Government is the Cause of “Brexit-Trump Syndrome”
Stephen Michael MacLean delivers some home truths
The Powers that be never fail to demonstrate why they have earned the enmity of the average citizen. Bound up in a cocoon of self-satisfaction and self-denial, their political coup de grâce cannot come soon enough. This self-important élite are flummoxed by the people’s revolt in Britain and America, known respectively as Brexit and the Trump movement. A recent column dispatched from the prestigious London School of Economics and Political Science amply displays their continuing bewilderment.
Coining the term ‘Brexit-Trump Syndrome’, British academics Michael Jacobs and Mariana Mazzucato claim that an inability to understand economic reality explains why average working-class citizens, who suffered lost jobs and wages and failed to bounce back from the Global Financial Crisis of 2007-09 (despite billions spent in stimulus schemes), voted either to exit the European Union or put Donald Trump in the White House. Both described as ‘disastrous’ socio-economic choices. The implications drawn are that people were duped into voting against their financial interests. Au contraire. GDP growth is first examined. American ‘median household incomes are basically the same today as they were a quarter of a century ago’, the authors note, ‘even though GDP has grown by almost 80 per cent over this period.’ Similar statistics can be adduced for Britain, though this divergence is more recent. The problem, however, lies in the manner of calculating GDP, which includes both private and public spending. Not only does this entail double counting, since government revenue is raised through taxing private financial gain, but government does not provide any good or service of added value to the taxpayer.
As the classical economist John Stuart Mill observed, nothing is more patently false than the political nostrum ‘that the more you take from the pockets of the people to spend on your own pleasures, the richer they grow . . .’ GDP exceeds median incomes because stats are swollen by coercive contributions to government redistribution and, adding insult to injury, to compensate the labours of ‘beneficent’ state redistributors.
The dispersal of corporate profit is the next culprit. Our scholars take issue with shareholder dividends and management salaries ‘in record amounts to boost share prices’ at the expense of maximizing profits to ‘reinvest in future productive capacity.’ Add to this the $2 trillion ‘sitting on the books of public companies in the US, rather than being reinvested . . .’
In the United States, government policy accounts for much of this distortion. When corporate taxes can be 35 per cent and applicable taxes of capital gains and dividends strike stock-owners rise to 15 per cent apiece — combined to a maximum tax of 30 per cent — it makes short-term economic sense for corporations to pay the lesser of the two and pay out to individuals rather than be penalised for growing the business. Government’s insatiable appetite for tax revenue makes it impossible for corporations to plan for the long-term and wary of capital-intensive investment. The American public — employers and employees, including state welfare recipients — are hurt by this artificial restraint on economic growth and prosperity.
Corporate tax cuts will repatriate overseas profits, reverse tax inversion, and encourage investment; meanwhile, a sensible tax code (such as a consumption or flat tax) will end the injustice of double taxation, where wholly ‘consumed’ income can be spent guilt-free but financial gains from ‘invested’ income that serves a public good get repeat visits from the tax-collector.
Ironically, Jacobs and Mazzucato’s third indictment of Brexit-Trump is reserved for government itself —that it does too little, rather than too much. Not only has capitalism failed the people, they say, but the commonwealth too, the people’s last, best champion. ‘This private failure to invest is matched by a failure of public investment,’ the authors lament. Critics of government failure have focused on austerity to the detriment of marshalling stimulus in the service of sustained growth when, Jacobs and Mazzucato write, ‘unregulated financial markets are prone to misallocating resources and creating asset bubbles which must inevitably burst.’
So much for progressive economic insight within the academy, overrun with false prophets of the Keynesian faith. J.S. Mill had its measure a century ago. ‘The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained,’ he wrote in 1844. ‘It is no longer supposed that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods.’ Unless, that is, you live in ivory towers, where almost anything can be supposed. For it is a utopian fantasy to blame Wall Street financiers when Fed-issued fiat money, by its very ethereal existence, distorts production and causes malinvestment in scarce resources.
Don’t like Brexit-Trump Syndrome? Stagnant wages? Lack of corporate investment? Failed stimulus? The antidote is simple. As are rising real wages, capital accumulation, and investment for economic growth and prosperity. It’s free markets, entrepreneurial innovation, and voluntary exchange. But it’s definitely not government intervention.
Stephen MacLean maintains the weblog The Organic Tory