Arm Chair Economics 101

Let’s start with minimum wages

As a Canadian that’s been watching our southern neighbour for three decades, I’d humbly submit that the ability to advance to the peak of one’s potential is the foundation of America. “Radicals” like Henry Ford understood that and put it into place.

Actually, allow me to correct myself … it’s at the foundation of any functioning capitalist democracy. Poverty is a sign of sickness within the system. Bluntly, if you run a business and you want customers, folks have to have money. The fewer people with money to spend, means the smaller your market space is and the greater chance you’ll be out of business.

If you want people to work for a living, the way to do it is make it possible for them to do so. Any country that actually believes that the social compact between citizens is to ensure everyone can get ahead, has a minimum wage that keeps you above poverty if you work like everyone else does … 35 to 40 hours a week. If minimum wage doesn’t get someone out of poverty, why would they work legally to support themselves?

Just so it’s said, in any properly functioning economy, a minimum wage is cheap. In 2009, some 817,000 people were working at or below the provincial minimum wage in Canada. We will presume the “worst case scenario” of all of them being 40-hour/week (full time) employees. To go from $10/hr to $12/hr would cost a total of $3.27B CAD, total. With 1,107,540 employer businesses in Canada at the end of 2012, that’s $3 each. Total. That’s it. That’s all.

By comparison, the top ten most profitable companies in Canada declared net profits of $43.88B CAD in their last fiscal year.

In other words, the total cost to JUST those ten companies would equal a 7.5% tax, and EVERY minimum wage worker in Canada would be $4,000/year richer. What happens to that $4,000?

I think it’s safe to say that, generally, folks living on minimum wage cannot afford to save their money. That $3.27B CAD would be additional economic activity in the places in Canada it is needed most. Call it “Bubble Up” economics.

• Incidentally $1,000,000,000 (one billion) profit == +$1/hr for 500,000 full-time workers.

• Chrysler USA managed a healthy $1,700,000,000 USD in profit for the 2013 year.

• The Gross Domestic Product of entire nation of Fiji was $4,027,913,544 in 2013.

• The Gross Domestic Product of entire nation of Iceland was $14,619,878,414 in 2013.

• Walmart USA raked in $16,000,000,000 USD in profit for the 2013 year … enough, if they kept half ($8 billion) to afford at $1.9/hr USD wage hike or profit share for their entire 2,100,000 person global employee work force, even if they were all full time, 40 hours/ week employees.

Anyone who argues against a minimum wage raise is either against national prosperity, or cannot do basic math, or does not understand that the middle class is the economic engine of a G8 nation, or is a parrot.

Why Am I Talking About Profits Instead of Government Waste?

Government “waste” is when they spend more money on something than they should have. In other words, in spite of the fact it is stupid shopping, that money winds up in the economy where it helps keep things moving.

It’s the same sort of behaviour like a person spending $2.00 on a 500ml bottle of water when most places have public water fountains or you can buy $1.50 jogger bottles and refill them. Or $5.00 on a cup of trendy coffee when the same cup will cost you $1.50 at a less trendy doughnut shop.

It’s “stupid shopping” — or the “price of convenience” — but no matter what you call it, the effect is the same: the money winds up actively moving in the economy, thus helping people have jobs.

So I’m far less concerned about “waste”; it’s effect is a stimulus program. The only time “government waste” is an issue, is when revenue from taxes does not equal or exceed government spending during times of peace. Under these conditions, I would suggest it is more important to increase corporate after-profit tax than to reduce spending… we need the economy humming, not choking.

Corporate profits, on the other hand, by the very definition of “Net Profit” means money that isn’t going to get spent any time soon. Don’t get me wrong; I run my own business, and I both know and understand that a company has to make money to stay in business. A company also has to stash some money to bankroll next year’s operations. I fully believe that the investors who are sharing some of the risk in keeping a company rolling should get a slice of the pie.

But there is a certain scale of number where I think that ethics and morality cry foul. That number is around two billion dollars in my mind. If you really want to know why, hit me up in the comments section, and I’ll walk you through the math. The short version is that below that number, you can’t really affect the status of a national economy. You can do amazing things for a province or a state, but not a G8 national economy.

What we do know is that retained earnings are not being used to create jobs. Instead, the money “just sits there” in a bank account, doing nothing to help the country. That’s bad policy; no one gets ahead that way.

Death By Shorthand

I’ve realized that part of the reason we don’t understand how big our economy really is, or how really big corporate profits are, seems to stem from our use “M” and “B” and once in a while, “T”.

