Meritocratic Extremism

On Friday Carol Goar, amidst the accolades for the surprisingly departed Jim Flaherty (Minister of Finance from 2006-2014), wrote about the Conservative policies that are working to stop young people from working.

Even young people Ottawa counts as “employed” are struggling. Almost half work part-time and don’t earn enough to live on. They’re not using the skills they acquired at great personal expense. Their contracts may or may not be renewed. (emphasis mine)

She cites changes to the Temporary Foreign Worker program and Employment Insurance, federally induced tuition fee hikes and the fact that employers are no longer held responsible for job training as factors that exacerbate the ways that globalization, outsourcing and recessions make jobs hard to come by.

Why do Conservatives hate youth? Cynically one could posit that it is because youth don't vote (unless, of course, you tell them they can't) so there is no return on investment in keeping youth happy. The theory is that it makes more sense for Conservatives to keep the people who brought them to the dance - employers, bankers, corporate tycoons - happiest. And if that means throwing non-voting,Tory-hating youth under the bus, so be it.

But what about all the ways that youth are expected to support the huge wave of baby boomers who are crashing into retirement? If the youth aren't working, who is going to pay for the medical treatments for all the rich old people who do vote Conservative? Could this Conservative government be that short sighted?

We know that in a pander for votes they started this administration willing to trade short term gain for long term pain, so maybe the theory is true. (More here.)

Whatever the reason, Conservative policies are working to increase income inequality and to shift the balance of who is paying for the social contract.

Then I read this book review about Thomas Piketty's book Capital in the Twenty-First Century. Piketty's theory is that income inequality, created and supported by Conservative policies, is going to be the thing that kills capitalism. So much for return on investment.

Piketty seems to have taken over Milton Friedman's supremacy in the economic discourse, and hooray for that. It will take the current Conservatives, forged in the Calgary School, a while to catch up but perhaps other political parties will take note.

That left-wing kook, Mark Carney, has long lamented the fact that tax breaks do not encourage capital owners to invest those savings into enterprises that create jobs.

In his book, Piketty describes the reasons why. The short story is that we are at the point in the cycle of capitalism where you get richer owning stuff than building stuff.

Anyone with the capacity to own in an era when the returns exceed those of wages and output will quickly become disproportionately and progressively richer. ... Our companies and our rich don't need to back frontier innovation or even invest to produce: they just need to harvest their returns and tax breaks, tax shelters and compound interest will do the rest.

Capitalist dynamism is undermined, but other forces join to wreck the system. Piketty notes that the rich are effective at protecting their wealth from taxation and that progressively the proportion of the total tax burden shouldered by those on middle incomes has risen. ...

As a result, the burden of paying for public goods such as education, health and housing is increasingly shouldered by average taxpayers, who don't have the wherewithal to sustain them.

Wealth inequality thus becomes a recipe for slowing, innovation-averse, rentier economies, tougher working conditions and degraded public services. Meanwhile, the rich get ever richer and more detached from the societies of which they are part: not by merit or hard work, but simply because they are lucky enough to be in command of capital receiving higher returns than wages over time.

There is a glimmer of hope here. Piketty claims that a collective action will fill the innovation gap.

The lesson of the past is that societies try to protect themselves: they close their borders or have revolutions – or end up going to war.

Let's hope we don't have to go to war but that movements such as Occupy and Idle No More continue to reshape the mainstream conversation and that politicians start proposing policies that will reshape capitalism.

The leader of the federal Liberal party refutes claims that he is one of those "more detached" rich who benefits from inherited rather than merited success,

"I've heard people are struggling and I've talked a lot about the kinds of solutions we need," he said. "I'm going to continue to work hard on that,"

but he did just name his most recent child Hadrian so maybe not :)

Piketty says that an economist's job is to make things that seem inconceivable conceivable.

Hugh Segal has been a lone voice in Canadian politics proposing basic income but that idea is gaining currency worldwide as a way to alleviate poverty AND to save capitalism.

In Switzerland, the government and business leaders scared voters into rejecting the wage cap but perhaps this idea will take hold somewhere soon as people realize that the threat of businesses leaving your jurisdiction because of legislated restrictions on their contributions to the public good is really no threat at all.

Onward to the inconceivable.

Further reading:

A Guardian interview with Thomas Piketty posted after I wrote this is here.

When Jim Flaherty resigned as Finance Minister, Maclean's posted some charts that showed some things that happened during his tenure.

Paul Krugman also wrote a review of the book, Why We’re in a New Gilded Age, and an opinion piece, The Piketty Panic.

Thomas Piketty's Capital: everything you need to know about the surprise bestseller (Guardian)