to follow.
Our only defence will be policies that encourage national self-reliance, encouraging interprovincial, rather than international trade. We can probably feed ourselves (although with increasing urbanization, distribution would be a problem), but we’ve been out-sourcing our manufacturing at an alarming rate. A collapse of the Chinese economy (more likely than you might think: if the global economy goes down, who’s going to keep the factories along the Yangtze River humming?) might bring manufacturing back to Canada. But only enough to serve the Canadian market; we may be looking at a return to the industrial and economic level of the early 20th century.
An important consideration is that, in the event of a breakdown of the global financial system, we won’t be able to look to the government for help: where would they get the resources?
The trend over the last century or so, to shift the burden of caring for one another from private charity to government, has been a tragic error. First, because government aid ultimately costs a lot more than private charity (it doesn’t have the benefit of voluntary administration and delivery). Second, because we’ve weakened the individual charitable impulse by saying, “Let Ottawa take care of ’em.” We’ve depersonalized charity.
Calgary journalist Joe Woodard once told the CLAC (Christian Labour Association of Canada) that there are three fields of human care for human beings than cannot be adequately motivated by money: health, education, and welfare. The people who provide those services deserve a decent reward for their efforts, Woodard said, but money alone won’t motivate them. The only real motivation for the human care of human beings is love. Not economics, not ideology, not politics. Love.
We’d better recover that motivation soon, because I suspect we’re going to need it more than ever, in the very near future.
Greed, expressed in demotivating tax systems and failed socialist policies, is at the root of the world’s (and Canada’s) fiscal problems. CHP Canada policies, however, are based on the Creator’s foundational principles, given for the benefit of all, to encourage both financial growth and personal freedom.
For more better solutions on the economy visit www.chp.ca