There are only two families in the world – the Haves and the Have-nots –
Miguel de Cervantes
Cervantes' greatest hero gained his reputation by tilting at windmills. So, let's have a go ourselves. The great thing about the vast majority of us is that we know nothing about the economic windmill. That puts us considerably ahead of trained economists who, because of that training, believe they do, in fact, know something of economics − although they will readily admit that other trained economists know nothing about economics.
One thing all economists agree upon though is that everything boils down to money: forget beauty, love, culture, art − all is cash. And, in that, they are almost correct. You buy a coffee in one of our major stations and it costs a little more than the same coffee elsewhere. This is because stations are considered 'trapped' markets and the landlord demands more rent as a result. Therefore, the coffee seller has no option but to charge more. Note here that it is the landlord, not the retailer, who makes the extra.
Stations and other travel points are notorious for higher charges on goods – but that only reflects the higher rents. The 'trapped' term is used because most travellers and rail users will not leave the station to seek coffee or other victuals elsewhere whilst in the process of their journey.
Some weeks ago, we considered the growing gap between the super-rich and the rest of us (without envy, of course) and the land-owning phenomena that is one of the causes that sustains that gap. Thus my argument that land has to be taxed in some form or another – such as is done in Estonia and Finland. It is a tax on wealth (including unearned income) and, in itself, would help combat the inherited inequality within our society.
Whether inequality is a bad or a good phenomenon is another matter. There are some who would argue that not only is it inevitable but that it is a good thing; encouraging the more able to extend their talents and be rewarded for such. Ah, if it were only thus! In fact, since the gap is not so much based on ability but on inheritance, it is morally unjustifiable in a society claiming to be a meritocracy. A freer, fairer and happier society is that where there is a more even distribution of wealth (like Norway, Iceland and Ireland) – and that is a happier society for the richer members as well.
A naïve view? Perhaps, but let's continue.
The gap between the extremely rich and the extremely poor is, today in Britain, almost as great as it was at the end of the 19th century. The current COVID-19 crisis is tightening that gap a little and, also today, we have more charities, improved social benefit systems and such developments as food banks – all of which take the edge of the extremes off poverty. But, elsewhere in this world, the gap is growing daily.
There are other steps that can be taken to close that gap. They are all limited in application within themselves and will not affect those whose main source of income lies outwith their labour; that is those who live from investments, stocks and shares, profits and capital gains. We can raise the minimum wage to credible levels and we can eliminate or reduce the age qualifications connected to it – if people are doing the job, what does age matter? The minimum wage mitigates part of the built-in advantage some employers have in a local labour market where they can, potentially, dictate the terms of employment as the workforce is essentially a trapped labour market.
In turn the minimum wage, if properly set, tends to involve the workforce more as stakeholders in the operations of their company. Again, this need not upset profits if we keep in mind the significantly higher salaries earned by top management; thus the rise in the minimum wage can be offset by lower rises in the higher earning ranks. That immediately reduces the gap between the lower and higher paid (a gap that has been growing significantly over the past three decades).
The other tool for closing the wealth gap lies within the tax system: in America, under their Great Leader, a reckless experiment is taking place whereby the rich are benefitting from one of the largest tax cuts they have ever had (but it did not extend down the way). The excuse for this is the 'trickle down' theory. This unsubstantiated theory (it is more of a hypothesis) states that the more money the top 10% have, the more they will spend and the more the economy is stimulated – and the more resultant jobs are created.
Past experience suggests that when there is such a tax cut, spending by those who benefit does slightly increase and there is a short-term positive effect in the jobs market. However, this doesn't last long, as the rich begin tying up their new wealth in savings of one sort or another (including investments).
Raising taxes at the top end obviates this. The super-salaried and super-earners then find the state clawing back some of their excessive earnings and, especially if taxes have been reduced at the poorer end of society, the earnings gap narrows and wealth becomes more evenly spread. Vlad the Impaler (where did he come into this?) actually did this when he took over as ruler of Wallachia in 1456. Almost immediately, he changed the tax system from one where the Boyers (the ruling classes) paid nothing and the peasants everything, to the very opposite. For a short time, before other matters intruded, this paid off in a better society with improved infrastructure and more contented peoples – even most of the Boyers went along with it.
There are many other moves which could be made to decrease the earnings gap. However, increasing the minimum wage and changing our tax structure would be a sound start in bringing our windmilling families together.
Bill Paterson is a writer based in Glasgow