Jack Layton wants to soak the poor

The NDP has long put itself forward as the working man’s party, the party that shall defend the poor and their interests, the party that defends the downtrodden from the rich and from big business. It might come as a shock to many, then, to learn that the policies of the NDP would cause greater hardship to the poor and, in many cases, actually hurt working-class and poor people far more than they hurt the rich.

As von Mises said, many political parties and governments have gone far, as the Scandinavian countries have, by taxing the rich. Whenever some new programme has to be paid for, the politicians say, “we shall tax the rich minority. They always have enough.” But, as the Scandinavian countries are discovering now, they don’t. The supplies of the rich are dwindling and further government spending is borne on the backs of the poor. Canada has virtually reached the point where the rich are not able to give anymore, and so all the major political parties are forced to carry their platforms on the fiscal backs of the working people and the low-income earners. What has led me to single the NDP out in this essay is the fact that they are desperately attempting to create the illusion that this is not so, more so than any other party.

I have taken a few excerpts from the NDP platform as given on the NDP website for my examples, and I shall prove how these policies will hurt the poor people the NDP claims to be rooting for.

“Jack Layton and Canada’s NDP would defend jobs by… creating disincentives for “sales-only” auto operations by working towards implementing tax measures that encourage making vehicles here. ”

Let us look at how this will work in practice. Currently, vehicles are manufactured in a variety of places, and many car companies have taken to building vehicles in foreign countries with low wage rates. Ford and BMW build some of their cars and components in Mexico, for instance. The result of this outsourcing is that the cost of the labour in these cars is decreased, which reduces the overall price of the car.

If we move car manufacturing from Mexico, where the average industrial worker earns 12% of his US equivalent (2000 figures, US Dept. of Labour), to Canada, where the average industrial worker earns 81% of his US counterpart, we have effectively increased the cost of labour in manufacturing a car by 675%. This shortfall must be made up somewhere. The car manufacturers could reduce their profit, which would lead to a reduction in value of the company, which would lead to less investment, which would result in fewer jobs being offered by the company in the future, and possibly even layoffs now. Of course, since the manufacturing has been shifted to Canada, this means that Canadians will be laid off. That is the first of two possible outcomes for this policy, Canadian unemployment.

The second potential reaction is to pass the increased costs onto consumers. A car that used to cost $12,000 might now cost $14,000. Firstly, consumers will buy fewer cars. They will search for cheaper alternatives, buying cheaper cars that make less profit (and less profit means more unemployment, as we have seen) or perhaps leaving more time between vehicle purchases or buying more pre-owned vehicles. This means that the company will sell fewer cars. As demand decreases, supply must decrease, which means that the company must slow production and therefore lay some workers off. The second possible outcome of NDP policy is also unemployment.

Then, of course, we must consider opportunity costs. If I must spend $14,000 on a car instead of $12,000, that extra $2,000 must come from my own pocket. The opportunity cost of that increase was whatever I now cannot buy with $2,000. Perhaps I won’t buy that big-screen TV. Or maybe I’ll get my roof replaced and my driveway resealed next year instead of this year, or do it myself. I probably can’t afford to renew my gym membership either. In all of these cases, the industries that supplied these consumer demands, the TV manufacturer, the roofer, the driveway sealer and the gym, will not get my business. Their demand decreases too, and in exactly the same way as for the car manufacturer above, the end result is more unemployment.

So, we can see that what the NDP will do by trying to bring jobs to Canada is to make even more Canadians unemployed. But this is not the limit of the damage they promise to wreak on the poor and the workers of this country.

“Jack Layton and Canada’s NDP would defend jobs by… increasing the federal minimum wage by raising it annually, tied to the rate of economic growth. ”

Wage rates are set by the market at a level based upon marginal value. The reason why a doctor is paid more than a waitress is because his marginal value is higher, since applied medicine is a rarer skill than waitressing. In the free labor market, a wage is set to what the labor is worth.

When a minimum wage is created, all those whose jobs paid less than the minimum wage now must be paid in excess of what they are worth. An employer who was paying an employee $3 per hour and getting $3.50 of work from him per hour must fire him when the minimum wage rises to $4 per hour, or lose $0.50 for every hour that he employs him. This is borne out in recent history, for when the US government raised the minimum wage in 1996-1997 the immediate result was the addition of several hundred thousand workers to the ranks of the unemployed. Most of those were teenagers, single mothers and blacks.

Once again, the NDP policies will result in greater unemployment amongst those who can least afford it, those now earning minimum wage or something close to it.

“Jack Layton and Canada’s NDP will work for tax fairness by… removing the GST from family essentials”

The NDP, therefore, promises to continue with the GST. No other measures for GST are mentioned, so this is what we must deduce. The GST is a regressive tax, levied on the poor far more than the rich. A single mother earning $15,000 per annum (after income tax) must spend practically all of her income to support herself and her children. On all of this money, she will pay GST. We can say that a full 7% of her income (after income tax) is going to be taxed again, in addition to provincial sales taxes. However, an entrepreneur who earns $500,000 per annum (after income tax) can live very comfortably from 10% of this money. He can save $450,000 of his income, thus avoiding paying GST on it. He will probably even earn interest on it. He will pay 7% of $50,000, which is 0.7% of his annual income. The single mother will pay ten times as much tax, relative to her income, as the rich entrepreneur. He can afford it. She cannot.

