Money flows uphill

Posted on November 20, 2009
Filed Under Commentary, Economic & Political Philosophy | Leave a Comment

There is a school of political and economic thought called the “trickle down theory”. The idea is that it is good to have many rich people getting richer. When they invest and spend their wealth, the money trickles down to the people at the bottom of the economic scale.

In fact, I agree with that idea but I think its proponents view it from the wrong end. Before it can trickle down, it has to flow up. I believe it flows up much more inexorably and faster than it trickles down. I believe that money is the only element on the planet that flows uphill.

Want to perform an experiment? Give the 1,000 poorest and the 1,000 richest people in your county $1,000 each tomorrow morning. See where most of it is by tomorrow midnight. You already know, don’t you? You can be certain the 1,000 poorest people will spend their windfall on necessities they have lacked or owe for and a few treats they rarely, if ever, get.

As they spend, the money begins its climb back to the top with grocery stores, food processors, manufacturers, farmers, service firms like newspapers and all their employees getting a slice as it goes by. Those slices, in turn, join the climb.

When it gets back to the top, sure enough, much of it gets invested in equipment and economic developments of one kind and another. Much gets spent on homes, cars, jewelry and toys which provide employment for workers. Much goes for taxes to local, provincial and federal governments.

Those taxes, far from being the worst thing for the rich are the best.

When government takes money off the top and shoves it in again at the bottom, the process picks up speed. Those slices the rest of us get as it rockets up grow, not in thickness but in total size.

Who benefits most? Why the people at the very top, of course.

If you wonder if this theory actually works, consider the Province of New Brunswick in 1960. The first Acadian premier, Louis Robichaud, became premier of a province where many coastal people lived in tarpaper shacks, had no access to hight schools and little access to hospitals. Because those local services were municipal and county responsibilities, the areas with very little property of any value did not produce enough revenue to provide such services.

To cut a long, fascinating, story short, Louis and his field general, Ed Byrne, effected a dramatic change. They had the province take over responsibility for education, hospitals and property assessment. They levied a standard provincial property tax to pay for provincial services. Municipalities set their rates for municipal services.

They allotted provincial revenues for education on a per student basis so the same money was available in the poorest parts of the province as the richest.

Soon schools and buses were available to students all over the province. There were jobs for teachers, bus drivers, administration, janitorial services and so on. There were opportunities for the newly educated in hospitals.

The opposition to the “rob Peter to pay Paul” program was horrendous. Byrne was physically driven from the province with death threats and vandalism. Citizens of the richer parts of the province hated having some of their tax money go to the poor area schools.

Big business and industry had fits, partially for the same reason and partially because they lost the ability to play one municipality off against another for tax breaks and holidays. Before assessment was a provincial responsibility and authority, industries had been able to negotiate up to 50-year tax holidays for choosing to build in one town over another.

However, with education and jobs, citizens in the formerly destitute communities could build homes, buy cars and clothe their children.

The Irving empire, with dominant holdings in energy, forestry, media and many other industrial and commercial enterprises certainly sold a lot more to those folks after Equal Opportunity than before.

My economic theory for government therefore is that government should take money off the top and shove it in as close to the bottom as possible to best boost the economy and welfare of its citizens and taxpayers.

Done skilfully, that approach will make everyone better off including, even especially, the rich. Bill Gates dedication of billions of dollars to world education demonstrates, I think, the logic. Microsoft makes no money from illiterate, poor people with no electricty or computers.

Shoving it in at the bottom should be carefully weighted between direct and indirect benefits.

It is important to put cash in the hands of individuals and let them make their own decisions and create and support their own markets.

Next it is important to provide services to the less well off in terms of, for example, local transit systems, access to decent, efficient shelter and, of course, as much education as they can absorb.

I read somewhere that the game Monopoly was invented, during the Great Depression, to demonstrate this same idea. We tend to think that, when the game ends because one player has all the money, he, or she, is the winner.

What the game was intended to show is that the one with all the money is just as stopped as the others. He owns Boardwalk with a hotel but has no guests. No one takes a ride of the Reading.

We have to continue to make sure there is money going in at the bottom.

Besides additional personal wealth, there is another excellent reason for all of us, especially, again, the rich, to support this approach.

I call that the “Unless we are all safe, none of us is safe,” philosophy. That will be the subject of the next essay. Because of the top down mechanics of a blog, I will have to post that first to make it follow this. Blogs don’t trickle down well either, I guess.

DAC

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