Sunday, June 20, 2010

The Myth of American Prosperity


The CBC's Don Newman has written a lament about how badly Canada trails the United States in prosperity.

But neither Stephen Harper, nor any Canadian political leader for that matter, is discussing the little acknowledged reality that Canada has been steadily falling behind the U.S. — not only our closest neighbour, but our biggest trading partner — for the past 30 years.

No one wants to talk about the data that everyone should be studying, except perhaps for the Institute for Competitiveness and Prosperity, whose recent study —"Beyond the Recovery" — should be required reading.

So not only is much of our Canadian self-congratulation misplaced when it comes to the recession, our continued back-patting obscures the main point of the institute's report, which is that Americans are still, on average, much richer than Canadians.

And except for the occasional exception, they have been getting richer by the year, which is something we have been very good at ignoring.

The Institute for Competitiveness and Prosperity, which is attached to the Rotman School of Business at the University of Toronto, reports that, at the end of 2009, the prosperity gap between the average Canadian and the average American was $9,300 in America's favour.


I like Don Newman but sometimes he can be pretty obtuse. This is one of those times. It's a "figures don't lie but liars figure" sort of thing. Let's start with the "average" American making $9,300 more than the average Canadian. That suggests the prosperity advantage is spread more or less equally among all Americans whereas, as we know, the growth in American wealth during the Reagan "Age of Ruin" has been obscenely concentrated in the richest of the rich. The middle class, or what remains of it, has been battered senseless and working class wages have stagnated for decades even as worker productivity has sharply increased. Per unit of work the incomes of blue collar Americans have declined. So this notion of the "average" American is genuinely warped. Newman ought to know better.

And what does prosperity mean without looking at the other side of the balance sheet - debt and unfunded liabilities. How does the extra cash in your pay packet compare with the IOU you've had to sign to get it? While you're counting your extra 9,300 greenbacks, who is pledging your credit, mortgaging your future (and your kids' future) and for how much?

Even before the collapse/bailout, America's former Comptroller General was telling anyone who would listen that the average American family's share of their federal government's debt and "unfunded obligations" stood at $480,000 USD. As he put it, it's like having a big mortgage only without getting a house. So let's work that out. 9,300 into 480,000 is what? That's about 50-years worth of prosperity advantage right there. And that doesn't include dime one of the stimulus bailouts or the projected mega deficits for years to come, as far as the eye can see. But wait, there's more!

It isn't just America's federal government that's broke. So are most American states, an awful lot of municipalities, a good segment of American business and, of course, an alarming number of ordinary Americans too.

Take California - please. In Friday's Report on Business there's a story, "California, on verge of system failure." That's right, the Golden State, 7th largest economy in the world, is teetering on the verge of bankruptcy and turning to an already skint Washington for a bailout.

It’s a story that’s being repeated all across California – and throughout the United States – as cash-strapped state and local governments grapple with collapsed tax revenues and swelling budget gaps. Mass layoffs, slashed health and welfare services, closed parks, crumbling superhighways and ever-larger public school class sizes are all part of the new normal.

California’s fiscal hole is now so large that the state would have to liberate 168,000 prison inmates and permanently shutter 240 university and community college campuses to balance its budget in the fiscal year that begins July 1.


Think of California as Greece on the Pacific: bankrupt and desperately needing a bailout.

“We are on the verge of system failure,” warned Jean Ross, executive director of the California Budget Project, an independent think tank based in Sacramento.

None of this would matter much to anyone outside the not-so-Golden State except that California’s budget crisis is a harbinger of a grim dilemma that all Americans will soon confront. The country has built an elaborate and costly government machine, tied to a regressive tax system that can’t generate enough revenue to pay for it all.


After unveiling a grim budget last month that scraps a popular welfare program for a million children and slashes countless other programs for the poor and elderly, California Governor Arnold Schwarzenegger complained that the state’s broken budget process has left him facing a “Sophie’s Choice.” That’s a reference to the story of the Polish Jew forced by the Nazis to choose between saving her son or her daughter from the Auschwitz gas chambers.

Experts say the U.S. government will inevitably have to come to the rescue, using its borrowing clout to save the state from near-bankruptcy or devastating service cuts. Do nothing, and the entire U.S. economy could be put at risk. California, like the country’s banks, may be too big to fail.


So, do you still feel dejected about being $9,300 a year behind your American cousins in prosperity? It sounds like Don Newman gorged himself on a super-sized portion of rightwing bullcrap.

1 comment:

Ian said...

I was thinking similar things when I read Don's piece.