Affordability in a Post-Covid Era
Affordability is an evergreen topic but has grown prominence in this post-covid when we have a second to breathe and assess the economic damage we have suffered over the last two years. Often a major talking point during election season, affordability comes in many forms and definitions. Considering I am talking about a first-world economy, affordability in a Canadian context goes beyond pure survival (even if there are some Canadians unable to afford basic necessities like food and rent) and refers to the ability of Canadians to live comfortable lifestyles. Owning property, being secure throughout retirement, and providing an opportunity to our children are all ideals we wish every Canadian could have. This is not to negate poverty as a major concern, but we should also strive to envision a higher bar for all Canadians to reach.
Affordability is particularly relevant due to the impact Coivd has had on the Canadian economy and the costs of goods. Between massive government spending and supply chain issues, inflation has surpassed 5% for the first time since 1991 (Statscan). Covid, and to a lesser extent turbulent international politics, has contributed to both demand-pull and cost-push inflation. Demand-pull inflation most commonly arises when the central bank injects a large amount of money supply into the economy. CERB and other relief benefits were extremely expensive policies that supported those unable to work during the pandemic due to Covid mandates and restrictions. The natural consequence of handing out millions of dollars in checks is that the currency will lose value (or products will increase their price accordingly). Alternatively, cost-push inflation describes a scenario in which the supply of goods and services is restricted in some way or when extra costs are added to the supply chain. As we have seen in the last few years, supply chains have been thrown continuous curveballs while many businesses have had to take on extra costs related to maintaining a safe working environment. Wages for truckers have increased massively as their demand has increased. The cost of gasoline has increased significantly (32.3% in the last year), aggravated by the war in Ukraine and deteriorating relations between Saudi Arabia and the US. High gas prices have trickle-down effects on the rest of the economy as shipping and operating costs increase. This has all contributed to a cascading effect on inflation.
As seen in the chart above, Canadians are paying a lot more for basic goods and services, sparking an affordability crisis. In the last year, Canadians have seen a 5% reduction in the purchasing power of their bank account and paycheck. This is an even larger burden on those who received zero government funding during Covid and therefore lost money to inflation without gaining anything back in assistance. Inflation also disproportionately impacts poor people. Wealthy people are far more likely to have their assets in places less susceptible to inflation. Property is a key example of this, but even stocks and other types of investments are less susceptible to the effects of inflation. Those living paycheck to paycheck are most likely to have their wages stagnate while inflation goes up and whatever assets they have is likely to be liquid capital in the bank or straight cash earned from informal work.
Over the last 25 years, wages have actually outpaced inflation. As we can see in the graph above, the average Canadian wage has grown at the same pace as the minimum wage (helped by a surge starting in 2015). If we compare the minimum wage to the rate of inflation, the minimum wage has actually outpaced inflation quite well. In the year 2000, the average minimum wage in Canada was just below $7. If we apply inflation since 2000, $7 turns into $10.57 today, meanwhile, the minimum wage has grown to around $15 per hour. While this is positive news, these aggregate numbers can be deceiving. The top earners in Canada have seen their wages and wealth increase exponentially more than low-income earners. For example, in 2017 there was an aggregate 2.8% growth in incomes but top earners saw their incomes grow 5% while the bottom 40% only accounted for 20% of the total income growth.
Despite a minimum wage that has grown healthily over the last 20 years (but is still too low for most major cities in Canada), wages have not grown equally and the middle/lowing income groups continue to get hollowed out. Aggregate statistics do not always capture ways in which the poor are impacted by downturns in the economy. Income inequality has been a growing problem since the 1950s and the relative purchasing power of the poor has decreased and is now more vulnerable to quick downturns in the economy and high inflation rates. While the lion's share of our sympathy and attention should be spent on those worst off in Canada (those below the poverty line) we must be mindful that there has been a slow decay of the working and middle class for decades. A fiscal policy intended to help the most vulnerable can have unintended ripple effects and can result in a pool of people collecting in the lower classes even if absolute poverty is going down.
As I criticize the left on affordability I am not arguing that the right would have had a better response to Covid, housing prices, and inflation. I am arguing that a more balanced and alternative mindset is needed and we must move away from the polarized ideologies we have today. We often straw man the “left” as being communist and the “right” as being libertarian, but the majority of people have little sympathy for either ideology. Communism and Libertarianism fail at both the philosophical and practical levels and have been proven historically to fail spectacularly. So as I critique the policies of the left I am not advocating for libertarianism or free-market alternatives.
The main problem with the left’s approach to affordability and most socioeconomic issues is their support for “big government”. The “right” detests the idea of expanding government powers and budget and uses “big government” in an Orwellian sense. Since the “right” detests the idea of expanding government powers and spending, far too many on the left see government expansion as a victory. In reality, the best way to support the “big government” critiques is to expand government spending whenever possible and create bloated budgets that lack economic efficiency. I think reasonable people can agree that government power should be as small and non-intrusive as possible, but the government must expand when the free market is unable to solve a problem. There is still a large variance in how people would define those terms and what constitutes a “problem” and how much to spend on said “problem”, but realistically we should all be using that mindset to judge policy. “Bigger government good” and “smaller government bad” is far too simplistic a dichotomy and sounds like the utterings of simple-minded ideologues.
