Thank you very much, Mr. Chairman. Members, thank you for your invitation to be here. I’m absolutely delighted to be with you for this launch of the study on income inequality.
I will agree on many fronts with Ms. Carney, but I'll take a slightly different tack, if I may. The initial point of agreement that a lot of us understand is that excessive inequality is a dangerous and socially harmful thing, and that's why this committee is right in launching a study on income inequality. In my comments I'll focus on item 4 of the motion enabling this study. I'll focus a little bit on how best to improve it.
First, some background and thoughts on what drives inequality and why it's important.
In its mildest forms, income inequality makes people unhappy, and that's where some of the polling numbers come in. Being happy is not a small thing; it's an important part of social well-being. What makes us unhappy is the alternative: a feeling of powerlessness, an inability to succeed and share in life as we see it around us. It can breed envy and make us despair, and that's not a good thing either.
Taken to an extreme, income inequality and its regular companion, asset or wealth inequality, lead not only to unhappiness but also to a lack of faith in the institutions, as Ms. Carney described—a lack of faith and trust in the world around us. What follows from that disillusionment can be big, big trouble. Populist uprisings, arising from a lack of faith in institutions, and distress owing to the limits that governments place on us can lead to revolution, can lead to overthrow of governments, and can see those governments replaced instead by superficially egalitarian regimes.
We know there's a tipping point where excess inequality leads to upheaval. The trouble is that there aren't numbers one can assign to it. Political scientists and economists can't say what defines excessive inequality, but we know there is a line that, once crossed, may lead to the upheaval I've pointed to. The result can be disasters, as we see around the world today, and bad, bad outcomes.
This committee, however, is studying inequality in Canada and what we might do about it so that we might avoid the dystopian outcomes we see, for example, in North Korea, where wealth and power belong to the few and poverty, hopelessness, and powerlessness belong to most of the rest.
In thinking about what we might do about inequality, something important to understand is what drives inequality. Why do we see inequality in a society like ours, where we try to make opportunity available to everyone? To see why inequality might come about, I did an experiment in numbers and I presented some pictures, which I believe members have. In my first figure, I have everybody in Canada start out equal. We all start at age 20 and we all get jobs paying $25,000. That's a lot for some people, not much for others. But not only that, we all have the same opportunities and the same skills and willingness to exploit them. We do equally well in work and in life. We all start out equal, and after 40 years we're still equal. The lowest 20% of earners have 20% of the income. The top 20% of earners have 20% of the income; so too for everybody else in between.
I label this figure “Harrison Bergeron”, after a 1961 story by Kurt Vonnegut. He knew what it would take to deliver complete equality: the athletic folks would have to be burdened with weights; if you had good eyesight, you'd have to wear fuzzy glasses; if you're really bright, you'd have to have noise makers in your ears that stopped you from concentrating. That's a dystopian vision, of course, and a vision of hell. So these things matter.
Life, of course, isn't that rosy. That's why, in page 2 of my experiment, I say that skill and effort matter. I randomly distributed these across a population of tens of thousands. Assume that your skill and capacity to deliver on it, to take advantage of it, are independently distributed. What happens? You generate inequality in the first year, you generate more income inequality after 20 years, and more after 40 years.
Then I point out, as we all know, life isn't that fair. We don't all start out equal, we don't all have parents who make sure we finish high school, we don't all recognize an opportunity and grab it. We may not have parents, we may start sniffing glue or gasoline when we're kids—you get a tough break sometimes.
What my slide shows is that when skill, distribution, and opportunity are there, you can still do all right. There will be inequality, it will be grow over time, but it arrives.
Now the final part asks if my numerical experiment represents reality. What I did in my last slide was compare this unfortunate course of life with real outcomes, and it does a pretty good job.