How Are the Liberals Going to Pay for It All?

I had a conversation with a dear friend the other day where she expressed deep concern about the level of debt that the country is running up to support people who've been unable to work because of the pandemic. I'm not an economist, but over the years I've come to some conclusions about this sort of thing. I thought readers might want to read them. Make of them what you will.

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Ayn Rand from
Wikimedia Commons

The first thing we have to remember is that there are very well-entrenched ideologies in our society that are based on the notion that people should be "free" to "pull themselves up by their bootstraps" to "be their own people", etc.   Ayn Rand built her strange little pseudo-philosophical system around this idea, to the point where she said that there is a "virtue" in being selfish. This is an extreme version of the "free market capitalism" religion that infests our society. Sadly, it is tremendously popular with a great many elected officials in both the USA and Canada---to the point where some have clearly decided that protecting this particular ideal is more important than saving people's lives.

Lest you question the above assertion, consider two examples.

Texas Lieutenant Governor Dan Patrick said that "there are more important things than living". He thinks that the safety of seniors---like himself---is less important than preserving the existing businesses of Texas.

Texas Lt. Governor Dan Patrick.
Original photo by Gage Skidmore,
Image c/o Wikimedia Commons.

"---we’re crushing the average worker, we’re crushing small business, we’re crushing the markets, we’re crushing this country. And what I said when I was with you that night, there are more important things than living, and that’s saving this country for my children, and my grandchildren, and saving this country for all of us."

A similar message came out of the mouth of the Mayor of Las Vegas, Nevada. Carolyn Goodman is so concerned about the shut down of the gambling industry in her city that she's publicly "offered up" the citizenry to be the "control group" to see how bad things will get if a city decides to just ignore the whole "social distancing" thing.

Carolyn Goodman.
Public Domain image.
C/o Wikimedia Commons.

 “Assume everybody is a carrier,” the mayor said Tuesday on MSNBC. “And then you start from an even slate. And tell the people what to do. And let the businesses open and competition will destroy that business if, in fact, they become evident that they have disease, they’re closed down. It’s that simple.”

The perspective left MSNBC host Katy Tur visibly dumbfounded. The next day, Goodman went on to shock another host, Anderson Cooper of CNN, telling him that she’s previously asked the city statistician if they could be a control group for the virus but the statistician told her people commute into the city and it wouldn’t work.

I'd suggest that this is all about people who've absolutely committed their heart and soul to the abstract ideal of "freedom", but only insofar as it is associated with the economic principle of "free enterprise". I have a label for this sort of worldview, I call it freedom poisoning. People who put the abstract principle of being "free" ahead of any other consideration---such as equality, compassion, justice, etc, are poisoned by a dysfunctional ideology.

I suppose you could argue that this weird blather about the need to put the economy ahead of the pandemic is all based on a concern for the well-being of the individuals who have been pushed out of work by the physical distancing rules. But I think it only seems this way to someone who's been so badly poisoned by their ideology of freedom that they are incapable of seeing the world that is right in front of them.

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Here's one part of it. Modern technology has dramatically increased the output of individual human beings when it comes to the basic essentials of life.

Here's some bar charts from an old government publication that I found on line that illustrate this point with regard to some agricultural commodities.

Sorry about both the time and quality of reproduction, I was surprised
how little I could find on line about this sort of thing. But old as the
data is, it is still pretty amazing.

Think about these numbers for a while. It took 5% as much human labour to work an acre of wheat in 1963 as it did in 1800, 8% to for corn, and, 26% cotton. It's also important to understand that yield has also dramatically increased in this time frame. According to Our World in Data, American yields for corn have increased five fold since 1940. Similar trends exist for other crops. For example, in Great Britain wheat yields have increased four fold in the same time frame.

Multiply together these two different sets of figures and you find that one farmer in America now produces 62.5 times the corn that his grandfather did in 1940. Similarly, a modern British farmer produces 80 times as much wheat as his grandfather. (Please remember that crop production is extremely variable based on climate, land, agricultural imputs---heavily subsidized in Europe---, etc.) 