The NDP have graciously vowed to exempt “family essentials” from GST, but rich people buy family essentials too. In fact, they may well buy more of them. The NDP cites children’s clothing, books, and magazines, amongst other things, as being examples of “family essentials”, all of which are purchased in greater quantities by the rich. The NDP policy, once again, ensures that the poor pay more than their fair share and puts the greater part of the tax burden on the poorest people in the country.

“Jack Layton and Canada’s NDP will give Canadians clear choices on debt reduction by… encouraging the Bank of Canada to promote a lower interest rate”

The results of this economic fiddling are plain to see to any student of history. Lowering the interest rates causes a rise in consumer spending, since saving is now less productive. It also causes a rise in investor spending, since borrowed capital is now cheaper. In short, the consumer has short-term interests foremost on his mind, whereas businesses are thinking primarily of long-term development. This discoordination disrupts normal economic relationships. For instance, entrepreneurs are feverishly trying to borrow more money at precisely the moment that investors are feverishly trying to withdraw their savings. This imbalance eventually leads to economic depression as sources for borrowing dry up and the savings needed for sustained growth are depleted, the severity depending upon how badly the government skewed the economy in the first place. Depression, of course, means mass unemployment and hardship for all, especially amongst the poor and wage-earners.

The other result of articially lowered interest rates is inflation. It would be more accurate, in fact, to call lower interest rates the result of inflation, because the government can only affect the rate of interest by changing the discount rate (the rate at which financial institutions can borrow from the central bank) and to print more money. The resulting increase in the availability of money pushes the interest rate down as money becomes less valuable.

When the value of money is decreased, prices correspondingly increase, since the value of goods and services has not changed but the value of the money exchanged for them has. The economy becomes a race against time, with the value of money dropping ever lower and prices rising ever higher. The end result is the worthless mark of the Weimar republic, where a wheelbarrow full of banknotes bought a loaf of bread. People shun the currency en masse, reverting to barter, and the economic damage is incredible.

The alternative is to arrest the spiralling inflation and to contract the supply of money. The hardship endured as the economy makes this painful adjustment is proportionate to the extent and length of the inflation that preceded it. All the growth achieved during the inflation must be entirely and wholly offset during the deflation, creating a period of economic contraction, job loss and scarcity. Either way, the NDP policy, if carried out, can only result in economic crash or disaster of some kind. The result will be unemployment and higher prices, which always hurt the poor more than the rich.

The NDP could react to rising prices by fixing prices for consumers, and this has certainly been tried before, with no success. When production costs are rising due to inflation, but consumer prices are fixed, profits shrink. Companies that are only marginally profitable may quickly fall into the red and go out of business. With the prospects of profit being very dim, no new entrepreneurs will fill the gap. The result of inflation coupled with price fixing is scarcity. Consumers cannot buy the products they need, even though the government has fixed the price at a level they can afford, because the products simply are not there to buy.

“Jack Layton and Canada’s NDP will… protect you by… requiring chartered banks to maintain, rather than abandon, branches in Canada’s rural and small towns, as well as in poor, inner city neighbourhoods.”

The reason why banks abandon branches in rural areas and in the inner cities is because they are not profitable. The bank loses money by operating them. By forcing banks to open unprofitable branches, the NDP is effectively offering banks an ultimatum: either cut your profits (so going out of business, or else causing unemployment and wage cuts as detailed above), or find some other way to make a profit. Of course, the banks will pick the latter option. Banking fees will rise, and as per usual, it is the poor who will bear the brunt of these rising costs.

The banking fees are flat, not a percentage, and so poor people will pay a far higher portion of their savings in bank fees than the rich. Furthermore, most banks waive banking fees if a certain minimum balance is carried, and it is far easier for the rich to maintain a large positive balance than it is for the poor, many of whom are overdrawn in the first place. If the NDP forces the first option - make less profit - then the more marginally profitable banks may well be forced out of business. Their employees will be jobless and their services unavailable, and the NDP will force other banks to fill the void created by their disappearance, lowering their profitability still further in turn and continuing the cycle of collapse and subsequent unemployment. The NDP will have to rescind this policy, or eventually nationalise banking and subsidise the banking industry from the pocket of the taxpayer, even as it removes the profit incentive for banks to provide good service at low cost.

These five policies alone constitute a massive attack upon the interests of the poor and working people. There are more. Suffice it to say that I must conclude that either the economic policies of the NDP are founded on gross and woeful ignorance and wrong-headed ideas, or they are happy to lie to the electorate and hope to be elected on promises they know are going to be broken and trampled by their policies. My appeal to the workers of Canada is that they do not give credence to this party that promises them improvements with a forked tongue, but is in reality a harbinger of increasing hardship for them and their families.