My friend Lynn Chu has boiled down the basis for a just, prosperous society:

“It is very easy to spend other people's money, thus eliminating all of the vital discrimination about the devils in the details which are knowable only at the level of the individual. This is the main justification for the protection of individual liberty against autocracy other than the clarity of the moral imperative of human rights as the privileges and immunities of the individual in society.”

When Great Britain turned over Hong Kong at the expiration of its lease, the Chinese government promised to leave its democratic institutions and law alone. Bit by bit, that promise has been eroded until  recently China pressured the local authorities to agree to an extradition treaty that would allow them to extradite from the former colony and try in China anyone, even someone merely transiting through its airport.

Day after day the residents in the millions resisted, marching en masse through the streets, closing down schools and shops as employers allowed workers leave to work at home and demonstrate.

Some argued that the U.S. would have to intervene, but that doesn’t  immediately seem to be necessary, as the Chinese, obviously aware that more brutal crackdown efforts or even armed intervention would more seriously affect their interests. The local authorities -- clearly with China’s acquiescence -- backed down, suspending the extradition law indefinitely:

@AFP

VIDEO: рџ‡­рџ‡° Hong Kong's embattled leader #CarrieLam says a divisive bill that would allow extraditions to China will be "suspended" in a major climbdown by her government after a week of unprecedented protests.

Indeed, by several accounts, faced with  the threat of Chinese tyranny, capital has already been fleeing the colony for elsewhere. Physical security and rule of law matter. And an independent and fair judicial system.

One tycoon, who considers himself potentially politically exposed, has started shifting more than $100 million from a local Citibank account to a Citibank account in Singapore, according to an adviser involved in the transactions. 

“It’s started. We’re hearing others are doing it, too, but no-one is going to go on parade that they are leaving,” the adviser said. “The fear is that the bar is coming right down on Beijing’s ability to get your assets in Hong Kong. Singapore is the favored destination.” 

Hong Kong and Singapore compete fiercely to be considered Asia’s premier financial center. The riches held by Hong Kong’s tycoons have until now made the city the larger base for private wealth, boasting 853 individuals worth more than $100 million -- just over double the number in Singapore -- according to a 2018 report from Credit Suisse. 

The extradition bill, which will cover Hong Kong residents and foreign and Chinese nationals living or traveling through the city, has sparked unusually broad concern it may threaten the rule of law that underpins Hong Kong’s international financial status. [snip]

“This has been largely overlooked in the public debate but it is really a significant part of the proposed amendments,” Young said. “It may not have been overlooked, of course, by the tycoons and those giving them legal advice.”

The people who took to the streets in protest surely understand what China and Democratic state legislatures like those in California, New York, and Illinois do not: Capital is attracted to and invested in those places where the laws are fair and protect people and property, and where government overreach and exorbitant taxes are in check.

Many Californians complain about high taxes, and some vote with their feet, moving to no tax states like Nevada, Texas, Washington or Florida. A recent report says that dozens of millionaires fled California after the 2012 tax increase. The report quotes a study noting that 138 high income Californians left the state. That may sound draining, although the researcher said that, “We estimate that California lost 0.04 percent of its top earner population over the two years following the tax change.” That's a tiny number, and California's high taxes have always motivated some moves. The 2012 tax change is now old news, and yet there is still talk about the huge impact. However, that may be especially true when taxpayers see their 2018 tax returns next year.

California's Proposition 55 extended until 2030 the “temporary” 13.3% tax rate on California’s high-income earners, the highest tax rate in the nation. It hits only 1.5% of Californians, those with a single income filing of at least $263,000, or joint income of $526,000. But the new federal tax law that limits state and local tax deductions to $10,000 seems likely to dramatically change taxpayer attitudes, but will it also change their behavior? If you are writing a several hundred thousand dollar check to California and cannot deduct it on your federal taxes, won't it smart that much more?

Illinois is, if anything, in worse shape than California:

Illinois’ high tax burden raises the benefits to be gained from moving relative to staying, resulting in an exodus of families toward states with lower tax rates and more economic opportunity. A consequence of these outflows of labor and capital is that state tax revenues suffer as the tax base shrinks. This negative effect on tax collections exacerbates Illinois’ fiscal crisis.

