Currie’s Corner 643, August 2, 2018

Currie's Corner, Nostalgia Cafe

Currie’s Corner 643,  August 2, 2018

Some basic economics today about the infamous ‘trickle down’ theory. That’s the passionate belief, long espoused by Republicans in America, and their Conservative fellow travellers here in Canada. It argues that rich people and big corporations should pay lower taxes, so their earnings and profits will grow. They will then use that ‘windfall’ to expand their business and create more jobs with higher pay. The only problem is the fact that precise evidence is somewhat hard to find.

Since Donald Trump became the U.S. President 18 months ago, the only significant measure he has managed to push through Congress has been a major tax cut. It seemed to be the one thing that all Republicans could agree on, regardless of what other battles were taking place.

The U.S. economy appears to be doing really well, especially if you’re a CEO earning millions a year. Most often a substantial portion of their earnings are paid in stock options, and a closer look suggests that a majority of the folks in the ‘one per cent’ are selling their shares and not necessarily re-investing to help grow the economy. Also, most companies that are publicly traded are using much of those stronger earnings to buy back shares, hoping that the price will rise even higher.

It’s a similar story in Canada, especially for companies that do business in both countries. A good case in point is Great West Life which began in Winnipeg more than 60 years ago. Nowadays they employ more people at their American headquarters in Denver, and their earnings were up 17% in the second quarter. The insurance business is not creating large numbers of jobs these days. The work force at Great West has been shrinking in recent years as more and more routine workers are being replaced by technology. The company quietly acknowledges in their second quarter report that the Trump tax cuts didn’t hurt them at all.

By the way, they’re not getting ‘wet’ from the ‘trickle down’.

Twas ever thus.

I’m Roger Currie