End of the World......

[glenn]

My knowledge of the new deal is not that deep, and times were very different then - but I do know that government policies were much more labour friendly and favored the working classes.

Just look how income taxes have changed over the last 20 years, for example. Sure, our income taxes are progressive. But, income tax only accounts for less than 40% of our overall tax burden. All other taxes paid by Canadians are regressive, including the HST, retail sales taxes, property taxes, excise taxes on cigarettes, liquor and lottery tickets, and payroll taxes for financing the Canadian Pension Plan and Employment Insurance. These taxes take their biggest bite, proportionally, from lower-income Canadians. When looking at the total tax bill, the lowest income earners actually pay the highest proportional rate. These changes squeeze more and more out of the working classes.

This is wrong. The rich have been getting a lot richer, and they should be paying a higher overall proportional tax rate than the rest of us. This disturbs a lot of us in these hard times. It smacks of the rise of a new plutocracy to me.

Thanks for the interesting discussion. You're certainly right about retail stimulation, I don't think we can simply spend our way out of this. The ultra rich sure aren't helping.

Get this, a study from the Berkeley Center for Labor Research and Education found that Wall Mart Billionaire Christy Walton could pull all walmart employees above the poverty line by spending only about 1/8th of her personal wealth. Would she even notice this? The 1.5 million walmart employees that earn on average 12% less than other retail workers sure would. I know this is an oversimplification, but it does put her massive wealth into context.

[ealanm]

All other taxes paid by Canadians are regressive, including the HST, retail sales taxes, property taxes, excise taxes on cigarettes, liquor and lottery tickets, and payroll taxes for financing the Canadian Pension Plan and Employment Insurance.

I think it's important to look at the economic implications of tax policy first, and the political implications second. Economically, what you call "regressive" taxes are mainly taxes on consumption. The "progressive" taxes are taxes on earning and saving. But one of the most urgent economic problems we face (if not the best known) is that saving is way below where it should be. We can't get the kind of economic growth we need (i.e., growth in productive capacity, not just growth in consumer spending) without reversing that trend so that we have a much higher savings rate. So tax policy should focus first on rewarding saving at the expense of consumption. As hated as it has been, the GST/HST has probably been one of the smartest and most important tax policies in Canada during my life. It is without question one of the key reasons that both our economy and our government finances are in much better shape than the Americans. (Though there are many other reasons, too.)

This business of trying to produce social justice through tax policy depends on the fallacy that the economy is in a kind of stasis; there's so much to go around so, to be "fair," we need to take from some and give to others. But the process of doing that inevitably tends to compromise what benefits the poorest in society the most, which is the growth in productive capacity. It does not make sense to help the poor by mechanisms that hurt everyone else when you can help the poor even more through policies that benefit everyone. Over the long run, policies that encourage saving more than spending ("regressive" taxes) benefit everyone, including the poorest. Frequently, they benefit the poorest the most, in the long run, by leading to true economic growth that provides them with better opportunities.

That is exactly what happened in the boom years of the 50s and 60s that you're so keen on. Have a look at this chart of personal savings rate in the U.S. and see if it does not match extremely well with your understanding of the fate of the middle class during the same period: http://research.stlouisfed.org/fred2/gr ... d]=PSAVERT. Beginning in the early 70s, the combination of "progressive" tax rates and inflation that resulted from poor monetary policy pushed middle-income earners into higher tax brackets and simultaneously penalized saving by making future dollars worth less (inflation). Consequently, savings began a steady decline that lasted until now. The declining fortunes of the middle class tracked this decline in savings exactly as one would expect, because lower savings means more expensive capital which means slower real economic growth.

Around about the time of Bush One, governments began to respond by keeping interest rates low to lower the cost of capital (the "Greenspan put"). This had the additional effect of stimulating debt-financed consumer spending, since consumer interest rates were lower as a result, too. This pushed the savings rate even lower, starting a downward spiral (punctuated by the dot-com and housing bubbles which were, of course, also the result of cheap-capital policies), and continues today.

