The Ontario government wants to hear ideas

In September 2018 the newly elected Ontario government surveyed the public regarding areas of priority for government action. Part of the questionnaire asked for up to three ideas that will improve the delivery of programs and services. The idea must:

• not ask for funding for a specific individual, group, organization, company and/or business 
• be within scope of the Ontario government to deliver (please check to make sure your idea is not the responsibility of a municipal government or the federal government) 
• follow our terms of use – your idea will not be considered if it violates our terms
• be feasible, practical and affordable for us to implement in the short term
• be sustainable and provide long-term benefits.

Here are my ideas as submitted.

Sector: economic development.  Government is the agency of force in society and should only act when force is required. Any other action can only serve to distort, override and negate the choice citizens have already made or want to make - it cannot be otherwise. All such interventions make society poorer, less free and slow progress. All forms of subsidies, incentives, grants, programs, agencies and the like should be dismantled in an orderly fashion with a clear explanation of why they have no place in a free society and state the benefits of stopping such interference. It must be based on a clear an unambiguous moral principle so it can withstand the inevitable outrage and attacks by leftists. Such actions would eliminate a great amount of government spending while also liberating millions of Ontarians to follow their own ideas instead of those chosen by a handful of ineffective bureaucrats.

Sector: resources and environment. Aside from laws related to the protection of individual rights in the resources and environmental domain, provincial government should withdraw from all interventions, including programs, subsidies, incentives, campaigns, etc. If government will properly protect rights and stop violating them, Ontarians can use their minds to pursue their own reasoning and develop resources through win-win transactions. In the environmental arena, all that is needed is for government to protect our property rights - to not have our water, land and air polluted in a way that is demonstrably harmful to human life and to set levels that are realistic in the context of an industrial society and do not impair human progress.

Sector: Heath. Health care is so monopolized and stifled by government control and monopoly power that it creates a shortage of supply, excess demand, long waiting lists and an inflexible industry. Health is much too important for human flourishing to have it so dominated by the agency of force in society. Doctors cannot innovate in service delivery. Hospitals cannot prioritize and innovate. Patients have no idea of the true cost of anything and the vital price signals generated by a population of millions, each acting according to their own values and priorities, are destroyed and cripple the system. In health areas where there is little or no government control, progress is rapid, efficiencies are steadily improved, innovation flourishes and providers compete for the attention of customers. Look at dentists, chiropractors and other professionals that spring up in an endless supply to meet all conceivable demand.For the sake of all our futures, Ontario must begin to de-control health care and return the decision-making power to individual citizens. The current massive interference in the health care decisions of Ontarians is patently immoral, impractical, dysfunctional and has no place in a free society.

Corporations, Inequality and Amazon

I wrote this as a comment on an Ontario Liberal Party discussion platform leading to the 2018 Ontario election. I don't know how long the link will survive, so I am pasting the text of the posted idea and earlier comments below my text.

My long comment, responding to Jenny and to the main idea:
It is a mistake to think corporate tax is not paid by individuals - only individuals pay tax. Sometimes they pay directly and sometimes through their legal entities such as corporations, partnerships and trusts. The government taxes corporations as a way to hide the tax from immediate view by citizens and is totally counterproductive. All the assets and all the profits of a corporation are engaged 100% of the time in creating value for citizens and when you tax something you get less of it.  By taxing business production you get less production and society has a lower standard of living.

The fact that 10% of Canadian already pay 55% of the taxes is not irrelevant to this issue. In many and likely most cases, the most productive people are shareholders of a corporation and thus pay both personal and corporate income taxes already.

The idea's assertion that income inequality is bad and that corporations are totally about greed is a travesty. To better understand this, consider how you become one of the rich people in society. Let's say you come up with an idea to make life better for others - to keep things super simple, say you invent a better vegetable peeler. You must invest your brain power in creating the initial idea, building prototypes, testing them, researching manufacturing and distribution. You must make sure you are not running afoul of the thousands of regulations the province has that restrict trade. You must search for and hire staff to help you get things rolling. You must learn how to deal with the intricacies of trade barriers between countries and also their internal trade barriers such as those between provinces. You must finance the equipment, marketing and inventory of the business and pay staff while the product is being brought to market; you take significant financial risks and might lose it all. 

