Concerned Voter Writes

A recent discussion on an email list brings out some popular misconceptions:


Concerned voter:

Unless you want to be paying for health care out of pocket, tax cuts are undesirable.


Abbot:

If there were no government health plan, it is unlikely that most Canadians would be paying for health care out of their own pockets. Anyone who was employed, and their family, would probably be covered by an employer’s plan. This is the case in other developed countries that do not have government-run health care plans.

We’ll get to taxes a little further on.


Concerned voter:

People argue that government is wasteful; but if these services were performed by for-profit businesses, we would not only have to pay for the basic cost of the service, but also for the profits collected by a corporation's shareholders.


Abbot:

Sounds good in theory, perhaps, but the proof is in the pudding. When, in the past, we’ve had government-owned enterprises competing directly with private concerns--Air Canada vs. CP Air, CBC vs. CTV, CN vs. CP, and so forth—the government entity has usually required big subsidies to hold its own in the marketplace. How come?

The discipline of the market forces efficiencies that more than make up for the profit margin. The profit taken by shareholders is nothing compared to what an established bureaucracy can squander in empire building and feathering its own nest.


Concerned voter:

What about the cost of running their marketting and advertising departments which, in a for-profit company, suck a good portion of the operating costs to ensure profitability?


Abbot:

Advertising is not a drag; it is a legitimate service to the public. It is educational; what you do not know about is not available to you.

As to the cost, do you really find that the cost of long distance services has gone up, and the quality declined, since Bell Canada lost its monopoly and the various providers had to start advertising and marketing?

Discipline of the market.


Concerned voter:

It is meaningless to speak of tax cuts without talking about program cuts. If you want to pay lower taxes, then look at the federal budget and decide what you would like to cut out.


Abbot:

Not so, according to the current “supply side” economic theory. (Not so according to Keynesianism, either.)

First, if the government has been running surpluses, as it has, it follows that you can cut taxes immediately without cutting services.

Second, according to the theory, if you cut taxes, you stimulate the economy. Greater economic activity means that your revenue stream does not go down—it is more likely to go up, over time. You will collect more, not less, money in taxes.

Third, by privatizing the provision of some services, thereby introducing market discipline, you can probably provide the same services at lower cost. This would be an argument for things like school vouchers, the Conservative plan to remit money for child care directly to families, or allowing more private provision of medical treatment.



Concerned voter:

We need more, not less, money in government services. Look at the long waits for medical care.


Abbot:

Simple rule of economics: when you fix prices, you get shortages. You are short-circuiting the supply and demand equation.


Concerned voter:

True, in a private hospital, you won't wait as long. Then again, unless you're well off, you won't get inside either. That's what makes them "efficient".


Abbot:

No, it isn’t. A survey in Manitoba actually showed that the wealthy are no more likely than the poor to resort to private provision of medical care. Again, it depends on what is covered in your employer’s plan.


Concerned voter:

…Promises to cut taxes are cheap. Promises to cut spending better reveal the true intentions of a candidate.


Abbot:

There’s truth in that. But to be fair and balanced, you need to remember the corollary. Promises to improve services are cheap. Promises to raise specific taxes better reveal the true intentions of the candidate.