Thursday, November 01, 2012

Justin Trudeau & the Hollowing Out of Canada's middle class

PEW analysis of the 3 classes in the USA
Justin Trudeau has written an opinion piece for The Toronto Star dealing with the hollowing out of Canada's middle class, and laying out some guiding principles for the Liberal Party should he become its leader.

Trudeau's Observations:

Here are some extracts from the piece:

This squeezing of the Canadian middle class does not need to be explained to those who live it every day. But some commentators have their doubts. They point to modestly rising family incomes as an indication that the middle class is doing just fine. A closer look shows that family incomes in the middle have risen for one primary reason: the unprecedented entry, en masse, of a new generation of well-educated, hard-working Canadian women into the workforce. However, this was a one-time event, and begs the question: Where is the next wave of growth going to come from? Because the bottom line is that individual middle class wages have stagnated for decades.

This is compounded by increasing income inequality, for which we see compelling evidence. We have had growth: In the past 30 years, the Canadian economy has more than doubled in size. But unlike times before, virtually all of the benefit of that growth has accrued to a small number of wealthy Canadians. The most recent data indicates that this trend is accelerating. At the same time, the middle class is carrying unprecedented debt levels and facing an increasingly inaccessible housing market, especially in cities like Toronto, Calgary and Vancouver.

No wonder, then, that I’ve heard from too many people across this country who are questioning whether their kids and grandkids will achieve the same quality of life that we enjoy today.

I have nothing against wealth; I believe that government has a role to play in creating it by supporting pro-growth policies. However, success comes with responsibility. Proportion matters, broadly felt economic security matters, and upward mobility matters. We are losing all of those. If we do not attend to this problem, we should not be surprised to see the middle class question the policies, and the very system, that values and encourages growth.

In short, our current political leadership has left the middle class out of the growth equation in Canada, and that’s a dangerous development for everybody.

The Trudeau Principles:

Trudeau's principles for the party are general ones:

The Liberal party I want to lead would pursue pro-growth policies, and actively seek to broaden the positive effects of economic growth..

So what would a new Liberal agenda look like? First, it will be based on evidence, not ideology...

The solutions we propose will have to be affordable. We need a more inclusive approach to post-secondary education — universities, technical schools, colleges, trades, apprenticeships. We need to support job creation through innovation and productivity growth...

Because capital is mobile and our domestic market is small, we need foreign direct investment and export growth to support job creation here in Canada...
 Running through this all is the continued need for a stable social safety net, essential to the middle class’s standard of living and economic security.

But nobody knows all the policies that will be required. The policies of the past have not worked.

The PEW Report on the Hollowing Out of America:

PEW - Median income USA

Picking up Trudeau's comment about facts not ideology being the guiding principle for LPC policies in this area, it is worth our while to study in detail the latest PEW poll that analyses the same hollowing out problem in America. PEW speaks of the "lost decade" for the American middle class.

The amount of detail in the poll is staggering, and a lot of it is transferable to Canada.

This is a summary of the major thrust of the PEW report:

Trends in income for lower-, middle- and upper-tier households show that in the past four decades the United States has been a society characterized by rising prosperity and rising inequality. Income rose for all three tiers, but it increased the most for the upper-income tier and the least for the lower-income tier. As a result, upper-income households accounted for a larger share of U.S. aggregate household income in 2010 than they did in 1970.40 The increase in their share of aggregate income exceeded the increase in the share of adults that live in upper-income households.

Trends in wealth, data for which are available starting in 1983, tell a slightly different story. 

From 1983 to 2010, there was a notable increase in wealth only for the upper-income tier. The incomes of middle- and lower-income households may have increased, but their net worth has stagnated and their long-term security may not be as secure as suggested by the trends in income.41 Moreover, the growth in the wealth gap across income tiers easily outdistances the growth in the income gap.

The disparate trends in income and wealth emerged in the Great Recession. The recession caused income to fall by similar percentages in all three income tiers. However, the loss in wealth was much sharper for the lower- and middle-income tiers. Those setbacks were large enough to turn the clock back on the net worth of lower- and middle-income households by about two decades or more.

The steep decline in the net worth of lower- and middle-income households is a consequence of the housing boom and bust that preceded the Great Recession. These households are twice as dependent as upper-income households are on home equity as a source of wealth. Furthermore, in the run-up to the recession, they took on relatively more debt in relation to their assets than did upper-income families. Much of that new debt was secured by their primary residence. Thus, lower- and middle-income families were more vulnerable to the crash in housing values that preceded the recession.

Note the respondents views of who is to blame for their lost decade.

What surprises me the most is the relatively small portion of blame they ascribe to foreign competition for jobs. To me this simply illustrates that ignorance of the impact of globalization and unfettered free trade agreements is widespread in America.

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