The Inequality Trap: A Meaner Canada
“Inequality is corrosive. It rots societies from within. The impact of material differences takes a while to show up but in due course competition for status and goods increases; people find a growing sense of superiority (or inferiority) based on their possessions; prejudice toward those on the lower rungs of the social ladder hardens; crime spikes and the pathologies of social disadvantage become ever more marked. The legacy of unregulated wealth creation is bitter indeed. ” Tony Judt
The Conference Board of Canada is the latest to sound the alarm. Inequality in Canada is growing at a rate even faster than in the U.S. The wealthy are capturing an ever-increasing share of our economic growth. We see inequality growing. We see and feel its consequences. We know that inequality, if allowed to just keep growing, gradually erodes trust, divides us, dampens aspirations. Yet – or more accurately, for these very reasons – we seem unable to reverse course. And the longer we wait the further we fall into this inequality trap.
We opt out or act out
Too much inequality undermines our sense of fairness, and whether in a firm, an organization, a country, when things are unfair, we opt out or act out. Here, the “ultimatum game” is instructive. This experiment, developed by behavioural economists, was intended to test how we make decisions. It’s an experiment you can try at home. All it takes is two willing participants and ten bucks. Tell the participants that you will give one of them the ten and it is entirely up to that one to decide, without negotiation, how to distribute the money between the two. If the other accepts the split, both get to keep the money. If, however, the second person does not accept, they both lose everything. Those who argue that we are driven by profit maximization would predict that the “decider” will keep most of the money, say 8 or 9 dollars, and share only 1 or 2. After all, the “receiver” is surely going to take something over nothing.
Well, that’s not how things actually turn out. There are of course cultural and social differences in how people decide, but most people distribute the money more or less evenly and, more interestingly, if they do not, if the recipient is offered too little, they will often refuse the money – and everyone loses. Why refuse? Because they believe the distribution to be unfair and they would rather opt out entirely, refuse the meager money, than be party to an unfair transaction. And everybody loses.
Fairness is not some secondary consideration. When citizens feel excluded or unfairly treated, they too retreat, they don’t vote, they don’t participate, they give up, they act out. The certainly don’t want to pay taxes to “a system” that they think is rigged. And everybody loses.
A divided society
When Warren Buffett argued that the rich should pay more than they do (heck, even Adam Smith believed in progressive taxation), across the U.S. media we were told what a dangerous idea this is. Why would we penalize productive folk only to give the money to the unproductive? Why do we penalize success, they ask? Here, in Canada, the language is softer. Why would we tax so-called job-creators? Of course there are important economic considerations in how much and whom we tax – but “job creators”? As though they do not benefit from earlier generations more willing than us to sacrifice and pay taxes to build and defend a country of opportunity? As though the rest of us somehow do not contribute to the growth in the economy through our labour, consumption and creative ideas?
We are most of us job creators when we have the money to buy goods and services, the skills and education to work productively and the confidence and support to pursue innovation and entrepreneurship. These justifications for endless tax cuts on the rich and powerful aren’t economics – they flow out of a blinding sense of superiority or narrow ideology.
But in an extremely unequal society the very rich and corporations gain too much influence. In the competition of ideas, money always talks – but with extreme inequality money talks even more loudly. And undoubtedly that has an impact on how we see problems and what solutions we can imagine. We start to internalize the talk. At worst, some begin to think of themselves as inferior, that others are the job and wealth creators. Many simply feel increasingly powerless and come to view government as a foreign thing, serving its own interests or the interests of the powerful few. They lose faith. And they lose hope. And the inequality trap is sprung.
If we lose trust in government, we may cut ourselves off from the very things that might help to turn things around – progressive taxation, greater opportunity and a hand up for the poor, excellence in education, healthy and culturally vibrant communities. And inequality grows.
This is the rot that Judt is talking about. In a society with just a few winners and many losers, a case can be made that everybody truly loses. When he argued for higher taxes on the rich, Buffett also said that the rich people he knows are generous and giving and want what’s best for the country and their kids. They too then pay a price when they live in gated communities, when they live in fear, when the distance between us turns us into caricatures or turns us against each other. And how do we begin to develop a sense of the common good when we are so divided?
And of course we are all losers when too much inequality hurts our economic competitiveness. We know that extreme inequality throttles demand for goods and services, constrains the supply of skills and talent, and drives up household debt. Working families increasingly struggle from paycheck to paycheck and turn to borrowing and credit to maintain their quality of life. The super rich don’t pour their abundant and increasing levels of cash into the mainstream economy but rather drive up costs in niche luxury markets and invest in increasingly speculative ventures often far from home. And the human costs of inequality – poor physical and mental health and a host of pathologies – are expensive. They inevitably divert capital that could be better used for investment in our betterment and savings to strengthen our resiliency. And pretty much everybody loses.
And as inequality grows, unchecked, we become a meaner place.
Breaking out
Breaking out of traps, we all know, is harder than getting in. But the clues for what to do are out there. If we do not act now, it will be harder and harder to reverse course. Generation after generation of Canadians have found the answers that fit the times. Our prosperity and quality of life are built on their efforts. We now must rise to the challenge.
When governments say, as they often do, that they will focus on the economy, they will surely fail if that does not include a focus on inequality.
We have to be as demanding of our politicians to justify tax cuts and tax breaks as we are for spending. We need to ask of all government proposals – how will they help reduce growing inequality – or will they make things worse?
We cannot opt out – we have choices to make about the Canada we want.
Alex's Blog 
All quite right and very well put. The hopeful view is that we’ve been here before. In the Great Depression, for example, a few people got richer while the rest of the population was driven to desperate straits with all the divisions you describe. We Canadians got out of that and it wasn’t all by the economics of war. So what is the path in Canada at present? Even the Mayor of Toronto is proposing property tax increases…..
