Tuesday, April 26, 2011

Next Week: When Socialism Comes to Canada

"There’s a point where politics intersects with your money. We crossed it last night. In case you missed it, the latest polling shows that seven days from now Jack Layton will be prime minister.

Well, almost. ..."

So says Garth Turner in a plausible prediction of an NDP triumph in the upcoming Canadian election. The economic consequences, as Turner outlines them, could be stunning. What's depressing is how dumb the NDP economic proposals are.

They want to raise corporation tax, which is popular because people think it's a tax they will not be paying. But they will pay it indirectly. Investment in Canada will fall and with it the creation of jobs. Declining investment will weaken the Loonie and increase the cost of living.

If you want to raise taxes on the rich, raise the higher end income tax rate, or better still, introduce a capital tax such as they have in Switzerland. A one percent capital tax, with a one million dollar personal exemption, and an exemption on all capital invested in Canadian business corporations would still raise more than the proposed increase in corporation tax, yet would not touch the majority of people.

Then the NDP want to introduce all sorts of complicated schemes to make industry cut their carbon emissions. Unfortunately, the NDP didn't think to ask an economist how to limit carbon emissions in the least costly way, for if they had they would know that a carbon tax is the solution. It achieves emissions reductions at the lowest cost because it leaves it to the market to determine where cuts should be made.Where the cost of a reduction is higher than the tax, the emitter pays the tax. Where the cost of a reduction is lower than the tax, the emitter cuts the emissions. That way, you get the biggest emissions cut for your buck, without any bureaucracy to manage the process. All the Government need do is adjust the tax rate from year to year until it achieves the scale of emissions reduction desired.
And on unemployment, the NDP's only solution is to increase the number of folks on the public payroll who get in people's way and soak up billions in what John Kenneth Galbraith aptly called non-functional income. Yet unemployment is the most fundamental social problem that we have and it is a direct result of government policy.

We have minimum wage laws. We have workplace health and safety standards, we have strict environmental protection laws.

Then we say capital can move to where the costs of production are lowest, i.e., where none of the above laws apply.

Then we say goods can be moved to wherever they can be sold at the highest price, i.e., where all of the above laws apply.

Result: unemployment here in Canada, where folks are denied the opportunity to do what in the past they have always done, which was to make shoes and shirts and cars and washing machines for one another.

Solution: abolish minimum wage laws and introduce a revenue-department-administered income supplement for those earning less than what used to be the minimum wage.

Two things will result.

First, every worker unable to get a job at minimum wage can now find work at a lower wage, which will, nevertheless, net them an income equal to minimum wage.

Second, employers in Canada will now be on a level playing field, at least in terms of wages, with companies in Asia and Africa, where wages are on average less than 5% of those in Canada.

What will it cost. Well if three million are currently unemployed or underemployed and if through the operation of an unrestricted labor market those people were able to find work at an average of, say, half the current minimum wage, the cost to the Treasury would be around $7000 per person per year, or $21 billion -- less than three percent of total government spending. But then you could deduct from that the social costs of unemployment, for example increased mental illness and crime, for a net cost of probably less than nothing.

1 comment:

  1. Walter Sowell provides a good antidote to socialist economics in his article Race and Economics, and in other writings.