The expansion of supply is key to improving prosperity. A friend recently had difficulty digesting this, during an argument, proposing instead that prosperity be encouraged by more, bigger, income transfers.
Of course such a proposal is nonsense.
The only way to make everyone better off is to have more stuff created. The incentive to produce fewer things under a regressive, ultra-re-distributive tax regime exists, and so limits prosperity.
Instead, the affluent society will (in some disagreement with St Galbraith) create instead a tax regime which looks both to supply-side-expansion, and medium-run re-distributive targets. Such a scheme would limit excessive income disparity (which we social progressives find abhorrent), and maximise the productive possibilities of our industry. How? To be viable, it would increase the marginal productivity of our least-productive employees in our most efficient businesses.
What would the scheme look like?
Keeping in mind this proposal is where tax policy meets industry polity, its architecture, and effects should look a little like this;
- Firms would have a portion of their company tax payments returned to them as vouchers to be redeemed at recognised training bodies, for spending on (or at least given priority to) employees earning under a certain threshold, or over a certain age
- Firms would, presumably, have a better clue of what skills are required in the marketplace than unguided (or unknowing) individuals, and so training programmes---the more productivity-enhancing of which would proliferate under the scheme---would better suit economic conditions of the time
- More profitable firms, which pay more tax, and are better at their business, would benefit more than struggling firms, which pay less tax and would receive fewer vouchers. This would stimulate the efficiency-creating winds of Schumpeter's 'creative destruction', and so increase output in aggregate
- Labour productivity would otherwise increase (this is simplified, and design of this policy must consider that many poor have difficulty learning, which contributes to their poverty). Productivity increases would be, in the medium run, be matched by wage increases---a general rule which seems to hold.
Any crusade against inflation must directly target productive-capacity constraints. Making more stuff, and printing fewer dollars, goes a long way! In tandem with the current monetary-policy tightening bias of the RBA, a sensible policy allowing our most demanded industries---which are currently more profitable, and would be the recipients of such grants---to address their capacity constraints, would help. The issue also of providing real, immediately-applicable skills training to low income earners also sits well with a progressive social agenda. Yay.