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I do believe that the answers lie in more – smart and progressive – taxation, and fixing rather than eroding our our social programs – like making unemployment insurance and training available to the millions pf workers now excluded. It also means regulating predatory economic behavior, and for the long term, investing in child development, education and the knowledge infrastructure, especially green and clean jobs.
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I might add that a strong public service is also part of the solution. The last thing we need is to outsource public policy which inevitably gives too much influence to the rich and powerful. It’s ironic that many see public servants as the enemy when they have to be part of the solution – the inequality trap.
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It seems when you look for information on inequality in this country it is covered up or redirected to protect a system that feeds the top % that control the wealth in Ottawa or any other government run system . And it is payed by taxpayers not political party’s but they control the public purse as if it is there own private bank . Case in point 16 $ orange juice . Fighter jets , rusty old subs just a few .
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National Council on Welfare, which was a key source of info., was axed by the government in the last budget.
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Thank you for this, Alex. I missed mention of greed as a driver for growing inequality, however. It would even explain a loss-for-all outcome in the household game.
As for solutions, would public shaming of excessive wealth help? It worked for smoking!
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Thanks Erwin. I am sure that unregulated greed plays its part – but it is also a consequence of the sense of superiority that inequality breeds.
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Shaming might indeed work.
I have repeated Warren Buffett’s complaint (that he and his fellow billionaires aren’t being taxed enough) to some of my US relatives and friends, all of whom are uniformly Tea Party fans and Flat-Tax promoters. They were, all of them, amazed to learn that WB’s marginal rate was only 17% while their own marginal rates were 30+%.
“Buffett pays only 17%? That’s crazy?” was, in general, their reply.
Ironically, in these cases, the shaming ought be directed not towards the billionaires, but towards those who don’t know the extent that they themselves are being harmed by a tax system rigged for the benefit of people who don’t need any more benefits.
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Alex – I echo your sentiments exactly (serendipitously even the A Sunday Afternoon on the Island of La Grande Jatte by Seurat is one of my favourites).
What troubles me is the huge influence that Corporations and their message boys have on both the Conservative party and even the Liberals unless they change their vision.
While I do not believe that organized labour should have any advantage either – I do believe that they speak for Joe Canuck more than say John Manley.
Either one of our political parties have to run on a platform of equality (which is what I thought was one of the three foundation principles of the Federal Liberals) or another player has to emerge to change the face of Canada
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Thanks WW – somebody has to take up the charge
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I was having a debate about this earlier today with a dyed-in-the-wool tax-cuts/government-is-too-big type. The point I tried to impress on him was that the challenge is fundamentally one of the inconsistency of people. I’ll explain.
There IS some basis to the notion that corporations and the wealthy can’t create jobs unless they have the profits and wealth to spend. After all, they can’t spend money on local goods and they can’t hire more people, if they’re don’t have the money to spend. But when the opportunity presents itself, they DON”T necessarily spend in the way we hope, and that some say they will/should. How should we respond?
For charities and urgent aid agencies, they simply assume that some large portion of whatever money and supplies they send to this week’s destitute nation WILL end up in the hands of corrupt official, insurgents, and others who skim off the top. They’d like for 100% of it reach its intended destination, but they have seemingly no other means to do the good part without having to put up with the lousy part. So, they simply base everything around the assumption that *maybe* 50-60% of the money and supplies gets where its going, bite the bullet, and move on. It’s outrageous and unconscienable that it happens, but whaddya gonna do?
So I ask myself, should we behave as if those who advocate for the benefits of letting people and corporations make big money are largely correct, and assume that those at the “have” end who do not play by those principles and use corporate profits to treat themselves to luxury goods or take the money out of the country that gave them that wealth, are simply “the surtax we have to pay”, like aid agencies that watch paramilitary groups steal desperately needed supplies off the tarmac.? Or, conversely, do we treat any and every wealthy person and corporation as if they can not be relied upon to transform profits into elements of the public interest, spending locally, and effectively helping to create wealth by circulating money?
Like I say, the problem is one of the damnable inconsistency. If *everyone* with money shirked their social duties, it would be a simple matter to tax them all. If everyone who made money did their civic duty, and lightening their tax burden let them do that duty even better, it would be a simple matter to lighten their tax burden. Does permitting inequality eventually lead to the righteous path? Is that path only assurable by imposing it on people, or does imposing it only fragment society by urging the haves to retreat to their corner? How are we going to ever tell which of those two outcomes is closer to being realizable?
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Mark, as always, very useful but let me emphasize, the evidence does not support that tax cuts are the major determinant of jobs – aggregate demand is hugely important, among other things, and if people stop buying (and incidentally stop working hard bevause they feel unfairly treated) no jobs – but that does not contradict the points you are raising except on your last point – higher tax, more equal societies seem to be doing better than we are
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YES, the evidence clearly shows that tax cuts, in and of themselves, are not a major stimulant for job creation. Demand is hugely important: if people stop buying, then employers stop hiring and start laying off.
The appropriate fiscal response to short-term unemployment is EI. When unemployment becomes chronic and endemic, the required response is expansion of public sector employment.
When profits aren’t transformed into sufficient jobs by the private sector, the public sector can and ought effect the transformation.
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Exactly William and I mught add that the best possible stimulus for example – put money in the hands of people in need. It is right and fair and good economics as they pour that money back into the economy, thus “stimulus”?
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There are some points made here that are quite valid, but there are others that are based on an inaccurate, or uninformed understanding of the reality of the charitable sector.
For at least the last 30 years, the primary funders of the charitable sector (government and individual donors – business corporations in Canada donate less than 1% of pre-tax profits [compared to US corporations that donate at least 5% of pre-tax profits]) have been cutting back on the amount of money that can be used for “administration” in charitable organizations, to the point where any organization that can get even 10% of the funding it receives for “administration” is doing very well indeed.
