Taxes, Minimum Wage, and how they relate to the Poor and
Middle Class.
The marginal propensity to consume and demand side economics
are today’s topics. I’m going to discuss
a little bit about taxation and wages, and how if you look at things from a
demand perspective (which Libertarian/Conservative/Republican legislators are loathe
to do, because it reduces income inequality) it works out where everyone
benefits. The long definitions I’ll get
into in a minute, but right now, let’s consider a few very topical
implications.
A McDonald’s worker, for example, a married parent of three children
and in their mid-20s is out of work elsewhere, and doing what they can to
provide for their family (roughly half of workers paid the federal minimum wage
are over 25 years old). Imagine that
they get a jump from $7.25 an hour to the total of $10.10 an hour. That’s nearly $3 more, per hour that they
spend at work that they can now spend elsewhere. It’s almost a complete guarantee that those
three dollars are going to go back into the economy. That is the marginal propensity to
consume. For lower income workers, the
impoverished, and even the Middle Class, the MPC is much higher than for the
wealthy.
Anyway, let’s get some specific definitions out of the
way. The Marginal Propensity to Consume
is the proportion of an aggregate raise in pay that a consumer spends on the
consumption of goods and services, as opposed to saving it (Source). In economics, the word marginal means basically
“next,” “additional,” or “change.” So,
the MPC is the “next” “likelihood” to “spend money on goods or services.” In the source I linked, the question arises,
if you get a $500 bonus at work, what do you do with the money? If you spend $250 of it in the economy, and
save $250 of it, you have a .5 MPC and a .5 MPS (S means save) equaling a total
Marginal Propensity of 1.
This economic construct belongs in a side of economics that
is not discussed much in America because our politicians are extensions of
corporate lobbyists rather than independent thinkers (thanks to Citizens United
and other like activist SCOTUS rulings, in which corporations are considered
people, money is considered free speech, and therefore, people (corporations)
can give as much free speech (money) to politicians as they’d like to). The side of economics I am speaking about is
of course Demand Side Economics. Demand
side economics differs from the more commonly discussed Supply side economics
in a few very important ways. The way
that I’m most concerned with right now is the idea that Demand side economics
incentivized consumption, whereas Supply side incentivizes production. In Demand side, the poorest citizens receive the
greatest marginal incentive, and in Supply side, the wealthiest citizens are
incentivized.
So, here we are, having bought into the Corporatist Propaganda
Myth that the poor are lazy, dirty, disgusting, and not worth our time. In fact, according to this propaganda, we
should give the wealthiest citizens monetary incentives and they will “hook us
up” with the idiomatic “trickle down” (thanks, Reagan). If we incentivize the corporations, if we
give them a larger chunk of revenue, if we decrease their social obligation in
the form of taxation, well, then, they’ll just hire more people as they
continue to produce more and more. They
will also buy more things, like boats, yachts, more houses, more cars, and they
will keep our economy afloat with their large concentration of wealth. Well, herein lies a large issue that we
continue to ignore economically in this country: the wealthy like to save and
invest their money, which in fact is detrimental to a struggling and rebounding
economy on the scale that it is happening right now. Their MPC is extremely low, since they
already have most of the things they want to consume, any additional money has
no purpose being used on consumption marginally, and is therefore saved
marginally. Economies cannot survive periods
of time consisting of large-scale marginal saving.
On the other hand, by giving a higher minimum wage and by
granting tax breaks to the lower income families (as well as manipulating the
interest rates and encouraging government spending in the economy) suddenly,
the consumers are incentivized. In my
earlier example, $3 more per hour added to a minimum wage worker will almost
assuredly be spent in the economy as opposed to being saved or invested. The more money we incentivize towards lower
income earners is going to be more money that ends up back in the economy.
The thing about incentivizing the consumers is that the
consumption is a long term concept.
Incentivizing the producers is short term and temporary, and has to be
continually renewed. Frequently
incentivizing production will result in artificial production increases or artificial
production decreases. Eventually,
federal subsidies will be granted to the producers to not produce because of the
surplus resulting from increased production and stagnant or decreased
consumption. Supply side economics can
never work in any system that is not plutocratic in nature, regardless of how
much money is given to the wealthy in the form of tax breaks, subsidies, or
decreased wages for the poor. Income
inequality is the only result from Supply side economics.
I know I didn’t touch on very much in the post, and I know
that this is by no means all encompassing.
Like I’ve said before, it’s just my opinion. I hope it makes someone at least realize the
truth of the economic situation we currently live in, though.
No comments:
Post a Comment