Trickle-Up Economics Part 2


I haven’t had much time for TV lately, but it only took a couple of hours last night to find two programs that meshed beautifully to make the same point from two different directions.

The first one was about the effects of trickle-down economics in Britiain. “The Super-Rich and Us” on the Knowledge Network. 

The second was a CBC panel discussion on Ontario’s intention to increase their minimum wage to $15. While the economist on the panel lauded this move as an economic game-changer, the Chamber of Commerce representative on the panel had little to add to the debate except the same old same old.

His only argument was a repeated talking point requesting evidence-based change. Apparently the Ontario government’s two-year investigation into the subject wasn’t enough. Of course, “evidence-based” is a Catch-22, because until a reasonable number of jurisdictions actually make the change, there’s never going to be any evidence.

His only statistic was that a 10% raise in minimum wage dropped youth employment by 6%. In other words, an increase in minimum wage had a 4% net increase in money going to young workers. And he’s complaining? Other data I have read suggests that in areas where minimum wage has increased by smaller amounts, there has been no drop in employment at all.

The argument always goes that a raise in minimum wage is going to impact small businesses, which will have to raise their prices to the point where they can’t compete with the big guys, and then the little guys will go under. It was agreed by both parties on the panel that a certain number of marginal businesses would probably fail because of the increased cost of wages. But according to free enterprise theory, the poor businesses continually fail, thus improving the economy anyway.

But missing from the argument was the one statistic that is available, the one that really counts. Who really employs all these minimum-wage earners? Wal-Mart heads the list, with Yummi Brands (Taco Bell, KFC, Pizza Hut) and MacDonald’s not too far behind. In United States, over 50% of minimum-wage workers are hired by big corporations. Which are owned by…guess who? The rich.

So what’s going to happen to the economy in general when the minimum wage is raised? The major effect will be on the big companies, who will raise their prices to pass the hurt on to the consumer. Which will make it more difficult for them to compete against the small companies, many of whom already pay their workers enough to live on.

What About Trickle-Down Economics?

And now we come back to the other report, about the rise of the rich. One evidence-based bit of economic theory that we have had 30 years to study is the trickle-down school of thought. Starting with Margaret Thatcher in England and Ronald Regan in the US, governments have been turning those countries into tax havens for the megarich, on the principal that when these folk have more money they will spend more money, thus making everyone richer.

Did It Happen?

Well, it seems not. The other data that is available shows that British mega-rich have increased their wealth by about 40% in the last 10 years, so the top 1% now own 25% of the nation’s wealth. During that time, the average British working stiff hasn’t had enough increases to counter inflation. Same in the US. The only group that has recovered from the latest recession is the top 1%. Everyone else has stayed at zero. So it seems that helping the rich get richer only helps…well, the rich. And nobody else.

How About Trickle-Up Economics?

So what can governments do instead? The people who can be depended on to spend their increased income are the working poor. They can’t afford tax lawyers and accountants to help them hide their money. They just take the extra tax hit and spend what’s left over. And they are some of the biggest users of companies that pay minimum wage, so the money goes right back to where it’s needed.

And that’s not even mentioning the social benefits of getting people, especially those with children, out of poverty. I dealt with that issue this time last year.

The Trickle Up Effect  

So the bottom line is that if governments want their economies to grow, the best place to place their bet is on the lowest wage earners. The rich have had their turn at proving they are useful. They failed. Now it’s the turn of the working poor.

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