Now assume you start to have sales, but it may take many months or even years to recover what you have invested, with no guarantees at all that you will do so. All along the way your staff have been paid and have been happy to work for that level of pay, or else they would rationally work elsewhere. No one forced them to work for you and they took no risks except those inherent in working for a small business. Every day in the early life of the company the staff worked, they were making a profit for themselves while the business founder was not. They decided they were better off, that their lives were being improved, that they received more value through their pay than the time they dedicated to the work.

Now let's say the business starts to become profitable. How? Only because enough customers have decided that their lives will be better off for buying your veggie peeler than by holding onto the few dollars it costs them. Their lives are improved in a small measure, and the business owner and all employees are also better off. Trade is a win-win transaction when it is freely chosen - it must be, by definition. If only a modest number of people agree that their lives are improved by buying your peeler.

Now to the meat: how do you become rich? A really large number of people must agree that their lives are improved by trading their dollars for your peeler. Millions of people must agree that you are creating value for them. Not only that, you are competing against all other peelers made by all other companies, plus once your peeler hits the market it will give other people ideas about how to compete with you. To build a successful business you must not only achieve excellence, you must maintain it indefinitely or else another will earn the market share you once had.

Consider Jeff Bezos, founder of Amazon, apparently the wealthiest man in the world today. His business idea has become so loved by his customers and the company has so many millions of customers that his net worth (mostly Amazon shares that could lose 100% of their value if the company fails to maintain excellence) is over $100 billion dollars. Did his wealth come at the expense of others? Did he take their piece of the so-called "income pie"? Did he achieve this by forcing people to work for him at pay lower than they chose? No. No. NO! Amazon employees all work there because they have identified Amazon as a place they want to work and have accepted the pay offered. Many employees have likely become millionaires through ownership of shares in the business. Amazon customers are better off - why else would they shop through Amazon? Thousands of other businesses sell through the Amazon platform. Many other businesses sell services to Amazon. Jeff Bezos is fabulously wealthy because he has revolutionized a portion of the marketplace and created value for hundreds of millions of people and growing. All those people have chosen to trade a small amount of their value for that provided by Bezos and his company - and they can take away everything Amazon has and all its employees and all its share value, just by changing their minds about whether Amazon is creating value in their lives. 

The fact that income inequality rises when Jeff Bezos creates incredible value for millions of people all over the world is an outcome to be celebrated, lauded and recognized as a great moral achievement, not just an economic one.  Morality is our guidelines for surviving and thriving, and the creation of a new mountain of wealth in society is the pinnacle of morality successfully applied to improve human lives. Bezos is not Bernie Madoff - he has not stolen or defrauded anyone - that is the mindset of those who see wealth as a pie to be divided. Bezos has designed, tested, baked and continues to bake new and undreamed of pies that are beloved by hordes of his fellow men. To frame it another way, Bezos' wealth has been voted to him and bestowed upon him through consumer choices as recognition by his fellow men of the value he creates.

Yes, Bezos disrupts the economy, but to improve it, not to denigrate it.

Yes, this is a right and left issue. On the right stand people who wish to be free to choose their own path in life, to be free of coercion by others or their government. On the left stand those who are against individual rights, against human freedom, against reason and the human mind, against win-win trade and for the use of force to make others do their bidding. On the left stand people with guns pointed at citizens. On the right stand people who defend the right of citizens to choose. Which side acts as a bully?

My first, short comment:
This idea is so full of errors and contradictions entire books would be needed to fully address it. A basic course in economics and finance would be a start.

