Trudeau and the Middle Class

In Rob Reiner’s 1987 film adaptation of William Goldman’s novel The Princess Bride, Wallace Shawn’s character of Vizzini, the leader of a trio hired to kidnap the title character, utters the word “inconceivable” every time something happens that interferes with his plans. After the umpteenth such exclamation, his associate Inigo Montoya, a Spanish swordsman portrayed by Mandy Patinkin, turns to him and says “you keep saying that word. I do not think it means what you think it means.”

This is something that should have been said to Liberal Party leader Justin Trudeau during the 2015 Dominion election every time he promised that the Grits would make the “middle class” stronger. He accused the previous Conservative government led by Stephen Harper of pandering to the wealthy at the expense of the middle class and claimed that his party would do the opposite. The Liberal Party’s “New Plan for a Strong Middle Class”, their platform during that campaign, stated:

A strong economy starts with a strong middle class.

This is a true statement, but it is probably the only true statement in the entire document. It immediately went on to say “Our plan offers real help to Canada’s middle class and all those working hard to join it”. Among the promises made were “We will give middle class Canadians a tax break, by making taxes more fair.”

Over the summer, however, Finance Minister Bill Morneau announced the government’s intention, when Parliament resumes in the fall, to introduce changes to the tax code as it pertains to the incorporation of small businesses. Trudeau’s evil henchman, of course, described these proposed changes in terms of closing loopholes that the wealthy exploit to avoid paying their fair share of taxes. This, however, is what in the language of Apuleius would have been called an onus stercoris. It is not the superrich, the “1%” about which there has been so much talk in recent years, that “trust fund” Trudeau and his gang are going after. It is the couple who own the local grocery store that barely manages to survive against the competition of the giant corporate chains, the family struggling to scratch out a living on their farm, and the guy who had a great idea for a business that would provide a valued service to his community and employment for his neighbours and who has sunk everything he had into the uphill battle to make this dream come true. In other words, the middle class.

Justin Trudeau does not have a clue what a middle class is. When the question was put to him directly in the 2015 election he answered “I’m going to let economists, and I have a few around me, argue over which quintile or decile the middle class begins or ends in.” In other words, he thinks the middle class is a group of people whose income falls between an upper and lower limit, even though he cannot define what those limits are. In the old days, however, when the words middle class actually meant something, they referred to those who were neither the “rich”, who could live comfortably off of their already accumulated wealth nor the “poor” whose only respectable means of subsistence was by earning wages by manual labour but rather those whose income came through the management of their own small properties and businesses. Two and a half millennia ago Aristotle argued that it was this class that made for a secure and stable state because it was a responsible class and where it is strong neither poor nor rich are likely to be oppressed as one or the other would be in an oligarchy of the rich few or a democracy of the poor many. This is lost on our Prime Minister, however, who could not understand the Politika even if someone translated it into English or French for him, and who is most likely unaware that there ever was any other Aristotle than Jackie’s second husband.

The Trudeau government’s proposed tax code changes have nothing to do with fairness and everything to do with their desperate need for revenue due to their fiscal mismanagement. They have been running deficits far in excess of those they had projected during the election campaign, saddling our country with a load of debt that will take centuries to pay off. Pierre Trudeau had ran massive deficits in the ‘60s and ‘70s and Justin’s attitude to the Canadian taxpayer is summed up in the words of Rehoboam – “my father chastised you with whips, but I shall chastise you with scorpions.” Nor is the spending that the Grits are unwilling to curb going into development projects that will benefit Canada and Canadians for generations to come so much as into sustaining Trudeau’s international image of a generous humanitarian at the expense of Canadians.

During the election campaign Trudeau said that his government would commit to growing the economy and that as a consequence of that growth “the budget would balance itself.” Those who sought to defend Trudeau from the charge of reckless fiscal irresponsibility that these poorly chosen words suggested maintained that this was basically a restatement of the premise of Reaganomics. While there is a resemblance, to be sure, there is also a fundamental difference. The idea of supply-side economics is not that economic growth eliminates the need for fiscal responsibility but that a larger total tax revenue can be generated at a lower rate if the tax cuts provide enough entrepreneurial incentives to spur economic growth. It is an argument for lowering taxes – not an argument for reckless spending.