Now the point of course is that funders want their dollars to go to those at whom the various programs are directed, and that’s laudable. Except that does not address the questions of: who is going to design the programs; who is going to determine what front line staff are needed, and then recruit and lead them; who is going to monitor what is happening and (ideally) stay on top of the continually shifting needs of the clients and the success of program delivery; who is going to ensure that the money that does come in is used for what it’s supposed to be used for; and who is going to write the funding requests, design the fund-raising campaigns, and report to funders?
I have been a volunteer director and officer of charitable and non-profit organizations for almost 50 years, and the Executive Director of several significant charitable organizations off and on for over a decade. The executive leadership of these organizations are expected to perform the functions that whole government and business departments perform, yet they are paid (on average) less than 50% what 1 executive manager in government is paid, and those in government are paid about 50% less than those in business.
The mantra in the charitable sector has been, since at least the late 1970’s, “Do more with less”. The demands keep increasing, and there is less and less available with which to do it.
What’s wring with this picture?
Alex is absolutely right about the moral bankruptcy of inequality insofar as it pertains to our quality of life. The evidence is overwhelming that the greater the inequality (the spread between those at the “bottom” and those at the “top”) the higher the rates of violent crime, the higher the rate of physical and mental ill health, and the lower the quality of life – for everyone, including the rich.
The thing that’s absolutely unfathomable (to me) is that those who are most negatively impacted by these insidious policies are the very same ones who keep voting for the politicians that advocate them.
What are they thinking? “It’s good to favour the rich, because some day I’ll be rich and that’s what I would want for me?”
Except “some day” they will not be rich (unless they win the Lottery – and how likely is that) – it’s like our whole society is delusional.
In essence, all we have in N. America today is the poor, the rich, and the super rich – the middle class is extinct.
If your family income is less than $150K/year you’re poor – compared to the rich or super rich.
And that’s the growing inequality that Alex is writing about.
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You capture the trap well Brad – always great to get your comments.
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Let me add as well that I fully support your comments on the voluntary sector and my friend Mark/s comments serve to hammer home how much distrust is spreading – and how corrosive it is.
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Thanks one and all, and especially Alex for starting this.
Brad,
I may have misrepresented charitable organizations somewhat, or a least failed to distinguish between what is generally true of them, and the difficult moral quandries aid organizations happen to be placed in in *particular* sorts of situations (Haitian relief efforts, Somalia, etc.). My apologies, and thanks for correcting this..
The question was raised of “Why do officials who side with the wealthy keep getting elected?”. And it was pretty much that very question that was being discussed in a completely different forum the other day, that led to my initial comments here. I was being challenged there by someone whose contention, and challenge, was “Well if your interpretation is so right (and I was supporting the view that tax cuts do NOT end up doing what some say they will), how come all these folks keep getting elected?”.
My response to that challenger was that there is a very broad spectrum stretching between the haves and the have nots. Although there is certainly a shrinking middle class (or maybe it’s just a growing underclass), what middle class there is consists of many who view incursions by government as a “threat” to their wealth. These people respond to the messages of those who attempt to persuade them that trickle-down economics works. Simply because of the origins of their nation, that message may be responded to more enthusiastically south of the border than here, but that’s speculation on my part. That said, there is a segment that thinks of themselves as being *that* close (holding thumb and index finger near each other) to affluence, t’wer not for “government interference” and taxes.
At the same time, there is another segment for whom mere subsistence, and even possible homelessness, is the same distance away who rightfully ask “If my nation cannot ask of those who have far more than they’ll ever conceivably need, then of what use is my nation?”. It’s not any sort of “socialist vision”, or any sort of punishment of the wealthy. Indeed, it’s not a whole lot different than someone who, still famished, looks at the plate of someone who has more than enough on their plate and asks “Are you gonna finish that?”. And the explanations for why wealth would NOT be shared are no less contrived that the explanations for why whatever is left over on the plate can NOT be eaten by someone else.
Finally, Scandinavian nations have a history of pumping more tax money back into the hands of their citizens through social programs than many others. Denmark just had an election with about an 85% voter turnout. Finland regularly lands in the top 5 or so nations with respect to indices of public trust and trust in government. I think there is a great deal to be said in favour of the fiscal relationship between government and the entire spectrum of the country as a vehicle for fostering a sense of dialogue and trust. And trust, in turn, is what democracy depends on.
Stated another way, encroaching inequality is not just unfair. It undermines a nation’s identity and sense of belonging to itself.
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Excellent Post Alex – I will pass this widely and hope collectively our society will come to it’s senses !
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Thanks Mike.
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Thanks for writing this Alex. When arguments like this come from you, they’re a lot harder to dismiss. You’ve helped create space for a badly needed discussion.
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I second what Sol says. It is such a welcomed change of pace to read such a thoughtful reflection of what is happening in our society and how it is governed.
Lots of threads you presented that deserve more reflection. But that bottom line of inequality begetting a crueler, meaner society is spot on. We only have to look at centuries past, before philosophers even dared debate the concept of all men (and much later, women) are created equal and should be treated equal, to see how ugly life was for the serf, peasant, commoner and anyone deemed the outsider. Hell on earth still exists for the poor in most of the developing/emerging nations where literally, life is cheap. Or at least the loss of life among the majority poor has little impact of bettering the situation.
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Thanks U for your comments – so much of our policy now comes out of overheated economic assumptions rather than evidence about what is really happening around us and without an appreciation of how things were.
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As always, thank you Sol and for your link – creating some room is exactly the idea.
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Thanks Mark, and I apologise for perhaps being somewhat overly sensitive about the dilemma of the non-profit sector. You were referring primarily to international efforts with which I have never been involved other than as a donor; I’ve always been pretty much focused on my immediate neighbourhood or community.
I think your comments concerning voting/electing certainly have an element of accuracy to them; and I guess that’s what I find particularly disturbing – that so many people are (apparently) unable to think critically about what’s being fed to them by politicians and say, “Wait a minute, that’s not right.”
Maybe that’s the thing we should be focusing on – how is it that our education system which is ostensibly one of the best int he world, is not teaching people how to think critically
And it’s not just our children – it’s “us”.
