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The myth of the 99 percent

Even after having been debunked countless times over, utterly erroneous conclusions about the poor’s well-being have yet again stolen the show because of a spiffy video making its way around the web.The Daily Conversation, whose self-proclaimed purpose is to “make the world a more informed, thoughtful and engaged place,” posted the video, which casted a light on American wealth and income inequality.“One percent of Americans hold 40 percent of the nation’s wealth,” the narrator of the video alerted, referring to a chart that illustrated the data. “The bottom 80 percent…only has seven percent of the wealth between them.”“While the richest one percent take home almost a quarter of the national income today, in 1976 they took home only 9 percent,” he added, “meaning their share of income has nearly tripled in the last 30 years.”To be sure, there are others—besides those at The Daily Conversation—who ring alarm bells about the widening income-inequality gap. Many people deem the current trend grossly unfair, for they purport it makes society’s poorest even poorer and society’s richest even richer.Though these conclusions are drawn from factual data, the data itself fails to paint a picture that’s complete enough to legitimately reach such conclusions about society.The statistics, which only show the distribution of income among quintiles over a given period, don’t illustrate how well real people are truly faring. Indeed, the statistics only illustrate the relative performance of statistical categories rather than the absolute performance of flesh-and-blood people.The quintiles, which are the five groupings within which households or people are typically placed, aren’t composed of the same households or people year after year. People rather regularly move up and down the income ladder.The most recent data on mobility, which was published by the U.S. Department of Treasury, shows there was “considerable income mobility…in the U.S. economy.”… Read More

Fixing Canada’s Out of Balance Economy

Seen any growth lately? Seen any signs prosperity will abound in your future?No? Well, then, what are we going to do about it?Let’s start by recognizing a few facts.First, Canada’s economy is out of balance. It depends far too much on the extraction of resources. It depends far too much on services anyone else can do.It has less and less production of products every year.This isn’t a plea to “restore manufacturing” (although, to be fair, the economy that made us prosperous had a lot more of that). There’s nothing wrong with turning out software as well. But we do have to create products.Which implies, in turn, creating a whole heap of new ones — since old ones get copied or fall into disuse, while not all new ones succeed.So this isn’t a plea, either, for governments to pony up for an innovation push, or special grants and loans, or any other form of “process” to “aid” the “sector”.What it is is a plea for Canadians, young and old, to realize that there’s tons of work to be done, always, even though jobs may be hard to come by from one year to the next.Going to school with a “job” in mind is a good way to be disappointed. There may be no openings when you get done. There may be a surprise: now you need additional credentials, because the glut of people ahead of you has forced up the means of differentiating between candidates.And jobs, of course, go away. Back in 1974, when I got my first full time job, it was as a computer operator. I put paper in printers, stacked the output, mounted tapes on drives and put them away, scheduled and released jobs at the console.There are still operators in data centres, but far fewer of them,… Read More

The magnitude of Canada’s housing crisis

Canada’s housing bubble has escalated to a point where the question is no longer if the bubble will burst but rather the scale of the collapse.  On October 30, 2012 CIBC’s economist Benjamin Tal published a report attempting to downplay the Canadian real estate bubble by claiming it will not be as severe as the crisis that hit the U.S.  However, his arguments ignore several crucial factors that point to the inevitable housing crisis being severe enough to cripple the Canadian economy via a hard landing causing at least a 20% decline from peak housing prices.For starters, StatCan recently reported that Canada’s household debt-to-income ratio just hit 163%, overthrowing U.S.’s peak of 162%, which they hit just before their housing market toppled (Chart 1).  Although Mr. Tal acknowledges this, he attempts to sidestep this problem by claiming it is a non issue as the debt-to-income ratio for the past three years in Canada is rising at a slower rate than in pre-correction U.S for the same period.  What he fails to mention however is that U.S. consumers had an exponential rise in their debt-to-income ratio for about three years leading to the collapse whereas Canada’s housing bubble has been slowing brewing for the past 10 years, making this statistic completely irrelevant.Chart 1:Another point Mr. Tal makes is that the quality of the debt in Canada has not changed dramatically in recent years and that Canadian consumers are in better shape now than their American counterparts when their housing bubble peaked.  What he does not realize is that credit scores only correct themselves after the boom period is over. This is due to banks making major adjustments to credit scores only after the individual is unable to service his or her debt. We see this illustrated in Chart 2 where U.S.… Read More

20th century TV for Canadians?

