Economic stimulation comes from people spending money, not saving it or parking it in marginally productive places. When people go out and buy things, they support the people who make those things. So if the government wants to get the economy going, they should look for spenders, and give them more money to spend. They should look for people who are going to put money into the economy efficiently and quickly.
They don’t have to look far. There is a large cohort of people completely equipped for the task. They are Canada’s poor.
When a poor person gets a dollar, it goes right out the door. It gets spent on food to feed their family, on clothes to outfit their kids, on rent for accommodation, on transit to get to school and work, and, in the unlikely event there is any left over, it pays for modest ‘luxuries’ like a movie or a trip to the beach. Unlike wealthier people who get refunds and rebates of various sorts, low-income people don’t put their money in saving instruments or spend it overseas on vacations. They put it right back into the economy, usually the local economy.
There are easy ways for governments to get money to low-income people, working through effective existing instruments. The Canada Child Tax Benefit could be significantly enhanced, as could the Working Income Tax Benefit, and the various supports that go to people with disabilities (about half a million Canadians with severe disabilities rely on welfare which is generally inadequate to their needs).
Low-income people spend the money they have to provide the daily necessities for their families, and thus it is an immediate stimulus to the economy. Raising the amount they receive will not only benefit the economy and society generally, it will also begin to raise the possibility that they can live more stable and dignified lives, improving their and their children’s chance at a better life. That is a classic definition of a win-win.
(Originally published in The Mark as part of 10 Ways to Fix the Economy. The Mark asked 10 Canadian politicians and political thinkers to each suggest one idea that government should pursue to help Canada emerge from the global recession and create a stable and sustainable 21st century economy.)