Incoming Prime Minister Justin Trudeau will soon take the reins of power in Canada. Meanwhile, politicians at the federal, provincial, and local level have already begun planning their tactics to get more federal money. With the Keynesian Trudeau at the helm, there will be less focus on individual responsibility and the free market and more attention on how government is the solution to revitalizing the economy. Keynesians are expert at raising expectations and many and varied groups will come knocking at Trudeau’s door.
It is difficult to say how much Canadians learn from history. Neither history nor economics gets much attention in high school. The economy when Justin’s father Pierre Elliott Trudeau held office (1968-1979, 1979-1984) is on record for anyone to see. The economic picture is not pretty. For those who know their Canadian history, there is the additional issue of how much they understand economics and how exactly does a nation create wealth.
But history is the past and why concern oneself with economic debate on the best strategies for creating wealth. The focus is on money for my infrastructure project or other pet action.
Of course, when done efficiently it is a good investment to fix and build infrastructure. But will Trudeau be able exercise economic wisdom as numerous people and interest groups compete with each other to get their slice of the pie? Will the distribution of wealth be done so in a manner where those involved will get things done without too much wastefulness? As this process unfolds, what will we see if the economic pie does not grow? How will the government pay for all the projects? The answer is no mystery.
But higher taxation for Canadians is only one of many concerns.
Nobel-prize winning economist Milton Friedman had much to say about big government and bad economic policies. Beyond the higher taxation of ordinary people, another concern is the inefficiency of government programs. Friedman offered a helpful illustration of this problem with his four categories of spending.
The first category is the best case for responsible spending. Using her own money, a mother shopping for her family at a supermarket has ample incentive to economize and spend her money wisely. The key to this category is individual responsibility.
The second category is when a person is spending their own money on someone outside their family. In this case, the incentive to economize is also strong but there is less motivation to get full value. If one wanted a recipient to get the fullest value, the person would simply give the recipient cash.
A third category is the spending of someone else’s money on yourself. With company expense accounts, an employee has no strong motivation to purchase a thrifty lunch. If the law firm establishes $50.00 lunches, why go to MacDonald’s for a hamburger?
The final category best fits government spending. The least responsible spending is when a person spends someone else’s money on a third party. Politicians, bureaucrats, and other government officials operate by spending someone else’s money on someone else. Even if there are honorable intentions of spending the money wisely, the typical result is wastefulness. It is a good deal for politicians when they spend taxpayers’ money on favorite projects. Being Santa Claus to your constituents is a nice gig and pays big dividends.
Two of many concerns that Canadian conservatives will have with the Trudeau government will be the inevitable higher taxes (whether hidden or moved around) and the issue of bigger government promoting uneconomical ideological policies, failing to minimize waste, and growing the national debt. One only needs to look at the economic mess in Ontario to see what Liberal Party policies promise.
Source: Rose and Milton Friedman, Free to Choose