The New Normal: Piketty’s Apple

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With respect to the social and economic dysfunction arising out of the current level of wealth inequality, this is our situation in a nutshell:

Thomas Piketty’s Apple[i]

Thomas Piketty provides us with a brilliant exegesis on the mechanics of wealth disproportionality among and within nations in Capital in the 21st Century. Based upon my understanding, I expect that the disparity in wealth among Canadians will continue to increase, and over the long term; and that the Justin Trudeau Liberals, despite even the best of intentions, could prove powerless to effect an economically and socially healthy distribution of wealth in a significant and lasting way. [ii]

In the hopes of providing an easily digestible explanation, I’m going to be talking ‘apples’ (but not oranges!).  Piketty’s apple represents the total amount of income a nation generates in one year. The apple tends to grow larger each year, and the change in the apple’s size, from one year to the next , represents the change in national GDP.  Piketty found that wealth inequality is bound to attain the level of a socioeconomic  pathogen, given enough time and under the right conditions. The culprit he identified is not slow growth, or even negative growth; the problem is when  the rate of return on investment (the investors’ chunk) continues to be larger, even if only by a little, than the rate at which the nation’s economy is growing. Over time, as the size of the investors’ bite increases in proportion to the size of the apple, there will be too little of the apple leftover to adequately distribute in the form of wages, benefits, and social assistance. As the money supplied to the lower tier continues to shrink, we will observe a commensurate increase in the number of Canadians joining it.

The lower economic tier’s ability to pay into the national, provincial, and municipal tax pools will decrease. This phenomenon,  in combination with the favourable tax-environments that all governments provide to multinationals and individuals who can afford to invest,[iii] will seriously hamper governmental ability to gather tax revenue (go figure).

There will be less money for governments to redistribute in the form of benefits and other social programs. An increasing number of individuals will fall into the abyss of abject poverty through the widening gaps in Canada’s social security net. Fewer children will be properly provided and cared for. Right now, our provincial government is selling off public assets; forfeiting future revenues for a quick fix that is less in dollar value. Intense pressure will arise for government to find the money to keep pace with the demands of an increasingly impoverished citizenry. After they have sold off Ontario’s arms and legs, there will be no other option left to the government but to reduce the remuneration paid to public sector employees.

I am concerned that the next time our provincial government and public sector unions arrive at an impasse during  negotiations, public pressure may, by that time, weigh unfairly against the public service. Unfairly because it seems the government’s fiscal and economic policies created the dearth of tax revenue in the first place. It does not seem that this government understands the nature of Ontario’s ongoing socioeconomic problems.

It certainly is not because teachers and other unionized public service professionals are paid too much; rather it is because most of us are paid far too little-that is, if we even have a job.[iv] Notwithstanding the truth of the matter, the government will one day feel obliged to cut the remuneration paid to unionized public service pros, even as it continues to increase the demands placed upon them.

Most public servants, but for essential services, will eventually end up in the crosshairs of all governments. The police  might reasonably be construed as untouchable because they are certain to get busier as more people fall into poverty. At some point, police intervention will be the only means available to governments to provide social stability. The poor person’s social entitlement will often be a jail cell or berth under a bridge somewhere.

The general condition of the lower tier: the amount of money available to it is decreasing even as its ranks are growing. Contrast this with that of the upper economic tier: the amount of money(capital) is increasing even as its ranks are diminishing.

I don’t believe any of this is rocket-science. I do believe governments need to benchmark their actions and policies against the standards of justice and socioeconomic pragmatism with respect to the distribution of wealth. In addition, we need our elected people to focus exclusively on governing; never on getting re-elected, until the writ drops. If they honestly do their best, and do their best honestly, the only concern left to voters is whether or not they prefer a left-leaning values approach to governing, a more centred approach, or perhaps one that proceeds more from the right. That’s exactly how it should be in a democracy.

If a party, upon forming a government, works hard for everyone, and we, as citizens of Canada, work hard for our country, province, communities, and families, we will be both bastion and beneficiary of a true  democracy in action. There can be NO losers. But it requires all of us to take the time to become informed and engaged.

It also requires that truth, openness, and honest enquiry be our guiding principles.

[i] To be precise, Mr. Piketty does not use an apple to explain his economic theory. Nevertheless, I find the apple an easy way to demonstrate the process.

[ii] To help demonstrate the offending processes that Piketty has identified in his opus, I’ve elected to use an apple. I could have chosen an orange or a banana, but I like apples, and besides, apples have inherited such a bad rap, I feel sorry for them. With the eviction-from-the-Garden thing, I figure it’s time we offer the apple a chance to redeem itself; by helping us find our way back to the Garden!

[iii] Governments are rendered beholden to corporations because they play one nation’s desperation against the others, in order to acquire the best tax deal; thereby enhancing profitability for their investors. At the same time, taxation regimes remain less favourable to small business. I find this an odd direction for national governments to take, since small business is more likely to hire locally; pay and treat their employees better –in general, are motivated to form a good relationship with the community they are situated in. Now, think Alberta Oil Sands and low oil prices: our multinational corporate bosom-buddies shutdown and left town – without even bothering to clean up the mess they made while they were here.

[iv] This was not a problem after WWII. The paucity of skilled and unskilled labour in Europe, Asia, and the Americas during the rebuilding phase after the war meant that labour in these countries was as valuable as gold. The upper tier, inclusive of our ruling class, was doing well but wasn’t as wealthy as today. The lower tier was also doing well; so well in fact that a healthy bell-shaped distribution of incomes emerged within Canada, and Canadians existed somewhere on an uninterrupted continuum from the lowest income to the highest capital holdings. At that time,  Canada was, in essence, a society exhibiting a naturally healthy distribution of wealth. The curve I am describing is, of course, the normal distribution.