Trumpanomics – Good for Ordinary Workers, or just more “Trickle Up”?

Liberals and centre right antagonists can’t go on blaming their imagined ‘deplorables’ of working class USA for Trump’s win, and neither can the Remain in EU lobby which lost. Trump and Brexit are more a reaction to demanding change, and quite radical change, from the on going exposure to brutal globalisation and cross border freedoms which ordinary people legitimately consider to be erroding their standard of living. However they should really just as much think about 30 years of “trickle up” policies, it is just the new left dare not question the status quo of globalisation which seems to deliver an ideal capitalism for them to hive off tax money and do left wing good from.

Trump has dared, unlike any other possible republican candidate, to stand up infront of factory workers and threaten their bosses with tariffs if they move manufacturing abroad. He has plucked the global-warming deniers and coal and oil communities who hate the educated classes for legislating them out of a job. Why shouldn’t Trump then inject extra spending and investment power into the economy too with wide ranging tax cuts?

The author is not opposed to tax cuts. In an economy that has infrascturcture and well being for its citizens, then we should consider what is actually an optimal level of taxation of income and profits. That which builds confidence to spend on consumption and starting businesses. I was surprised to see how high income tax and corporation tax are in the USA, I had thought they drifted downwards. As with UK policy the tax threshold keeps on going up, so that poorer voters pay very little income tax, or receive further tax deductions aka “credits”. This is a broken franchise, and in the UK in fact it is only the Liberal Democrats who have opposed this, because we should really all be tax payers in society. It is the case in the UK that in fact half of average households recieve more in benefits and tax deductions and ‘services’ than they pay in income tax .

That last statement is of course quite misrepresentative in the UK when we take three other things into account: firstly the indirect taxes which are local authority community charge, VAT and other sneek taxes, while secondly there is the erosion of income by highly inflationary costs from the privatised utility and transport sectors. One comprehensive study has shown that in fact the lowest end of wage earners in the UK with incomes of just under ten thousand pounds, pay almost half their income,m an estimated average of 47%, in taxes back to the government.  The figures for 2012-13 showed that for the poorest one in ten worker-families, 13.9% of their gross income went on VAT, 7.2% on council tax and 5.6% on alcohol or tobacco duties. VAT is running at 20%  much higher than state taxes in the USA and amongst the highest standard goods taxes in the western world, higher even than Norway.

Ordinary workers are spending in effect over 50% of their take home income on the very basics of living in the EU, but of course you can say that housing is an investment or renting relates to market economics. However when you look at the poorest 20% of workers we get a different picture, where we see that between 65 and 110% of income is going on housing, energy, transport to work and basic food. That is to say a proportion are using credit to sustain the basics of living at some point. Housing is becoming the single biggest expenditure in the USA for the bottom fifth of households, and that trend is reflected in that other uber-neo-conservative country, the UK and other countries which have followed this route, reflected  in their Metropolitan housing markets.

In a similar way to the 1970s, when inflation and wage rises were the accepted norm for workers, now inflation and a higher proportion of income going on housing are tacitly accepted as a fact of life, a result of factors Governance has little power to influence. This is grossly untrue, particularly regarding metropolisation and investment in housing and infrasctructure, before we even consider some kind of controls on rents for the poorers in society who cost so much in benefits.

The UK is in fact a special case because for thirty years government has been swtiching investment in social housing over to income for private landlords via the housing benefit bill, which has only recently been capped. This back door subsidy is still going to be worth up to £20- 25,000 a year for private landlords in the UK, and rather than actual quality assessment and rent controls which there used to be, it is a ‘market’ which soaks up this money from benefit claimants, many of whom are in part time work or discouraged from taking more hours due to the erosion of their benefits, which mostly go to cover housing, fuel bills and basic food as we have seen.  There are other distortions in the UK market, the main one being the long term ownership of ‘real estate’ by the landed gentry and major and minor royalty, which colludes with issues such as green belt, and redevelopment of brown-sites or low density housing areas.

It is not just housing which has seen massive inflation and which errodes the real value of even average take home pay, it is also utilities – water, electricity, gas. And metropolitan transport too. UK energy bills have risen vastly in relation to the now meerly nominal Consumer Price Index. There are issues where the market itself and the capital structure and investment demands are infaltionary – there are marketing and services structures where economies of scale are not pooled and obfuscation in pricing is rampant; there are the administrative accounting and compliance costs of being listed on the LSE; there are the customer churn costs; then there are the demands on investment in infrasturcture and pay back in this supply chain. Market Growth is related to population growth while demand is fairly inelastic versus cost – consumers can use less heating – however there is an investment multiplier because inflation in prices is above nominal CPI and deflation of currency. Now we come into ‘rip off britain’ and the real structures within the system of extorting money above the usual notion of inflation from the very basics of living – the rentier economy.

More Trickle UP with Trumpanomics and Brexit-Fiscals?

“Trickle down” has been the greatest economic lie of the last 30 years. However in theory, where workers can extract a wage which reflects their productivity and economic value, it should work. Why has it not worked? Why has it become trickle – up, where the rich can exact more money as rentier investors from our basic living needs, than they can from investing in productive, higher value-multiplying industry?

The simple answer is risk and market behaviour. Over any given period of a few years, excluding the finance crisis, since 1980, return on invesment in rentier economic investments via private equity, stocks and other listed securities, has been lower risk to return than in productive industry. Pharma and biotech are quoted as being ‘private’ sector but of course, just like defence, in fact they rely heavily on medicare and other forms of direct public spending, and indirect research and development from Universities and soft capital vehicles in technology transfer. Internet and green energy initiatitives have been in part driven or it can be argued, underpinned by public investment in those systems, tagreted tax relief or preferential consumption by government bodies themselves.

