Concluded from yesterday

Much as I support the objectives of the People's Campaign, and would like to say that their proposed reforms make sense, any realistic analysis based on the three points I outlined yesterday would have to conclude that The People's Campaign is embarking on a wild-goose chase.

Let me now explain why.

The Manifesto, which regrettably uses many Marxist terms — including the title, comes up with few proposals which will redress the situation.

Let me just mention four of the major recommendations for action.

EQUALITY

Under equality, it is suggested that “Government must implement an equitable taxation system that would structure taxation based upon levels of total income and the value of assets and holdings.”

This is virtually identical to the proposal in the Communist Manifesto of 1867. Communism, as everyone knows, collapsed in 1989 under its own contradictions and after more than 120 million people had been murdered by their own governments.

It has been a disaster everywhere it has been tried. It would be equally disastrous in Bermuda.

In the many equitable tax proposals that have been made over several centuries what is frequently overlooked is that plans for taxing and sharing the wealth lose sight of the conditions that are essential to create the wealth and income in the first place.

It is taken for granted that the existing size of the economic pie will not be affected and that investors will continue to invest, employers will continue to employ, and that economic behaviour as well as progress and justice will continue unabated.

Reality is and history shows that they will be affected by penal taxation — and affected adversely.

Where there are no (or limited) rewards economic activity will grind to a halt, or at best be greatly diminished. One has only to look at our record of managing the hotel industry and tourism over the last 30 years.

Alas, the only real cure for unemployment, and the misery that accompanies it, is to maximise the incentives to produce and create jobs that produce value.

This means, above all, freedom for the individual to earn and keep the fruits of his labour. This is the very opposite of “equitable” taxation system proposed in point 2 of the Manifesto.

I doubt the authors of the Manifesto have ever heard of an Italian economist called Vilfredo Pareto (1848-1923). After a lifetime of studying income distribution, he concluded that government cannot effectively change the distribution of incomes.

Twenty per cent of the population will earn 80 per cent of incomes, and the remaining 80 per cent will get the balance.

This he found to be the case at all times and in all countries.

The same pattern repeated itself over and over again with mathematical precision. Subsequent studies reached the same conclusions. The only government policy that seems to be capable of changing the distribution of incomes and wealth is inflation.

It destroys the middle class but in doing so it destroys productivity and makes everyone much worse off. Think Zimbabwe, Argentina or Germany in the 1920s.

There is a much more compelling argument against the idea of arbitrarily increasing taxes on wealth and income.

Forcibly taking the fruits of labour from one man and giving it to another is really just another name for slavery. After all, the essence of slavery was forcibly taking the fruits of the labour of the slave, and giving it to the slave master. It seems odd that a predominantly black movement should advocate the reintroduction of one of the main pillars of slavery in a People's Manifesto for the Bermudian labour force.

The real issue is: who owns me? Do I own myself or am I just another piece of government property.

JOBS

It is proposed that “Every person should be entitled to a liveable wage in proportion to the cost of living”.

A wage that would meet the needs of food, shelter, clothing, and healthcare; in other words a minimum wage. Nowhere is it stated as to how the funds necessary to meet this objective will be raised.

There is an implied belief that money can be spent without being earned, that wages can be raised while output is flat, that somebody else will pay the costs.

Unfortunately, there is no Santa Claus, Tooth Fairy, or Easter Bunny. It cannot be achieved by taxation because we would soon run out of rich people (they would leave) and those who might be able to pay do not, themselves, have the necessary funds.

Bermuda does not have a central bank to print money as do big countries like US and UK.

One of the world's most famous economists, Milton Friedman, has concluded that the minimum wage law is one of “the most anti-black laws on the books” because it raised the unemployment rate for blacks, especially black youths.

The idea of having a minimum wage is attractive. Just pass a law and hey presto everyone gets a pay hike.

If one thinks clearly about the consequences of implementing such a policy it is hard to reach a conclusion other than the fact that a minimum wage (or any derivative of the concept) effectively bans untrained employees from selling their labour to employers who might want them to work at a wage the employee might be willing to accept.

