Photo credit: eldeeem via / CC BY-NC-SA

One of the primary roles of any government, under any political system, is to allocate resources. Government regulates industry, controls public lands and sets tax rates to determine how big the “pie” is going to be and then decides how much of the pie various individuals and groups receive.

The problem is that very few people have any real understanding of how this works and even fewer people understand how it plays out in a global context, with people and governments around the world competing for resources.

Setting social issues aside for the moment: The right generally prefers smaller government, less regulation and lower taxes despite being frequent beneficiaries of and in some cases dependent upon government programs. The left tends to prefer larger government, more regulation and more programs (so higher taxes) but in many cases don’t seem to know or care where the money comes from.

Conservatives favour some of the most expensive things government does including the military, border patrol, law enforcement and prisons. They also tend to support programs that help rural communities, veterans, farmers and the elderly. When you add all of that up, it amounts to a large government budget but they consistently ask for lower taxes.

In the United States, the largest recipients of government largess (those who get back the most for each tax dollar paid) are South Carolina, North Dakota, Florida, Louisiana and Alabama (source: the Atlantic). All of these states get at least $3 back for every one they send to Washington; all are fairly reliable ‘red’ states (though Florida is wavering) and all would suffer tremendously if they ever got their way on taxes.

As ironic as all of this is, the reasoning on the left is frequently not much better. They tend to like social programs like education, housing, infrastructure, health care and financial assistance for the poor. Again, all of this amounts to big government. The left likes to tax and spend, the right likes to spend without taxing (which creates the deficits that they dislike so much).

At the moment the big, overarching issue on the left is income inequality – which is inarguably a serious problem. However, their logic on this issue leaves a great deal to be desired. They like to use statistics like this one: currently 8 people have as much wealth as the bottom 50%. What they are loath to acknowledge is that they are not the bottom 50%. Almost none of the world’s poorest half live in Western, developed nations. An income of $32,500 (USD) puts you in the top 1% of earners globally (just $12,000 annually puts you in the top 15%, even $100/month keeps you out of the bottom 50 percent). They also don’t like to talk about the fact that for the bottom 50% of the world’s population, things have been steadily getting better for the last few decades.

The problem isn’t that they are wrong about the problem, it’s that their solution won’t work. If I come up with a product that is so popular that (on average) everyone in Canada gives me $1 for it, I’d have 33 million dollars and would be in the 1 percent anywhere in the world but if government takes that money away and divides it equally among the people, everyone still gets only $1 back. If the government divides it only among the poorest 20 percent of the population of Canada, everyone gets $5. If you took Bill Gates entire $80 billion fortune and divided it equally among everyone in the world, everyone would get $10.66. If you divided it only among the poorest 50 percent, only in the United States everyone would get a one time payment of $484.

People are upset because so few have so much but because there are so few of them, if you take all the money from the 1% and divide it among the other 99% the result is going to be disappointing. (If you take an extra large pizza and share it with everyone in your apartment, the result will be very different than if you share the same pizza with everyone in your neighbourhood.)

This isn’t to say that taxes can’t go up or that new programs aren’t needed just that people have to be selective about what they want because “tax the rich” won’t pay for everything people on the left want. Even if people said “well, we’ll get what we can” and dramatically raised taxes, the result would be a flight of capital into other countries with lower taxes. People would stop investing in the US, would stop keeping their money here and might leave altogether. In the end, this will cost more than tax revenue because in 2017 it is technical skills, creativity and innovation that create jobs and drive economies. If the best and brightest leave, so do jobs and economic growth.

International competition is both a blessing and an obstacle for many countries. If the US says ‘we’re going to raise corporate taxes’, Apple can move jobs and resources to Ireland; If the US says, ‘we’re going to curtail immigration’, Microsoft can move jobs to Canada; If the government says ‘we’re not going to let you develop this new technology here’, just about every other country in the world would line up to let Elon Musk develop it in their country; If the government says ‘we’re going to raise minimum wage to $20’, companies can move jobs overseas. If that isn’t a possibility then they will soon be able to automate many of them, replacing employees with machines.

There are few solutions to get around this international reality; one is isolationism but that will inevitably lead to the flight of talent, capital and jobs, resource shortages, inflation and a shrinking economy overall as exports dry up. Post Brexit Britain is only starting to see the unforeseen consequences of trying to build walls around your economic garden.

The other way to deal with globalization and unequal global competition would be the opposite of isolationism: We could create some form of global government with the power to set health and safety regulations, environmental regulations, trade and immigration policy, a global corporate tax rate and have the power to enforce all of the above. That will almost certainly come to be at some point, but would be incredibly unpopular across the political spectrum in Western countries at the moment. In a global parliament, if we achieved unity and voted as a block, the US, Canada, the EU, Australia, New Zealand and the UK would only hold about one-seventh of the seats. In other words, India and China voting together could outvote the West by more than two to one.

Add to all of this that substantial changes are occurring in technology that will reshape local and global societies and economies: Robotics, artificial intelligence and automation will eliminate hundreds of millions of global jobs, including low-skilled, menial labour and highly skilled jobs requiring post-graduate degrees. While this is happening people will begin living longer, healthier lives and retiring much later (if at all).  As ‘developing nations’ make improvements to infrastructure and education, competition for remaining jobs and industries will become more intense. While all of this is going on, the world will be dealing with the fallout of climate change, global water shortages and resource shortages from polluted and over-exploited oceans.

What the US and Canada and every other nation need to do going forward is a bit of everything. We need a military, law enforcement and border patrol. We also need education and infrastructure in order to remain competitive and programs aimed at creating a certain level of fairness and equality in order to create social and political stability. We need to forge strong international partnerships and trade agreements because none of the challenges facing us in the 21st century can be solved by any one nation acting alone and because access to the global marketplace will be essential to survival for companies of any substantial size.

We also have to do all of this while keeping taxes and regulation at a level that is competitive globally so that companies and individuals will want to invest and create jobs here, instead of moving operations to China, India, Latin America or elsewhere. The US, UK and even some in Canada like to think that their country can go it alone and be self-sufficient but none of them can very effectively.

Hollywood movie studios (as an example) are already starting to care more what the Chinese think of a film than what American audiences think. If forced to choose between an American market of 330 million and a Chinese or Indian market of more than a billion, most companies will take the later. If forced to choose between a British market of 64 million and a EU with more than 700 million, most companies will take the latter.

No ideology, left or right, lends itself to the delicate balance that is required going forward. Unfortunately, at the moment, a balanced approach can make it difficult to get elected. This is especially true in the United States where people are tarred with labels like Democrat or Republican In Name Only (DINO/RINO), where people are ‘too corporate’ or not conservative enough; where deviation from an ideological agenda, on even a single issue can cause a primary challenge or keep part of a candidate’s base from the polls.

It is currently fashionable to blame people who don’t share your ideology, the media, schools, lobbyists, corporations, bureaucrats, the generation of people before or after yours and elected officials themselves for the state of Western democracy and economics. However, if western democracy fails it will ultimately be because of the voters, not those who are elected.

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