The only way out of this is to reverse course and reward savings by: preventing taxes from becoming any more "progressive;" relying more on taxes that reward savings ("regressive" taxes such as sales tax); and increasing the cost of debt and preventing inflation by keeping interest rates toward the high end of the safe range. It has no doubt not escaped your attention that these policies are the exact opposite of what is being proposed by certain popular politicians and influential advocacy groups. These people aren't stupid or evil, they just don't understand the true nature of the problems they're trying to solve.

Sorry, I realize this has very little to do with Delicas! But I guess it does have something to do with the "end of the world."

[glenn]

Thanks for the thoughtful reply.
Correct me if I am wrong, but it sounds like the same tired old argument that they have been using since the Regan era. You know, we all have to tighten our belts and work together to free up capital for free enterprise so they can create more and better jobs for us working classes. The problem is, the working classes have experienced a very real decline in income, work benefits, retirement benefits, job security, jobs, etc over the last 20 years - and in return we have been rewarded with a huge increase in income disparity (and a call for more austerity). Instead of stimulating economic growth, we are seeing the emergence of the super rich. And they don’t spend their money in the local economy.

From the B.C. Government website - here is the breakdown of the cuts to big (not small) business in the last 10 years:
July 1, 1993 - December 31, 2001 16.5%
January 1, 2002 - June 30, 2005 13.5%
July 1, 2005 - June 30, 2008 12.0%
July 1, 2008 – December 31, 2009 11.0%
January 1, 2010 – December 31, 2010 10.5%
Effective January 1, 2011 10.0% (lowest in the G8)

It is interesting that during this same time period, the gap between the lowest 20% of income earners, and the top 20% has risen by an appalling 37% !!! (from stats can) The bottom 40% has remained almost totally flat, and that’s not even considering the effects of inflation. BC now has the highest income disparity in the country. These tax cuts have not created the promised stimulation to the economy, but they are decimating the middle class.

How is all that loss of government revenue made up? Cuts to public service, reduction of our social programs, cuts to education, layoffs, and on and on. Who does this hurt? Middle and low income earners. It also means the direct loss of decent middle class jobs and all the spin off from those jobs in the local economy.

I also think that a purely economic perspective on the “new deal” misses some of the socio-political trends that were also critical at that time. When communist ideologies emerged, the industrial powers of the day were afraid that the working classes would be tempted by this ideologically novel idea that the benefits of an industrialized society should be shared equally by all. This was especially true during the great depression when income disparity was as it's highest point, and when the workers of the day had very little to lose. In response, the industrialized powers recognized that they must give the workers a bigger piece of the pie - a "new deal" to fight this communist threat. Workers enjoyed higher wages, better working conditions, and the benefits of a strong social safety net. Happy workers would see capitalist industrialism was taking care of them and life was good.

The collapse of the European Communist super powers in the 80's meant that threat for the minds and hearts of the working class vanished. In response, governments and industrial powers have systematically dismantled this safety net, have clawed back the concessions granted to the working classes, and taken back this huge piece of the pie.

High income disparity has always led to highly unstable economies. This has been true throughout human history. A strong middle class spends their money in our shops, restaurants, on home renovations, on Delicas. This global rise in income disparity is leading to a global plutocracy - which at this point it feels inevitable. The guys at the helm sure don’t seem to be able to turn this ship around.

[ealanm]

Glenn:

I started to write a reply, but it got pretty long, and I'm sure this is getting tiresome for the people who come here to talk about Delicas! But I'd be happy to share it with you by email or some other means. I'll try to send it to you by private message.

Tedd

[FalcoColumbarius]

Okay, now that this thread is beginning to sink ~ I'm going to move this thread into the Last Word Café (where this nature of topic would normally appear). Then you can carry on without feeling awkward... smiles. The LWC does not appear on View Active Topics, so you have to actually check the Board Index.

Falco.