Television has come a long way since the early days. What used to be a bulky box in the middle of the living room is now a flat panel, and instead of a handful of channels, often of rather poor picture quality, there are now hundreds and hundreds of channels to watch – in high definition to boot.But this isn’t where television stops: if your TV set still doesn’t give you the right things to watch, you can now easily turn to your computer or a mobile device, such as a smartphone or tablet, and stream a show or movie of your choice.Despite all the fancy new technology, Canada’s government, through its regulator, the CRTC, still insists that Canadians must consume TV the old-fashioned way, the way they did last century.For starters, cable and satellite subscribers pay for a number of channels many never watch or want. Those channels are designated as “mandatory carriage”, which means TV providers must carry them, and subscribers must pay for them (usually as part of the basic cable fee).However, this is not what Canadians want. They want to be able to order only the channels they like and actually watch, and nothing else. In fact, a growing number of TV viewers would go even further and order only specific programs, rather than entire channels.In addition to mandatory carriage, there’s also an antiquated “signal substitution” rule in place, which is also known as “simulcasting”: when a Canadian network airs a show at the same time as the originating US network, the signal of the Canadian network is also broadcast on the channel carrying the US channel. This way, viewers wanting to see a specific show will see only the Canadian signal and, of course, the Canadian commercials.At the end of the last Superbowl, this simulcasting… Read More

Cents and Sensibility: Farewell to the Penny

Monday saw the end begin for the familiar penny.Merchants are still adjusting: while the instructions to most cashiers is to accept pennies if offered but not to hand them out (rounding the change), most people operating tills still have their habits firmly in place. If the “change required” requires pennies, they’re handing them out (while they still have them).Reprogramming of registers, though, is coming quickly, to start expressing the “change required” rounded off to the nearest nickel. (.00 to .02 rounds down to .00; .03 to .07 rounds to .05; .08 to .12 rounds to .10; etc.)For me, it’s a sad day — and yes, I’m like most people in that I grumble when I open my change pouch and find that heavy weight is mostly pennies, and I dump them into a jar to be rolled “sometime”. The demise of the penny shows us just how price inflation has savaged us.Money is supposed to be a store of value as well as a medium of exchange.We’re all used to the medium of exchange part. Rather than having to find someone who wants what I offer so that we can barter, money becomes the intermediary, facilitating our trades of goods and services (labour for things).But money is also supposed to allow me to stretch out the time involved (that’s the store of value part). Isn’t that the essence of saving for retirement, for instance? The money I put aside today will still be worth what it’s worth to me today forty years from now when I finally put it to work for me.Well, good luck with that.If you’re in Ottawa, spend a couple of hours at the currency museum, housed in the lobby of the Bank of Canada building. It’s a real eye-opener.Throughout the nineteenth century in Canada — so… Read More

High-rises, low returns

A simultaneous fit of euphoria and vertigo weakens your knees as you gaze out the living room window of a brand new 22nd floor luxury penthouse. “This is the chance of a lifetime’’ your real estate broker declares cogently. Your significant other turns to you and grins approvingly; “I love it, honey”. Amidst the flood of emotions and peer pressures, you manage to clear your head and ask yourself one sobering question – is this a good long-term investment? Well, considering that homeowners usually depend on large capital gains to grow their nest-eggs, maybe not. In my educated opinion, this particular type of property, a high-rise, is less likely to produce these desired results. More specifically, a building with fewer storeys may be a better choice if long term appreciation is sought.In order to proceed, certain elements of real estate appraisal must be explained. Fundamentally, there are two components of real estate property: land and the building erected thereon. Imbedded in basic real estate appraisal theory is the humble assumption that while land can either increase or decrease in value over time, buildings will invariably depreciate. Lay people tend to have a difficult time grasping this abstraction, but think of it this way: buildings become dated, they require repairs and renovations, their layout becomes less compatible with modern life, and eventually you may have spent just as much keeping it up to date as it would cost to build a new property. The accretive effect of these deteriorations is expressed as an annual percentage of the original building value – the depreciation rate. These principles of real estate appraisal imply that capital gains on real estate should be primarily the result of increases in land value.My qualm with high-rise condominium projects is that only a small fraction of the sale… Read More
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