Invert economic pyramid

Recently, Mike Milke of the Fraser Institute wrote warning once again against government interference in wage levels, particularly against a minimum wage. In the past, he has warned against the temptation to raise taxes on the most profitable businesses and the top income-earners.

Recently, Mike Milke of the Fraser Institute wrote warning once again against government interference in wage levels, particularly against a minimum wage. In the past, he has warned against the temptation to raise taxes on the most profitable businesses and the top income-earners.

Higher wages don’t just materialize, he says. They come from a finite (but very large) pool of capital that’s better used to keep the economy growing.

Such warnings are regarded as gospel pretty well everywhere in the industrialized world. Everywhere but in the new Alberta.

Meanwhile, the real wage packets of 90 per cent of workers in the U.S. have fallen for 13 years, according to a Standard and Poor index. Incomes for the 10 per cent have … well, you know. I doubt Canada’s experience is much different.

Businesses taxes are rock-bottom, everywhere.

So if Milke has things right, we should be living in the best of all possible worlds right now. Just like the misinformed Dr. Pangloss was always saying in Voltaire’s Candide.

But you don’t need to be an economist to know it’s not true. Rather, there’s an argument to be made that Milke and his many friends have things upside down.

Big profits for big business do not grow the economy. Rather they grow off the economy. The “economy” is all of us. And if 90 per cent of us have less and less of it every year, that can’t be good.

Recently, a group of experts wrote a discussion paper for the International Monetary Fund. The findings of their exhaustive study were so heretical, they could not be directly attributed to the IMF. So they were released for discussion purposes only.

OK then, let’s discuss.

Their basic thesis is a direct repudiation of that of the Fraser Institute, and all other right-wing think tanks.

Trickle-down economics does not work, the report says. When the rich get richer, they mostly just get richer. They do not invest in ways that benefit the rest of us.

Who knew? We did. Welcome to the real world.

When the income gap between the powerful and monied minority and the rest of us grows too large, the economy suffers.

Why are corporations sitting on mountains of cash, not investing? Because we can’t afford to buy more of their stuff. Essentially, consumers are tapped out, so there’s less new profit to be made building more factories to produce more stuff.

I remember being part of the provincial discussion years ago in Alberta about raising the AISH allowance for the severely handicapped. My argument then — and it’s still the same — is that when you give a poor person a dollar, a rich person will have that dollar soon enough.

AISH rates were raised — and lo and behold — landlords raised their rents soon after, making it more profitable to invest in rental housing for everyone. What AISH allowance is left after rent is paid (often forwarded to landlords right off the top) didn’t disappear, it’s spent.

Business groups worry that raising the minimum wage will hurt their members’ bottom lines and/or hurt employment.

But when people have more money, what do they do with it? They spend it, every cent, as fast as it comes in. The money is taxed in every transaction, and the profits go to the businesses best able to compete for it.

You say higher wages just don’t just materialize? Sure they do. They materialize into the profits of small and large businesses, when consumer traffic increases.

That’s why I say trickle-down economics does work. You just need to invert your view the income pyramid.

All the money in the vast base filters into the hands of the rich and powerful at the apex. Trickle-up economics, if you need to see it that way.

The rich need to be taxed a fair share, because the social contract needs to be upheld for a stable society to be able to produce a strong consumer economy.

Income redistribution has become a dirty concept in today’s politics.

But I say — and international studies like that in the IMF agree — that where incomes are more equitable, you have a more stable, happy society. It takes fewer resources to police and suppress unrest in these places. Upward mobility is more achievable for the smart and the industrious, because the caste system that keeps the poor in their place is weaker.

That’s why, at a certain point, governments need to intervene.

They need to mandate a minimum wage, so that an honest day’s work reflects the honest cost of living for the day.

They need to redistribute a negotiated portion of the top wealth into the vast and complex infrastructure of society that makes it possible for wealth to be accrued.

That’s what our new Alberta government seems to be attempting.

Milke and all the right-wing think tankers who speak for the powerful just need to reverse their charts.

Greg Neiman is a retired Advocate editor. Follow his blog at readersadvocate.blogspot.ca or email greg.neiman.blog@gmail.com.

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