Tax cuts aren’t always the answer

My favorite quotation comes from Bertrand Russell, the great British mathematician, philosopher, and Nobel Prize winner. He said, “The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.”

It goes a long way to explain what has been happening in politics in recent decades. While the certainty of fools and fanatics affects our lives at every political level the greatest damage is done federally, where major economic decisions are made.

When a temporary respite from certainty caused by the great depression freed governments to experiment with economic unorthodoxies, nations in what came to be known as the first world chanced upon an economic model that actually worked.

The mixed economy featured a large public sector, financed by progressive taxation, which took care of societal needs unmet by the free market.

This, coupled with progressive labour legislation that allowed most working people to have disposable incomes, brought about an era of unprecedented prosperity.

The prosperity peaked in the early 70’s when governments became increasingly dominated by people certain that reducing progressive taxation and government spending, except of course military spending, would make things better.

The first major cut to progressive taxation in Canada occurred early in Pierre Trudeau’s first term, somewhere around 1970.

Since then there has been a somewhat steady decline in the fortunes of the middle class and a somewhat steady increase in national debt, in budget deficits, and in the number of people fallen out of the middle  class.

It is hardly surprising that 40 years of evidence to the contrary would do nothing to diminish the certainty of fanatics. But if the rest of us believe that this time tax cuts are going to revive the economy, we are fools.

Derek Choukalos