Is the Internet behind growing income inequality?

The MacDonald Laurier Institute held a debate last night between the Liberal trade critic Chrystia Freeland, and the Canadian-American professor of law, Frank Buckley.

The issue was “Income Inequality:  we should quit worrying about it”. The debaters were too intelligent and well-informed to disagree fundamentally. The only decision criterion in the debate arose from one’s pre-existing disposition either to worry, as distinct from being concerned. Not a single intelligent person fails to be concerned about income inequality, in the same sense as a sailor keeps a wary eye on the water level in the bilge.

Freeland’s views are here.   Frank Buckley’s views are here.

The debate turned into a massive agreement between Buckley and Freeland that the United States is doing much worse than Canada in almost every dimension of income inequality, permanent class differences, social mobility in and out of the top ten and bottom ten percent of the income deciles, and so forth.

Buckley’s views on how American government is failing are summarized here. Essentially he attributes the fundamental fault to the separation of powers: the fact that the executive is not responsible to the legislative branch, which has powerful and ramifying effects on the whole system, including irresponsibility of legislators and presidents for results.

Here is Buckley:

 

What Canada has importantly over the U.S. is reversibility, the ability to undo bad laws. That doesn’t happen so easily in America, with the gridlock built into its separation of powers, and that’s a problem Fukuyama himself has identified in two recent books that describe a sclerotic society of special interests which enact wealth-destroying laws. Once passed, Americans are stuck with bad laws. Their constitution doesn’t have a reverse gear.

What Fukuyama recognized in his recent books is James Madison’s error in The Federalist Papers. Madison argued that the separation of powers would prevent bad laws from being enacted in the first place. However, that’s an example of what Nobel laureate Friedrich Hayek called the “fatal conceit,” the idea that planners can anticipate all the problems that might arise with a well-drafted statute. More modestly, Canada’s parliamentary system assumes that, in a world of human fallibility, mistakes will be made, that “experts” are often unreliable, that dumb laws will be passed; and that what is more important is giving the legislator the ability to bring hindsight wisdom to bear in undoing laws which experience tells us were ill-planned. If American government has gotten too large, if the statutory code and the federal regulations have caught a case of elephantiasis, that’s not surprising. The know-it-all hubris of the planner was baked into the American constitution from the start.

Other faults abound. US laws are written by lobbyists for various interests – yes, this is exactly true – and then various sections are then “reconciled” with other sections written by other crews of expensive lawyers, and then, if possible, the House version is reconciled to the senate’s version. At no time is a consistent editorial or legal style enforced; no equivalent of the official of the Ministry of Justice, no specialized drafting section, touches a bill.

The Canada Health Act (RSC ch.C-6) is 22 sections long, the US Affordbale Care Act is  974 pages long. It could not have been passed without a large degree of legislative log-rolling, which are buy-offs for regions, senators, and pet-projects.

Or as Buckley says, “the Canada health Act is twelve pages long, and that includes the French”.

__________________________

Of all the forces  acting on our respective countries, Canada and the US, I see this one as decisive.

  • every action capable of being reduced to an algorithm is being turned into software,  the instructions for machines, and these machines are doing jobs formerly done by humans.
  • More, the economic productivity gains are, under modern networked conditions, able to gathered on a global scale by very few owners of the intellectual property.
  • For example, think about how Uber takes the economic rents out of taxi licences, or Netflix out of Canadian broadcasting licences, and you can see how wealth can be centralized as never before.

Every other force generating inequality: family breakdown, the Bell curve – the unequal distribution of intelligence, globalization, decline of social cohesion, acts on both sides of the Canada-US border with greater or lesser effect.  The two political systems translate these forces into different social effects. Hence the Buckley-Freeland debate swerved into US-Canada comparisons, but avoided the main cause, as I see it, of increasing inequality.

The conclusions of this effect are being felt around the world:

  • since we do not need as many people to do the jobs now able to be performed by machines, people are reproducing themselves less, and population  is crashing in most places in the world.
  • Modern networked economies permit both innovation, and new forms of accumulating wealth, on scales that were not previously possible.

 

I recognize I am entering the dangerous territory occupied by Andrew Keen. Keen argues against the Internet, in that it does not create jobs, does not increase freedom, and wrecks the middle class. Both Freeland and Buckley were, in their ways, conscious of these trends, but they had not attributed the problem squarely to the effects of the Internet.

It is a thesis well worth allowing yourself to contemplate. I am allowing myself to think negatively and will report back when my views have matured.

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monkey

I thought Buckley had the stronger arguments. While there was much to agree with Chrystia Freeland’s she didn’t talk about income mobility and more pointed that if income inequality gets too bad it will disappear when the correlation between the two is quite weak. Some countries like the US and UK do poorly on both income inequality and income mobility while the Nordic Countries are fairly equal with high levels of social mobility. At the same time both Canada and Australia have moderate levels of income inequality yet high levels of income mobility while in contrast France is more equal than either, but has far less income mobility. I think mobility not equality we should focus on. As for not having tax cuts for the rich, the problem with this is the rich are highly mobile so if your tax rates are higher than other jurisdictions it just pushes them to move elsewhere. Also stronger unions aren’t exactly the answer either as I find our unions too often tend to promote mediocrity and limit productivity. Never mind unions often don’t care about the customer which is essential for a company to be profitable. And besides most are in the public sector not private sector so I disagree with Freeland’s idea we need stronger unions. Unions could be beneficial if they worked on increased productivity instead of finding ways to protect the unproductive and dead weight types.

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