Inequality Just Keeps Getting Worse

The distribution of income is a function of power. It is also an outcome of power. The powerful use their power to maintain that power. One of the results is worsening income distribution. 

Data Source: Statistics Canada Table 11–10–0192–01; calculations by author

Data Source: Statistics Canada Table 11–10–0192–01; calculations by author

It is a fitful process. However, in Canada, the distribution of income has steadily worsened. 

In 1976, the top 10% were paid 5.0 times the income of the bottom 70%. In 2017, the ratio was 7.2 times.

In fact, in 2017 the price-adjusted income of the bottom 70% of Canadians was lower than in the late-1970s. Meanwhile, the wealthiest 10% of Canadians were receiving over 50% more income. 

One of the things powerful people do with their power is ensure the system continues to favour them. Of course, within the most powerful cohort, there is no single, simple, consensus on how best to maintain the status quo and entrench their power. This is one reason federal electoral victory in Canada has oscillated between the Conservatives and the Liberals. Both parties protect the position of the most powerful but do so with a different mix of policies.

The distribution of income has worsened under both parties, although it has taken a different form. 

On average, income growth for all income groups is lower during Conservative governments than during Liberal governments. The bottom 70% actually suffered an average income decline of 0.2% per year under Conservative governments. The top 10% average income gains of 0.5% per year. 

With the Liberals in government, both the bottom 70% and the top 10% generally see income gains. However, the gap between the two groups grows more than under the Conservatives.

Under the Conservatives, the income of the top 10% grows 0.7 percentage points more per year than the bottom 70%. Under the Liberals, the richest decile gains 0.8 percentage points per year more than the bottom 70%. 

Indeed, in 2017, under the Liberal government, the ratio of the income of top 10% to the bottom 70% hit its highest level ever as the top 10% received its largest one-year increase—$9,200—in almost 20 years.

Our tax system somewhat reduces inequality. The after-tax income of the bottom 70% has increased 15% since the late-1970s, while the top 10% has gained 45%. Through the 1980s and early 1990s, after-tax inequality slowly increased. Then, under the Chrétien/Martin Liberals, after-tax inequality jumped substantially. With both the Liberals and Conservatives prioritizing tax cuts that favour the top-end of the income hierarchy, this trend of worsening after-tax inequality will continue if either party takes the election.

Income inequality is a problem for many reasons. First, and most obvious, it is unfair. The highest paid do not work harder or contribute more to society. This is not to say they do not work hard and do not contribute. Some do and some do not. The place where any income-earner is found on the income ladder is largely a product of luck.

Both luck of birth and luck of circumstance are incredibly consequential in how much we will be paid and how wealthy we will become. Warren Buffet, one of the three richest men in the world, has acknowledged that with his set of skills, if he had been born almost anywhere other than the United States in the first half of the 20th century, he would not be so obscenely wealthy.

More worrisome than the fairness of inequality is the distribution and use of power. The rich wield excess influence within our political institutions. Our voting system may be one-person, one-vote but our economy is one-dollar, one-vote. One thing that the rich buy with their riches is influence. And, returning to the point made at the top, one of the most important goals of that influence is to maintain the status quo and their relative power.

Improving both pre- and after-tax income distribution is not just about achieving more fair outcomes, it is also about minimizing the excessive power and influence of the richest members of our society.

Profiting Off the Cheap Disposal of Plastics, or Microplastics are Raining Down from the Sky

“Microplastics are raining down from the sky.”

That is a sentence that should only exist in science fiction.

This is just one more externality associated with profit-driven production. The quest for profit will always drive cost-cutting and externalization is one of the most effective means of cutting costs. The entire price landscape would be different if we had to pay for the clean-up and proper disposal of these microplastics. In a sustainable economy they would be returned as an input to production. The high cost associated with properly managing their recirculation would provoke substitutions and innovations.

There are beneficiaries of this destructive and unjust externalization of costs. Many of those beneficiaries undoubtedly claim personal virtue – thrift, hard-work, foresight – as the reason for their financial success. The truth is that others subsidize their gains. The profitability of any plastic-using product depends on our ability to cheaply – or freely – dispose of plastic products where they get widely distributed into the global environment.

