wlmac economics

The census numbers are expected to show that the rich are driving up shelter prices beyond reach of increasing numbers of people whose earnings are inert, a situation impacting heavily on immigrants arriving in major cities where the housing markets are already stressed.

“I don't know what the census findings will say about trends in shelter costs over the long term,” Ms. Yalnizyan said, “but we know from other studies that housing affordability is at its worst level since 1990. How much people's incomes are getting eaten up by shelter costs, I imagine it's accelerating quite dramatically.”

And while the history of Canada has rested on immigration's contribution to the economic and cultural strength of the country, the census data raise disturbing and moral questions about the impact of admitting more than 200,000 immigrants a year who are struggling – with steadily declining success – to find jobs commensurate with their knowledge and experience, good incomes and decent, affordable housing.

Said Ms. Yalnizyan: “Economists have been buried by reports from Statistics Canada and other institutions showing income inequality to be on the rise. So that isn't a surprise. But what the Statistics Canada analysis will do on May 1 is connect the dots between incomes and shelter costs. And that takes it beyond a moral imperative to act and says this situation may not be sustainable. “Accommodation is the biggest bite out of the basket, and it goes straight to the heart of how income inequality is not about poverty, it's about affordability.

As a nation, we are richer than most. Ours is the ninth-largest economy on the planet. The last decade has been one of the strongest, most sustained periods of economic expansion in our history.

Canadian government interventions traditionally offset these trends, particularly in bad times. But in the past 10 to 15 years governments backed away from investing in public benefits that help the majority of Canadians and replaced them with tax cuts that most benefit the richest 10 per cent -- exacerbating income inequality in the country.

Back in the 1920s -- the last time we experienced such dramatic income polarization -- Henry Ford saw in his workers an obvious solution: If he paid his workers higher wages, he created more consumers for his automobiles -- and a healthy middle class

Compare that to the last 10 years, when governments and markets alike have focused on building up systems that reward the rich and ask everyone else to wait for the drops of prosperity to trickle down.

In the meantime, the rich got richer and drove up housing prices and the cost of living soared for the rest of us. Our paycheques didn't keep up.

Governments are being asked to bail out banks and investors. They can also be asked to keep purchasing power among the jobless, speed up investments in badly needed infrastructure projects and engage in counter-cyclical investments like housing to maintain jobs in the middle of the income spectrum.

Anything less means Canada will continue down the troubling path of continuously growing income inequality, instability and economic weakness. It's time to heed the warnings and change our course of action.

The bad news is that unchecked and runaway inequality, regardless of absolute income levels, and regardless of its causes, has unhealthy consequences that get worse as the chasm between rich and poor grows.

But this only raises the question of why there isn’t more public outrage. Why hasn’t the spike in inequality led to outright class warfare? There are two reasons: ignorance, and comfort.

In their 2009 book, The Spirit Level , British researchers Richard Wilkinson and Kate Pickett surveyed the large body of literature on the social determinants of health, and they concluded that societies with more a equal distribution of incomes have better health outcomes than ones in which the gap between richest and poorest parts of society is greater. Most interesting, the differences seem to have little to do with absolute levels of national income; instead, simply living in an unequal society is bad for your health, at almost all income levels.

Given all of this, how can rising levels of inequality be tolerated, or even considered a good thing? One argument that is frequently advanced in favour of inequality is that it serves as an incentive to achievement, and wide inequalities can be tolerated when social mobility is correspondingly high. On this view, the wealthy and successful serve as a sort of motivational lodestar, pointing the direction toward which all of us can strive. And in some countries, this argument holds. Australia, Canada, and the Scandinavian countries all have very high levels of social mobility, measured as the absence of a strong link between individual and parental earnings.

Facts and figures % of national wealth owned by top quintile, U.S.: 84% % of national wealth owned by top quintile, Canada: 70% % of national wealth owned by top 1%, U.S.: 35% % of national wealth owned by top 1%, Canada: 14%

The CCPA report demonstrates that the gap between the earned incomes of the wealthiest 10 percent of Canadian families and the poorest 10 percent has almost tripled in the three decades since 1976, the ratio rising from 31 to 1 in 1976 to 82 to 1 in 2004.

In the late 1970s the poorest 20 percent of all Canadian families earned 4.5 percent of total family earnings. By the first years of the 21st century their share had shrunk to just 2.6 percent.

The report demonstrates that while Canada’s economy has experienced significant growth over the past quarter century—real economic output almost doubled between 1981 and 2005—the poorer half of Canadian families “either earned less” in inflation-adjusted terms “or just the same as their predecessors almost 30 years ago.”

The average Canadian worker made just over $38,000 in 2005, a 15 percent increase over average earnings in 1998 of just over $33,000. But during the same period, the Consumer Price Index (CPI) rose 17.85 percent, meaning that, after adjusting for inflation, the average worker actually lost purchasing power.

