New maps: A struggling middle class meets a global pandemic

How a decade of stagnation created a perfect storm

What happens when a struggling middle class meets a global pandemic?

We’ve always used maps to guide our collective journey.  But as the events of the last few weeks have revealed, the maps we’ve been using for the last decade have been dangerously wrong.

And there’s no greater example of this than the map we’ve used to build the foundations of our middle class.

In order to prevent the spread of COVID-19, we’ve had to shut down a huge portion of our economy. 

That economic contraction has created one of the largest spikes in unemployment we have ever seen.  With 6m emergency benefits claims since mid-March, our unemployment rate could be 20% or higher.  These numbers are staggering, and people urgently need help.

But, let’s rewind the tape for a moment.  There’s an even bigger question at play here.

Before COVID-19 struck, did we have a healthy middle class?

Did the maps we’ve used to navigate the last decade lead to a middle class with access to stable jobs and growing incomes?  Did our middle class have a rate of savings that allowed them to plan for retirement and put aside money in case of a rainy day?

The resounding answer is no.

Let’s take a deeper look at the destination our maps have led us to.

Half of Canadians are living paycheque-to-paycheque.  One quarter say they don’t have enough for their daily needs.

Our household savings rate is at 1.7%, the lowest point in 6 decades.  The average household is saving only $900 a year.

Our middle class was struggling long before COVID-19 hit.

And when a middle class, with barely any savings to speak of faces a global pandemic and economic shut down, catastrophe ensues.  That’s why so many Canadians have applied – so rapidly – for emergency benefits.

Few people could have predicted a global pandemic.  But how is it that our middle class barely has savings for any kind of a rainy day?  Cars break down, roofs leak, people get sick and have to take time off work.

And, we’ve had ten years of robust economic growth.  We were at the end of our business cycle – the time when everyone is supposed to have benefited.  Heck, we were due for a recession at some point.  Yet, our middle class has benefited so little from ten years of economic growth.

If the middle class is the foundation of our country, how is it that we built a map that led to cracked foundations?

The answer: over the last ten years, we haven’t given middle class families access to a growing salary, and at the same time, we’ve been hammering them with increased costs of living.

The data is stark: real median incomes have only been growing at 0.3% a year.  At the same time, costs of living have increased – in particular housing, which has increased by 74% over the same time

And what happens with your costs of daily life rise faster than your income?  You get buried under a mountain of debt.

57% of Canadians are carrying credit card debt and a third have delayed paying off credit cards because they couldn’t afford it.

Almost half of Canadians have a non-mortgage debt of over $20,000.

40% of Canadians have no retirement savings, because they can’t afford to save.

The map we were using to navigate the last decade has led to a mountain of debt covering middle-class families.

People have been sounding this alarm for years.  In 2017, a leading Canadian economist remarked: “the shrinking middle class is not a myth… it’s a reality”. 

And people know the predicament they are in.

They know that they’ll have to work longer than their parents did.  And surveys show that a huge majority are aware they don’t have enough savings to make it to retirement.

Almost two-thirds of Canadians now believe that the next generation will be worse off financially than they are today.

Do you earn more than your parents?  Consider this.  If you were born today, despite all your hard work, your story of progress may no longer be possible in our society.

How did we lose our way?

This is a story about all of us, and the maps we’ve been using to navigate this last decade.  Maps that have led to this very moment – a middle class, with little savings, a load of debt, facing the prospect of an economic depression.

Our economy is built on capitalism – the buying and selling of things.  It’s the most efficient and effective way we have found to organize our society.

But capitalism only works when people can afford to buy things, without going into debt.

Henry Ford understood this way back in 1914 when he doubled the wage of workers in his car factories.  He said, “one’s own employees ought to be one’s own best customers”.  Back in 1914, he understood that a growing middle class was essential to the prosperity of his business, and his country.

Yet, one hundred years later, we seem to have charted a different course, and ended up in a much scarier destination.

Somewhere along the way, we collectively decided that a steadily rising income wasn’t important to all working Canadians – only some.

But just like our massively underfunded health system, it’s not like anyone gave us two buttons to press, with one saying ‘prosperous middle class’ and the other saying ‘fragile middle class’, and we chose the latter.

Instead, it happened slowly, bit by bit as the way we practised capitalism prioritized global competitiveness over the health of its workers.  Somehow, in our rush to build a stronger economy, we forgot to take a critical look at whether that stronger economy was benefiting everyone.

The map we’ve been using to navigate this last decade has led us on a path to robust economic growth, with most western democracies reporting rock-bottom rates of unemployment in the lead up to COVID-19.

Yet that same map has given almost none of that growth to the middle class.

Instead, they’ve struggled.  Many have turned to debt to keep up.  Few have savings.  And almost no families are ready to weather the COVID-19 storm.

For our middle class, recovery from the “Pandemic Recession” will take years.  Many families will never recover and will see their standard of living in retirement fall.

Yet, today there is a tremendous opportunity to build a new map – a map that leads to stronger foundations.  A middle class that can participate fully in our economy.  That has savings.  That feels optimistic in the future.

Our global economy is incredibly complex.  The relentless pace of automation and artificial intelligence development makes it even more so. 

Despite this complexity, the map to a stronger middle class is a simple one: anyone who works full time should not be struggling to make ends meet or resorting to debt.  Full time work should lead to a stable and growing income, and an ability to afford a good life.  And that should apply to people working full time for one employer or working full time in the gig economy.  And costs of life, like housing, should never increase faster than the ability of all of us to afford them.

This isn’t a new map.  It’s the map that built our Canadian Dream in the 20th century – that hard work should always lead to a decent standard of living and the ability to participate in one’s community.

After all, everyone deserves a fair shot at a good life.

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