Dealing with our multi-faceted ecological catastrophe does not mean killing the economy. It means transforming the economy. Those who claim measures to address ecological destruction will produce economic harm are actually saying they benefit from the destructive status quo. They are not willing to sacrifice their own lifestyles to ensure basic liveability for others, including future generations.

Airbnb Caters to Tourists and Harms Residents

Airbnb is making city life worse by catering to worsening social inequality.

Thomas Piketty’s monumental Capital in the Twenty-First Century came out in the wake of the Occupy movement. Both sounded the alarm over rising wealth and income inequality. Piketty put numbers to a reality that Occupiers understood and opposed.

Financial inequality has a plethora of material expressions. The poorest of the poor suffer abject deprivation. This comes along with mental health challenges that compound the effects of the structural causes of poverty. Meanwhile, the wealthiest of the wealthy have lavish lifestyles, which also contributes to mental illness. Between the two extremes the majority experience myriad socio-economic transformations as businesses chase dollars trickling upward to the already-rich. Increasingly, businesses look to cater to those with disposable income or those going into debt trying to consume like the wealthy. Systems of production and consumption are shaped by our one-dollar, one-vote economy.

It is in this context that Airbnb has become socially harmful. When it first came to public attention, Airbnb exemplified the promise of the so-called ‘sharing economy.’ The idea was that some people have spare rooms and other people need access to cheap, short-term accommodations. It seemed like a win-win. It also seemed like a tick in favour of the good, old-fashioned market, as well as new-fangled platform capitalism. Airbnb was supposedly facilitating the law of supply and demand to more completely fulfill its potential. For just a small slice of the price charged to the renters, Airbnb provided the means for people to rent their own homes when they were travelling elsewhere or to make some money renting a room in their home. The reality has been much different.

A Toronto Star / Munk School of Global Affairs and Public Policy investigation found that Airbnb has facilitated the rise of “ghost hotels”. These are short term accommodations for tourists in what would otherwise be lived in by owners or long-term renters. Tourist accommodation is displacing housing. UN Special Rapporteur on the Right to Adequate Housing Leilani Farha says the reason is that this is “simply more profitable.”

Airbnb approached the issue of the accommodation market as simply a technical matter. It completely ignored the social context into which that technology was entering. Many of its effects now seem predictable. Perhaps they would have been if the company had social scientists on staff.

The effects of Airbnb are externalities to the markets in which it operates. Some of these are positive externalities. Many businesses cater to tourists. With more rental options more tourists will come to a city. If accommodations are cheaper then tourists can spend their dollars elsewhere. However, the effects on long-term rentals are a negative externality. The consequences will compound and cascade. As people are priced out of a housing market they move further away. Many will leave the local labour market. The same businesses that benefit from more tourists will have more difficulty finding workers. Businesses frequented by lower wage workers will lose their customer base and close.

Whatever ‘sharing economy’ ideals may have motivated the company’s founders, Airbnb is now emblematic of the significant damage a tech company can do outside the digital world.

 

Cheap Goods Come at a Cost

The fascinating chart below tells a tale of ever cheaper consumption. It can be read as verification of one of capitalism’s promise: pursuit of profit results in productivity gains that lower costs and prices. The other profit promise is it leads to innovations that will become widespread as they enter the cycle of cheapness. Continue reading →

There is No Such Thing as the Free Market

Two popular turns of phrase among those who support unfettered free markets are ‘leave it to the market’ and ‘let the market work.’

The phrases are deployed as solutions for a wide range of issues, such as environmental regulation, government subsidies, unionization, minimum wage, rent control and education funding. However, ‘the market’ invoked by these phrases does not—and could not—exist. At best, these vocal free market advocates are utopianists, believing in a system that could never exist. At worst, they are rhetorically advocating something they know is impossible to obfuscate self-serving purposes.

Basic economic theory claims that markets allow an ‘invisible hand’ to balance supply and demand, which maximizes well-being. Although economics has grown intimidatingly complex, this remains the foundation of mainstream theory. When pundits, politicians, businesspeople, and others tell us to ‘leave it to the market,’ they are implying that actual markets function like this theoretical market. However, actual markets have nothing in common with the abstract markets of economic theory.