Who creates, operates, finances and owns the businesses, the corporations excoriated above? Who pays the corporate taxes? Who pays individual taxes? Who earns the profits of businesses and uses them to invest in greater future production or to improve their lives? Canadians, Ontarians, taxpayers - they are synonymous. With the most productive 10% among us already paying 55% of income taxes, is that enough? Not for everyone, apparently.

Comment from Jenny:
Hi, David, the 10% paying 55% of income taxes is irrelevant. The idea was the low corporate tax; it is not that the head of the corporate is paying low personal income tax.

The Canadian government attacks the values of its own citizens

I wrote this to an Ottawa area MP when I learned of an upcoming "consultation" phone call.

I am writing to you as a financial advisor who lived in Orleans for a number of years when I first built my business and who has many clients living in Orleans to this day.  I urge and implore you to push the government to stop all action towards implementing the published proposed tax increases as they could be the most damaging tax increases in our lifetime so far.

When I learned of the proposed changes, my jaw dropped and I felt very angry too.  As a financial advisor for the last 24 years I have gained a very good knowledge of many parts of the Canadian income tax system, particularly individual income tax, as I am a registered eFiler and prepare about 130 returns per year for my clients. Over the years I have done over 2,000 tax returns. In addition, a crucial part of financial advice is understanding how income tax reduces the value of investments made by clients, thus reducing the wealth of Canada forever, and helping clients understand and plan to keep their tax burden to a legal minimum through proper planning.

I think it is crucial for you to clearly understand what it means when a person earns income. It means he has created something of value that another person is willing to exchange his own values for. Money is simply the medium of exchange – the underlying value represent a piece of each person’s life, their energy, their intellect, their physical effort, their personal property, their values. In a country that truly protects the rights of individuals, productive ability is celebrated, not punished. Individuals with prodigious ability to create value must be free to do so and the value they create should not be attacked by their own government. If a man can build a business and create value of $200,000 more than the cost inputs, then this is only possible because the people he trades with agreed that he had created this value – that is to say they willingly traded their own values in exchange and only because they thought they were better off for having traded.  If a man can produce excess value of $2 million then he has created much more benefit to his fellow members of society than the man who created $200,000 of value. Should the man who creates greater value be punished for it? Should his productive ability be stifled? Should his ability to allocate capital that is used to create even more value be impaired? Is it moral for him to have a greater portion of his production stripped from him by force the harder he works? This is exactly the regressive tax system we have today.

For many years I taught a financial planning seminar series for adults through the Ottawa Catholic School Board and in the class focused on income tax I listed thirteen different examples of situations where the tax system claws back income, over and above the basic income tax, leading to sometimes severe punishment for earning more income. I used an example drawn from my real life experience doing a client tax return, where a single parent earning $30,000 faced a 70% effective tax and clawback rate. This is not the only example, the system is riddled with complicated buttons and levers pulled by a series of governments over time.  I’m sad to say this has only become worse since the last Federal election and the punishment for daring to produce more value for fellow citizens has risen.

Consider the possible things a business can do with its earnings. Remember that dollar are simply place-holders for actual economic values such as tools, equipment, buildings, vehicles, clothing and all the other goods and services produced by people to improve their lives. First, it can hold them in a bank account and in this case the cash then is available for the bank to lend to others who may need capital to pursue their own goals in life. Second, the business may spend it on maintaining operations or invest in growing its productive capacity and in this case it also produces value. It may pay salaries or dividends to owners of the business, enabling them to pursue their personal values and improve their lives. The business may hold retained earnings and invest in other businesses, either small private businesses or larger, more liquid and secure businesses; again in both cases serving to maintain and increase the production of human values. All the actions a business may take with its earnings are positive, unless the business is not run well enough to be competitive and profitable and thus closes.

