Hey there, time traveller!
This article was published 21/11/2016 (1234 days ago), so information in it may no longer be current.
So much gnashing of teeth has occurred since the U.S. election as almost every pundit pores over survey data trying to understand what happened on Nov. 8. Social commentators and other shamans sift through the entrails of our culture trying to make sense of the unthinkable election. Half of North America seems to be in grief counselling.
The answer is much easier to understand, and thankfully, economics offers some insight.
In simple terms, the world economy has fallen into a chasm. Before 2008 and the Great Recession, the United States economy was growing at five per cent per year. Since 2008, growth has slowed to two per cent.
A fiscal hole has opened, and it continues to deepen as growth remains sluggish. The same can be said for the majority of the world’s economies.
Coupled with slow growth, our economies have become less equal by any measure. A divide has opened between the rich and the poor, which started well before the crisis in 2008. The turning point, again using U.S. data, seems to be the mid-70s, just as the dot-com revolution unleashed Microsoft and Apple.
It is too easy to see inequality as capitalists exploiting workers — that analysis belongs to the 19th-century industrial society. Rather, economic inequality reflects choices we all make.
One powerful process in the perpetuation of economic unfairness is the marriage of equals. When a doctor and lawyer marry, they create a household whose joint income can reach $500,000.
Naturally, they want the best for their children, and with this income can offer every advantage. Their "Montessori" children have enriched lives, go to the best schools and make the right connections to assure their own careers. The inheritance of money is secondary to the inheritance of knowledge and connections.
Even when a university professor and police officer marry, they will create a household with an income exceeding $200,000, the target often identified by our politicians as deserving special tax treatment.
The critical divide driving inequality is the mastery of modern tools — mathematical, technical understanding and social insight. Those excluded from this club will slip down the economic ladder.
Low growth and inequality are the thrashing monsters of the deep that churn the political and cultural surface. Quelling these two beasts must be our top economic priority. So far, no one seems to have an answer.
Part of the riddle lies in choices we have made collectively to eliminate risk from our lives. Privately, we purchase insurance, but that is secondary to how we have opted to increase the scope of government and regulation. Certainly, lax regulation was a factor in the crisis of 2008, and in Canada we are thankful that our financial sector was constrained in its risk-taking.
However, imagine if the U.S. and Canadian governments had not bailed out the car industry in 2008. GM and Chrysler would have been sold, with shareholders taking a large loss.
The idea that all auto industry jobs would have disappeared is not correct. Purchasers of the assets, likely Toyota or another large company, would have maintained the brands. Unemployment would have increased certainly, but most of the job loss in the auto industry has no relation to the 2008 crisis. The rise of robots is the primary factor.
In Canada, the periodic pleas from Bombardier for cash infusions from government reflect shareholders scurrying to safety. The threat of massive job loss looms and the government, or "the taxpayer," responds.
But here is the kicker: as taxpayers, we are also shareholders, through our pension plans and retirement funds. Taxpayers and shareholders embrace in a downward spiral of incremental bailouts and regulation to avoid risk.
Our economy is dying a death from a thousand shaving nicks. We rush around, plastering Band-Aids on in a desperate attempt to staunch the blood loss, but the patient has become immobile under the weight of our quick-fix remedies.
We need to kick-start the world economy. Low interest rates have not worked, and the only answer from government is massive infrastructure spending. So far in Canada, we have seen little evidence it is working — of course it may be early days and we may not be incurring enough debt.
Without some willingness to take on more risk and to assume more individual responsibility, the economy will remain moribund. The beast of low growth and its spawn, inequality, will continue to roil below the surface. Rather than making the tough choices, in desperation, we seek saviours who promise economic salvation.
W.B. Yeats said it best in his immortal poem The Second Coming: "And what rough beast, its hour come round at last/Slouches towards Bethlehem to be born?"
Gregory Mason is an associate professor of economics at the University of Manitoba and a senior consultant at PRA Inc. His views are his own.