What this means is that the old labour pyramid that has dominated human society since the dawn of agriculture has been inverted. That is, a lot of peasants used to have to work hard to create enough of an agriculture surplus to create a very small number of aristocrats. Now a small number of farmers can produce food for a very large number of other people.

Exactly the same process is happening in every other "essential" sector of the economy. For example, check out this short video from Wired that shows how a new Tesla factory builds electric cars.

Similar efficiencies exist in the rest of the primary economy. It takes a lot less people to build houses, make our clothes, etc.

(It might be argued that the "efficiencies" I'm referring to above are actually all based on the profligate and unsustainable use of fossil fuels. I have some sympathy for this argument---especially with regard to modern industrial agriculture. But I'm just talking about short-term, government action to deal with the present corona virus crisis. Once that has been dealt with we can talk about these other issues.)

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According to the CIA World Fact Book as quoted in the Wikipedia, in the United States 80% of the economy is part of the service sector: agriculture contributes only 0.9% and manufacturing 19.1%. Canada has similar numbers, 70.2% service, 1.6% agricultural, and, 28.2% manufacturing.

Of course, many people in the service sector do essential work---doctors, nurses, truck drivers, etc. But a great many do things that are really not all that important to people's survival: tourism, dog walking, hair-styling, bartenders, waiters, etc. What makes these institutions key to many people's lives is the fact that our society has decided to make these sorts of service jobs society's wealth distribution mechanism. That is to say, as increased mechanization did away with a great many jobs in agriculture and manufacturing, the "powers that be" decided that instead of just distributing the surplus wealth among the general public and letting them decide what they want to do with their time, government programs were created that fostered artificial, expanded "wants" among people. That meant that they'd hire others to service them on cruise ships with a built-in roller-coaster, pedicures, fine restaurant dining, etc.

Yup, Carnival Cruise Lines wants (or did want) to build a cruise ship with a roller coaster.
Image c/o the Orlando Weekly  Used under the "Fair Dealing" Copyright Provision.

There is absolutely no objective reason why our economy had to go down this rabbit hole. Instead, it came about because of freedom poisoning in the governing class and gullibility among the voting public. The proof is that we've been able to put huge swathes of the service sector into deep freeze during the pandemic lock down with no appreciable problem---other than the problem with wealth distribution being frozen too.  

This is especially clear when we consider Mayor Goodman's statements. Her city's primary industry is devoted to having people fly in from other places so they can get pack together in casinos to gamble away their money. I can't think of a better example of the sheer stupidity of forcing people to do worthless jobs just for a pay cheque than the gambling industry in Las Vegas. The fact that she cannot see how tremendously dangerous tourism is during the outbreak of an infectious disease just shows how badly she is suffering from freedom poisoning.

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If people can afford to fly to another country to throw away their money on stupid things like gambling and ocean cruises, they should be able to pay for local news sources. To that end, let me put out my begging bowl for you to contemplate. I'm quite happy for a dollar a month, which is easy to contribute through Patreon and PayPal. 

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Another dangerous aspect of freedom poisoning is the way it damages the part of the brain that is involved with taxation. Take a look at this article, Canada’s income tax started small but grew much larger over 100 years, from the Fraser Institute. The author, Livio Di Matteo, talks about the growth of income taxes since their introduction in WWI.

What I'm particularly interested in was the tax rates that Canada used during and immediately after WWII.

The Second World War dramatically expanded the federal personal income tax with the most notable change being the introduction of high marginal tax rates. For example, the pre-Second World War marginal tax rate on taxable income between $1,000 and $2,000 in the dollars of the day was 4 per cent. By 1942, it had increased to 44 per cent. For taxable income between $10,000 and $15,000 it was 13.7 per cent before the war, but 69 per cent by 1942.

Contrast these rates with what we have right now.

Changes occurred in tax rates and brackets over time. By 2015 there were four brackets with rates of 15, 22, 26 and 29 per cent. However, the brackets increased to five in 2016 with rates ranging from 15 per cent to 33 per cent. And there are concerns further changes may be on the way given the ramping up of spending.

So that's the first thing to consider, the highest income tax bracket in Canada is set at only 33%---even though historically, it has been much higher, 69% in WWII.  

What has been the effect of these relatively low income tax rates?

As you might imagine, it has meant that people who have relatively large incomes have gotten wealthier and as a result, have grabbed onto a larger percentage of the nation's collective wealth.

According to a Stats Canada report that compared the situation in 1999 with 2012, family income for the top 20% (a quintile) has increased on the median by 20.7%, and this has translated into an 106.9% median increase in their net worth. 

This really shouldn't come as a huge surprise to anyone. If you make more money, you can save more. And if you save more, you can invest it to make even more money for you. The result is a snow-balling effect.

It also means that that the government has significant "leeway" to raise taxes in order to get more revenue---just like it did in WWII. And if there was ever a good reason to increase taxes to fund government expenditure, surely a pandemic and lock down of the economy in order to enforce an quarantine should be it.

Moreover, these numbers should suggest to objective readers that the whole idea that the only way that a society can legitimately redistribute wealth is through creating poorly-paid, precarious, and, non-essential service jobs is a very bad idea. It simply isn't working. More and more money is collecting in the hands of the top 20% of the population. We are already facing significant problems in our society because of wealth stratification and if the trend is allowed to continue it will increasingly destabilize both the economy and our democracy. 

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One argument that the people with freedom poisoning often make is that if taxes are raised too high people will simply move their money to offshore tax havens. I heard an economist neatly rebuff this argument by asking the simple question "How many aircraft carriers do the Cayman Islands own?"

The Cayman Island strike force out defending their right to let the rich avoid
paying their fair share in other countries. US government public domain photo. 

This was a "tongue-in-cheek" way of saying that tax havens only really exist because the major nations of the world have let them exist. It isn't even as if that we would have to create a consensus among all the nations of the world in order to shut them down. The G20 nations of the world represent 90% of the economy and an agreement between most of the nations (I suspect that at least part of the people who run Russia would not be interested in closing the tax havens that they use themselves) would be enough to put all the world's tax havens out of business. 

Lest the cynics among us suggest that the governments are all corrupt and that they would never pass this sort of regulation, I'll say that In My Humble Opinion (IMHO) that this smells like left-wing cynicism poisoning. While it's no doubt true that there are armies of lobbyists bending the ears of elected officials to argue that governments should allow the continued existence of tax havens, my experience tells me that most politicians are decent folks trying to do the right thing. What I have found, however, is that most successful politicians are tremendously risk averse, never think "outside of the box", have a very hard time thinking beyond the next election, and, feel tremendously constrained by the needs of the bureaucratic and political infrastructure that they are trapped within. Trying to build an international treaty system to stop wealthy people from evading taxes would be like negotiating a new free trade agreement with armies of business people fighting against it instead of for it. 

Rahm Emanuel.
Public Domain photo
c/o Wikimedia Commons

I would suggest, therefore, that the only time we are going to get real movement towards changing something as difficult as the international tax avoidance system is during a crisis like the present pandemic. As Rahm Emanuel once said “never allow a crisis to go to waste”. Now might be a good time to bend the ears of our politicians and get them working on developing a treaty. It might be a really good project to see if some NGO could do the preliminary work so world leaders could then swoop in and get all the credit. (They really like it when someone else does all the work and they then get the credit for doing it!)

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I've tossed out the above issues to consider because I think voters often lose track of the big picture. They become fixated on ideology and their own personal experiences without understanding much these are often at odds with the reality facing our nation. My hope is that the big disruption caused by the pandemic will allow both citizens and leaders the opportunity to rethink their assumptions about how the world operates and break the "logjam" that has stifled reform for most of my life.

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Furthermore I say unto you, the Climate Emergency must be dealt with!