I was having a chat with a friend yesterday about the incoming Canadian tax reform and he managed to inspire what I think is a rather interesting idea.
When it comes to modern finance, it’s a mess. For the last few years, I’ve been trying to figure out a system of finance to account for the deflationary nature of technology and best practices while increasing productivity. I think I’m close but it requires a complete overhaul of the system, and well as a cultural paradigm shift. I’ll be patient. Until then, I thought I’d mention an idea which works within the current system: Adjusting the local minimum wage to reflect the local cost of living.
If you’re working 40 hours a week, you should be able to earn a living. That’s not to say that we should all be making the same, that’s to say that the floor should be set at what it costs to lead of modest lifestyle in that area.
Consider this, if someone is working 40 hours a week and living in poverty, they’re likely relying on social assistance programs. Those social assistance programs are ultimately tax-payer funded. That tax burden falls primarily on those who aren’t in poverty. When someone grows up in a low-income neighborhood, falls in with the wrong crowd and ends up in prison, it’s the tax payers who pay for that too. No matter how we look at it, we’re all in this together. We either keep picking up the tab, or make an investment in the future.
For starters, imagine the impact this would have on the country’s collective anxiety – Knowing that if you work full time, you’ll be alright. Now imagine the positive cultural impact of an entire generation of kids growing up with parents who aren’t barely getting by. Now think about the reduction of people needing social assistance programs and the reduced government spending. Now think about the reduced taxes for all tax brackets. I guess we would call that trickle-up economics? Just like trickle-down economics except rather than starting with helping those with the most and letting the residual benefits trickle down to those with the least, we start by helping those who need it the most and letting those residual benefits trickle up to those who need it the least.
The definitive test that trickle-up is better than trickle-down? Trickle-up helps more people.
That all sounds pretty fantastic for people who are struggling to get by but that’s a rather large stone to toss in the water and it’s important to understand how this will affect everyone else in the pond, especially employers.
First off, businesses that haven’t embraced automation but probably should will likely need to. The jobs which require the least amount of skill are often the ones which are easiest to automate so businesses will no longer need to rely on cheap labor to sustain their operations. Fast food is already testing out automated ordering systems and burger flipping robots.
As the automation sector booms, the robotics and AI industries will boom and while not on a 1:1 basis, low-skill jobs will be replaced with high-skill jobs.
While measures like these will dramatically reduce low-skill jobs, I think they’ll also have the opportunity to redefine what we think of as an entry-level job. If the objective is to have people perform at the best of their abilities, it’s about time we stopped putting young people in roles where they’re underutilized and calling it paying your dues.
The real victim in all of these is the entrepreneur who has to pay those increased wages though right? Well if your business model relies on paying people a wage below what it costs for them to sustain, then yes – expect to be steamrolled. If you can’t run a profitable business without the use of government subsidized labor, there’s a good chance you’re not fit to be running a business.
What about the businesses who do adapt, but still have to pay higher personnel costs because the average wage is now higher? Because that’s real. Well, it’s going to raise the bar for what we consider to be a well-run business. Ultimately though, it means more money in the hands of the workers and less money in the hands of the owners. Considering how the best entrepreneurs are motivated by the opportunity to create change, I don’t see the smaller paycheck making a difference – especially when you know that you’re putting extra food on the table of the team you built.
From an economic standpoint, if you systematically shift income from the wealthy to the working class then you’re looking at a far more robust economy. More money in more hands makes for a much freer market as more people are inclined to make more decisions with their money. Culturally, fewer wealthy people will mean mean a smaller market for luxury items and materialism may take on a more utilitarian feel. From a philosophical standpoint, this is about equality in how we distribute the value we collectively create.
So set the local minimum income to be equal to the local cost of a minimum standard of living – seems reasonable. Now set the minimum standard of living at a point which allows for a focus on personal development, providing them with the opportunity to become the most productive version of themselves. Also seems reasonable.
My Mental Model 