With Andrew Scheer’s less-than-stellar campaign in last year’s Canadian election, the hunt is now on for a new leader for the Conservative Party. The convention is scheduled for June 27 in Toronto, but even if the new leader is the most charming, well-spoken, charismatic individual to ever grace the world north of the 49th parallel, it’s extremely unlikely that I would even entertain casting a ballot in favour of the Conservative Party.
I reached voting age in 1989. To this day, I have never voted for a party bearing the name “Conservative,” nor do I ever intend to. I have been charged with close-mindedness because of this. Shouldn’t I be open to hearing the platforms and ideas of every candidate in every election? That sounds nice, but I believe modern conservatism is founded upon a flawed premise that automatically disqualifies candidates running under its banner – the theory known as “trickle-down economics.”
While this theory is popularly associated with the 1980s and conservative politicians like the United States’ Ronald Reagan, Britain’s Margaret Thatcher and Canada’s Brian Mulroney, the idea of cutting taxes for the wealthiest so their prosperity can “trickle down” to those underneath, clearly goes back further than that. American presidential candidate William Jennings Bryan disparaged the theory way back in 1896, but described it as a “leak” of prosperity onto the lower classes. The term “trickle down” is attributed to humourist Will Rogers in a newspaper column from 1932. In it, he explains that the Republican party’s insistence on appropriating all the wealth at the top, with the hope that it will trickle down to the needy, is the reason why Herbert Hoover failed to be re-elected as president that year. Hoover’s failure to understand that money trickled upward, according to Rogers, was his undoing. “Give it to the people at the bottom and the people at the top will have it before night, anyhow,” Rogers wrote. “But it will at least have passed through the poor fellow’s hands. They saved the big banks, but the little ones went up the flue.”
Hoover’s adoption of trickle-down theory can arguably explain how the stock market crash of October 1929 swelled into the Great Depression. This led directly to Franklin Delano Roosevelt’s long presidency, and the economic policies he borrowed from John Maynard Keynes, which ran directly counter to Hoover’s. Roosevelt was open to running deficits so citizens had the means of participating in the economy. Of course, the Second World War and the period that followed it led to an economic boom, which held relatively steady until the early 70s. Warning – what happened then requires a lot of heady economic mumbo jumbo to explain, and I’m not an economist, but I think it’s important that we all try to understand why the world works the way it does, so I’m going to do my best to guide you through it.
As I’m sure we’re all aware, there is fighting in the Middle East. There always was, and, sadly, there may always be. This was still true in 1973, but the fighting that year was particularly bad. An Arab coalition launched surprise attacks on key Israeli positions, kicking off what is today known as the Yom Kippur War. This battle quickly grew out of control, roping in both Israel and Egypt’s allies. When all was said and done, in October of that year the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo against not only Israel, but every country that supported Israel during the Yom Kippur War. That list included Canada, Japan, the Netherlands, the United Kingdom, the United States, Portugal, Rhodesia and South Africa. This embargo caused oil to at least quadruple in price in those countries.
While the world is still overly reliant on oil today, that was even more true in 1973. The sudden spike in the price of oil had an immediate effect on how the industrialized world conducted business. The production and delivery of goods became much more costly and less profitable. And there were other factors having a negative impact on the world economy at the same time. In the United States, the fallout over Richard Nixon’s involvement in the Watergate scandal caused the American dollar to tumble in value. In Britain, the threat of a mining strike stoked fear of power shortages, causing the government to enforce the three-day week, considerably limiting households’ and businesses’ consumption of electric power. In both countries, manufacturing was crippled. Over a million Brits were unemployed and about 2.3 million American jobs were lost.
This period, when goods became more expensive at the same time the value of money decreased, gave birth to a new word: stagflation. Economists had long known how to control inflation, and the Great Depression had taught the world how to counter a recession, but nobody really knew how to fight stagflation. Well, some people thought they knew. A group of economists got out their metaphorical fossil brushes and unearthed the long dormant phenomenon known as “trickle-down economics,” except they gave it a spiffier new name: “supply-side economics.”
This new version of an old economic theory posited that the production of goods, or “supply,” is the key to prosperity. Whatever can be done to ease that production is in everyone’s best interest, not just the owners of businesses, but that company’s customers and workers. Supply-side economists suggested the way to do that was by cutting taxes and regulations, and they quickly found disciples in the form of Margaret Thatcher, Ronald Reagan and Brian Mulroney. But, make no mistake – it’s still the exact same thing as the “trickle-down” practiced by Hoover.
Hold on Dimetre, I imagine you saying. Obviously, stagflation was solved, so doesn’t that mean that supply-side worked?