By that I mean my generation – the baby-boomer generation. We are the ones doing this. What happened to the idealism of the 60s and 70s? To say that “reality got in the way” is trite and cliched.
It seems to me that it comes down to whether one believes in community (we’re all in this together) or libertarianism (it’s everyone for themselves). And it seems to me that the latter is what Thomas Hobbes (among others) wrote about almost 500 years ago.
That appears to be where we’re heading – for the majority of the people on this planet, life is indeed, “nasty, brutish, and short.”
And it’s getting more so every day.
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Great response Brad. I would add that it has a lot to do with whether we can visualise a better future for ourselves, our community, our country. If as individuals we think our best days are behind us as an increasing number do and if we worry that the future for our country will be less bright than what we have known – we no doubt become more vulnerable to selfishness and fear and anger – that is probably why many don’t vote and why many who do vote grab onto anybody who seems to promise to be a game changer. But absent a game changing option we focus more and more on now and getting by.
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I fully agree with you, Alex, that a strong public service is also part of the solution. And yet, by attacking the institution and those who devote their lives to public good, by outsourcing public policy we only make the problem worse …besides disengaging workers and citizens.
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ThanksJeanne. We almost never hear any more how important a professional public service is to ensure that policy, regulations and programs are developed and delivered in the public interest.
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Alex,
Your comments about the public service are bang on. That vast majority of intelligent, caring people I have had the privilege to meet and work with are in the public service. They care about what happens to our citizens, and devote their lives to making things better for everyone.
They could be making a helluva lot more money in the private sector (as is even more true true of those in the charitable sector), but that’s not what’s driving them. Yet they are now being marginalized and abused more than ever before (that I’m aware of).
This is just so wrong in every way.
Mark,
Thank you for your follow up comments – they too are bang on. If I’m not mistaken, Canada has ranked in the top 5 Nations on earth (along with most of the Scandinavian countries) in the annual UN Survey of Quality of Life (the best places on earth in which to live). I’ll be very interested to see how we rank the next time this comes around – I think we’ll see a pretty dramatic slip in Canada’s ranking.
It’s so galling that there are examples out there right now of how to do things right and how to do things terribly wrong, and Canada seems to be emulating the terribly wrong way to do things.
There are so many Canadians who do see this, yet it appears that there are even more that don’t.
I read most of the major dailies on line every day, and I see the Comments posted to op.ed. pieces articulating an informed approach to public policy development and implementation. And what I see keeps taking me back to what I said earlier about our educational system teaching our kids to think critically.
My kids think critically, but I really don’t think that came from our education system. And maybe that illustrates the other “missing piece” – the family.
What are the values that parents are passing on to their kids? Because the evidence is overwhelming that the first 4 or so years of a child’s development lay the foundation for everything that follows.
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Thanks Brad. One of the most troubling thing to watch over the last several years is the division between workers – public/private/voluntary sector unionized/non-unionized – and the last thing one wants to see is a race to the bottom
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Hear, hear Brad and Alex! Pitting workers against workers is one of the most discouraging things I have witnessed. And all it does is lead to a race to the bottom.
I think our media have played a heavy hand in leading us here. The framing of stories and tone of coverage has been such that civil servants and unionized workers are painted as lazy, incompetent freeloaders riding the gravy train. There was always a minority who held that view but now it has become closer to a majority if not more. What is surprising is that what was once just a shock radio staple has been molded into a more intellectual argument hung on the bones of some new reality requiring severe austerity measures. Suddenly it’s the fault of fairly paid workers with pensions and benefits that the markets are tanking? Give me a break. How is it that the public discourse never nears discussing how wealth creation has been increasingly concentrated in the hands of very few? Reasonable people just assume that the only way to stop or recover from a recession is to further deny those working any benefits from the wealth they have created.
I’ve had low paying jobs in the non-profit sector yet my co-workers and I did the best we could do with limited budgets and while living on a shoestring because we believed in the value of the services we provided. I’ve had well paid work with the federal government and my colleagues and I took our service to the public extremely serious as well as work in developing meaningful programs and policies that took into account all stakeholders’ needs. And long before those jobs, I worked at minimum wage service/retail sector jobs and it was discouraging. I was young and keen and tried to do my best at first but the reality of how badly we were treated set in soon enough and I was more than thankful to have an education that lifted me out of those jobs being my only option in life.
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Mr Himmelfarb:
I’m not entirely sure whether you are making a political or an economic argument. To the extent that you are simply arguing that it is offensive and politically dangerous for the very rich to be paying less tax than ordinary folks in a time of deficits and economic contraction, I have no issue, but you seem to be using the occasion to haul out some well-worn and somewhat dated progressive shibboleths about government generally and its ideal role.
We are hearing a lot these days about how the rich are getting richer and the poor poorer, usually proved by highlighting obscene CEO salaries and investment banker profits. But our current fiscal troubles followed a very long period where pretty much everyone became more prosperous in absolute terms. For many of those years, government (Chretien, Clinton) was contracted and spending on social services reduced. The result was not social division and envy, it was optimism and growth, and it certainly wasn’t restricted to the super-rich. Before 2008, the left was much more likely to complain about excess consumption, suburban sprawl, too many SUV’s, etc, surely inconsistent with the Depression-era scenario you are trying to convey. Although it has become fashionable today to assert in hindsight it was obvious the bubble couldn’t last, very few saw that at the time, Certainly not government, so where were they? In the States and parts of Europe at least, they were betting the homestead that the good times would never end. Now, they point fingers at “greedy bankers” and tell us they can get us out of the mess if only we give them a lot more money.
As a political imperative, progressive taxation is wise and just, but if you really are talking about “the rich” in any meaningful sense (I assume you mean people who can pay more tax without changing their lifestyle or even stressing much), you of all people must know it has its limits as a revenue-raising tool. In the first place, there aren’t enough of them and in the second their incomes tend to fluctuate dramatically with the health of the economy and the markets. It is in the middle that tax collectors find the big bucks. So, please, don’t you owe us all a precise statement of exactly whose taxes you want to see raised and by how much?
