The news on income and inequality is depressing. The rich are getting richer, the poor are getting left behind, and the middle class is getting shafted. For most people, real incomes have been flat for decades – or so we're told. This week, the OECD weighed in with a new report that Canada's wealth gap is at a 30-year high. "The social contract is starting to unravel in many countries," warned OECD Secretary-General Angel Gurria. The CBC illustrated the story on its website with a photo of a homeless man crouching in an alley.
That's the conventional wisdom, and it's not entirely wrong. But the reality is a lot more complicated. Although the rich have got a whole lot richer, the poor have got richer, too. In all the ways that count the most – nutrition, shelter, health, literacy, access to education, life span – the wealth gap between the rich and poor in Canada, and even the U.S., has shrunk dramatically.
"The inequality of personal well-being is sharply down," wrote economics professor Tyler Cowen in a terrific essay, The Inequality That Matters. He points out how stark the gap between the rich and the rest was just a century ago. "Even in the wealthier countries, the average person had little formal education, worked six days a week or more, often at hard physical labour, never took vacations, and could not access most of the world's culture. The living standards of Carnegie and Rockefeller towered above those of typical Americans, not just in terms of money but also in terms of comfort." Bill Gates may have a much bigger house than you do, but he eats the same kind of food and wears the same kind of clothes. And thanks to him, even poor people have access to computers.
The concentration of wealth was also more extreme back then. In 1918, John D. Rockefeller's fortune accounted for more than half of 1 per cent of total private wealth, according to economist Walter Williams. That amounts to the combined wealth of Bill Gates and 11 other multibillionaires all rolled together.
I'm not trying to be Pollyanna-ish. We have pockets of terrible deprivation in this country – just look at Attawapiskat. We still need food banks. But malnutrition is virtually extinct. Many experts argue that standard measurements of income dramatically understate the real gains in wealth, because they don't adequately measure tax transfers and fail to reflect huge gains in purchasing power. Two American academics, Bruce Meyer of the University of Chicago and James Sullivan of the University of Notre Dame, make the startling claim that, if you take these factors into account, the incomes of U.S. middle-class families rose by more than 50 per cent in real terms between 1980 and 2009. Poor families fared almost as well.
"We looked at the kinds of houses people live in, the cars they drive, and the types of household appliances they have," Prof. Meyer told me. Even the lowest-income families live in bigger, better houses than they used to. Among the bottom fifth of families by income, 83 per cent had air conditioning in 2009, and 76 per cent owned cars. (The cars are also much improved, with power steering, better brakes, and AC.)
The story is the same in Canada. In Ontario, for example, 65 per cent of the bottom fifth of families by income have air conditioning. Seventy per cent have DVD players, 65 per cent have cable TV, 56 per cent have home computers and 98.9 per cent have colour TVs. (Thirty years ago, even the most affluent families had few, if any, of these things.)
This steady rise in material well-being helps explains why the Occupy movement didn't catch on as many people expected it to. On the whole, average people think their lives are pretty good. "They don't feel the moral outrage that radiates from the more passionate egalitarian quarters of society," writes Prof. Cowen.
Inequality is rising in all the OECD countries. In 2008, the average income of the top 10 per cent of the population in Canada was $103,500 – 10 times more than the bottom 10 per cent, who averaged $10,260. In the early 1990s, the top earners made only eight times more. The reasons for the growth in inequality are complex, but they have a lot to do with the fact that the rewards for the people at the top in every field, from dentistry to law and even writing, have gone way up. Margaret Atwood is a great example. She's a global superstar, and probably the top-earning Canadian writer of all time. Most of us probably think there's nothing wrong with that. Most of us would not think of Margaret Atwood as the ugly face of inequality.
The real problem, argues Prof. Cowen (and I agree), lies with the elites of the financial class who've grabbed a gargantuan share of the spoils by means of fancy financial engineering that creates no value, and sometimes destroys it on a massive scale. Nobody knows how to keep them from wrecking the system every so often. The financial lobby is the biggest and most powerful interest group on Earth. Their ability to rig the system so as to enrich themselves has overwhelmed the ability of the politicians and the regulators to keep them in check. As Prof. Meyer puts it, "People don't mind losing, but they don't like being cheated." And that's the inequality worth worrying about.