"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth - not of existing wealth, but of wealth as it is currently produced - to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
"Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations.
"But by taking purchasing power out of the hands of mass consumers, the savers denied themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.
"In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
You might think that this is a description of the economic collapse of 2008, but it isn't. It was written by Marriner Eccles who chaired the Federal Reserve Board from 1934 to 1948. He was discussing the causes behind the Great Depression.
Simply put, the rich were getting richer at the expense of the working class. The result was that by 1928, the richest one percent held 23 per cent of the wealth in the United States. The richest 150,000 households held 11 per cent of the nation's wealth.
During the next few decades, the picture corrected itself. The ratio of wealth between the richest few and the vast majority shifted until, for the period from 1945 to 1980, the ratio between the rich and the working class was closer to 10 per cent.
However, between the early 1980s and 2008, the trend reversed itself. Fewer and fewer individuals were again in possession of more and more of the wealth until, not surprisingly, in 2008 the top one per cent of the population again held 23 per cent of the nation's wealth.
And perhaps not surprisingly, the system once again crashed. The mass of workers - the average American working class family - could no longer play. They could not borrow more and the debt crisis crashed the whole system. Indeed, workers have seen their wages in real terms stagnate for the past three decades and their debt level increase to record levels.
Why raise this issue now? Well, one could make the argument that history repeats itself but that is not the point. Rather, it is that we don't seem to have learned the lessons of the 20th century. The working class needs to participate in the "wealth as it is currently produced."
This is why taxation policies need to be progressive. Simply put, and this will annoy people at the top end of the earning scale, for the past ten years our taxation policy at both the provincial and federal level have been heading in the wrong direction. They have moved from a progressive system that applied higher taxation rates to the highest tax brackets to a much flatter system, while increasing consumption taxes.
Consumption taxes, though, hurt the working class more. Consider two workers - one with a salary of $20,000 per year and one with a salary of $200,000 per year. If they each choose to go out for a meal and it costs $50 dollars, they would both pay $7 in HST. But that $7 is a much bigger portion of the disposable income of the low wage earner than the high wage earner.
Indeed, just the basic costs of living take more of a $20,000 per year income than a $200,000 per year income.
The argument is often made that the high wage earner spends more of their money on consumer goods and therefore stimulates the economy.
This has been demonstrated to be false. Once the "basic necessities" are taken care of, excess money tends to be spent in investments that have nothing to do with supporting the local economy or on travel, which tends to be to foreign locations.
It is the middle class family - earning $55,000 per year - that spend their money locally on consumption goods that benefit the local economy. It is also the middle class family that is most hit by increases in consumption taxes.
It is the $350 per year extra that the HST will cost working class families that will inhibit economic recovery. Not, as we are often told, taxes on corporations that are making record profits or the top end wage earners.
The HST is the wrong tax at the wrong time for the wrong reasons.
