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Class warfare: An economic primer

| January 9, 2014
Photo: VJ Beauchamp/flickr

"There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." -- Warren Buffett

When I hear the word austerity, I think of something else: class warfare.

It is not really about budget deficits or government debt; it is about cutting workers' wages, taxes, social programs and environmental regulations. And, last but not least, it is about selling off the commons -- our public goods like hydro, hospitals, schools and roads, often in the form of public-private partnerships.

This is done all in the interests of corporate profits, regardless of the impact on workers, citizens and the environment.

We do not have an economic problem or a debt problem; we have a political problem -- managing the economies of the wealthiest countries in the history of the world when our elected governments treat profits as their highest priority.

How to pay for the debt other than attacking the income of workers and taking apart the public sector?

As of 2012 Canadian companies had piled up more than $525 billion in cash reserves -- almost a third of the entire economy. According to a recent analysis by the Gandalf Group, at least 45 per cent of Canada's biggest companies are hoarding cash rather than investing in employment or capital. $525 billion is roughly the equivalent to total federal debt.

Harper's answer is to cut taxes and implement austerity.

The current so-called public debt crisis in Canada is a false alarm. Public debt as a percentage of the Gross Domestic Product (GDP) in Canada was significantly higher in 1947 than it is today. That debt was reduced dramatically by the 1970s, not by cutting taxes and reducing spending but, in part, by increasing spending on education, infrastructure, health care and research and development. The effect was to increase GDP, expand revenues and consequently reduce the debt to a fraction of what is was before.

Cutting taxes and public spending is problematic, since a major disadvantage of cutting the taxes of the wealthy and corporations is that it often results in cash hoarding, deadweight financial speculation, investment outside our borders or increased consumption of luxury goods from abroad.

By contrast, economists estimate that infrastructure investment will have five times the positive impact on GDP as corporate income tax cuts. Virtually all such government spending occurs inside our borders and improved infrastructure contributes both to long-term productivity and to reducing public debt. Capital gains tax cuts would have less than one-quarter of the positive effect on GDP that government spending on infrastructure would have.

More tax cuts mean more speculation, hoarding, capital flight and luxury consumption, and falling government revenues.

How much tax is available? Well there is the $525 billion of uninvested Canadian corporate profits that we are aware of that could be used for health, education, a living wage, research and investment in a green economy.

And then there is the breathtaking report produced for the Tax Justice Network. "The world's super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32 trillion, from their home countries and hide it abroad -- a sum larger than the entire American economy." (The Guardian/Observer July 21, 2012). Total world GDP is approximately $70 trillion.

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Photo: VJ Beauchamp/flickr

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