At any rate, if your strategy for balancing the budget is to rely upon economic growth to raise tax revenues, then your policies ought to encourage economic growth rather than discourage it. The policies of the Trudeau Liberals, however, have all the appearance of being designed to bring Canada’s economy to a grinding halt. Their carbon tax needlessly and pointlessly – for even if the anthropogenic theory of climate change were true it would do nothing to alleviate the problem – increases the expense of doing business and in a way that further belies their talk about “fairness” as it is a thoroughly regressive tax, affecting people the hardest the further down the economic ladder they are.

Then there is their approach to the NAFTA renegotiations. Regardless of what one thinks about free trade in the abstract – I think that however good the arguments behind the theory sound on paper they have been completely debunked by history – a country’s closest neighbours will usually be its biggest trading partners and when you have a trade agreement with those neighbours and one of them decides that it needs renegotiation, your job, when you go to the negotiation table, is to look out for the interests of your country and to secure for it the best deal possible. Two of the three governments involved in the NAFTA talks understand this – one does not. The Liberals have made it their priority to inject climate change, gender equality, and a lot of other irrelevant and inane progressive nonsense into the discussions. This will not help them to secure the best deal possible for Canada and if anything will have the exact opposite effect.

Trudeau’s apologists will argue that the economy is healthy and growing because the GDP has been increasing faster than anticipated since the final quarter of last year. All this means, however, is that money has been changing hands at a faster rate in Canada over the last twelve months. GDP is calculated by adding up the sum of private consumption (C) with that of investment (I), government expenditure (G) and total exports minus total imports (NX or X – M). It is a pointless exercise because the figure you get doesn’t measure anything real. C and G go up the same regardless of whether it is wealth accumulated from past production or money borrowed that is spent. Neither is a distinction made between spending on projects that will have enduring benefits, spending on immediate needs, and spending that is wasteful or even destructive. Demolishing and constructing a building both raise the GDP and every time a bomb is dropped the GDP goes up. GDP is no indicator of productivity and real economic growth. Its chief purpose – perhaps sole purpose – is to enable finance ministers and economists to boast about their “growing economies” even as real incomes and savings drop while unemployment and debt grows. It has been used to obfuscate the truth about the devastating consequences of free trade for years.

Every time Justin Trudeau throws away money that the Canadian taxpayers’ will have to spend the next century or so paying back on some project of self-aggrandizement it increases our GDP. What it doesn’t do is benefit our middle class – or those working hard to join it.

GTN Tory Classics No. 5: Basic Economics

The essay that follows was originally the third in a seven part series beginning with “The Economic Age” and ending with “The Free Trade Cult”. The introductory essay to that series was the last essay I re-posted here in my “Tory Classics” series. I wrote that essay as an introduction to the economics series because I wanted to start by placing economics in perspective by arguing that economics is not the most important thing in the world. The following essay is a more typical introduction to the topic of economics and deals with such basics as production, distribution, and consumption.

Towards the end of this essay I argue that production is more important than distribution or consumption because without production there would be nothing to distribute or consume. This is the most important point in the essay. Many are the free market economists who seem to understand everything else about economics except this point.

Basic Economics


By Gerry T. Neal
June 4, 2009

Every country’s economy has three basic parts: production, distribution, and consumption. Production refers to the creation of material wealth and consists of agriculture and manufacturing. Consumption is the use of the material wealth created in production. Distribution is how material wealth gets from the producer to the consumer.

Material wealth is not the same thing as money. Material wealth includes land and buildings, food and clothing, and other goods that people need or want. Money is just one good out of many and its primary function is to simplify the exchange of other kinds of goods.

Goods which are used to produce other goods are called “capital goods” or just “capital”.

Some people believe that the best and fairest economy is one in which capital goods are owned collectively by the public with distribution being in the hands of the state. These people are called socialists. Others believe that capital goods do not have to be publicly owned but that the system – production, distribution, and consumption – entirely or in part, should be under strict government regulation.

These people have been proven wrong time and again. So much so that they should be embarrassed to express their views in public.

What happens when production is controlled by the state? We need look no further than the late USSR and Red China during the days of Mao to find our answer to that. The state proved incompetent in the production of even the simplest of goods and massive poverty, starvation, and misery was the result.

Without state control of production, there can only ever be partial state control of distribution and consumption. This control takes the form of the state confiscating wealth from the private sector through taxation and handing it over to other people.

