Wednesday, March 08, 2017

Going down - Why reducing incomes won't save the economy

Sign of the Times

Pardon me, I’m not an economist, but I fail to see how cutting the wages of low paid workers and the poor will save the economy.

According to Stephen Koukoulas of The Guardian, Australia currently has around 725,000 unemployed people and 1,067,000 people who are underemployed, not counting those who have given up looking. You are officially 'employed' even if you only work one hour a week. Even if and it’s a big if, employers do put on another worker, also on a low wage, where will the extra money come from to buy more beer,  another coffee or more things? The same goes for cutting pensions.  Our retirees, unemployed people and those on disabilities have also come in for their share of cost cutting, so less money will be spent in the community, especially as all other costs are rising, and wages have barely moved since the Global Financial Crisis, despite significant increases in corporate profitability. 
Instead, it will be like a reverse stimulus package which will make everyone poorer, including those businesses crying poor mouth now. And if the national accounts don't balance now, how much worse will they be with even less taxes coming in from wage earners, especially if we also cut taxes.

There’s no guarantee that tax cuts will save the economy either, since 20% of our capital comes from overseas and the profits are also likely to be repatriated there. In the years which followed US tax cuts during the Reagan and Bush eras, the deficit ballooned, despite social programs being cut.
It’s just one more magical belief from the enchanted world of economics, just like those others – that wealth will “trickle down” or that the “invisible hand” of the market will benefit all, workers and capitalists alike. If you believe that, then I have a bridge to sell you. The only evidence I can see for the workings of an invisible hand is the one reaching into my pocket. Health insurance is going up another 5%, power bills are up and my water charges have gone from $47 a quarter when they were introduced in 2013 to $185 for the latest one. If we are going to rely on Adam Smith's text from 1776 for our economic well being, perhaps we should also read what Robert Green Ingersoll, lawyer, statesman, Civil War hero and proponent of the eight hour day, had to say in his 1871 essay “ Hard Times and the way out" after observing the effects of unrestrained capitalism.


“If everything is to be left to the blind and heartless working of the laws of supply and demand, why have governments? If the nation leaves the poor to starve, and the weak and unfortunate to perish, it is hard to see for what purpose the nation should be preserved. If our statesmen are not wise enough to foster great enterprises, and to adopt a policy that will give us prosperity, it may be that the laboring classes, driven to frenzy by hunger, the bitterness of which will be increased by seeing others in the midst of plenty, will seek a remedy in destruction.”

I like to think that serious investors would prefer a country which offered stability and certainty, rather than gross inequality, unrest and volatility. That seems to be working for Sweden and Denmark whose energies are more focused on innovation and high societal returns by investing in education and social cohesion.


With over to 40% of our jobs likely to disappear over the next fifteen to twenty years under combined pressures of globalisation and automation (not to mention economic rationalism), we would do well to look at other possibilities. France has sought to tackle this problem by reducing working hours since the 1990s, although this has  recently come under threat from business interests who plead that the shorter working week will render its industries less competitive.
Noting the advances being made during the industrial revolution Ingersoll also wrote,



“The man who wants others to work to such an extent that their lives are burdens, is utterly heartless. The toil of the world should continually decrease. Of what use are your inventions if no burdens are lifted from industry -- if no additional comforts find their way to the home of labor; why should labor fill the world with wealth and live in want?
Every labor-saving machine should help the whole world. Every one should tend to shorten the hours of labor.”

 The truth is that humans will never be able to compete effectively against machines, nor against  desperately poor countries where education, adequate medical care, health and safety, and pollution  control are not yet, or cannot afford to be considered basic necessities of life. If individual governments are too weak to stand up to those corporations which pit them against one another, then other remedies must be sought and not necessarily within the narrow straightjacket of traditional economics. Finland for example, and several other countries such as the Netherlands and parts of Scotland, are experimenting with the idea of a Universal Basic Income.

At the very least this would save on  the administrative costs of hounding the poor,  plus considerable amounts in terms of law enforcement, health care, especially mental health, and loss of productivity due to suicide and stress, family breakdown etc. The environment would also benefit due to reduced production, commuting and manufacturing, though by the present quaint accounting standards, these  count as contributions to Gross Domestic product, not the negatives which they in fact are. Perhaps we just need a different accounting system. It wouldn’t be the first time Australia has led the world in radical reforms – think universal suffrage, secret ballots, the International Harvester Decision which ensured a living wage. Wonder whatever happened to that ideal?

All it takes is real statesmen, rather than politicians. As Ingersoll said in his “All I want for Christmas Essay”
 I would like to see all the politicians changed to statesmen, -- to men who long to make their country great and free, -- to men who care more for public good than private gain -- men who long to be of use.”
PS: Brownie points to Lush and other companies who are NOT cutting the wages of their staff. I also fondly recall a company whom I worked for many years ago when a recession loomed, where those in the top ranks elected to reduce their salaries by 10% so that no one in the lower ranks would have to be sacked. Employee satisfaction and lower staff turnover are also valuable commodities.

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