Constructing a theoretical market

To construct the efficient market of economic theory, economists perform two separations.

First, they separate markets from the rest of society. Governments, religions, cultural practices, families, laws and every other social institution are deemed ‘exogenous’ in the economists’ parlance. Similarly, the individual’s desires are deemed exogenous. In this fantastical market, functioning out of time and space, we enter to make our exchanges, uninfluenced by the rest of our social life. And, when we leave the market, we are unaffected by the exchange, with no impact on anyone or anything else.

Second, they separate producers from consumers. In order for theoretical markets to produce a single, stable equilibrium, economists adopt a few assumptions. The independence of supply and demand is one such assumption. If supply and demand are not independent, then there is no single equilibrium and no basis for claiming a given combination of price and quantity is fair and efficient. Yet, the assumption of supply and demand independence is patently at odds with one of the most visible aspects of market societies: marketing.

The entire purpose of marketing—from ubiquitous advertising to meticulously designed packaging to the charming salesperson—is the influence of demand. Businesses spend enormous sums of money trying to understand consumer decision-making in order to entice the purchase of their products. Advertisements are painstakingly created, with every word and image detail scrutinized. Store layouts are continuously tinkered with to increase the attention a customer gives to the goods. Even sellers at farmers’ markets will agonize over their displays. Would so much money and effort be devoted to marketing if it were completely worthless? Indeed, if marketing were a useless undertaking, it would undermine another basic assumption of mainstream economic theory, which is that individuals are perfectly informed, rational decision-makers.

Markets are historical

While theoretical markets are asocial and ahistorical, actual markets are both social and historical.

The functioning of markets is throughly mixed up with culture and politics.

Consider the car market. Demand for cars is not driven solely by the desires of isolated individuals. The car is an indelible part of American culture. Many people express themselves through their cars and the companies design advertising that plays on that relationship. Design trends connect the appearance of cars to certain periods of time. The car companies create, facilitate and respond to these trends. There are technological innovations that come both from inside and outside the R&D facilities of the manufacturers. Car sales are greatly affected by the price at the pump, which is itself affected by events in the Middle East. The car, and the market for cars, cannot be separated from the rest of society.

Or, consider the pipeline debate currently raging in Canada. What would it mean to leave pipeline decisions to ‘the market’? Constructing new pipelines would facilitate the export of bitumen from the Alberta oilsands, allowing production facilities to increase output. However, the pipelines must cut through other people’s communities, bringing the risks of spills with them. It is owing to this risk that so many people beyond the buyers and sellers of pipeline capacity, and beyond the buyers and sellers of oil, are weighing in. Some supporters of pipelines are suggesting that construction of them is a ‘nation building’ exercise akin to the railroad. Both sides of the debate are connecting pipelines to other social institutions. Pipelines are political, whether free market advocates want to admit it or not. 

Conclusion

Pipelines and cars are not the exception. They are the rule. Every market emerges from the interactions of numerous people and institutions. And, every market affects people and institutions outside those responsible for supply and demand. Fruit and vegetables rely on migrant workers, which tend to be drawn from precarious racialized communities. Construction is affected by housing demand that is further affected by interest rates set not by dispassionate markets, but by a committee of central bankers who pretend to mimic the theoretical market. Long-distance transportation costs are affected by the capacities of global ports, the building of which affect neighbouring communities. Coffee markets require inspection mechanisms so companies can ensure their brand is associated with reliable quality.

Another favourite phrase among economists is ‘there’s no such thing as a free lunch.’ Yet, they seem to have convinced themselves that the functioning of markets is precisely that. The reality is, far from being free, markets require a great deal of time and effort just to exist. But, all that work disappears as a ‘free lunch’ in the theory of supply and demand and in the rhetoric of free marketeers.

There is no free market that things can just be left to or we can simply let work. The invisible hand exists nowhere outside the utopian fantasies of free marketeers. By obfuscating the difficult work needed to make a market, mainstream economic theory and market utopianists make it more difficult to understanding how real markets actually work. 

