“Canada .. is one of the two countries that I am most optimistic about”

Ian Lee, an Assistant Professor in the Sprott School of Business at Carleton University

New Pathway – Ukrainian News.

To measure the findings of EKOS Research Associates about Canadians’ perceptions of their well-being, we interviewed Ian Lee, an Assistant Professor in the Sprott School of Business at Carleton University. We wanted to find what an economist has to say about Canada’s economic development reflected in the objective statistical data.

What do you think about the fact that much fewer Canadians identify themselves as middle class now than in the past?

Ian Lee: I completely agree that a large number of people perceive they’re not doing well and that diminishing number of people call themselves middle class. However Canada has one of the highest average incomes per person on the planet Earth. We’re essentially tied with Germany. I’ve travelled around the world, I teach in many countries around the world, and there is no question in my mind that we are extraordinarily affluent and I’m not just comparing ourselves to poor countries. We have a much bigger, deeper middle class than in the US, where the inequality is much more pronounced than it is in Canada. It is simply statistically not true that the middle class has collapsed. We’re selling more middle-class cars than we’ve ever sold in the history of our country. We have one of the lowest rates of unemployment in record in modern times. Somebody is paying those sky-high rents and those sky-high housing prices. People say to me, “I’m no longer in the middle class.” I say, wait a minute, you’re taking two holidays a year internationally, how can you be doing that if you’re poor? And they’ll have two cars, and they own a house. We have one of the highest rates of home ownership in the entire world at 70%.

What has happened, is that our incomes are not increasing as quickly as they did before. The standard of living in the 1960s-70s was skyrocketing, and the economy has been slowing down in the last 20-30 years and people perceive that. I don’t dispute that energy prices are going up in some places like Ontario and of course the housing prices are at a very high level. And I think people are saying that the standard of living is not as high as they would like it to be. Our expectations are higher than our perceptions. We’re expecting more but we perceive we have less. And politicians are jumping on this in an opportunistic fashion.

There is a widespread perception that real incomes have been stagnating since mid-1980s.

Ian Lee: I don’t agree with that at all. Of course, not everybody is prospering equally. Those with post-secondary education are doing much better than those who have not gone on to university. The bottom two quintiles, the base of Donald Trump and populist parties, are not doing anywhere near as well. Whereas the top three quintiles are doing much better. Another thing to factor in, which some of the inequality theorists are not factoring in, is that your money goes a lot farther today. In the 1980s, a Betamax video-player cost $2,500. Now you can buy a CD player for $100-$200. The cars now last longer, they’re much more high-tech and they cost less as a percentage of our salary today than they did 20-30 years ago. The food is better and safer, healthcare is better and we’re living longer. Technological progress has been very pronounced but it’s much more difficult to measure.

The growth in car sales and the activity on the real estate market have coincided with the growth in the household debt. Maybe people are buying all these things, which they can’t afford, and are just piling up the debt?

Ian Lee: Everybody quotes the household debt size, which is approaching $2T, but they don’t tell you that we own $10T in assets, which gives us $8T net worth for Canadians, which is an average of almost $300,000 per adult Canadian. That number is of course skewed because young people are clearly not worth $300,000. Older people tend to have significant net worth because they own assets that have gone up in value.

This is a good point because the gap between the older and the younger generations, especially those younger people who will not inherit any assets, seems to be widening. There is a campaign Generation Squeeze which talks about this.

Ian Lee: That’s marketing hype, let’s be clear. The wealth transfer that’s going to take place over the next 25 years will be the largest in the Canadian and American history. We’re talking of transfer of trillions of dollars to the next generation. And the idea that the millennials are all going to run out of money is just absolute nonsense. I’m not saying that there is no poverty in millennials. But can you generalize and say that “all young people” or “most young people” are in dire straits? Absolutely not. 70% of Canadians own their homes and the vast majority of older people have stated in each poll I’ve seen they’re gonna pass on their wealth to their children. Will everyone get a wealth transfer? No, because not everybody is wealthy, not everybody has parents that have a house, 30% of Canadians rent. Yes, young people are not doing that well. When I was 25 years old, I was so broke it wasn’t funny. When you start out you have no money and then over time you work into the labour force. Secondly, in Ontario, the millennials who are graduating are starting around incomes from $60K. That is not a starvation wage. Journalists have picked up the stories of some millennials who can’t get a job because they either didn’t go to university, or they did a degree that didn’t have a lot of market demand. People are extrapolating from that, assuming that everybody who is a millennial is working at minimum wage, which is definitely not true. My students are graduating with BCom, and they’re starting at $55-60-65K/year in corporations and in governments. I get emails regularly each year from former students and they’re telling me how some of them are already vice president and only in their 30s, some of them are assistant Deputy minister in the government of Canada and they just turned 32 and they are all doing very well.

