Arthur Cecil Pigou made lasting contributions to the science of economics, but for macro-economists of a certain generation he will always be considered a laughingstock.
Professor Pigou taught at Cambridge University during the first decades of the 1900s, and had the misfortune of making a cameo appearance in the opening chapters of what is arguably the most influential economics book of the 20th century, The General Theory of Employment, Interest, and Money, written with eloquence, and at times a very caustic pen, by his colleague at the same university, John Maynard Keynes (whose last name, by the way, sounds like “Canes”).
Pigou’s big mistake was to suggest that the unemployed themselves were to be blamed for their predicament. To Mr. Keynes, the notion that the persistently high unemployment rates of the Great Depression were in some sense voluntary was worthy of scorn and ridicule.
The middle class is declining, or is it?
Ms. Freeland is the author of Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else, and Ms. McQuaig a co-author of The Trouble with Billionaires.
Income inequality is what they know, and presumably what they feel should be a matter of public policy.
If the middle class is not shrinking then the policy program these individuals have to offer, and by reflection some of the policies of the political parties they hope to represent—the traditionally centrist Liberal Party in Ms. Freeland’s case, and the social democratic New Democratic Party in the case of Ms. McQuaig—are brought into question.
And that is what a number of observers have already done, arguing that the facts show the Canadian middle class is not under threat, and that those who argue otherwise—like Ms. Freeland and Ms. McQuaig—are spending too much time looking at American trends.
So this is an economic fact with some political impact.
My look at the numbers focuses on both incomes (the total amount of money a family brings home) and on wage rates (the hourly rate of an individual’s pay).
The trend in incomes is disturbing, but all the more so when viewed in light of a polarizing pattern in wage rates. These trends should be a real concern for public policy, and in my view a focus on other countries, particularly the United States, is one important way to constructively inform that concern.
I have offered a couple of posts on Demeny Voting, a way of recognizing that children have the right to vote. This post describes the scheme, which involves giving parents a proxy vote for each child under their guardianship. Chrystia Freeland recently wrote about this idea and its impact on inequality in The New York Times, and I offered another post with the text of my TEDx talk given in March 2013. Here for your interest is the video of that talk, very capably produced and edited by the team at TEDxWaterloo. As always, comments are welcome.
Top income shares have increased significantly in some rich countries, but not so much in others. In the United States the fraction of income going to the top 1% has more than doubled since the late 1970s. And while top shares have increased in other countries like Canada and the United Kingdom, they have not gone up all that much elsewhere, say in Germany or Sweden.
Globalization and technological change are often said to be the causes of growing inequality, but all rich countries have been confronted by these forces, and on their own they cannot account for the variation in top income shares between countries. A full explanation has to rely on institutions, policies, or norms of pay that differ across national boundaries.
The first and most obvious place to look is at changes in tax rates.
Some comments on an article I published in The Globe and Mail about Canadian immigration policy, Canada’s version of the guest worker programs used in some European countries, are just astounding.
My analysis is based on nothing more than a simple demand and supply model of the labour market to argue that this program amounts to a wage subsidy. Since it does not seem to address any clear market failure it likely promotes both inefficiency and inequity.