Lately I've been getting cranky about responses to the COVID virus, and relief money, and the economy. I'll work my way through and hope it makes sense to you.
Let's start with the virus, because all the news lately has been flowing from it. People have been getting sick since we were people. Until very recently there wasn't much that could be done about it. We died in plagues and the world went on, mostly, with some changes for the better.
Then we discovered penicillin and life got better. We figured out vaccines and we've almost eradicated polio and some other diseases. (Don't get me started on those anti-vax idiots.) The flu still goes around every year, and kills some number of people. There's a vaccine for that, but it's not a sure thing due to the nature of the virus.
For much of my adult life people kind of expect to get a bout of the cold or flu every once in a while. They have a bad week or so and carry on. Lately they seem to be getting worse. Instead of having a crappy week, more and more people are saying they're getting their ass kicked by it for a couple or three weeks, sometimes more.
Now COVID-19 shows up. Some people say it's the flu, no biggie. It isn't. Do the research. It's much more contagious, for a much longer period, with people not showing symptoms while infectious for a much longer period, and it kills far more people.
We're over it, they say. Open the economy. We need a haircut. How will we pay back all these relief payments? Most of which are going to lazy slacker cheats. So many businesses will go under. A wave of mortgage defaults are coming in September.
Let's start with the relief money. I'd read that many people were only a couple paydays from financial catastrophe, and that turns out to be true. Once upon a time, Canadians were savers. Now we're debt junkies. So many businesses were shut down to try to limit the spread of the disease, and people were laid off. When you live payday to payday, that's a big problem.
The federal government stepped up and started expediting relief payments for people and businesses, essentially just for asking for it. Until I got into the fine print it looked like I could apply. Why not? Free money, even though I don't need it, and if it turns out I had to pay it back because I wasn't really eligible after all, that was fine.
I'm sure there are lots of other people in a similar boat; they don't really need the money, and might be on this side or that side of the eligibility line, and there's probably some fuzz on that line anyways. The reasoning so far seems to be that it was more important to get the money out the door to the people that really needed it, than fuss about the fine points of application or eligibility. I'm sure there are some outright scam cheater grifters taking the money, but two thoughts on that. One is that there are always scam artists trying to take advantage, and there will be a certain amount of loss in any program. Two is that Canada has a complex and generally well administered tax system. Most of the cheaters and double dippers are going to get caught, sooner or later.
In the meantime, much of that money is going around the economy, keeping it on life support. People buying groceries, paying rent/utilities, making car payments. Some organizations have offered to defer payments, but this is a bit of a trap. For the banks, that mortgage deferral might be good in the short term, but those payments don't go away, and neither does the interest. You'll be paying it back. Trust me. The banks are not your friend doing you a favour, it just looks like it.
Ina bigger sense, and this is what inspired me today, is people asking how we are going to pay back the relief money? They say they worry about the future generations. That we are burdening them with debt. A crushing millstone.
As if. Let's get a bit of historical perspective. Coming out of WWII our debt and deficit in comparison to GDP was enormous, far larger than today. But then, what choice did we have? There was urgent shit that had to be taken care of. The threat was obvious. There was a war to be won. Paying for it was very much a secondary concern in the heat of the moment. Low interest rates and a booming economy took care of the debt.
Let's take a bit of a detour. What happens when we borrow money for infrastructure? A new highway, to take an example close to hand. The expansion is costing $5 billion, to be paid back over time, probably decades. I don't know the terms. But why shouldn't future generations pay part of it? The road is going to be there for generations. They get the use of it. The same is true for lots of government spending. If anyone is going to borrow money, now is the time. It's never been cheaper.
Is the same true for the relief payments? Put another way, what's our choice? Many Canadians have pickled themselves in debt. Rightly or wrongly, we won't get into that just now. We're used to a world where only a relatively small number of people are out of work at a time. Our EI systems have evolved to deal with this.
Now, we have a large fraction of the workforce suddenly out of work. They get sick and stay home. Or their workplace closes. They would run out of money waiting for EI mainly because the system isn't built for this. They start getting behind on their payments, if they aren't already. The bank starts foreclosure proceedings. Their credit rating is ruined. They end up in a homeless shelter. One that is probably already over-crowded.
