Terence Corcoran: Don’t believe the hysteria — the middle class, in Canada and globally, is booming
In the planetary space capsule wherein we all ride, the message droning out over the media loudspeakers is that globalization, free trade and out-of-control capitalism are destroying the presumably pleasant equitable balance among the economic classes. The rich are getting filthy rich, the poor are getting poorer and the middle class is stagnating and possibly in crisis. Or if not in crisis at the moment, the middle class is said to be in a state of high anxiety over the growing income gap between themselves and the “very rich” and are “unhappy about economic outcomes and discouraged about future prospects.”
Or so claimed Dalhousie University’s Lars Osberg in his 2019 book, The Age of Increasing Inequality: The Astonishing Rise of Canada’s 1%. Osberg based his conclusion about middle-class angst on polls conducted in recent years. From the polling data, Osberg launched into the usual mind-bursting statistical techniques that dominate the global inequality crusade. We all know the jargon about the grasping one per cent and the .01 per cent who are seizing all the growth, the squeezed-out middle class, the rise in the lower-income classes.
After reaching the usual conclusions, Osberg recommends solutions that look remarkably similar to the Trudeau government’s middle-class agenda: A carbon tax to be redistributed to the middle class, high minimum wages to kick workers into higher-income levels, and maybe an “actual effective tax rate of 65 per cent” on incomes over $250,000, a tax-the-rich scheme that Osberg says could produce more than $21 billion in revenue.
The debunking of this middle-class squeeze scare has been slow in coming, in part because the ideological economics behind the inequality movement are so twisted and abstract. That it might all be a case of manufactured resentment motivated by ideology is only gradually emerging.
The problem begins with defining middle class. Canada’s new Minister of Middle Class Prosperity could not define middle class when asked, nor could Prime Minister Justin Trudeau, who came up with a clever response: “Canadians know who’s in the middle class and know what their families are facing.”
The idea that middle-class families are facing oppression under the ravages of global economic trends and the rise of the corporate super-rich is now an accepted foundation for economic policy. Thanks to two decades of inequality broadcasts over the planetary speaker system, the middle-class crisis is now an accepted factual foundation for today’s policy craze.
International agencies such as the OECD have been leading the movement. In a report in April titled Under Pressure: The Squeezed Middle Class, the OECD — of which Canada is a member — claimed that “every generation since the baby boom has seen the middle-income group shrink and its economic influence weaken.” Other OECD reports include Growing Unequal? (2008), Divided We Stand (2011), In it Together (2015) and A Broken Social Elevator? (2018).
New ammunition for the crusade for greater income redistribution will appear in March 2020, when the 800-page English version of French neo-Marxist economist Thomas Piketty’s new book, Capital and Ideology, will be published. His first book, Capitalism in the 21st Century, lit an inequality fire in 2014 with its claim that capitalism inevitably leads to increasing inequality, excess wealth accumulation among the 10 per cent, the 1 per cent and .01 per cent.
Also coming is the first 2020 issue of Foreign Affairs magazine, The Future of Capitalism — mostly a collection of essays based on claims of growing inequality and calls for more government intervention guaranteed to trigger new bouts of pre-election class warfare in the United States.
But is it true? Is the middle class being squeezed? Is poverty increasing? Is inequality really growing because the rich gobble up more and more income and wealth? The answer is: likely not — not around the world, not in the developing or the developed world and certainly not in Canada. A recent cover story in The Economist — Inequality Illusions: Why wealth and income gaps are not what they appear — documents how many of the claims of inequality activists and economists do not hold up. What exists, in fact, is a “bloody academic battle” over inequality, with a wide range of economists lining up to contradict the claims of Piketty and others that inequality is growing, that the middle class has stagnated, that the world needs more taxation on the wealthy.
The Economist piece reports errors, conceptual muddles, statistical manipulations, exaggerations and other factors that suggest much of the inequality case rests on dubious economic models and analysis. Is there a gap between the rich and the other classes? Certainly. But it may not be anywhere near as large as claimed. Also, there is reason to believe such gaps are irrelevant beyond ideology and the desire to manufacture more resentment.
Contrary evidence is everywhere, including Canada.
Globally, the expansion of the middle class in recent decades has been massive, according to economist Homi Kharas at the Brookings Institution. In “The Unprecedented Expansion of the Global Middle Class,” Kharas wrote that the size of the middle class has doubled since 2000 alone. “There were about 3.2 billion people in the global middle class at the end of 2016, 500 million more than I had previously estimated. This implies that in two to three years there might be a tipping point where a majority of the world’s population, for the first time ever, will live in middle-class or rich households.”
Meanwhile, world poverty levels have plunged. According the World Bank, “nearly 1.1 billion fewer people are living in extreme poverty than in 1990.” The Bank reports that “The world attained the first Millennium Development Goal target — to cut the 1990 poverty rate in half by 2015 — five years ahead of schedule, in 2010.”
In the United States, reports of middle-class decline have been greatly exaggerated, according to Stephen Rose at the Urban Institute in Washington. In a report last December, Rose summarized statistics debunking one of the main Piketty inequality claims. Piketty has said that the top 10 per cent of Americans had walked off with between 50 and 100 per cent of U.S. economic growth between 1979 and 2014. The actual number is much lower. Piketty also once claimed that the median income in the U.S. (which statistically captures the middle class) had fallen by 10 per cent during the same decades. But other studies, including one from the Congressional Budget Office, actually show an increase in median household income of up to 50 per cent.
In Canada, the mid-income classes have been expanding in number with rising incomes. Defining the middle class is somewhat arbitrary, but the OECD definition classifies middle class as individuals living in households with incomes 200 per cent above the median and 75 per cent below the median. The median household after-tax income in Canada in 2017 was $59,800, which means that half were above and half were below.
By that measure, the middle-class income group earned between $119,000 and $45,000. According to Statistics Canada, 21.8 million Canadians (see graphic) would be considered middle class under that definition, an increase of almost four million over the past 20 years and seven million since 1976. Four million people entering the land of the middle class is not stagnation.
Canada’s middle class is growing and improving. The $58,9000 household media is up $10,000 in constant dollars over the past 20 years — the period during which the middle class has allegedly been squeezed and abandoned.
Canada’s upper income households have also increased 700,000 over the past 20 years, implying that many of the former mid-income households rose to the upper-income category. Lower-income households have also increased in number, but their incomes have risen as indicated by the rise in the median income and per capita household spending.
Whether inequality, however defined, is growing or not seems irrelevant in an economy enjoying a middle-class boom in a tide of rising real incomes.