From The Sovereign Individual to Idiocracy
Although government expenditure in the West has been consistently rising, many Western democracies will actually end up as poor Idiocracies.
Thanks to capitalism, which rewards those who create value based on supply and demand, society has thrived.
The highest earners are now the most mobile they have ever been. They create the businesses that employ people, they spend the most, and they transfer their know-how to other professionals — enabling them to climb up the social ladder. They have the highest leverage in society. They are Sovereign Individuals.
In the US, the top 10% pays ~70% of all income taxes. The bottom 50% pays only ~3%.
Many countries are falling prey to taxing the rich their fair share. Even countries with a strong track record concerning wealth preservation, like the UK, are turning populist.
Unfortunately this is a trend that will make everyone poorer and decrease everyone’s quality of life.
This is a fight between two personas. Let’s name them Adam and Emma.
Adam is a high earner. He works in tech building software.
Emma is an average earner. She works in an administrative 9-to-5 job.
Adam has kids and considers himself as a pragmatic centrist voter. Emma doesn't have kids and considers herself a leftist voter aligned with social justice.
They both live in a Western democracy.
Emma is fed up with inflation. She's losing purchasing power every month. On top of that, public services are getting worse. Getting an ordinary health check is now a months-long endeavor. She goes to London and sees all these rich people, unconcerned with those issues. She hears about all the tricks they use to pay less taxes. She thinks they should pay their fair share, and votes accordingly.
Adam is hard-working, after years of dedication to become a highly skilled worker, he doesn’t like the government taking away 2/3rds of his income — half in income taxes plus another ~20% in multiple indirect taxes. Crime and social unrest are on the rise. He reads about all these countries with lower taxation, higher security and even special programs to attract high earners.
Adam doesn’t want to pull the trigger just yet. He likes his life here. He might leave family and friends behind — they would have to make new friends, maybe even learn a new language!
Emma doesn’t even think about leaving. She doesn’t have that mobility. She would struggle to find a job, and on top of that she benefits from multiple social welfare programs. She would lose all that.
Emma never met Adam. But in her mind, Adam is enslaving her. He’s making her poorer and making her do work that he doesn’t enjoy to barely make a living.
Adam never met Emma. But in his mind, Emma is enslaving him. A horde of Emmas are voting for bureaucrats that force him to pay most of what he produces to them, yet they produce little themselves.
I will not go into who’s right or wrong. Capitalism has reduced poverty by 90% and grown GDP per capita by 3,000%. I hope the numbers speak for themselves.
The fight above isn’t a fair fight. Adam has an order of magnitude more mobility than Emma.
At some point, triggered by yet another tax hike, not feeling welcome anymore or rising crime, Adam decides to move his family.
Adam and his family relocate to Dubai. He hates leaving his extended family and friends behind, and he isn’t even sure whether he’ll call Dubai home for the decades to come. But he cannot subdue the future of his family to populism.
Adam, who was an incredibly productive taxpayer, has left. Emma, who is a mediocre taxpayer — and a net receiver of taxes via welfare programs — has stayed.
Repeat this thousands of times. Less taxes are raised. Talented people start feeling the exodus and start shopping around.
Then tens of thousands. Infrastructure is getting visibly worse. Talented people now have many friends who have left, and see that it’s not that scary. The word spreads.
Then hundreds of thousands. It’s getting hard to find people to get work done. Stuff stops working everywhere. All the brightest minds have left. Stagnation is in the air.
Then millions. The airport cannot even get a plane on the air. Everyone is obese. The country collapses.
Emma is even more unhappy than she was before. She got poorer to a level she didn’t think it was possible in a first world country. Emma has no kids, but her fellow citizens' children now bear a burden that will take generations to fix.
Adam is doing well, but lives with a bittersweet feeling. The country that saw him grow up, get married, make so many friends, is now a train wreck. At least he lives in a place where he doesn’t get robbed — either via excessive taxes or stabbing in the streets. His family and friends that stayed have built tremendous resentment towards him, and think people like him ruined the country. He’s made new friends, but he’s losing them as his family moved a couple times already — trying to find a place they really connect with. He feels like living in an impasse.
Everyone ended up less happy than they were. It’s a lose-lose situation.
By trying to tax more, governments all across the West will actually lose tax revenue. Adam didn’t go to another Western country to pay his taxes. He either left the West, or found another country with some kind of incentives program.
Populist policies are shrinking the taxable base of the Western civilization. Every week now, I talk to extremely talented individuals that are feeling the decadence of Western civilization. Some of them are just moving from a socialist Western country to a less socialist Western country. But some are leaving the West altogether.
While this happens, common goods are getting visibly worse. Most Western governments fund themselves via money printing, but need taxes to offset GDP-to-debt ratios. Otherwise they might face defaulting. Of course that will never happen, as they would just print even more currency. But that means more inflation. Which means more poverty and social unrest.
The countries that understand these dynamics will amass incredible talent at a pace never seen before — by attracting these disenfranchised Sovereign Individuals. Think Dubai or Singapore. The ones that don't, and keep trying to tax their way out of structural issues, will accelerate their way to Idiocracy.
Be careful, these socialist delights have violent ends.
If you are one of these disenfranchised Sovereign Individuals, you should think about investing in a second citizenship — it will further increase your mobility. We built CitizenX for you.