If the employer cannot pay the legislated price, he will simply be unable to hire. Or he may be compelled to close down his business. Increasing the costs of labour does not increase the number of jobs.

In the final analysis, minimum-wage laws essentially outlaw work for those who cannot provide an employer enough value to at least match the mandated wage. Those who can't — usually the least skilled and least experienced in the workforce — are precisely the ones who minimum wage proponents claim to help. But then they are not hired.

Assuming that some miracle can be achieved how will all of this be paid for?

The main solution to this problem is to tax the wealthy but Bermuda owes most of its prosperity to the fact that the wealthy find it a congenial place to establish a corporate presence, live, or to visit.

Should the rich become alarmed about the safety of their assets they will simply pull up stakes and leave for a more attractive financial climate. Some rich people are fools; most are not — which is why they became rich in the first place.

There is also the elementary fact, that people do not become rich whilst sitting around for government tax collectors to raid their bank accounts.

Rich people sign virtually all our pay cheques, either through their expenditure in the economy or the companies they own or run, or through their taxes — such as land tax.

If government raises their taxes to reduce their income to a more “equal” level, will they sign more or fewer pay cheques? To ask this question, is to answer it.

If the wealthy leave, or fail to visit, the current situation would become more dire than it is now.

Instead of being the solution to our current problems, the proposal would simply add to the current misery.

JUSTICE

In point 10 of the People's Campaign Manifesto, it is suggested that “the business community share sacrifices and participate in practices that serve the common good recognising that the economy must serve the people and not the other way around”.

Alas, this betrays a fundamental misunderstanding of what an economy is all about. An economy is not about tangible things and material objects.

It is about people, their objectives and above all their actions. The reality is that no one, including government, can rearrange the lives of Bermudians in the same way as chess pieces can be moved around a chessboard.

People have their own ideas, ambitions and they act accordingly. Those who wish to rearrange society do not talk of the actual consequences of their ideas, when it is much more pleasant to dream of wonderful goals and the objective of Utopia in Bermuda.

PRIVATISATION

In The Royal Gazette of August 19, 2014 The People's Campaign warned government not to privatise public assets stating that if it did it would be “crossing a red line”.

Usually, interest groups use persuasion and argument rather than issue ultimatums, but we live in interesting times.

Many economic thinkers have argued that government by its very nature cannot run a commercial venture, not even poorly.

Time and time again the Bermuda public has been subjected to lightning strikes by ferry and bus employees, the Bermuda Industrial Union knowing full well that there is no competition and that government is relatively powerless to intervene.

The only criterion for determining who runs the buses and ferries is this — what is in the best interests of the paying customer?

It is hard to believe that the current ownership structure is concerned much with the passengers.

The main reason why buses and ferries continue to be operated by government is the power of the BIU.

The power of the BIU arises from the fact that they can, at will, call out the workers on strike at short notice and at massive inconvenience to the public — many of whom are those who are least able to afford missing a day's work.

In short, public transportation is operated not for the benefit of the general public or passengers, but for the private pockets of employees who are members of the BIU.

The People's Campaign is purporting to be a lobby group for the poor and disadvantaged.

The truth of the matter is that they are, in the area of privatisation, acting for the benefit of one of most pampered organisations in Bermuda.

Regrettably, the People's Campaign is not a march against poverty, injustice, privatisation, or budget cuts, it is more a campaign against reality and arithmetic, or even a march to promise Bermudians the grown-up equivalent of free ice cream.

It is impossible to add negative numbers to negative numbers and then come up with positive outcome.

The numbers and logic just do not add up.

If Bermuda applied their solutions the odds are that Bermuda would be converted into a mid-Atlantic version of Venezuela or Zaire.

We need demonstrations on the street on behalf of reason and sound financial policies and for the purpose of empowering people to determine their own futures independent of the dead hand of government, or the pied-piper solutions of the People's Campaign. It is an unfortunate, fact of life that good intentions do not necessarily result in favourable consequences.

I am clearly not a man of the cloth, but there is an old saying that the road to hell is paved with good intentions.