Liberal Party leadership candidate Justin Trudeau speaks to supporters at a rally in Mississauga, October 4, 2012.
Credits: REUTERS/Mike Cassese
Both men are fixated on helping the middle class. In and of itself, that is not a bad thing.
We in the Western world were freed from serfdom and monarchy by the development of the middle class. As the Industrial Revolution enriched people who were not nobility, they demanded political rights to go with their burgeoning wealth.
Most of our democratic institutions and our culture's respect for the rule of law are responses to the formation of a vast middle class.
The problem with Trudeau's (and Obama's) concept of the middle class is that neither seems to understand how to expand the middle-income quintiles of a society.
In his announcement, Tuesday, that he will seek the leadership of the Liberal party, Trudeau said the "key to growth ... (is) a thriving middle class." He added that a healthy middle class is what "makes this country great." Put money in the bank accounts of middle-class families, Trudeau argued, and Canada will once again be prosperous.
This is correct, but only up to a point. Like Obama's stump pledge to grow the U.S. economy "from the middle class out," it matters less that the middle class is reinvigorated than how it is reinvigorated.
Both Trudeau and Obama seem to think that once the middle class has money to spend again, their consumerism will prime the economic pump. It doesn't matter to either man how the middle class gets that money. It can come from government just as well (and probably more easily) as from private-sector income or investments. So let's just have Washington and Ottawa spend us back into prosperity.
The flaw in this theory is that it does matter where the money comes from.
If it comes from government, it has to be earned by someone else first, then taxed away from them. To get a dollar into middle-class wallets, that dollar first has to be taken away from whoever earned - another worker, an investor or an entrepreneur - or borrowed against the future.
Indeed, to get a government dollar into a middle-class pocketbook, about a $1.35 has to be taxed away from someone else after all the bureaucracy is paid for. So it makes no economic sense to try to grow the middle class via government handouts.
Government spending actually reduces the pool of money available to grow the economy. That's why the U.S. still has unemployment over 8% despite Obama having spent over $1 trillion in stimulus during the past four years.
However, if governments cut taxes on the productive sectors of the economy - manufacturing, finance, construction, service and others - that increases profits, increases investment, grows jobs and puts dollars in middle-class pockets. That expands the pool of middle-class money.
Sure, cutting taxes and regulations will mean governments may not have the money politicians and special interests want for big-budget spending. But tax cuts never cause deficits. Overspending is always the culprit. If politicians can find the courage to keep expenditures within revenues, deficits will never occur.
But don't count Justin Trudeau out just because he hasn't thought through his platitudes about the middle class. Many in the middle class are frightened enough by the economic future that they, too, have stopped caring where the money comes from, just so long as it keeps coming.