After three decades of Americans embracing the trickle-down theory, the income disparity between the rich and poor has become a huge chasm and its middle class is on the brink of extinction. Unfortunately, Canada isn’t far behind. The rich are getting richer, the poor are getting poorer and the middle class is getting more and more indebted.
The trickle-down theory sounds reasonable and plausible. The argument goes that people with money are the ones who have the desire, ability and initiative to create jobs. Therefore, progressive income tax rates and high corporate tax rates are bad. A logical argument but unfortunately it assumes that people and corporations with the money will share the same economic priorities as the government, job creation.
It was David Cadogan, a retired publisher, newspaper owner and columnist from New Brunswick who first introduced me to the reverse concept, the trickle-up theory.
Sitting on the bank of the Miramichi River, learning the technique of devouring a whole lobster with only a rock and one’s fingers, Cadogen floated his trickle-up argument. If you distributed all the wealth of Canada into the pockets of the poorest 20 per cent, it would take little time for the all that money to move back up into the hands of those who were the wealthiest pre-redistribution.
He argued that when you give money to the poor, it moves upward because those with the least amount of money have to spend the highest percentage of their income locally to just survive.
The validity of this argument certainly plays out when analyzing big lottery winners who aren’t used to dealing with large sums of money.
Statistics show they are most likely to spend their money over a relatively short period of time rather than create greater wealth.
The same analysis could be used when looking at the multi-millions of tax dollars distributed to First Nations through our Treaty commitments. Many of our First Nations are more likely to be poor, imprisoned, under educated or in poor health than non-native Canadians. Multi-millions of tax dollars may flow through their hands each year but little stays to better their future lives.
Cars cost less in Wetaskiwin for a good reason. Just down the road, young men and women from four bands receive $20,000 each when turning 18 years of age. That money often leaves the reserve on the day it is received in exchange for cars, quads and other toys. The same can be said for any young person who receives an inheritance.
Again it’s the trickle-up theory at work. That cash is into the car dealerships in a flash and from there the money moves and multiplies in that community. In contrast those with loads of money tend to spend much of it outside the country on travel and assets or hoard their wealth in off-shore bank accounts thwarting any trickle-down effect in Canada.
Communities fight tooth and nail when a school or hospital closure is threatened. We know many of our communities and small businesses survive because of those good paying government jobs. That’s because civil servant jobs are a great example of trickle-up economics using tax dollars.
Oil companies come and go, family farms continue to decrease in number, only government jobs bring long-term stability to rural communities. The re-distribution of income through progressive taxes supports the trickle-up theory. It’s what creates and sustains the middle class.
We used the trickle-up theory during the 2008 recession by using tax dollars (that we didn’t have) to create jobs. The Economic Action Plan was so successful that the current government continues to use it as a propaganda tool even though the Plan has nothing in it today.
There’s no mystery as to why Canada’s economy and job growth are still weak or why the vast majority of new jobs are part-time and minimum wage. Corporations and people with the money are hoarding their cash and our government is broke, intentionally broke, because of their belief in trickle-down economics.
Unfortunately trickle-down economics supports money going to where the most profits can be made and that my friends, with the exception of the on-again, off-again investments in the resource industry, is China and abroad.