Canada Kills Horatio Alger
In the category of demoralizing economic reports, it doesn't get much grimmer than this: According to a government study that's just been made public, stagnant wages mean an ever-richer middle class has become "a myth more than a reality."
Don't throw yourself off the balcony just yet: The government in question is Canadian, and the economic picture it looked at is Canada's from 1993 to 2007. But that picture -- almost no growth in real median wages, leaving the average household with "an increasingly smaller share" of economic output for the foreseeable future -- isn't much different from what's happening in the U.S.
The biggest difference may be that somebody in the Canadian government dared to put those words in writing. The report, obtained by the Canadian Press, was written last October by the agency Employment and Social Development Canada, and apparently wasn't intended for public release. The opposition Liberals have jumped on the report as an indictment of the governing Conservative Party, but have yet to say what they would do differently.
Indeed, what's most distressing about the report's "myth" diagnosis is the absence of obvious remedies. Canadians may blame the priorities of a right-wing government, but the flaw in that argument is apparent by looking at the U.S., where a Democratic administration has been unable to alter the same trend.
A more satisfying explanation, if less happy, is that both countries are facing long-term structural challenges that defy easy solutions. The level of growth that defined the second half of the 20th century, and so established our current expectations, was in great part the result of events that either can't be repeated (the huge increase in college enrollment after World War II; women entering the workforce) or shouldn't be (the rise in housing prices that fueled unsustainable borrowing). Once the low-hanging fruit was gone, as Tyler Cowen put it, what remained is the increasing downward pressure of global competition on wages.
What will drive the next economy-wide shifts in living standards? Jason Furman, chairman of President Barack Obama's Council of Economic Advisers, said yesterday at a National Association for Business Economics breakfast that greater domestic energy production and the falling growth in health-care costs would help, coupled with the Obama administration's push for more immigration and trade deals with Asia and Europe.
But here again, the comparison with Canada is instructive, and grim. There, the health-care system is less costly and growing less quickly than in the U.S.; domestic energy production has been growing rapidly for almost a decade; immigration levels are higher; and the country signed a free-trade deal with the European Union last year. Yet median wage growth remains almost nonexistent.
Liberals will say -- must say, really, by temperament -- that all this can be addressed through smarter government policy, and to some degree that's probably true. Increased immigration can offset a declining workforce, getting more people into college can create a better workforce, and further innovations and investment can create a more productive workforce.
But suppose, for one dark moment, that the dream of a middle-class life that gets better and better has indeed been rendered a myth. Where does that leave the liberal project? Pursuing the fairer distribution of benefits in a growing economy is hard enough; seeking a fairer society in a time of stagnant wages is the stuff of trench warfare.
Hopefully we'll look back in 20 years and laugh at the post-recession gloom that made middle-class stagnation seem like a permanent phenomenon. In the meantime, maybe we should start thinking about how government policy can make life better for people whose wages aren't going to increase -- a conversation that entails reconsidering Americans' fundamental concerns about government intervention. If you thought the debate over Obamacare was wrenching, wait for what comes next.
(Christopher Flavelle is a member of Bloomberg View's editorial board. Follow him on Twitter at @cflav.)
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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