Actually, Generation Squeeze said that incomes of the younger age group have gone down in the past 10 years or so in Ontario (“Since [2003], Ontario is the only province to record a decline in full-time earnings for the typical 25–34 year old.” (#CodeRed: Ontario is the second worst economy in Canada for younger generations, Generation Squeeze 2017))

Ian Lee: They are claiming that but I have not seen Statistics Canada data saying that. These people are cherry picking, meaning they are choosing partial data sets, or some particular data that are sensational, and they’re extrapolating from that and generalizing for the whole population.* But before you think I’m saying “Oh no, there’s no poverty in Canada” – I am not saying any such thing. I am saying that we are moving into a two-class society – those who go to post-secondary education vs. those who don’t. The difference in their earnings over their life is profound. The myth of a person with PhD driving a taxi in Toronto is a myth. PhD’s have almost zero unemployment regardless of discipline including English literature. About 40% of our young people today are not going on to college or universities. That’s what we should be talking about, why they aren’t going on to college or university. And of course people who are progressive don’t like that question because it yields uncomfortable answers. People that didn’t go on to higher education are the ones who are being left behind in the digital economy.

As to the home ownership rate, it has recently declined.

Ian Lee: Not significantly – it is hovering around 70% [69.0% in 2011 and 67.8% in 2016 – NP-UN]. Canadians have almost a religious attachment to their house. I was a mortgage manager for 10 years in the bank in the 70s and 80s and I witnessed it first-hand. I see it right now with young people, including my own daughter who is saving up her money and moving back in with us so she can live rent-free for a year so she can buy a house. The latest studies show that the millennials want to own a house as badly as every other generation.

But the housing prices in Toronto, Vancouver and now many other cities are making it impossible for many people to buy real estate.

Ian Lee: The housing crisis, and I’ve been making this argument for 4-5 years, was made by public policies in Toronto and Vancouver. It’s not a conspiracy theory – the policymakers there deliberately restricted the supply of housing because of ideological reasons. They didn’t want the Green Space to be developed and they didn’t want those cities to grow at the edges.

Before the Ontario election, Doug Ford said that he would develop at least part of the Green Belt and he was immediately ostracized.

Ian Lee: I hope that he develops the entire Green Belt if there is a demand for the housing. In Ottawa, our home prices are more reasonable because when we ran out of land to develop we added on new service land at the south of the city, the West End and the East End. People that are dedicated environmentally, call this “urban sprawl”. The rest of us call this “responding to the demand of the young people who want to buy a house”. The crises in Vancouver and Toronto were caused by the government of Ontario, the government of BC and the municipalities of Toronto and Vancouver.

But if they don’t develop the Green Belt, this problem will persist. And many people will not be able to accumulate wealth because real estate is the main vehicle of wealth creation for most people.

Ian Lee: I completely agree that residential homes is the principal and most important vehicle of wealth creation. But young people are remarkably resilient and creative. We’ve seen the emergence of parents as lenders – I call it “the bank of mom and dad”. We’re seeing a lot of young people coming in with up to $100,000 down payments from their moms and dads. This is why, even though what they did in Toronto and Vancouver to make prices expensive was terrible failed policy but it did not cause a precipitant decline in home ownership.

So, you are not expecting emergence of an under class in Canada who will work at minimum wages and won’t be able to afford anything?

Ian Lee: When I came out of high school, I was in the bottom class. Over the years, you go up into the middle class. It’s not a static society like in the Soviet Union. Not everybody is mobile – the least amount of mobility is among the poor and the rich. But there is a lot more mobility in the lower-middle, middle-middle, and upper-middle classes over a lifetime.

And you are not expecting that going forward this mobility will decline?

Ian Lee: No. I am expecting the opposite because we’re becoming more affluent, again, contrary to this urban myth. I think Canada, of all the countries that I have been to, is one of the two countries that I am most optimistic about in the sense of their economic growth and development. The other one is Germany. The number of Canadians below the poverty line has declined steadily for 60 years and now is at its lowest level, 8.8% of the population. The reason for that is our income redistribution – we have a very progressive income tax system and a myriad of programs that most people don’t even know exist in their own country. And we have one of the most highly educated populations of the OECD countries.

* Dr. Paul Kershaw of University of British Columbia, School of Population & Public Health, Founder of Generation Squeeze, had this to say about this comment:

“Nope, I don’t cherry pick data in my lab at the University of BC. Tenured profs are driven by the data.”

The most recent data by Statistics Canada for Ontario, provided by Dr. Kershaw (Custom table C856285), which report median earnings for 25-34 year-olds in Ontario (adjusted for inflation, in 2016$) show that median earnings are down over $5,000 by comparison with the average reported for the period 1976-1980; and down over $9,000 if compared to 1976.

Dr. Kershaw: “Generally, we compare earnings now relative to 1976’ish, because that’s comparing earnings for young people today with the earnings of today’s aging population when they were young. In that study, we were also looking at trends that coincided with different governments. Since 2003, median earnings are down $1,200 in Ontario. We chose that year because it is when the Ontario Liberals came to power.”