Canada and Income Inequality

Canada has caught "the American disease". Here's a key bit from the latest Linda McQuaig article in the Toronto Sun:

This is a dramatic departure from the far greater equality that prevailed in the U.S. and Canada in the early postwar years — from 1945 to about 1980 — when the benefits of economic growth were more widely shared.

In the 1950s and 1960s, for instance, the real median family income in Canada was growing fast enough to double every 20 years. Since 1980, it has barely grown at all.

Middle class families have only managed to maintain their standard of living by working much harder than their parents, typically relying today on two incomes instead of one.

Meanwhile, at the top, things have been hopping. Indeed, virtually all the income growth in the last 30 years has gone to the top.

As a recent study by economist Armine Yalnizyan of the Canadian Centre for Policy Alternatives documents, the top-earning 1 per cent of Canadians almost doubled their share of national income, from 7.7 per cent to 13.8 per cent, over the past three decades.

And the higher up the food chain, the bigger the gains. The richest 0.01 per cent — those now earning on average $3.8 million a year — more than quintupled their share of national income.

And she points out the consequences of income inequality on the underlying society:

The impact on Canada’s social fabric is huge and likely to grow. Recent research — particularly the work of British epidemiologists Richard Wilkinson and Kate Pickett — shows that less equal societies almost always have more violence, more disease, more mental health problems, higher infant mortality rates, reduced life expectancies, as well as less social cohesion. The effects are most pronounced at the bottom, but are evident throughout the society.

Perhaps most striking is the finding that people in less equal societies have reduced social mobility. In fact, there’s little upward mobility today in the United States. Those wanting to give their children a chance to actually live the American Dream are better off moving to Sweden.

There’s also evidence linking extreme inequality with serious economic problems. The level of inequality reached in 2008 was virtually identical to that of 1929, suggesting that large concentrations of wealth at the top create a dynamic leading to reckless financial speculation and Wall Street crashes — with their devastating consequences of recession and unemployment.

But perhaps the most important impact of concentrated economic power is on democracy. As the great American jurist Louis Brandeis put it: “We can have democracy . . . or we can have great wealth concentrated in the hands of the few. We cannot have both.”

And she diagnoses just why we have this "disease"...

Oddly, there’s been little probing of why income has gone so heavily to the top in recent years.

It’s hard to find any justification for the fact that, while the average CEO was making about 25 times the average worker in the late 1970s, today’s average CEO makes roughly 250 times the average worker.

Certainly there’s no evidence that today’s CEOs or other top-earning Canadians are any more talented, productive or hard-working than their 1970s counterparts.

The change is often attributed to “globalization,” although this fails to explain why it hasn’t happened in other advanced nations that also compete successfully in the global economy — like Germany, Japan and the Scandinavian countries.

A more likely explanation is that the rich have used their clout to get governments in the United States, Britain and Canada to change the rules, redirecting economic benefits to themselves.

And the rich used the same lies in Canada that they used under Reagan, i.e. if you lower taxes on the rich, the economy will grow faster and we will all be rich!

The rich also greatly enriched themselves by convincing governments to lower their taxes. Whereas the top marginal tax rate — the rate paid on income above a certain level — averaged 80 per cent in Canada in the early postwar years; it is now just 46 per cent (39 per cent in Alberta).

It was argued that lower taxes would encourage better performances at the top, increasing overall economic growth.

But that didn’t happen. On the contrary, economic growth rates were higher in the early postwar years — roughly twice as high — as they’ve been since 1980.

Read Linda McQuaig's most recent book, The Trouble with Billionaires: