Chretien Government policies raised income inequality, real income and happiness while Trudeau Government did the opposite

 

The most widely used metric of income equality is the Gini Coefficient, named for its inventor, the Italian statistician and sociologist Corrado Gini (1884-1965). The Gini coefficient takes the value zero when equality is perfect — everyone has exactly the same income or wealth — and is equal to one when one person has everything. Statistics Canada publishes Gini coefficients regularly. Their path over the years reveals some interesting facts that may be important in assessing the merit of the policy platforms of parties competing in upcoming elections.

From 2015, when the Trudeau government came into office, through 2023 the Gini coefficient fell (from .314 to .288). That means inequality fell and equality rose, which was the government’s plan. In contrast, between 1993 and 2003, when Jean Chrétien was prime minister, the Gini coefficient rose — from .289 to .316. Inequality rose, equality fell. That probably wasn’t the government’s plan. But that is what happened.

Over these two periods, the growth in real per capita income also differed — markedly. During the Chrétien years real per capita economic growth averaged 2.4 per cent per year. Under Trudeau it has averaged one-eighth that, just 0.3 per cent per year.

Many factors determine the rate of economic growth and degree of income equality in a country, too many to discuss here.  But it is useful to consider some differences in the legislative agendas pursued by the two Liberal governments, Chrétien’s and Trudeau’s, that economists consider relevant.

Chrétien’s policies were focused on eliminating the large fiscal deficits he inherited on taking office in 1993. They did so by reducing spending on social transfers, including by restricting eligibility for and the generosity of employment insurance. Such measures likely affected the incomes of the poor and may well have increased income inequality. Cuts to the civil service, streamlined regulation, replacing income taxes with value-added taxes (i.e., the GST) and encouraging free trade all reduced the role of government in the lives of Canadians and strengthened the role of markets and incentives in the economy. The reforms generally were not as drastic as their opponents claimed but their effect was real.

In contrast, Justin Trudeau’s policies have focused on equalizing incomes and preventing climate change and they have substantially increased the role of government in the economy by raising social security spending and subsidies to individuals and businesses, increasing regulations and raising taxes, especially at the top end. To administer all the new spending and regulation, the civil service has expanded rapidly.

In short, increased reliance on markets, which Chrétien’s policies brought about, raised income and inequality. On the other hand, reducing the role of the market economy, as Trudeau’s policies have done, increased equality but has also reduced economic growth. These correlations, though simple and without further analysis mainly suggestive, are consistent with economic theory and historical experience.

It’s also interesting to look at what happened to the self-assessed happiness of Canadians during the two periods. Both governments presumably wanted to raise happiness, but during Chrétien’s time the index of happiness rose from 6.8 to 7.1 on a scale of one to 10 while during the Trudeau years it has fallen — from 7.4 to 6.9.

All sorts of things presumably affect how happy people are feeling. The negative effects of dealing with both the pandemic and climate change may well have contributed to the decline in well-being among Canadians during the Trudeau years. On the other hand, those were global phenomena so they don’t explain why Canada fell from fifth to 15th happiest country among 135 countries ranked.

These changes in happiness in the two periods are a puzzle. Income is an important determinant of happiness and there are more subsidized poor Canadians than there are taxed rich Canadians, which suggests average income equality and happiness should have risen together as the Trudeau government raised taxes on the few and increased subsidies for the many. That happiness fell instead may be the result of policies that have affected Canadians’ lives for the worse but not brought offsetting benefits: environmental and other regulations, increased taxation, inflation and, finally, rapid immigration that has contributed to housing unaffordability and the overcrowding of health care and other public facilities.

In addition, a new source of unhappiness may have resulted from innovative policies that have worsened the inter-personal relationships that research has found to be  “the most significant predictor of overall happiness, life satisfaction, and wellbeing.” These policies encouraged the formation of identity groups based on sexual preferences, skin colour, ethnic origin, age and gender.

The rationale for such policies is found in Karl Marx’s theory that under capitalism the bourgeois owners of property oppress the proletariat of labourers, which leads to an ever-growing gap in the income of the two groups. This idea has now morphed into the “woke” view that the below-average incomes of members of identity groups are caused by the oppressive, discriminatory policies of other Canadians, but mainly white males.

To eliminate the effects of this discrimination and raise the equality of income the Trudeau government has imposed “diversity, equity and inclusion” (DEI) requirements in Canadian organizations and institutions. Such requirements can involve preferential employment, student admission, salary benefits and promotions and so on, all of which come at the expense of Canadians who find that merit as the primary determinant of success is now replaced by the possession of personal characteristics whose value is rewarded by bureaucracies.

The adoption of DEI policies has led to what very likely are happiness-decreasing divisions among Canadians in general, among identity groups and even among the members of such groups, who may have expected more benefits than the system has brought them. Dissatisfaction and division resulting from these “woke” policies may help explain the decline of happiness among Canadians.

Let us hope voters consider all this when they assess the merit of competing parties’ platforms in upcoming elections.

Herbert Grubel, professor emeritus of economics at Simon Fraser University, was MP for Capilano-Howe Sound 1993-97.

This article was published in Canada's Financial Post on May 21, 2024, without the graphs below.