The New York Times report on the middle class is accurate from an American point of view, not from a Canadian one
Last week, a New York Times report declared that Canada’s Middle Class is now wealthier than that of the United States. Funny, but I don’t think Canadians across the country were celebrating. While the data in the NYT’s report is considered accurate, it did leave out some important factors.
First off, this article is not meant to prop up the American middle class. It is in terrible shape and the rest of the developed world is catching up quickly as the report suggests. Thirty-five years of trickle-down Reaganomics will do that.
According to the NYT report, there are three major factors behind the stagnation of the American Middle Class. The first being that educational achievement in the United States has risen far more slowly than in much of the industrialized world over the last three decades. With less money for education, the US is losing its share of highly skilled workers.
The second factor is that American companies distribute a smaller share of their profits to their workers. Top executives make far more than in other countries, while the minimum wage is lower and unions are weaker.
The last factor is that governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low and middle income households by redistributing income. Something Americans, particularly Republicans don’t believe in.
Clearly income inequality in the United States is the biggest reason behind the stagnation of the American Middle Class, particularly in the last fifteen years. This isn’t to say income inequality isn’t a growing problem within a country like Canada, but it has grown far less rapidly.
Now, the reason behind Canada’s Middle Class gains on their American counterpart is a little more complicated than the New York Times lets on. It isn’t just American income inequality. The report doesn’t go into detail on how Canada has moved up, just how America has moved down. It doesn’t mean Canada’s Middle Class is doing well, but it is compared to their own.
Canada was able to weather the Great Recession storm far better than most western countries. There was no banking or housing crisis within Canada for starters. Housing is a huge portion of the wealth of the middle class. Canada had a balanced budget when the crisis began and it saw an opportunity to invest in the economy.
Canada’s Conservative Prime Minister Stephen Harper invested by cutting taxes across the board (corporate taxes were cut in half) and put all the bread in the same basket by rapidly expanded fossil fuel extraction in western Canada.
So while energy rich provinces like Alberta and Saskatchewan are enjoying huge economic booms, the rest of the country, including the more heavily populated provinces of Quebec and Ontario are suffering. Manufacturing in Canada has plummeted over the years much like in the U.S.
Another point the New York Times doesn’t mention is the amount of personal debt Canadians have racked up in the last ten years. Canadian families are among the most indebted with a record high household debt of about 164 per cent of after-tax income. That is an insane amount.
Canada’s Middle Class has seen higher gains than in the U.S. to be sure, but in fact, its growth rate is the slowest. Canada’s upper class and even lower class (the poor) have seen bigger gains.
I think the New York Times was right to focus on income inequality as the reason why Canada’s Middle Class has surpassed America’s. It likely is the single biggest reason from an American point of view. Unfortunately the Conservative government of Canada is now using the report to tell Canadian citizens that our middle class is doing great, when it’s far from the truth. Unless of course, you’re in the oil business.