Except, wait, crowds are bad. There's a virus going around. What happens? Nobody knows. Nobody wants to know. Better to spread a bit of money around and keep them in their homes. Deal with the emergency, and figure it out later. Save the lives first, count the cost later.
Is it fair to future taxpayers to incur this debt now? Bluntly, keeping people alive now ensures there actually are future taxpayers, and a functional economy. Keeping the economy from crashing due to a tidal wave of bankruptcies seems like a good thing. Not catastrophically overloading our medical system seems like a good thing. Even spreading out the pain is worth doing. The rip the bandaid off at once school of thought doesn't really apply to national economics. It's like the curve flattening thing. We can handle as many emergency cases as there are beds. Things start getting hairy when there are more cases. People start dying of other, preventable causes. When there's a lot more cases, things in general start coming unglued.
National economies are complicated. Much more complicated than a tweet, and anyone that tells you different is lying or deluded. Check them for a tinfoil helmet. It's hard enough to manage an economy when things are going well. We're only beginning to learn to deal with it when things go a bit wrong. Economists argue about stimulus, inflation, bank rates, and many other things, and how they all interact. We can predict the weather pretty reliably in the short term, and even general trends in the longer term, but the economy is a constant surprise. Much better to spend now, knowing it will create a problem later, one that we are pretty sure we can deal with, than to get into an issue we don't know how to deal with.
I'm kind of baffled by people obsessing about "the economy." Obsessed about your job, and how things are going locally, sure. But "the economy" didn't exist as a thing until quite recently, historically speaking. What I think they really mean is being able to go do what they want, which mostly seems to be to go shopping for stuff they don't need. So much of the economy is measuring consumption, not actual production of useful stuff.
Which all in a roundabout way gets me to wealth inequality. What used to be considered normal got us into a situation where a few people are eye-poppingly wealthy and most are not. A very small percentage of the population has or controls most of the wealth. It's not even the 1%. The graph skyrockets when it gets into the upper fractions of that 1%. The Thompson family is worth 41 BILLION Canadian dollars. It's hard to understand how much money that is.
Think of it this way. A million seconds is less than 12 days. A billion seconds is 32 years. Or this, a million dollars in $100 bills would a little over a metre high. You could get it into a medium sized suitcase and carry it around. A billion dollars would about 1 Km high.
Out of 36 million Canadians, only just under 400,000 (almost exactly 1%!) have a net worth more than $1million American dollars (the global standard) and for most of them, most of it is in one asset, their house. Such a person is considered wealthy. A pile of cash 1 meter high, and you're wealthy. (I know people in that situation, and they describe themselves as well off.) Remember a billion dollars is a pile 1 Km high. Now consider Ken Thompson's share of wealth is 41 piles that high. A suitcase vs 41 piles of cash taller than the Burj Kalifa. The other 35.6 million Canadians are struggling to fill the average purse. Is your mind boggled yet?
It should be. There's a video that describes it via pie, if you want to think about it that way. I'm hoping one outcome of the virus is that we look at normal, and wonder if we want to go back to doing that. Who did we want working during the virus crisis? Truckers and grocery store clerks and doctors and nurses. Who did we not care about? Those people at the top of the wealth pyramid who describe themselves as CEO's or venture capitalists, or at the top of some giant tech firm.
Capital at work in the stock market has historically earned about 7% annual return. One of the rules of thumb about retirement is that if you can live on 4% of your capital a year, you can do that forever. By this logic we can hit the Thompson family with a wealth tax of, say, 5% a year, and it would only slow the growth of their wealth. That adds $2billion a year to the Canadian government, in addition to the 330 or so billion dollars revenue coming in now.
Up till now the wealthy have been driving taxation and distribution discussion to blatantly favour them. They've been driving down tax rates for decades. Building ever more elaborate schemes to hide wealth and evade taxes. It seems that all the bailouts go to them, and the tax rules are written to favour them. Time for a little balance. Now is the time.
Of the Day
Michelle
Curtis
Driftwood, plus serendipity from almost exactly 3 years ago.
Another great post! I'm gonna wait until tomorrow to share it though so hopefully folks will make the time to do so.
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