This is economics 101, but it is not well understood by many people, including Canadian elected officials of the last century. When production is taxed, the whole chain of wealth creation in society is slowed down, retarded, held back. Don’t forget, wealth is simply the values chosen by people, values such as homes, cars, communications, schools, hospitals, scientific discoveries, etc. Forcibly taking greater amounts away from those who are better at producing values - no matter what is done with it, no matter how well intentioned the takers may say they are, no matter their justifications - can only impair human progress. Taking ever-higher percentages from people as their productive abilities increase is an even greater harm to the producers and to society. Below is a table from my class slides, showing that a dollar doubled ten times is worth $1,024 but when taxed at 46% is only worth $75. In one case, society has $1,024 of homes, schools, hospitals, etc. and in the other it has only $75 of these. Which society has the greater health of citizens, greater education, greater communications, safer houses and cars, more ability to care for the small fraction of truly incapable individuals?

Note that when I referred to helping clients pay a minimum of tax, “minimum” does not by any means mean low or nil, as many of my clients pay far more than a fair share of tax already. The fact is that the people who are the most productive already pay taxes at a rate far greater than their fair share. As the table below shows, just 10% of our population pays 41% of taxes, four times their fair share. Even worse, the most productive 1% of our people are already forced to pay, despite spending vast amounts on tax and legal and financial advice, 24 times their per capita share of taxes. Twenty four times! Each of them carries on their backs twenty four fellow citizens, weighing down their ability to produce values, to improve civilization, to advance human knowledge, to improve the lives of those they trade with, to innovate, to hire people to help them in their productive efforts. Just imagine the progress that would be unleashed if the greatest producers among us were truly freed to use all their abilities to their fullest!

Actually, you don’t need to imagine it. Until the recognition of individual rights along with proper governments to protect them in the late 1700’s, the natural state of humanity through all history was poverty. Suddenly, an explosion of knowledge and production raised the quality of human life by more in 200 years than in the thousands of years prior.  Countries that adopted the principles of freedom have uniformly flourished beyond the imagination of 18^th century Kings. Canada was one of these.  Even today, wherever and to the degree the right to life, liberty and property are cherished in law and in the culture, progress and flourishing occur. To the degree a country violates these three great rights by the force of central controls, regulations and taxation, human life suffers – witness Venezuela in recent years. 

Alas, Canadians have forgotten the philosophical roots of the enlightenment and are unaware of the causes of the industrial revolution and the great advances they see around them. They are moving away from expanding freedom and towards, and even accelerating towards, collectivism, socialism, statism and fascism, which are all essentially the same. The current proposals to raise taxes on private corporations represent a significant slide towards Venezuela and misery and suffering. Notice how there has been NO discussion of the possibility that some people are being taxed too much and their burden should be lowered to create a more level playing field. The only discussion by the Government is to increase taxes on some people to a level paid by some other people - people the government thinks it can persuade to vote for them to continue punishing high producers. The tall flowers are being cut down again. The logical progression of this is to cut a level lower and lower until all are equal in their suffering and the Marxist ideal is achieved, a la Venezuela, where you cannot find a dog, cat or bird in the city because the people have killed them all for food – even zoo animals.

The consequences of implementing this tax proposal will not be unintended, but fully intended. The government has been told, warned, notified of the pending damage to society. The assumptions behind the proposal are severely flawed in both moral and economic terms, so to seek ideas in a “consultation” on how to minimize unintended consequences is to entirely and deliberately miss the point. The proposal represents a willful and wanton destruction of real, tangible and deeply moral values like homes, food, education and health so cherished by so many Canadians. Instead of attacking our most productive people, isn’t it time Canada started to encourage them to ever greater heights and encouraged all others to emulate their success and help them in building an even wealthier society? Our entrepreneurs, business people and high producers should be our greatest role models, not the object of scorn, derision, insults and attacks via the force of taxation. While there is so, so much more than could be said on this, I will close with a quote from one of the great thinkers in the field of human freedom and progress.

You cannot bring about prosperity by discouraging thrift.  You cannot help the wage earner by pulling down the wage payer.  You cannot help the poor by destroying the rich. - Abraham Lincoln

I look forward to your thoughtful response to my letter.

Entrepreneurs create child care, not politicians

A recent Toronto Star editorial and article perpetuated a long-standing and pervasive economic myth: that any business sector can be run well by government.  In this case the editorial said the government should "create spaces" and "offer opportunities" because tens of thousands of families are on waiting lists. What the Star did not address is the cause of such waiting lists and the moral and rational solution to such economic problems.

In a free country each individual has the right to make his own choices in life and the right to be free of coercion by other individuals and the government, so long as he recognizes the same right of others.  A free society has an economy driven by individual preferences: choices people make about how they will produce enough to earn their way in the world and how they will spend what they earn.  In such a society you are free to produce to extent of your ability and motivation, free to create wealth greater than you consume, free to trade your time, labour and products of your mind with others. You are not free to force others to pay for your food, housing, transportation, entertainment or anything else.  In a free society the initiation of force against citizens is prohibited by law and enforced by the police and the courts.

Freedom is the freedom to think, act, produce and to own the product of your efforts.  This is the essence of the concept of individual rights.  There can never be such a thing as the right to an outcome or to a product that must be provided by someone else - this would negate the very concept of rights and freedom.  It would make others slaves to your needs and wishes. It is the incorrect and immoral attitude towards rights and the role of government that is at the heart of the daycare problem.

In a free market there is a price mechanism that integrates the preferences of all citizens into a beautiful, coordinated and ever-adapting system of immense complexity.  The price signal indicates to producers and consumers how much value society places on each good or service when compared to all possible alternative priorities.  Through their spending and producing choices, every citizen has a direct vote on these priorities.  If many people place a high value on widgets and thus bid up the price, this signals to producers of all kinds that widgets are in demand and to increase the supply because it is profitable to do so.  If preferences shift then prices tend to fall and so do profits, so capital and labour is reallocated elsewhere. This is how a proper economy works.

Now imagine a government intercedes at the behest of a group of citizens who lobby for favours.  The group declares that there are not enough widgets or that widgets are too expensive for their liking. Government responds by regulating widget production, forcing widget prices down by subsidizing some suppliers and by opening government owned widget factories. The marketplace responds rationally to the lower price by withdrawing capital from widget production and seeking to reduce the cost of making widgets, even if the quality declines. Thus, the supply and quality of widgets adapts to the forceful intervention by doing less of the activity in question. "How can I compete with subsidized widget-providers?" says one company. "How can I complete when the government takes money from me through taxes in order to open a competing business?" says another.

The widget lobbyists go back to the government and wail that more force is needed because the bad (free) producers are not making enough widgets at a low price.  You can easily see how a vicious cycle of force-begetting-force is created.  It is always thus - the introduction of improper laws and economic interventions breeds more of the same in order to fix the supposedly unexpected consequences - consequences that could actually be predicted using rational economic principles. 

Have you even wondered why there are waiting lists for day care?  What barriers exist that prevent the marketplace from filling this apparently severe consumer need? Who stops people from opening day care businesses? What economic facts cause such a high need for day care?  It can only be the presence of coercion/interference in the marketplace that creates the problem.  There are severe limits on who is allowed to open a day care, where it can be, how many kids can be there, who can be hired, what employees can be paid and onerous regulations that raise the cost of being in the day care business.  On the other hand, parents are forced to pay such high taxes that they must work more than otherwise to afford their target standard of living, so they have less time to do parenting and so they need day care.

The correct solution to the problem of child care supply, as is the case for every economic problem we face, can be answered with one simple statement and all that it implies: laissez-faire (leave it alone). Laissez-faire economics, also known as economic freedom or capitalism, is the optimal political and economic system for mankind because it allows each individual complete freedom to choose and to let the marketplace see those choices.  Anything less than freedom has been called "shackled", "fettered" or words of a similar meaning, and the negative connotation those words carry becomes an actuality whenever government uses force against innocent citizens.  To solve the shortage of child care (and everything else) - laissez-faire!