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Horse and Sparrow: The Myth of Trickle-Down Economics

The Myth of Trickle-Down Economics
by Damien Gillis l The Common Sense Canadian
My colleague Rafe is fond of citing a line from Canadian-born Nobel Prize-winning economist John Kenneth Galbraith in response to the theory of trickle-down economics:
"If you feed the horse enough oats, some will pass through to the road for the sparrows."
Galbraith clearly didn't believe in trickle-down economics - and unless you are the horse in this metaphor, neither should you.
Yet, as voters prepare to cast their ballots in a federal election, and provincial campaigning revs up in BC, the time-worn myth of trickle-down economics is being roundly deployed by right wing parties at both the provincial and federal level.
The orange wave washing unexpectedly over the federal political landscape has forced Stephen Harper to adjust his carefully planned and tightly scripted anti-Liberal-led coalition message. The Conservative campaign's predictable reflex has been to question the economic qualifications of the NDP.
Among the primary arrows in Harper's quiver is the trickle-down theory. Jack Layton wants to roll back corporate taxes to 2008 levels of 19.5 %, as opposed to the 16.5% they're at now. Compared with the 15% to which Harper wants to further drop the rate, that's a difference of up to $9 Billion a year to our federal tax coffers (this while we rack up a $50 Billion deficit under the stewardship of our fiscally prudent Conservative governors). Layton plans to spend that money on hospitals, education, and job creation for the middle class - not what Bay Street had in mind.

Of course, the Conservatives argue a 19.5% corporate tax rate would render Canada hopelessly uncompetitive in the global marketplace. Never mind the fact the United States' corporate tax rates range as high as 35%, while Britain's sits currently at 28%. Go figure. But Harper says taking that money away from corporations will mean less money infused into our economy. Which is where we come to the horses and sparrows.

The myth is that those extra profits will be recirculated into society through investment in plant and equipment, research and development, and expanded operations, yielding new jobs and pumping capital into the economy. But only if it doesn't get gobbled up by increased dividends to largely foreign shareholders first. Which is mostly what really happens.

Take Exxon Mobil, for example - a major player in Canada's Tar Sands and beneficiary of big federal and provincial subsidies. The company just posted a $10.7 BILLION QUARTERLY PROFIT - up 69% from last year. And they're not alone - ginormous profits abound for the oil and gas industry, as for Canadian banks. And yet somehow they - ahead of every other demographic and sector in our country - deserve a tax break and other financial inducements, just to keep up the onerous burden of making billions of dollars in Canada.

As if they would pack up and go elsewhere were we to suddenly wise up and tweak the rules ever so slightly in the favour of the 99.99% of the public that doesn't sit on the board of an oil company or earn half a million dollars a year on Bay Street. We have the oil, the gold, the copper, the electricity, the water, the trees they need to make these enormous profits. If we're smart about how we manage our public resources, they're not going anywhere. It's called leverage. We have a lot of it - we just don't use it because our corporate-aligned leaders don't want us to.

The Trouble With Billionaires is a terrific recent book by Canadian authors Linda McQuaig and Neil Brooks - probably the best-constructed indictment of this way of thinking. In it they illustrate just how severe the gap between rich and poor has become in recent decades - levels of wealth concentration never before seen. It left me pondering whether it was even physically possible for, say, Larry Ellison, CEO of Oracle Software - worth an estimated $40 Billion personally - to spend his money faster than it accrued interest.

Imagine how many visits to Tiffany's and the Rolls-Royce dealership, how much caviar and champagne it would take every day to spend even a fraction of that wealth. According to McQuaig and Brooks (adjusting upward for the extra $13 Billion Ellison has accrued since they published their book last year), he would need to spend about half a million dollars per hour just to get through the interest on his principal! And yet Mr. Ellison felt justified in suing several municipalities and school boards in Northern California where he owns a stately ranch, successfully recouping 3 million dollars in property taxes. How many teachers lost their jobs to pay for Mr. Ellison's tax break? And how does one man owning and holding that much wealth help the economy - your and my economy?

Make no mistake, the same tricks will be used in BC against the NDP. Obscure the economic realities - like the fact the NDP delivered 3% job growth in BC over its decade in power through the 90's compared to closer to 2% for the Liberals during their tenure. The Tyee's Will McMartin has done a far better job than the NDP's own PR people on comparing and contrasting the two parties' real economic track records - countering the Liberal myth of their own economic superiority (trumpeted only too readily by the mainstream media in BC).

And of course, newly-minted NDP leader Adrian Dix is being framed as a hard-left "Stalinist" (the Province actually referred to him this way), especially as he talks of raising corporate taxes and getting tougher with environmental regulation. 

But the bottom line is, the right - and I mean the neo-liberal Milton Friedman/Fraser Institute Right to which the BC Liberals and to some extent the federal Conservatives belong - has done such a good job of inculcating this myth into the North American psyche that it can still prove an incredibly powerful tool. When honed to the extent the BC Liberals have been able to do in BC, it works without requiring a shred of supporting evidence. It's accepted on faith - pure, unadulterated dogma.

And if it remains that way, both trickle-down economics and the parties who purvey this philosophy to the exclusive benefit of their corporate pals will keep filling their pockets - while we sparrows go hungry.

Damien Gillis

Damien Gillis is a Vancouver-based documentary filmmaker with a focus on environmental and social justice issues - especially relating to water, energy, and saving Canada's wild salmon.  
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