The problem in Illinois is that policymakers continue to introduce policies without taking into account the behavioral responses of individuals and businesses.

In increasingly interconnected markets, the effects of policies in one state can have implications for the rest of the world. Globalization, reductions in institutional barriers to international investment and trade agreements have contributed to increased levels of worker and capital mobility across the U.S. and countries with large differences in tax climate. In the last 20 years, 57 corporations left the U.S. for more tax-friendly jurisdictions, according to Bloomberg, taking with them jobs and billions of dollars.

According to the IRS migration data, Illinois’ income loss to foreign countries due to the movement of workers was $88 million from 2014-2015. However, Illinois lost a much larger share -- $3.4 billion -- to other states.

Tax policies like those of Illinois always have secondary effects on employment often overlooked by governments, analysts, and media:

The State of Illinois is losing jobs and suffering investment outflows because it has the highest tax rates in the country, while its debt levels are dangerously high, a consequence of decades of fiscally irresponsible left-wing policies favoring wealth redistribution over wealth generation. In recent months, Illinois saw a net capital outflow of almost $5 trln, while mass layoffs and businesses leaving the state put the regional economy at risk…

In July alone, Illinois businesses announced 1,482 mass layoffs; 816 of them are in the manufacturing sector. Illinois' jobless rate, currently at 4.7 percent, is higher than national average of 4.3 percent, and the local labor market dynamics are alarming.

Many Chicago workers commute to their jobs from neighboring counties and cities, including Gary, Indiana. The five so-called ‘collar counties’ which surround Cook County, home to Chicago, recently posted even greater job losses. In Will County, Illinois, two prominent employers cut 363 jobs in manufacturing, logistics, and retail.

The reason is rising taxes. In July, Illinois passed an income tax increase from 3.75 percent to 4.95 percent, while the state corporate tax rose to 7 percent from 5.25 percent. American taxpayers must also pay a  federal income tax and Social Security tax, not to mention other smaller taxes, affecting the local residents’ purchasing power.

Meanwhile, Illinois is barely afloat economically and fiscally due to its heavy debt burden. The state has roughly $15 bln in overdue bills, runs a $7-billion budget deficit, and has a stunning $250-billion burden of unfunded pension obligations.

But the state suffering the greatest impact from overtaxation is undoubtedly New York:

From 2010 to mid-2017, New York had a net outmigration of over 1 million people, more than any other state. No, they're not all rich. But many are.

And recent changes in the deductibility of federal taxes certainly hasn't helped high-tax states like New York. The wealthy have choices that others don't.

Last year, a study by Wallet Hub looked at states ranked by their total tax burden. New York came out on top. Our own report compared the Wallet Hub data with Census data from 2007 to 2016. New York lost 1.3 million citizens, more even than California, which lost just under a million, and Illinois.

…recent changes in the deductibility of federal taxes certainly hasn't helped high-tax states like New York. As we said, the wealthy have choices that others don't. One of those choices is to move if taxes become not merely burdensome, but punitive. That's what's happening in New York.

By the way, we also compared the Wallet Hub data with the states that were gaining population, and lo and behold: Five low-tax states -- Texas, Florida, North Carolina, South Carolina and Washington — gained the most population.

In short, high taxes drive people away; low taxes attract them. It's simple economics, yet so many Blue States don't get it.

The people who legislate higher and higher taxes might get it -- that they are encouraging out-migration of the most productive and their capital, and with that, jobs -- but they are apparently more concerned with using taxpayer funds to buy off tranches of hands-out voting blocs and donors. Short-term personal advantage outweighs greater concerns.

Nothing so clearly makes this point than California’s high-speed train to nowhere, where the contractors surely got paid but the taxpayers were out of pocket and the farmers whose land was seized are still uncompensated for their losses.

There’s a six-century-old fresco in Siena, Italy. On one side good government is portrayed as a happy place with smiling, well-fed families, commerce, construction and prosperity. On the other is bad government with starving people, destruction, disease, and misery. Kahn Academy has a detailed view of it and an explanation: “Allegory and effect of good and bad government.” It’s interesting to note that the people of Siena, fearful of government corruption, limited council members to two-month terms.) The pathway to better government has been known for centuries. We stray from it at our peril.