Some people believe this is the compassionate thing to do. They are mistaken. Only people can be compassionate, not governments. If you are genuinely compassionate you will express that by helping the poor out of your own wealth. To support with your words and votes, a policy in which the state helps the poor from money it takes from people other than yourself, is not a genuine form of compassion. It is, in fact, a way of avoiding being compassionate, by placing the responsibility for helping the poor onto the shoulders of the state and the taxpaying public instead of bearing it yourself.

The government social programs that make up what is called “the welfare state” were sold to voters as initiatives that would eliminate poverty and bring about a general prosperity. Have they done so? Far from it. Instead they created a permanent and growing, privileged, underclass. They created tensions that threaten to rip the social fabric into pieces by fostering a sense of frustrated entitlement in the poor and a sense of resentment in the middle class which is forced to bear most of the tax burden for the upkeep of the poor.

The idea that the production, distribution, and consumption of material wealth should be planned and controlled by the state is simply wrong. It has never worked in the past, it is not working in the present, why would we be so foolish as to think maybe it will work in the future.

No, the production, distribution, and consumption of material wealth are best left in the hands of private property owners, who buy and sell the goods they produce and the services they offer, in a free market.

A market is a situation (not necessarily a place) in which someone trades something they own for something someone else owns. A “free” market is a market where buyer and seller are allowed to come to their own terms as to the exchange. Let us say a dairy farmer goes to the market to sell his milk and his neighbor who keeps chickens goes to the market to sell his eggs. The dairy farmer needs eggs and the chicken keeper needs milk. The dairy farmer is willing to trade a liter of milk for a dozen eggs and the chicken keeper is willing to make this exchange and so they do so. The price they have decided upon is fair and just. What the dairy farmer is willing to accept in exchange for his milk is based on his own calculations of his own needs, and what the chicken keeper is willing to accept in exchange for his eggs is based on his own calculations of his own needs. No set of government experts anywhere would be better qualified to judge these matters than the farmers involved.

If government experts are not competent to come up with a better price for a single exchange than the participants, they are much less competent to set prices for everybody in the country. Their attempts to do so only cause harm.

When the government says “You cannot buy labour for less than so-many dollars an hour” this is not benefiting workers. No one’s work becomes more valuable because the minimum wage rises. All this does is eliminate jobs that are not worth paying someone minimum wage for. The jobs thus eliminated, are generally the jobs that would otherwise be taken by people entering the workforce, trying to get the experience that better paying jobs require. Everyone who ever got frustrated because all available jobs required experience which could not be obtained without getting a job can thank the government – and the bleeding hearts and the unions which demanded minimum wage laws from the government – for it.

Most market transactions do not consist of the direct barter of goods like eggs and milk. The eggs and milk are both sold for money instead. Money is the medium of exchange in an economy and as such it is the single most valuable commodity. Historically, precious metals like gold and silver have made the best moneys. We no longer use them for money today because governments prefer a paper (or electronic) currency that they can control. By controlling the money supply, they are able to devalue it through inflation (increasing the money supply). This allows the government to confiscate the country’s wealth without raising taxes because they get to spend the new money at the old value of money, before the increase in the money supply causes money’s value to drop relative to other goods in the market.

This discourages saving because if your money is going to be worth less in the future than it is today it makes more sense to spend it now than to save it. Saving is important, however, if a person or a country wishes to become wealthy – or even financially independent. Inflation is the path to national poverty.

We don’t notice inflation as much if consumer prices are not rising. If the production of consumer goods has increased the inflation will keep the prices of those goods from dropping rather than causing it to rise. Thus governments have encouraged manufacturing companies to step up production by outsourcing to countries where it can be done cheaper, causing consumer prices to remain relatively stable while they drain the country’s wealth through inflation.

But what happens when a country increases consumption and allows others to do its production?

Production is more important than distribution and consumption (and agricultural production, which produces necessities is more important than manufacturing which produces luxury items). Production creates wealth which is distributed through the market. Without production there would be nothing to distribute. Consumption uses wealth up. Consumption without production leads to poverty.

Those who think that outsourcing their country’s productive capacity will lead to prosperity because it brings consumer prices down would do well to consider that.

A sound national economy requires production on the part of private property owners, who sell their goods in a free market, and a stable money supply that keeps its value thus encouraging people to save.