What is jarring to me is your almost poetic ode to government as benign and disinterested, which sounds like Trudeau in 1968 before he set out on his long run to ruin public finances and send us into IMF bailout territory. Surely you don’t really believe that Harper’s success (45% of English Canada) is based upon an increase in national meanness? The fact is that a very large proportion of the population has come to distrust government mightily and see it as incompetent, hostile, corrupt and an inpediment to economic health. That’s a big reason why Harper is PM today, but couldn’t have been thirty years ago. There are reasons for all this based on history and experience, but if there is one thing I’ve noticed about the left, it seems congenitally incapable of admitting any policy failures, other than underfunding. (Do you believe welfare dependency in American inner cities has been a successful social policy and only needs more funding?) So, second question, what do you think caused the widespread drop in trust and respect for government? Shock jocks?
The ode to the public servant as hero that commenters like Brad sing simply leave me shaking my head. No careerists, no self-perpetuating bureaucratic fiefdoms, no harassing anybody, no incompetent efforts to manage the economy under the guise of “regularion”, just heroic folks wanting nothing more than to make Canada a better place. But let me give one illustration of this disconnect. You assert confidently that more public funding for education is a solution. My God, man, we’ve had universal public education for many generations now and nobody is arguing how great the results have been. What happened, and why after so much time are you still hanging your hat on the issue as if we were in the 19th century and just starting? Colour me old and cynical, but I’ve come to see calls for more education as the last gasp of a politician or policy wonk who has completely run out of things to say.
I don’t imagine I will be able to convince you of much, but do you not see how the themes you are promoting have become widely viewed as reactionary, rather than progressive in the true sense? Have pro-government intervention forces become so bereft of creativity and so out of touch with the zeitgeist that you are now reduced to raising the spectre of the mob to justify your role?
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I don’t know where to begin Peter especially as you are creating straw men here – first on tax, I say that there are legitimate arguments regarding who and how much to pay but I totally reject the creeping notion today that all tax is bad and the reductions in progressivity since the 80s and the more recent cuts to taxes that have reduced our resiliency. As for government, it seems to me that your reaction is to relatively mild positive statements of public workers. Nobody here would deny that government has become too centralized and remote and nobody is making a case for ever bigger government but rather explaining why having regulations developed by public servants rather than corporate associations is important. We can agree on the need to reinvent how we govern without losing sight of the importance of the public and voluntary sector. The private sector has significant capacity to defend itself. As for education, it continues to be central not only to the economy but to equality of opportunity and citizenship – and increasingly with changes in dependency ratios we need to do whatever we can to ensure that we increase access to excellence, invest in the early child development that prepares people to be learners, do what we can do reduce dropouts and make training and skills upgrading more accessible. That you find talk about education and training boring or old is pretty much irrelevant. I do, however, share your view that nostalgia makes for bad policy but so does ignoring the past. I have been watching the “big society” evolve in the UK – if you want a look at nostalgia based policy.
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With respect, I don’t think I was creating strawmen, I was answering generalities with counter-generalities in an effort to tease out some specifics from you. There were certainy a few strawmen in your post, starting with the nebulous, undefined use of “the rich”, collective meanness, and the hint that Canada may be in some kind of pre-revolutionary state.
Let’s call time out for a minute and try to agree we have to be careful about mixing up the overheated American revolutionary rhetoric we are hearing today and the much more limited bounds of Canadian moderation and pragmatism. He may be a conservative, but to the palpable frustration of many on the left, Harper is governing quite moderately and avoiding divisive issues and rhetoric. He certainly isn’t pushing ‘the creeping notion that all tax is bad” or giving any indications he is going to undo the social safety net. You musn’t make the mistake of thinking everyone who supports him agrees with the Fraser Institute.
But let me give you a concrete example of why I found your post a bit dreamy and dated: You now say “no-one is calling for bigger government” or denying it has become remote. I assume you would agree as well it has become bloated and overly-beholden to bureaucratic process. Everybody says that these days, because it is obviously true. It’s no secret the government is trying to cut it back, but as far as I can see just about every cut is being met with a chorus of hand-wringing accusations that they are abdicating their public responsibility and is proof of something that Harper purportedly hates personally, like science, culture, knowledge. I trust you would agree that any cuts should be assessed on their merits, but if they are all met with nothing more specific than appeals to the vision of Fathers of Confederation, even playing fields, saving the planet, etc., we’re not going to bridge too many gaps in our public debates. Likewise with defences of taxation built on emotional calls for equality without saying who is to be taxed and by how much.
Likewise with regulation, a soothing word that can mean a lot of things. I have come to despair of finding a serious debate on government regulation of the financial industry, especially in the States. It’s all ideology and finger-pointing. Personally I think there are a large number of folks in both the industry and Washington who deserve to be shot at dawn. If by regulation one just means setting standards for the openness and trust responsibities owed to an uninformed and vulnerable public, sure, that is a proper and necessary government role. If it means skewering the market for political purposes by compelling lenders to lend to the uncreditworthy and then insuring the loans against default, that is something else altogether, and the right is quite entitled to call foul and look askance at general calls for “more regulation”. We went through that kind of government effort to manage or direct an industry with the National Energy Program and barely survived the financial madness that resulted.
I don’t think the right has all the answers by any means, but it is frustrating to see the left keep singing the same old songs without confronting government failures, ossification, etc. up front or facing our troubling demographicc changes squarely, and, in some cases, just dismissing public opinion as ignorant.
The problem on the right today is that it has far, far too many ideas. With the left, not enough.
