Monday, February 1, 2010

Will Deficit Politics Lead to Greater Economic Inequality?

Although the leaders of the two leading federal political parties would have us believe we can address the deficit and the problem of our accumulated debt by growing the economy, the pesky Parliamentary Budget Officer, Kevin Page, has said otherwise convincingly.

In reality, our deficits have become structural, and we face the tough choice of either raising taxes or cutting spending. Certainly, bringing home the troops from Afghanistan will reduce expenditures, but not nearly enough to address the approximately $60 billion hole we have dug for ourselves. If we are to cut expenditures, who will be targeted? Let’s hope it’s not going to be the already disadvantaged.

One thing that distinguishes Canada from the U.S. and the U.K. is that we have less economic inequality because we transfer more wealth from the upper to lower classes. As a result, we have a healthier society for as Richard Wilkinson and Kate Pickett point out in a recent article:

Greater equality improves the quality of life for everyone – not just the poor. Whatever your income or education,living in a more equal society means you will be likely to live longer while being less likely to suffer violence or have a problem with obesity. In turn, your children have a better chance of doing well at school and are less likely to use drugs or to become teenage parents. This is about the quality of life for all of us.

Unequal societies, on the other hand, do worst on child wellbeing and badly on teenage births, imprisonment, drug abuse, trust, obesity, social mobility and
mental¬illness, which engender significant social costs for those who live in poverty and financial costs for those who pay for the social and health programs.

Forget trying to raise the GDP by 3% a year because what we have seen over the last thirty years is that increased economic growth has, in fact, reduced the medium income in Canada, the U.S. and the U.K., which is hard factual evidence that demonstrates that economic inequality is growing.

This should be cause for concern because if we are to reduce expenditures we will have to inevitably reduce demand on our health and social care systems. Looking at the empirical evidence from other OECD countries, we can reduce the burden on the public purse if we reduce the gap between the rich and the poor since most of the social determinants of health are affected negatively by economic inequality, keeping in mind that health-care expenditures represent the largest portion of provincial budgets.

From a global perspective of promoting public health and not sticking future generations with a tab that they will have great difficulty paying, it makes more sense to reduce economic inequality than taking measures to increase economic production.

We should follow Obama’s lead and increase taxes on the rich. As well, we should pass legislation with the objective of reducing executive compensation. Furthermore, there should be a tax on all financial transactions, which could be used for eliminating the deficit and paying down the debt.

Think about it next time you go to an automatic teller and withdraw cash. You are charged $1.75 to make a withdrawal and another $1.75 from your financial institution to release the funds. Imagine the millions of transaction that are made each day and that rather than making billions in profits exclusively for the shareholders of our five major banks, part of this enormous wealth is transferred into a national account benefiting the general population.

We could do the same for the trading of securities, which would protect our real economy from the ravages of financial speculation, real estate transactions, which would make housing more affordable for everyone, and for the exchange of Canadian dollars, which would give us a more stable currency.

Yes, such measures would reduce the income and wealth of the top one percent of revenue earners, and that’s exactly the desired result if we are to have a healthier society and a population that experiences greater well-being.

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