Because the “left”, generally speaking, wants to address new and existing problems through government regulation and welfare state expansion, it should actually be hypersensitive to the allocations of tax money. Every extra dollar spent on bloated or unnecessary government agencies or invented positions like “diversity officers” opens up their political philosophy to potential criticism. Testing government policies for their impact and scrutinizing budgets should not be a “right” wing endeavour, it should be standard government policy. While the government assistance (in the form of CERB) was necessary for thousands of Canadians to stay above water, the massive spending of Trudeau's government should not be immune to criticism. A policy that can seem unquestionably necessary at the moment could prove ineffective over time. Covid-19 is the largest pandemic since the Spanish Flu, so this was a bit of a crash course for doctors and politicians. I do not fault the mistakes made at the beginning so long as we improve on them over time. Looking back at the beginning of the pandemic we can see just how little we knew. At first, masks were ineffective, but then they became necessary to the point where people were wearing them outside (the truth was somewhere in between). A full and open review of the impact of this massive spending should be welcomed in a bi-partisan fashion. We should not be married to a pandemic solution of paying a sizeable portion of the population not to work, especially considering some data has suggested that lockdowns reduction on covid may have been minimal at best. Being honest about government overreach (even when done for humanitarian reasons and during times of crisis) encourages better and more effective government policy moving forward.
Branching off from the “big government good” mentality, the “left” must get out of the singular mindset that government spending is the only way to fix problems. Obviously, this is an oversimplification of the left's policy portfolio but generally speaking higher taxes and increased spending is the way the left addresses most problems. Watching the Liberals try to solve problems over the last seven years has been akin to an absent dad showering his children with gifts hoping that their anxiety disorder and insecurities can be fixed via money. Obviously, there are cases where money is absolutely necessary. An unemployed single mom with three kids simply can’t cope without government assistance. A person who has severely damaged their leg on the Jobsite needs disability payments or employment insurance. These people deserve to live dignified lives but we should also recognize the importance of restricting such services to the people that really need them.
Due to a variety of factors the purchasing power of the poor and working-class has declined considerably since the 1950s, and covid has exacerbated this by another 5% in the last year alone. Working families used to be able to buy a house, a car, and support 3-to 4 children all on one salary. We are long separated from that reality, but the solution is not to accept defeat and have the government pay for what used to be affordable. Let's take childcare as an example. The Liberal government is attempting to make affordable daycare available across every Province in a partnership program. Child care is a major expense for low-income families and this will allow parents to work extra hours without handing most of that money back in daycare costs. This may be the best and only solution for those so poor or overwhelmed with commitments that they simply need a cheap relief, but is it the only option?
Are we encouraging a world where poor people are incentivized to work later and spend less time with their children? There are few things more personal than how people parent their children. In an ideal world, all parents have the freedom to spend as much time with their children as they choose or the maximum amount of choice in daycare services. We recognize maternity leave as an essential element of modern liberal democracies, but this value for direct parenthood diminishes quickly. Obviously, the option for lower-income people to have a stay-at-home parent or private babysitter/nanny is no longer realistic, but does that mean the ideal of parenting freedom should be disregarded? Even in scenarios where parents need to work, they should still have the freedom to choose who and where their kids are looked after.
The left’s approach to fixing problems has a major philosophical flaw that misses the bigger picture. Making a service free or highly subsidized is no doubt an empathetic approach to policy but it also fails to address the larger problem of why so many people can not afford said service.
In a capitalist economy, there will always be inequality and even alternative systems that try to remove inequality still have massive, if not larger, disparities. What has the left done in the last 30 years to reduce inequality and increase the purchasing power of the poor? Why have they betrayed unions to globalized free trade? Why have they allowed companies to move jobs overseas with little tax or regulatory repercussions? The left has been complicit in the hollowing out of the working class, but turns around and says “you have lost your job, your union, your town has been subject to decades of decay, you can barely afford a home, but here is free daycare so you can work from 8 to 6 every day”.
Like I said earlier, free daycare is essential for the poor today. But to allow the slow creep of bigger and bigger government is to accept a future in which the poor have little personal freedoms or purchasing power. Let’s empower workers to get more wealth through wages and benefits and not through taxation and government subsidies. Let's reduce the red tape on setting up a daycare, and make it simple and easy for the informal economy to become legitimate, opening up more spaces or even local options. It is not that the left is wrong, but both sides can think beyond simplistic approaches and work towards a system that better represents our ideals.
Childcare is just one example of this larger dilemma of purchasing power. We must break this cycle of neither political pole empathizing with the wishes and concerns of the working class. We must get creative and innovative with new methods of income redistribution and move away from taxation and subsidies.