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We will just have to agree to disagree – the post made the argument for which there is abundant evidence that inequality may have a tipping point which makes it hard to reverse. The rich are never treated in it as a homogeneous category and indeed Buffett is quoted re the generosity and caring of the ones he knows (so I do not know what you’re reading). You seem to like to personalize (eg your inferences about the motivesof public servants) and you strangely accuse others of doing so and again I do not know what you are reading. Eg you talk about careerism or change resistance as a counterargument to what I and others say about the importance of public service and voluntarism. but when people talk about how a sector contributes to well being – say, teachers, or firefighters, or police, or soldiers, or public servants more generally – this is not a claim that each and every one is noble and good or that there is no need for reform but simply a reiteration of what is too often neglected, taken for granted or totally forgotten – about the sector and what at its best it can do often in ways that other sectors cannot. Here you most certainly create straw men. On the rest, “bloated”, just because everybody says so? Or because you do? No. I have never met anybody in public life who favours waste or inefficiency and its reduction has to be an ongoing preoccupation. But the myth that there are many savings to be had here is just that, myth. Public service was front and centre in making the cuts in the 90s that helped balance the books – for better and for worse. And of course there are always easy examples that one can point to – especially out of context – that say the job isn’t done. Here some waste, there some waste. But as a friend of mine recently said of running a bar, a bit of skimming, a bit of spillage, a bit of breakage – probably inevitable – need to keep it to a minimum but if we got to zero it would be a bar nobody wanted to frequent. Whether you run a small business or a massive enterprise there will always be some degree of so-called waste. Cutting always means cutting some business line but I don’t hear governments which promise cuts or and end to the “gravy train” telling Canadians what principles will guide the cuts to programs and services or what the consequences might be. Rather the pretense is that they are simply going to to eliminate the bloat – and as we are watching in Toronto there seems never enough bloat to cover the size of the tax cuts that were implemented on that assumption. As for an ignorant or uninformed public, reread your own comment. You are the only one who uses that language. My post understands the anger or frustration of people who believe government “serves its own interests or those of the powerful”. And I for one think that is increasingly a problem – but that is not the same as dismissing the idea of government or the personalizing the issue. As for taxes. a sentence or two in a blog on the relevant merits of value added taxes, income taxes, payroll taxes, corporate taxes, sin taxes and inheritance taxes and how best to achieve progressivity is not going to do the trick – though these are hugely important questions that deserve careful consideration and public debate (and of course I have my biases). But we need an environment in which we stop dismissing all tax as bad or keep reducing taxes without the discussion of the benefits and costs of those reductions. Having that public discussion wouldn’t be a bad place to start.
Every once in a while two people think in such fundamentally different ways about the world that they talk past each other – and in those instances they should keep communicating for sure but also recognize that they are likely to have to agree to disagree.
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Former Michigan Governor Jennifer Granholm has been doing the interview circuit for her recently published book, and it looks like a fascinating read. Certainly it doesn’t take Michael Moore to demonstrate that her state had fallen on some very hard times in recent years. Granholm points out that her state had done just about everything that the trickle-down folks had advocated, well before many other states, and it got them pretty much nowhere in her estimation.
But here is a very different turn of topic, which you can ignore or dismiss if you wish.
The broader topic here, and Alex’ frequent focus, is that of inequality. I’m going to introduce a seemingly unrelated topic, but one that I hope I can convince you IS quite related: the social institution of retirement.
While we think of “freedom 55” as something that has always been there, and is inevitable, its a fairly recently constructed notion, and certainly the brunt of the world does not have anything at all like retirement. The first mass pension for citizens was promised by Bismarck in 1889, and while pensionable age was predicated on what the treasury could afford, rather than the work-competence of people, over time, and with the help of unions and public institutions, 65 (or whatever one’s particular pensionable age is) became a demarcation of a changeover from participation in the labour force, to living off income coming from sources other than earned wages.
That was fine for awhile, but in the intervening years, a number of social/cultural things happened, stated in no particular order here:
1) Life expectancy in nations with pensions increased.
2) The average timespan spent in the workforce decreased as more people deferred full-time employment to pursue education, and expected to withdraw from the labour force earlier.
3) Family life was deferred by many until later ages, and families became much smaller and generally separated by distance.
4) Many major life expenditures were moved until later in life (my youngest won’t be finished university until I am 66).
5) More families dissolved, and single-parent families emerged (a frequent source of child poverty).
6) Consumer expectations rose immensely, both pre- and post-retirement.
7) Employment became more precarious.
The net result was that more people were contributing to pension funds for a shorter period of their lives (and there were less of them), and leaving themselves with less time to save in anticipation for labour-force withdrawal. No longer able to simply plunk money in the bank for another 20 earning years after the mortgage was burned and the last kids had left home in one’s early 40’s, and expecting a higher standard of living not only prior to labour-force withdrawal, but after as well, and no longer able to anticipate being supported and cared for by a cluster of nearby adult children, a great many have turned to investments.
And I think therein lies one of our big problems. The social institution of retirement – as we presently imagine it – evolved under a very different set of circumstances than we presently face, and in the face of those circumstances, it is largely unsustainable. It has created what I like to call “nervous money”, something we have seen much of during the past few weeks. No big revelation that some of the major investment funds are not individual high rollers but pension funds that need to make high ROI.
Ever see the film “Cisco Pike”, with Kris Kristofferson and Gene Hackman? In the film, Hackman plays a police detective who knows he is going to fail his upcoming physical exam, and be cast out of the force before he becomes eligible for pension. He views that pension as his birthright, and since he knows will become unemployed, he is going to replace that needed pension by other means. He blackmails former musician/drug-dealer Kristofferson into “moving” a substantial amount of marijuana on his behalf, or else he will assure Kristofferson’s arrest and jail.
You want to know where the meanness comes from that pits people against each other and entrenches inequality? Too many people find themselves in the same position as Hackman. They see their retirement as an inevitable imposition and monumental challenge that can only be faced by neglecting ethics and doing whatever is in their power to secure sufficient economic stability to make it happen…for themselves. There are certainly many reasons for citizens to resent taxes, quite apart from saving for retirement – there were no pensions for anyone other than senior military people during the American revolution and its Boston Tea Party – but one of the many *current* reasons is that so many see themselves striving against a ticking countdown clock. And it is counting down to retirement.