Saez and Veall note that incomes trends in Canada are almost identical to those in the US: “Over the last 20 years, top income shares in Canada have increased dramatically, almost as much as in the United States. This change has largely remained unnoticed because it is concentrated within the top percentile of the Canadian income distribution and thus can be detected only with tax return data covering very high incomes.”

While the real wages of most Canadians have stagnated or even fallen in recent years, they are actually working longer hours.

They warn that growing social inequality threatens to produce social turbulence that will make Canadian capitalism unsustainable: “We ignore these trends at our collective peril.”

study found 76 percent of Canadians believe the gap between the rich and poor is growing and that 67 percent of the population do not believe that the majority is benefiting from the country’s economic growth.

Not for the vast majority of Canadians whose real incomes, as the CCPA has documented, have stagnated or fallen even as they work longer hours. But certainly for the Globe’s proprietors, the Thomson family. In 1998, the Thomson fortune was estimated at US$14.4 billion, a total that surpassed the collective wealth of the poorest third of all Canadian households. Today, Ken Thomson is said to be worth a staggering $US24.4 billion, making him, according to Forbes magazine, one of the 10 richest people in the world.

As a recent study by economist Armine Yalnizyan of the Canadian Centre for Policy Alternatives documents, the top-earning 1 per cent of Canadians almost doubled their share of national income, from 7.7 per cent to 13.8 per cent, over the past three decades.

The massive upward flow of income has largely been invisible to the public, even though it may well amount to the most significant change in Canadian society in decades.

The wealthy also often employ a form of blackmail, either directly or indirectly threatening they’ll leave the country if governments don’t capitulate to their demands for lower taxes. While it’s hard to imagine political leaders caving in to similar threats from other groups — say, electricians or teachers — the sheer economic power of the wealthy seems to quickly bring governments to heel.

It’s hard to find any justification for the fact that, while the average CEO was making about 25 times the average worker in the late 1970s, today’s average CEO makes roughly 250 times the average worker

A more likely explanation is that the rich have used their clout to get governments in the United States, Britain and Canada to change the rules, redirecting economic benefits to themselves

The rich also greatly enriched themselves by convincing governments to lower their taxes. Whereas the top marginal tax rate — the rate paid on income above a certain level — averaged 80 per cent in Canada in the early postwar years; it is now just 46 per cent (39 per cent in Alberta).

t was argued that lower taxes would encourage better performances at the top, increasing overall economic growth.

the introduction of an inheritance tax in Canada (like ones that exist in almost all advanced nations) would enable Ottawa to collect enough revenue to create educational trust funds for all Canadian children, thereby significantly improving national productivity.

Yet anyone advocating higher taxes on the rich is quickly denounced by groups like the right-wing Fraser Institute. Mark Milke, a commentator with the institute, dismisses concerns about rising inequality in Canada as merely the product of envy, or what he calls the “green-eyed beast.”

There was always skepticism about claims that, as t

Second, the increased demand from the GSEs and the competition with private-label issuers drove up the value of sub-prime and Alt-A mortgages, reducing the risk premium that had previously suppressed originations. As a result, many more marginally qualified or unqualified applicants for mortgages were accepted.

Since these mortgages aggregate more than $2 trillion, this accounts for the weakness in bank assets that is the principal underlying cause of the current financial crisis.

state-based residential finance laws give homeowners two free options that contributed substantially to the financial crisis. First, any homeowner may, without penalty, refinance a mortgage whenever interest rates fall or home prices rise to a point where there is significant equity in the home, enabling them to extract any equity that had accumulated between the original financing transaction and any subsequent refinancing.

The homeowner’s opportunity to walk away from a home that is no longer more valuable than the mortgage it carries exacerbates the effect of the cash-out refinancing.

From 2005 to 2007, Fannie and Freddie bought approximately $1 trillion in sub-prime and Alt-A loans.

interest on home equity loans is deductible no matter how the funds are used. As a result, homeowners are encouraged to take out home equity loans to pay off their credit card or auto loans or to make the purchases that would ordinarily be made with other forms of debt.

Bank regulatory policies should also shoulder some of the blame for the financial crisis.

Bank assets are assigned to different risk categories, and the amount of capital that a bank holds for each asset is pegged to the asset’s perceived riskiness.

These rules provided an incentive for banks to hold mortgages in preference to commercial loans or to convert their portfolios of whole mortgages into an MBS portfolio rated AAA, because doing so would substantially reduce their capital requirements.

U.S. housing policies are the root cause of the current financial crisis. Other players--greedy investment bankers; incompetent rating agencies; irresponsible housing speculators; shortsighted homeowners; and predatory mortgage brokers, lenders, and borrowers--all played a part, but they were only following the economic incentives that government policy laid out for them.

our first order of business should be to correct the destructive housing policies of the U.S. government.