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May 10, 2020 | Free Money

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Ten years ago. Mark Carney was our central bank boss. “Individuals who have taken on too much debt could be at risk of going broke if there is another adverse economic shock,” he told reporters, while delivering the latest interest rate news.

Nobody cared. The debt-to-income ratio for households was 150%. The average Toronto property cost $431,000. There was a housing boom.

Today that GTA place is $821,000 and singles go for $1.2 million. The national debt ratio is 176% and in Toronto and Vancouver 450% for detached homebuyers. Over this decade real estate and debt have ascended together. Carney moved on, Stephen Poloz took over, and now as he leaves the Bank of Canada that ‘adverse economic shock’ has arrived.

In spades. Who knew it would be a pandemic?

So here we are with a 13% unemployment rate, 7.6 million on government income support, 80% of small businesses shut, 720,000 people with deferred mortgage payments, airplanes grounded, highways empty, schools shut, subways vacant and the immediate future foggy. The central bank has pulled out all the stops, using $150 billion to buy residential mortgages, while the federal government’s spending $250 billion more than it has to keep households from financial ruin.

An indictment of our society, and affirmation we’re a nation of financial illiterates? You bet. Like the 29-year old Ontario mom, Melanie, using the $2,000-per-month CERB to buy her kids dirt bikes. The government money is greater than her employment income, by the way. Now the windfall’s gone. (I hate to showcase an individual, but she agreed to speak with a CTV reporter. So the story’s out there.).


Thus, a legacy of the virus could be Covid cash. Ongoing governmental income support. How does Mr. Trudeau propose to turn it off? If 13% unemployment falls to 10%, then 8% over the rest of 2020 and beyond (a likely pattern), you can bet there’ll be political pressure to keep the funds flowing. Especially in the new world with fewer employers and less risk tolerance. Many believe this will lead to UBI – the universal basic income.

The lobbying effort has been ramped up dramatically thanks to the virus. The pandemic, as it turns out, was everything the pro-UBI lobby could have hoped for. The federal CERB, proponents argue, should be made permanent, extended to all citizens and continue seamlessly from where the Covid cash leaves off. There’s a well-oiled, politically-connected lobby group. An expanded group of advocates. And a slick website clearly hooking the virus into a universal income. Here it is.

The argument: there are more people than work available. Globalization stole jobs. AI is finishing off the rest. Lack of income means stress, preventing people from realizing their human capital. For example, there’d be more entrepreneurs if they could start businesses without worrying about paying rent or buying food – since the UBI would handle that. Plus the universal basic income would essentially eliminate poverty, plumping the middle and narrowing the gap between the wealthy and the rest. And this, you might notice, fits in perfectly with the Trudeau agenda – since we already have a federal Minister of Middle Class Prosperity.

Here’s the argument:

  • Universal Basic Income is an innovation policy: it recaptures our risk tolerance: unlocking the opportunity for everyone to take bigger risks, think long term, and create.
  • A Universal Basic Income defends equality of opportunity & self-reliance in a world where technological job displacement is reducing incomes for many.
  • A Universal Basic Income guarantees there is no longer a “working poor” ensuring that ongoing technological innovation is directed at preserving and expanding a middle class way of life for everyone.
  • UBI is an economic need that puts markets in service to humanity, installing the plumbing into capitalism that adds resilience and robustness to the economy, ensuring everyone can fully participate to their potential.
  • Universal Basic Income abolishes poverty and reduces human suffering as well as all reducing the costs of poverty to society.

It’s not a new idea, of course. Conservative senator Hugh Segal was pumping the concept of a guaranteed annual income decades ago. There have been pilot projects in various regions of Canada (mixed results). And this is a key plank in the increasingly influential ‘progressive’ wing of the US Democratic party. It goes hand-in-hand with MMT (Modern Monetary Theory) whose left-wing adherents believe central banks should print all the money a society and its citizens need, since they just owe it to themselves. Kinda like our prime minister giving us $250 billion we don’t have.

Of course UBI would cost a mother of a pile. Providing it to the 7.5 million at the bottom of the income scale would require $43 billion, says the Parliamentary Budget Office. Extending it to everyone would take $76 billion, even with it taxed back from higher-income folks. That’s equal to 50% of all the employment taxes collected today – suggesting revenues might have to jump that much to afford UBI. But that’s okay. The rich can pay. (Here’s a snapshot of federal revenues and expenses.)

By the way, polls find Canadians overwhelmingly support a universal basic income. Just as they’re loving their CERB. And what it buys. Free money. Varoom.

Anyway, it’s coming. Hide your stash.

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May 10th, 2020

Posted In: The Greater Fool

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