Consider stock market capitalisation in the west, we see a bias to rentier based companies who operate domestically, and international stocks listed on ‘harbour exchanges’ like the LSE, are often in primary extraction in the poorest areas of the world or established oil fields so are not fully relevant really to the domestic picture. This then includes banks, construction companies, utilities, building societies/insurers (with major real estate investments in their own equity), pharma and defence companies.   Some steady performers over time have been retailers, but they are experiencing post 2008 shocks as consumers spend less even on the basics, and choose cheaper alternatives and even the black market over the traditional weekly shop.  When we consider private equity investment, especially in second properties and wider real estate portfolios, this capitalisation in the west far outstrips private equity in productive industry.

Not only are these type of Rentier listed companies better at extracting more from cojnsumers, they are better at generating inflation via government expenditure, which comes down to lobbying  and contol of policy.

On the other side of the free-market-utopian ideology, we should see that wages rise as a proportion of the economic utility a worker exacts, or that costs of living ocme down as consumers react by seeking cheaper alternatives. THe problem is though, that where there is work and potential for prosperity, there you find the rentiers pushing up the cost of lving. Government has done its best to marketise wage negotiations, and legislate against collective bargaining as an ‘ill of society’ yet this has resulted in as dire an inflatioinary cycle as we saw in teh mid to late 70s, only it is hidden from the main economic headline indicators.

‘Capital Myopia’ Reaches Further Down In Societies’ Echelons Than at First Look

This is ‘capital myopia’. It is the cause of the last crash in 2008. Few people saw it coming because it is not in the interests of jobbing economists – traders and analysts- to see long term or ponder on risk, as long as they are making money day to day, quarter to qaurter.  Now this short sightedness actually extends downward quite far in society.  In the Neo Lib’ economies and many others’ like Germany, we see that populations are ageing, and even as in Germany and Ireland, declining. Women are building careers and independence and that is quoted as the single largest factor, the shift away from the baby-boom, house wife model.

That same baby boom portion of the bell curve, own more of the total housing equity and have  earned more in relation to their costs of housing investment, over very many years. These are people who got on the property ladder in th 1960s and 70s, and moved up in the 80s and 90s. They have no real interest in being taxed on wealth in their equity of course. Also very many see their own, adult children as being from a spoilt, over educated generation who just have to work harder in order to afford what they have. The reality is they do work harder and longer hours than their parents, but for a less prosperous income-to -expense outcome. They have little ‘surplus’ or profitability if you like, and little power to invest in property which will give the returns their parents enjoy today.

Hidden Inflation Will Consumer (younger ) Average  Wage Worker’s New Found Tax Cuts

Why will then trickle down fail? Will all that tax money injected into the economy not lead to more ability to afford property, and more consumer spending? The asnwer is that these tax cuts will result in two things: employers will know that employees are distracted from negotiating wage rises, and can carry out productivity gains like downsizing, stressing employees or extending unpaid overtimewithout a resulting demand for higher wages. Wage negotiation has by in large become granular.

Also tax cuts across the board give more money to the higher paid employee, who in  turn move into more rentier economics, because the ROI is so attractive, especially on second properties compared to other investments, of which many are rentier portfolios in any case. Those smaller relative pay rises via tax cuts at the lower end, look great on the monthly pay cheque for a while, and release the ability to loan more money for property. This then has a disproportionately inflatory effect on housing in areas with high employment, becasue a 1% rise in income leads to at least a 3% rise in leverage to loans which leads to inflation in housing where supply is limited. When rentier investors enter an area, this is then exacerbated and fisrt time buyers and upscalers alike find it hard to move onto and up the ladder. As in the 1970s, the pay rise via tax cut is absorbed by inflation.

We start to see that the top half of society by age and relative personal equity, not just the top few percent and those working on the finance markets, do not just harbour a ‘capital myopia’, they do not want to change the system which has rewarded them for their work over years. This is why Labour are so unpopular in the UK as a whole right now. They offer only punitive taxation to this proportion of society, many former free educated and unionised  employees amongst them, while they offer no clear plan for creating jobs or reducing the cost of living for the de-unionised majority of  younger workers.

Neo Conservative policies have driven all this, rather than actually creating the modern, effiecient, production indsutries they claim to support. Those have mechanised and optimese supply chains, and are still often unionised across the western world without huge long term losses in productivity as the Neo Lib doctrine would like to predict. Yet where we see countries with high levels of wage negotiation and intervention, we see a lower rate of poverty and less people in state dependency. We see slighly higher unemployment, but are we actually seeing less under-employment in these economies?  Agruably less so because there are fewer people in the area of low wages poverty, which in the neo conservative so called “liberalised “, part time , temporary work is so over represented at the poorer end. Legislation supports part time and temporary work, by allowiung for the ‘on costs’ to employers to be less, pro rata than for full time workers.

Neo Conservative doctrine of freedom of movement of goods, captial and labour has been well and truly “called” in those most orthadox of adhering countries, the UK and US, where ordinary voters in their majority have voted for protectionism on at least labour supply, and some are hoping for tariffs on foreign goods or the natural “right” to to have domestic products available in preference to foreign. These factors however, if they do come into policy which really alters the domestic market, do not address the undlying reasons for wages errosion, hidden inflation and ‘capital myopia’ thorugh out society.