My own view is that if one wants to address inequality, one of the essential components is a complete rethink of the social institution of retirement, and a reframing of it not just in terms of the image investment companies have peddled to us to gain us as clients, but in terms of what it offers the nation as a future, and as a source of either social unity or division. At the moment, I think it is unintentionally doing more of the one than the other, and it is high time to ponder what attempting to do against the present odds is doing to us.
Apologies for the length.
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Really interesting Mark. Ensuring material security for a long retirement is surely a factor. But even among very wealthy boomers or at least wealthy enough there sometimes seems to be a greater preoccupation with holding on to what they have built than with building something new. That may have more to do with how much closer you are to the end than the beginning. In any case a close look at demography is a good idea. Not only retirement, but changes in dependency ratios and differences in world view and relative influence. Thanks.
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Thanks.
Roger Martin, of the Rotman School at U of T, had a nice segment on “The Sunday Edition” yesterday, in which he distinguished (or rather laid out the distinction made in his recent book “Fixing the Game”) between “the real market” and the “expectations market”. The “real” market is that world of productivity, sales, revenues, etc., what it is industries and businesses actually make and do. The “expectations” market is that domain of possibilities, and the value of those possibilities. Martin noted a turning point in the philosophy of corporations around 1976, in which the view that it is the corporation’s “job” to maximize shareholder profits came to dominate. But maximizing share value means managing expectations, and managing expectations means creating the sense of golden possibilities, often through symbolic gestures, and sometimes ruthless ones.
To my mind, the social institution of retirement, particularly the difficult conditions under which we are attempting to keep it alive, have led to an increased emphasis and focus on the expectations market, even by little people like myself. It’s that anxiety about not accumulating enough to be able to accommodate the expected lifestyle that people feel they are *supposed to* have, that results in desperate attempts by corporations to manage those expectations by doing things like outsourcing jobs and downsizing, in order to create the sense of greater ROI “just around the corner”. And little folks like me (though I do not personally play that game) insist upon it because we have come to believe that we should be able to withdraw from the labour force and live a decent life. I would argue that the retirement industry is often a *source* of the very precariousness of employment that they are frantically trying to bail themselves out of. And it is a major source of the roller-coaster ride that the “market” has been undergoing. Some might even say it is a source of the resentment many have towards the public sector and unions, insomuch as they associate both those two with “undeserved” stability, predictability, *particularly* with respect to retirement.
None of this is intended to be an argument *against* retirement, or retirees. But I think it is the irritable elephant in the room that is driving a lot more than we realize, with respect to the “nervousness” of money these days, and the consequences of that nervousness. And it is an irritable elephant because, as I tried to convey, it is attempting to accomplish and sustain something that originally evolved, over the course of some 80 years, under very different demographic and economic circumstances, and is now trying to stay alive against very adverse contemporary circumstances. And when it comes to a choice between me and you, as it does in the film example (Cisco Pike) I cited earlier, my tendency is to do what I can to keep what I believe is my anointed share.
That’s where I think the meanness comes from.
An anecdote. Some 30 years back, I was waiting with a fellow graduate student between sessions at a conference. He was from Mali, and I was curious about his background, so I asked him “What does your father do?”. He shook his head as if to say there is no answer. “Does he work?” No. “Is he retired?” No. “Is he unemployed/disabled/looking for work?” No. I had run out of categories at that point. After some prying I learned that once the children are grown, the father becomes the de facto CEO of the extended family, managing their collective wealth. It is a role he moves into, and has until he becomes physically or mentally incapable or there is bitter family division. But here’s the thing: he’s not spending his life to accumulate wealth for that time when he “won’t have to work”. He has a valid role accorded him by the culture. Equally important for our discussion here: THERE IS NO TRADITION OF RETIREMENT IN HIS CULTURE. And it’s like that for much of the world.
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Helps explain the tax reluctance of so many (though mistaken and dangerous) who are worried about how to manage decades of retirement living.
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Concerns about retirement trump concerns about equality? I don’t think so.
A more equal society would arrive at a better understanding of retirement. Addressing inequality (and its consequent health and social effects) means addressing it both for those working and for those retired.
It would take a complete disregard of systemic evil to conclude that the force that “entrenches inequality” arises from the individual meanness of one person against another.
It is not at all amusing to suggest that individual hopes for retirement are a greater source of evil than demands of private, for-profit, limited-liability employers on their employees.
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Fair enough — but I do believe that demographics matter and that many baby boomers, who believe that their best years are behind them, are more interested in holding on to what they have than in building something new. And to the extent that we are losing our sense of the future – worrying that for the first time in many generations our kids and theirs will not have it as good as we did – our attention probably becomes more short-term and closer-to-home. No one is suggesting that these demographics explain or trump inequality, but they may help us understand the seeming indifference of so many to its growth – and the reluctance to pay the taxes to turn things around.
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I don’t take any issue with William’s points. I do think, however, that we all too often fail to take sufficient notice of how our “normal” ways of doing things can impact on people.
I cited Roger Martin’s point about the change in philosophy of boards of directors in the 70’s. On the surface, it might seem entirely reasonable and ethical for boards of publicly held corporations to assume/declare that they will work towards the greatest return for shareholders. But that eventually translates into fostering the impression of value to shareholders, and that eventually translates into downsizing or moving jobs to other countries where labour costs and environmental controls place less fiscal burden on the organization. That, in turn, threatens the livelihoods of those in the very country, and perhaps the very community, that brought the organization into being. The people who own those shares, or the pension funds they have entrusted their money to, do not see the connection between the inequality created, and what they believe to simply be a normative and non-extravagant entitlement. My point is that people DO care about inequality, but they often don’t realize how they create it. Boomers want to hold onto what they have, but not so they can have MORE than others. They want to hold on so they can feel they have AS MUCH AS all those other folks “just like themselves”, whiom they compare themselves to.
