Category Archives: Income Inequality

Where’s the Recovery?

senate

A key reason that the economic recovery has been unable to gain momentum is that our policies have been doing precisely what basic macroeconomics says we shouldn’t do. By cutting government spending in the middle of an anemic economy, we’ve been engaging in a self-destructive process calculated to increase long-term unemployment. Austerity policies are counterproductive not only from the perspective of growth and employment but even in strictly fiscal terms.

Published in the Telegraph-Journal 23rd April 2013

Just when it seemed that the U.S. economy was finally on the right track, it has again lost momentum. And in the process, America’s wobbly economic performance has shaken confidence in the prospect that the world’s economies could rise above the anemic performance that has characterized them for more than four years.

The year started well enough in the United States. In the face of a sizable tax increase on January 1st, employment, retail sales and housing all improved substantially in January and February. GDP grew at an estimated annualized 3 per cent in the first quarter while stock markets reached new highs.

The bottom fell out in March. Employment growth, reaching an average of 208,000 in January and February, slowed abruptly to register only 88,000 in March. Retail sales declined as did new construction starts on single-family homes. The dip in housing activity is especially problematic since fundamental determinants, such as low mortgage rates and lean inventories, and an increase in the household formation, had been pointing to continued gains.

Predictably, the economic slump in the U.S. has had its impact in Canada. The Canadian economy lost more than 54,500 jobs in March 2013, according to Statistics Canada. That figure pushed Canada’s jobless rate higher to 7.2 per cent and represents the worst month for Canadian employment since February 2009. In addition to January and February job statistics, the latest numbers show that the Canadian economy has lost more than 26,000 jobs in 2013.

Explanations for the American decline ranged from the possibility that government statisticians failed to adjust the economic data for seasonal effects to the impact of different hiring patterns between large and small firms. Neither of these explanations is persuasive and in any event fail to take into account why economists have been so wrong in their job forecasts over the last 18 months.

The likelihood that the sputtering American economy is the consequence of a single or even a concatenation of misfortunes is extremely low. We are better off to blame global incidents such as those in Cyprus or North Korea or the instability of oil prices, though none of these credibly explain the scope and scale of America‘s weakness.

The more likely culprit is austerity. Stalemates in Congress have resulted in the expiry of a payroll-tax cut and the imposition of higher income taxes on the wealthy which will cost American taxpayers $150 billion in higher taxes in 2013. A similar lack of Congressional resolve resulted in the “sequester” which on March 1st brought across-the-board federal spending cuts worth $85 billion in the current fiscal year. Economists who have been critical of austerity, such as Paul Krugman, have remarked that the American economy may now be less resilient in the face of austerity than it was when austerity measures were first imposed.

Despite the stalling economy, the stock market has, in the main, shrugged off the bad news. This further reinforces the claim that the performance of stock markets bear no relationship to the actual economic experience of most Americans. Moreover, there is emerging evidence that large companies are faring much better than small firms. A substantial number of these large firms operate offshore where the benefits of their growth and profitability do not contribute to the health of the American economy directly. That large firms expend far more lobbying dollars on Congress than their small company counterparts will come as no surprise to critics of Beltway politics.

It is clear that the U.S. economy has not shrugged off the effects of austerity. Instead, it still limps along with growth hovering around 2 per cent. At some point, the evidence that austerity has not achieved its stated objectives will become too difficult to brush aside. For millions of unemployed, this moment cannot come soon enough.

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Filed under Austerity, Economics, Income Inequality, Unemployment

Employment Insurance Reforms Are Inevitable But the Methods Are Not

By Peter Lindfield, published in the Telegraph-Journal 15th June 2012

The federal government recently announced sweeping changes to Employment Insurance (EI) that will have dislocating effects for many workers across Canada. In the Maritime Provinces, workers in industries that have seasonal characteristics will be particularly hard hit as the government’s new rules attempt to reduce their reliance on EI during what can be months of unemployment. The new rules place more stringent conditions on workers with three or more EI claims in the past five years, or who have collected EI for more than 60 weeks in the past five years.

Seasonal workers in industries such as fisheries, forestry or tourism would be considered frequent claimants and would be required to accept work for which they are qualified after collecting EI for seven weeks. If required, training would be provided to allow workers to learn new skills. Long-tenured workers and occasional claimants who collect EI less frequently would be given more latitude to find employment.

These new EI rules have been met with derision by opposition political parties, but some business groups welcome the changes. “These new rules should help push people off of a pogey lifestyle and into steadier jobs,” said Gregory Thomas, national director at the Canadian Taxpayers Federation.

Some critics of the government’s changes to EI have complained that a significant number of seasonal workers will be required to travel substantial distances to find year-around work. Other criticisms stem from observations that many workers will be forced to accept employment far removed from their chosen vocations.

Federal government officials deny both charges. “These changes are not about forcing people to accept work outside their own area, or taking jobs for which they are not suited,” said Human Resources Minister Diane Finley at news conference.

There is no denying that Canada’s social programs require an overhaul. The responsibility of government is to find that balance between fiscal stability and social conscience. With the global economy and the harbingers of fiscal and demographic constraints becoming more apparent, there is no guarantee that this twin trajectory can be maintained. At the same time, the gap between haves and have-nots is increasing. It is not a recipe for political, economic or social success: increasingly, this gap is a source of real social discontent.

There may be a better way to address the intersection of social and economic issues. The graduated way in which government introduced recent reforms to the Old Age Security (OAS) is a stellar example. Rather than instituting massive changes in one sweeping move, government has chosen to grandfather today’s recipients into the current plan for an extended period. A similar approach to EI reform could be made to pay large dividends. An orderly and measured transition from flagging industries and moribund locations to more productive ones could be made over the period of years rather than months. A precedent embalms a principle, observed Benjamin Disraeli.

More troubling is the overtly moral tone that has emerged when discussing the recipients of Canada’s social programs. One of the hallmarks of this moralism is the exasperation with what some consider the piousness of the soft-hearted left who are also considered enemies of the work ethic. This reactionary perspective is neither founded in fact nor helpful.

In fact, the consequence of this animus of work ethic moralism represents a danger to the larger project of comprehensive human decency. The current capitalist paradigm vastly underrates the value of economic equality and social stability. For most of the more than two hundred years since the Industrial Revolution, this has been inconsequential, as relentless technological advancement has tended to compensate for short-sighted policies. But economic globalization has re-written the rules in a profound way.

As with the changes to the Old Age Security program, Canadians should view reform of Employment Insurance as part of the blueprint for the Canadian identity. We will achieve greater success if we consider political, social and economic reforms not as a political mandate checklist, but a long-term journey.

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Filed under Government transformation, Income Inequality, Social contract, Social policy

The unraveling of the social contract

Across much of the developed world, income inequality is increasing, according to a recent OECD research report. It is part of a trend that will continue unless governments move aggressively to arrest it. Don’t expect any concerted action anytime soon, however. Governments are fixated on their fiscal crises and the run-up to the American elections in 2012 effectively places the issue on the back burner.

Employment is the most promising way of tackling inequality, the OECD notes. But that’s another problem that waits in line behind fiscal challenges, apart from responses that are inadequate to the task.

What’s at stake? “The social contract is starting to unravel in many countries,” OECD Secretary General Angel Gurria said in a statement to the Washington Post. “This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise.” The meaning of “unraveling” differs from country to country and often regionally as well. Even countries whose economies have fared well in aggregate are experiencing unrest. But in many nations what has suffered already is trust in government and public confidence that income inequality or unemployment issues are priority issues.

In some countries, the boiling point has already been reached.

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Filed under economic development, Income Inequality, Social contract