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It’s been a long time since I’ve heard such incredible media snarkiness on the subject of the NDP’s “outrageously out-of-touch economics.”
Jack Layton has touched a nerve. His release of an economy-centred platform last week marks the NDP’s return as a serious contender in the big debates about the country’s future – a role it’s abdicated since the free trade election of 1988, if not earlier.
Layton likes to highlight his prowess as an experienced municipal budget balancer, and, indeed, his platform features the major lesson he learned as a municipal politician. That was to keep the positive solutions rolling – make them green, make them partnerships and make them doable as what he called “quick starts.’ The Layton modus will be obvious to all who leaf through the party’s election program. Problem is, the real path-breaking parts of the tool kit aren’t getting the public airing they deserve.
That’s for two reasons. One is the conventional media’s lack of interest in out-of-the-box thinking, expecially by New Dems who go beyond old-style leftie welfare and redistribution staples. And secondly, Layton, an inspired thinker when it comes to values-added economics, feels overly obliged to press the balanced budget button, probably to overcome prejudices about NDP overspending left over from the 90s. Thus, his widely reported proposals to fund expanded government programs such as affordable housing and securely financed medicare from increased corporate taxes and inheritance taxes – and the storm that followed.
Oddly enough, Layton’s make-the- rich-pay tax proposals would have seemed ho-hum just 15 years ago. Progressive taxation, once a given of conventional politics, has moved onto the endangered species list of government fiscal tools since free trade deals pressured governments to compete for investment by promising low taxation rates.
We now have enough experience of the new financial world order to know that the theory behind competing for investment with low taxes is sheer poppycock. As Joel Slemrod and Jon Bakija show in their book Taxing Ourselves, a study of tax reform debates, governments with high tax rates on the rich grow quickly (Norway) or slowly (Sweden), while governments with low tax rates grow quickly (Japan during the 1970s and 80s) or slowly (the U.S. in the same period), depending on many factors that have nothing to do with taxes.
After all, investors are more interested in how much profit they keep after taxes, not how much tax gets taken out of what they reap.
Contrary to the dogma spouted by pundits who find Layton’s economics outrageous, investors and big money earners do well when the workforce is healthy, cities are safe and tourists don’t have to feel guilty about homeless beggars. The rich even live longer and healthier lives when there’s not too much distance between them and the lower orders. One day the wealthy will thank Layton for giving them the opportunity to give back to society.
Still, Layton’s focus on increasing the taxation rate on wealth – including the political non-starter of the inheritance tax – is an unnecessary distraction. He has much more innovative ideas on the role of government than this more traditional stick-it-to-the-rich pitch suggests. Many of his ideas involve a new emphasis on government as an enabler of projects rather than the monopolizer of initiatives.
Here’s an example of a classic Layton proposition right from the election policy book. Take a relatively modest sum of $100 million from Canada Pension Plan savings to kick-start energy conservation – starting the virtuous circle by pulling pension funds out of the casino of currency and stock market speculation that is putting the children of soon-to-be-pensioned workers through the economic wringer.
This diversion of pension savings into self-financing energy conservation, already piloted in Toronto by Layton and the late Dan Leckie, is a prototype of the next-generation-government enabling of individual citizens that may start to replace old-style government ownership.
Here’s how the kick-start scheme might work. An inspector shows me that I can save the environment, as well as my own money over the long term, by getting better insulation and a modern furnace and fridge in my home. I see the inspector’s point but can’t figure out how to raise the $10,000 to make the long-term savings. No problem, the inspector says. Go to your local credit union, which has leveraged pension funds to finance low-interest loans for energy conservation. Your terms for debt repayment will be less than the money you save on energy until the debt’s paid off then you get to keep all the savings. And right away you create jobs for energy renovators while reducing global warming gases.
The scheme uses government access to public money to help individuals take action and overcome “market failure’ – the inability of passive markets to bring key actors together to act on their common interests. It’s a style of government-market-individual partnership that will differentiate 21st-century from 20th-century social democracy.
But this kind of thinking isn’t what, the media is reporting about Layton. He’s been pressured into coming out as a heavy taxer because of his commitment to avoid deficits. Though he can claim real expertise in budget-balancing coming out of his municipal experience, he may misread the real lessons.
Cities can’t run a deficit on their operating expenditures – salaries for workers or grants to childcare centres, for instance. But cities can borrow for capital investments, which after all will last 20 years and can be paid off over 20 years. The same should hold for federal spending on capital goods, most particularly housing, freeing up money for spending without the need to create opposition with taxes. Layton hasn’t been able to broach this, thanks to the taboo against deficits.
Sadly, media obsession with his tax proposals has ended up downplaying the message of one of the most visionary economic thinkers in Canadian politics in over a generation.