If I haven’t directed people here to enough additional reading material, I recommend U. Guelph sociologist Alex Michalos’ work on “multiple comparisons theory” and how people arrive at judgments of satisfaction, include life satisfaction, pay satisfaction, retirement satisfaction, etc.
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More and more Governement workers are becoming the elite, better pay, great pensions and they are indexed which will protect them from the ravages of coming inflation. They are the elite.
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Well, Scott, while I truly understand the sentiment and hear it enough, public servants even those at the very top are all part of the “other 99%” to use the current perspective. Of course those at the top ought to be paying higher taxes and that goes even more for the private sector millionaires and billionaires that pay less today than ever – but when ordinary Canadians start fighting among ourselves, when public and private, unionized and not, start fighting among ourselves everybody loses. Why push for a race to the bottom? Why not fight to protect collective bargaining, higher minimum wages, and better pensions for everybody?
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Of course. “Governement” workers are the new elite.
You forgot to say lazy and unionized.
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And bloated, always bloated
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And just who exactly persuaded you of this view; the folks who would rather NOT have to deal with collective bargaining, decent working conditions, and fair wages?
In some respects, you illustrate the very point that Alex is trying to make in using the descriptor “mean”. Normally, us plebians and unwashed would have used the depiction of “the elite, with better pay, great indexed pensions, and protection from inflation” to describe the very top of the ladder in corporate Canada/America. But to what extent is it in the best interests of those very folks to create the impression that the middle class who desire those same things are *undeserving of them*, just so that those very privileges can be secured by that top few percent?
Don’t you ever wonder whose interest it is in to foster a sense of envy about the public sector? Don’t you ever wonder why the same voices do not complain or foster resentment about those aspects of the public sector they all too often rely on for profits? For example, how often do those same voices talk about a “bloated useless military”, or a “lazy, overpaid infrastructure industry”?
I’m not aiming to be some jingoistic 60’s Marxist-Leninist-Maoist party flunky, but I think the rush to blame and shame the public sector should not be treated as the sort of conclusion that any “sensible” citizen would come to on their own without any outside influence. There ARE those who view a vital public sector as anethema to their interests, and do wish to influence the debate in their favour.
The public sector HAS all those “perks” largely because it is big enough to have bargaining agents of some substance, rather than nickel-and-dime collectives as is often found in the private sector. They acquire what they acquire because they speak with common voice. I might note that in conversations with American colleagues a couple years back, they conveyed there were moves under the Bush administration to partition U.S. public sector workers by agency in order to, deliberately in their view, render the unions ineffective. If I’m not mistaken, employees of Homeland Security are in unions separate from other federal agencies, and as one colleague put it to me “You can bargain for whether you have to buy your own uniform and stuff like that, but not much more”.
Finally, and even though I get tired of having to repeat it, the anger towards the public sector is largely a result of what is often referred to as “wage compression”. The people at the bottom DO make more and have more benefits than their private sector peers, but the people towards the top make less. The anger towards the public sector comes largely from folks in blue collar and other (currently) unstable and underpaid areas of employment who see only the bottom rungs but not the middle and top ones. I know from surveys conducted of members in the field that my peers in the private sector, with the same credentials and experience, earn about 50% more than me. I’m not complaining, just noting that the loudest complaints come from those who view the public sector with blinders on.
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I’d like to point out that Adam Smith’s ‘rules of decency’ is particularly instructive in the context of income/social inequality. He suggested that if the absence of a linen shirt or the absence of a leather shoe is the cause of embarassement or causes a loss of self-esteem, then no one should be without a linen shirt or leather shoes because those things then become part of the necessaries for what is essentially a life lived well. I suspect that Smith’s ‘rules of decency’ in the present context set a higher moral standard than a test of fairnes, particularly if you think of the idea of fairness in Rawlsian terms. In more contemporary terms, the American philosopher, Nicolas Wolterstorff’s, “Justice, the rights and wrongs,” has much food for thought to offer..
While the TD Bank Economics group looking at the Calgary/Edmonton Corridor in 2003 and again in 2005, pointed to a growing income inequality, on one in public policy seems to have paid much attention to those reports. Although somewhat speculative, one of the contributing factors to the inequality the TD economist wrote about, reflects the Ralph Klein government’s decision to introduce the flat tax. In effect, it transferred about $2.0 billion of provincial revenue to the well off and the wealthy. The result is a decaying public physical and social infrastructure with the most recent balloon coming from the government is about re-introducing health care premiums in order to re-attach Albertans to the cost of health care. The fact of the matter is that the vast majority of Albertans and I suspect Canadians, are already very attached to a public health care system.
One has to wonder, whether the international political class who typically attend the Davos meetings paid meaningful attention to the topic in 2011. Probably because of the ‘ocuppiers’ and the recent letter of its Founder, those expected to attend in 2012 will be compelled to do so.
Finally, I am constantly amused by the new breed of philanthropists who typically explain their gifts as a way of “giving back to the community” that enabled them to accumulate very large sums of money, power and influence. Granted, its somewhat flippant, but my comment would be, “Why did you take so much in the first place?” Besides, it shouldn’t be overlooked that these large sums, often in the multiple millions, come with generous reductions in taxes, effectively transferring a good part of the cost to the others.
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Thanks Jake. I think it fascinating to compare what Smith said about inequality and progressive taxation with what neoliberal economists now say.. Thanks for your insightful contribution.
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Although this is but a line of discussion within a blog, I’ve enjoyed reading every single comment, and found the breadth of the perspectives to be useful in exploring this rather complex field of public policy, My complements to Alex for his thoughful and respectful moderation of the discussion points. I will certainly continue to explore the various discussions associated with this blog.
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That is wonderful Greg. Welcome aboard.
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