Well, in the case of the United States, many believe that instead of crediting the end of stagflation to supply-side economists, the real hero was Paul Volcker, the chairman of the Federal Reserve Board from 1979 to 1987. He was appointed to that position by President Jimmy Carter, meaning Reagan can’t even take credit for picking him. Honestly, I don’t understand how Volcker managed to end stagflation – something about hiking interest rates and lowering money supply, but as journalist Bob Hepburn put it in 1989, “…Volcker’s tough monetary policy and the steep drop in world oil prices would have brought inflation under control regardless of who was in the White House.”
Meanwhile, Reagan’s program of tax cuts and deregulation did not achieve the results he promised. While American businesses increased their profits, the executives at the top tended to invest their gains outside of the country, lessening the overall growth of the domestic economy. On top of that, the arms race with the Soviet Union was heating up, and military spending was increased. With lower tax revenue coming from the cuts, the United States went from being the world’s largest creditor nation to being the world’s largest debtor by the time Reagan left office. The country’s deficit had doubled. There were also 14 million more Americans living below the official poverty line than when he was inaugurated.
Over in the United Kingdom, Margaret Thatcher received credit for calming down Britain’s inflation problem, but within three years unemployment doubled. A fifth of Northern Ireland’s working population was out of work. It can be argued that Britain’s unemployment problem still has yet to be fully solved.
With the election of Brian Mulroney in 1984, Canada became ensnared in the trickle-down movement. His close friendship with Reagan helped usher in the Canada-U.S. Free Trade Agreement, which eliminated all tariffs between the two countries, and that is in-line with the supply-side philosophy of removing all impediments to let production thrive. The Mulroney government lowered Canada’s corporate tax rate from 36% to 28%, the first of three big decreases over the next quarter century. The Conservative government of Stephen Harper would go on to lower Canada’s corporate tax rate all the way down to 15% in 2012.
Did these removals of obstacles for businesses and lowering of taxes achieve the universal benefits the trickle-down proponents predicted? No. Studies have shown that corporate investment in fixed assets (non-residential structures, machinery, equipment etc.) actually went down and continued to drop as Canada’s corporate tax rate decreased. The top executives of the world’s biggest corporations have not behaved as trickle-down economists predicted. They did not take their increased earnings and reinvest it into growth-expanding industrial projects. They did not pay their lowest-earning employees more. Instead, that growing pile of money was stockpiled on their balance sheets, stabilizing dividend payments for shareholders. Former Bank of Canada governor Mark Carney referred to it as “dead money.”
All of that is still true to this very day. Loblaws shareholders notoriously voted down a proposal to even explore how a “living wage provision” would even work, and my boycott of all their businesses continues. ( https://dimetrealexiou.com/2018/12/07/i-just-dropped-the-following-letter-in-the-mail/ ) The Conservative government of Ontario has proposed lowering corporate taxes on small businesses, but has rolled back a raise in the province’s minimum wage. Four decades after stagflation, it can’t be made clearer that trickle-down economics (or supply-side if you prefer) doesn’t carry universal benefits.
Having said that, I challenge anyone out there to find me one candidate vying for the Conservative Party leadership this June that doesn’t still cling to this economic theory.
Conservatism in Canada didn’t use to be like this. Conservative politicians weren’t all about shrinking government and letting businesses run amok unregulated. Canada’s first prime minister, John A. Macdonald, was indeed committed to helping Canadian businesses, but his National Policy enforced high tariffs on foreign imports to do it. Another Conservative prime minister, R.B. Bennett, introduced a series of social reforms in 1935 called the New Deal (obviously echoing American president Franklin Roosevelt) aimed at helping those suffering through the Great Depression. His proposals included a maximum work week, a minimum wage, closer regulation of working conditions, health and accident insurance, unemployment insurance, and more. He was a Conservative prime minister. Politicians like this are part of a Canadian tradition that political scientists like Gad Horowitz identified as “red toryism,” which has a stronger focus on community and collectivism than the “free enterprise” model practiced in the United States, referred to as “blue toryism.” With the election of Brian Mulroney in 1984, conservatism in Canada started marching in lockstep with its American counterpart, and red tory politicians faded into the background.
This June, I would like to see Canada’s Conservative Party revisit its red tory roots. I would like to see one leadership candidate admit that the practice of cutting taxes and regulations on businesses has only benefited the richest in society, and made life worse for everyone else. They can still preach from the gospel of fiscal responsibility. (Hell, is there anyone out there in favour of fiscal irresponsibility?) I just need to hear someone in the Conservative Party suggest that the trickle-down economic theory be abandoned. It’s been tried out for nearly a half century, and that should be more than enough. Only when I hear a candidate admit the theory’s failure will I even entertain casting a vote in their favour.
But only after I get answers to my questions about climate change, reconciliation with First Nations, funding for public transit schools and the arts….