The Pinkertons are STILL Muscle for the Bosses

The New York Times reports that the Pinkerton Detective Agency has evolved to respond to the climate crisis. Popularly known as the Pinkertons, the company is best known as the strikebreakers that provoked violence at the Homestead Strike. While it is widely thought that the state has a monopoly on the legitimate use of violence, the Pinkertons employ legitimized violence on behalf of the powerful and the wealthy. Continue reading →

Climate Change Is the Biggest Crisis But It Is Not the Only Crisis

Obviously climate change poses a massive crisis. The climate is a factor in every part of human civilization. It is the reason some parts of the world are arid, some are temperate, some have a wet seasons and some are deserts. The societies that emerge in these different climactic regions are shaped by their meteorological features. The rhythms of their agriculture, the design of their homes, the diseases they are exposed to, and much more is the product—in part—of the climate.

By changing the climate we are disrupting a fundamental determinant of the patterns of human life.

But climate change is not the only ecological crisis.

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As York Professor Justin Podur notes in this tweet, we face other existential threats. He could have put ellipses at the end of the sentence, since there are others. And each of the threats he names—mass extinction, soil loss, ocean death—is multifaceted and entangled with each other and with climate change.

For example, the destruction of whale populations is connected to climate change. The two feed into each other. Climate change is rapidly altering ocean habitats killing all manner of species. The loss of those animals alters the carbon cycle influencing climate change.

The changes cascading from these crises are indeterminate as the changes crash into each other. We are in the middle of an insect apocalypse. How will this affect those above and below them within the food chain? Insects hold a wide variety of places and humans have a variety of relationships with them. We have partially domesticated bees to harvest their honey. We have tried to eliminate mosquitos as a way to eliminate malaria. What effect might this have on soil quality? What relationship do insects have with ocean health?

The ecosystem is a tangle of interconnection and when we disrupt one part of it, other parts are altered. The reintroduction of wolves into Yellowstone ultimately effected the rivers.

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Butterflies, beetles, bees, dragonflies, flies… add to this cockroaches, mantises, moths, termites… each of the names in this partial list contains an untold number of species. Those populations inhabit the world in ways we barely understand. Human practices are killing these species, most of which have never been named, and we cannot predict how the world will respond. That defenders of these destructive human practices often identify as ‘conservative’ will one day be considered a massive, ironic joke if we survive to appreciate the irony.

It is entirely possible to imagine our current economic system rapidly changing our energy use, building the solar, wind, hydro and tidal power generation infrastructure to replace fossil fuel use. New technologies could help solve some of the barriers we face to completely clean energy. But that will not solve the multifaceted ecological crisis.

The ecological system, as a whole, is resilient. It will survive our radical transformations. But many parts of it will not, possibly including humans. Systemic change is necessary.

The Youth are Rebelling!

The climate crisis is an existential crisis. Depressingly, our world leaders continue to placate the vested interests responsible for the crisis. In Canada, our quisling Prime Minister was so dedicated to fighting climate change that he bailed out oil and gas infrastructure giant Kinder Morgan at the behest of Alberta tar sands producers. Thankfully, young people are refusing this status quo.

The Extinction Rebellion is an umbrella movement led by young people. The primary demand of the group is for governments to simply tell the truth. That truth is that our current economic system is not only unsustainable, it is actively destructive. Thankfully, our extinction is not a foregone conclusion but ensuring our survival will require radical transformation of our systems of production and consumption.

Our entire global economy is shaped by our use of fossil fuels. Addressing the climate crisis will require both prevention and mitigation. To prevent the crisis from becoming much, much worse we have to drastically reduce the amounts of carbon in our atmosphere. Carbon capture technology may have a role to play, although it is likely that none will approach the efficiency of forests. More important will be drastic reductions in the production of emissions. This will mean systems of production and consumption wildly different in both scale and scope. It will mean sacrifices. Most of our leaders leverage the scale of the problem to defend half-measures, in action and policies that actively worsen our predicament.

Responsibility for the climate crisis is directly proportional to age and wealth. The older you are and the wealthier you are the more responsibility you bear. But the older you are, and the wealthier you are, the more you are vested in the status quo. Meanwhile, the consequences of the climate crisis are inversely proportional to age and wealth. The younger and poorer you are the more you will suffer. Understandably, the young people are rebelling against this system.