However, for “small” numbers, we “spell it out” … $600,000. $70,000.

So ”government cuts social program to save $847,200” sounds like a possibly needful thing to do.

”Government gives $1.1B tax break to some organization” doesn’t sound so hideous.
However…

$1,100,000,000 vs  
      $847,200  

… see the problem?

Our understanding of our government’s spending policies and priorities are skewed by “Death By Shorthand”. I, for one, really do believe this is a serious issue because it lets bad decisions look good.

Reality Check: The Gross Domestic Product of Puerto Rico, Cuba and the Dominican Republic totals $222,660,000,000 … in other words, corporate tax breaks in Canada have given away more money than total economies of three moderately prosperous Caribbean countries.

With an average cost of $3500/ year for a post-secondary eduction in Canada, and $300,000,000,000 in corporate tax breaks in Canada since 2001:

21,428,570 4-year post secondary educations could have been completely paid for in Canada since 2001. In other words, we could have nearly paid for a post-secondardy education for every student AND retrained every work-force adult in the country and had money left over.

That money, all $300,000,000,000+, would have been money spent in Canada, driving the economies of every town with a post-secondary education facility. There are 98 Universities in Canada; if a third of the cash went to them over the past decade, that would be an additional $102,040,816 per facility per year in local economic impact.

Do you think your city or town might benefit from another hundred million dollars a year of spending on goods and services in your local economy? I know mine would; that would amount to an additional 4% value in the economy of my entire province of Prince Edward Island, each and every year.

I am sure you have heard all the yelling about the cost of carbon credits and retooling for a “green economy”, particularly from certain Western industrial resource concerns? I rarely see talk about the money cost; instead, the metric is job losses. Given the calculation I just posted, there is no reason anyone should loose a job due to greening the national economy; we apparently could have the money to just retrain those folks to work in the new, green economy.

If you are a writer or reporter … please stop using shorthand. You’re killing us.

Post Secondary Education

One thing I want to point out is that I said “post secondary” — Not “University”. A post secondary education includes trade schools. I’m a big believer in the value of a trade school education; University / college has it’s place, too, for careers in the STEM fields which are important. That said, it’s important to keep in mind that plumbers, carpenters, machinists, surveyors, tool-and-die makers, etc. are also important, too.

• All of them require a post secondary education.

• You cannot run a space program or find the cure to cancer without a robust University system.

• The professor and the doctor both need houses, and toilets.

• The plumber and the carpenter, and the professor and the doctor, all need someone to grow their food for them.

A well functioning society and economy is a set of respect-driven, healthy interrelationships where everyone in it is getting a fair trade and a fair deal.

Anyone who tells you that one particular version of post-secondary produces better outcomes than another is usually using one particular metric to determine it — salary. In Canada, the so-called “poverty line” for a family of 4 is roughly $35,000. Once you hit about double that number, how much higher you go does not count much towards your quality of life. I say this based on my own personal knowledge of folks with families that were below that line, some were twice that line, some had six figure incomes, and some who were bona-fide millionaires.

Money only counts until such time as you have more than enough to make ends meet and save a bit for the future. Then you need a different metric for success. I’ve known some miserable millionaires, some stressed-out sales guys, and some folks who live “rich” and happy lives full of hobbies and friends who worked as farmers and machinists barely able to make ends meet. Now, obviously, the opposite is also true; one of the happiest chaps I’ve met just crossed the millionaire line and lives a good life.

So using salary as a metric for success is a bad plan. Hence why I consider universities, technical colleges and trade schools to be of equal value in the post-secondary education space. The objective is to choose the right door that will give you the skills you need to be happy in the life you want to lead.

That’s A Wrap

Is any of this open to debate? Technically, yes; practically, no. The math doesn’t have a political stance, it just is what it is. I think the math as posted makes it hard to argue that, even in Canada, there is too much money “just sitting there” and not driving the economy.

Before you opt to flame me in the comments for being a “communist” or some such silliness, please take some time and read the links provided. Then, do your own research and eschew “short hand” numbers like “B”. Write it out long hand; divide those numbers by 35,000,000 (the entire population of Canada) and think about what would happen if that much money was in your families’ hands and what you’d spend it on.

I am not advocating any “wealth redistribution” mechanism. I am advocating that Sir Richard Branson is right:

If you let money pile up, it starts to stink. But if you spread it around then it can do a lot of good. — Sir Richard Branson

When corporate net profits and / or retained earnings are sitting above $2,000,000,000 then there is a lot of good that isn’t happening in your country.