Canada is in a big economic stall: What to do?

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Are we supposed to accept "normal" is a stagnating economy?

In 2011 median earnings in Canada were $30,000. That means one-half of Canadian workers earned less than $30,000. What is more to the point is that earnings in 2011 were $1,800 below the level attained in 1977 (inflation adjusted 2011 dollars)! The pay packet for workers shrunk over that 24 year period.

It's a big stall -- an awful lot of Canadians are not getting ahead.

If the years since 1977 have not produced pay gains that equal those in the glory years from 1946 to 1976, does this have to continue into the future? Was the 30 years of economic expansion after World War II an accident?

No. The quality of life for many Canadians can be improved  markedly. All it would take is a government ready to make some changes, and take the heat from those who prefer the status quo. While some of us would prefer a revolution, a government bringing some positive change would be most welcome.

Increased unionization raises wages. Reducing barriers to trade unions looking to organize poorly paid workers would promote wage growth. What is missing are labour-friendly governments. Canadians need to demand them.  

Social wages which many need to survive have been under pressure from permanent austerity programmes introduced in the late 1970s by Pierre Trudeau, and imposed ever since federally and provincially.

Increasing pensions for retirees, child allotments for parents, loans or bursaries for students, unemployment benefits, welfare cheques for  people without means of support, and disability pensions make more economic sense than the tax cuts Stephen Harper promised in 2011 and that he has begun to roll out.

What has escaped economic stagnation, and gone up in value is what Thomas Piketty called patrimonial capital: inheritances, tax sheltered investments, ownership of private companies, public stock holdings, real estate and private art collections.

Piketty shows that patrimonial capital is not just inherited from parents. Important as inherited wealth is in the upper reaches of the Canadian economy -- think Thompson, Irvings, McCains, Desmarais, Péladeau, where new generations have taken over from wealth accumulators -- Piketty shows wealth also grows out of high incomes like those paid in the FIRE sector: finance, insurance and real estate. 

Wealth accumulation is outpacing income growth. This is an overall trend in Western economies according to statistics collected by Piketty through extensive research in tax returns around the world. This trend is what the big stall is about.

It should be obvious to anyone (other than the very rich) that it is good idea to take additional money from those who have much more than they need, or could ever spend, and transfer it to people who are barely surviving on social transfers.

In Canada we could doing this, and improve the quality of life for many at bearably noticeable costs to the wealthier. Instead we have doing less income redistribution than in the good post-war years, through eliminating or reducing taxes on wealth, and cutting back on the share of national income going to transfers.

Instead of taking more money out away from wealth holders (say through re-introducing an inheritance tax) and making higher transfer payments to the destitute on welfare, or students, or pensioners struggling to get by, or the unemployed with reduced access to benefits, we have let the wealthy keep more and reduced access to welfare, unemployment insurance, old age pensions, family benefits payments, and student bursaries. How dumb is that?

As inequalities of wealth and income increase, everyday consumption has been maintained by people going into debt. Mortgage debt or course, but also credit card debt, consumer loans, car leases, and student debt.

In a stagnating economy, companies in debt try and pay it down rather than make new investments. Families and people already in debt reduce consumption to try to pay it down.

This cycle of debt growth and debt repayment growth is called debt deflation. Overall, the economy slows down because debt repayments grow as a percentage of total spending.

Beating debt deflation and attacking wealth and income inequalities are two big challenges facing governments in Canada. Young workers, recent immigrants, low income people are the ones who lose big in this scenario. Canadians with secure, better paying jobs or generous pensions suffer less.

A massive student scholarship programme, tied to a phasing out of tuition fees, would produce major economic benefits. The very imperfect postwar American G.I. Bill paid for itself. It was also called the most important initiative of the 20th century by management guru Peter Drucker. Canada could begin an important rethink of the intergenerational bargain by providing massive cost of living assistance to students so they could remain in the classroom, avoid part-time jobs, and stay out of soul-destroying student debt.

This week the NDP will be announcing its commitment to child care, a program Canadians outside Quebec have had to do without. Subsidized child care creates jobs and pays for itself as mainstream economist Pierre Fortin has shown.

Canada has not had a major new social programme since medicare in 1968. What is the hold-up?

Duncan Cameron is the president of and writes a weekly column on politics and current affairs.

Photo: flickr/simon cunningham

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