The false economy

After years of Liberal bragging over how great the Canadian economy is allegedly running, it's not too surprising that the Cons have started claiming the same now that they're in power. But while the weaknesses in Canada's economy may not be evident from anything the two main national parties have to say, more evidence comes out today that Canada's "strong economy" has created a precarious situation for most Canadians:

One thin dime isn't much but it's how little the real hourly earnings of Canadians have increased over the past decade and a half, suggests a new report that warns cash-strapped and deeply indebted families had better tighten their belts...

Average household incomes are now about $55,000 a year, roughly the same as at the start of the decade and up only one per cent, or about $500, from 1990.

In contrast, average household debt now stands at about $70,920, up 16 per cent from 2000, and 40 per cent from 1990.

And as bad as the debt situation appears for Canadians generally, Macleans points out that it's all the worse among young adults:

Time, they say, is on their side. They have years to start saving for marriage, kids and mortgages, let alone retirement. They have low inflation and interest rates to enjoy, and the federal surplus means that even if they aren't saving, the government is -- which economists say gives them a sense of security. They are better educated than previous generations and will earn more at a younger age than their parents did. Maybe most importantly, they can take advantage of easy access to credit. "Today, it's not the Gretzky model -- work hard as a child, play hard as an adult," surmises Pedro Antunes, director of national forecasting at the Conference Board of Canada. The "celebutante" lifestyle of Paris Hilton prevails: live like a young heir, whether or not you are one...

While all Canadians are feeling the pinch of rising debt levels, young people are being squeezed hardest. A recent report by the Vanier Institute for the Family shows that average net worth (assets minus debt) for those under the age of 25 dropped by an astonishing 95 per cent between 1984 and 1999. And consumer borrowing has only accelerated since.

It's particularly worrisome to think that more responsible government is considered a cause of less responsible consumer behaviour. While I'd be surprised if there is a direct connection between the two, it does seem clear that the example set by a good number of governments is one that far too many Canadians (especially younger ones) have ignored.

Meanwhile, it should be noted that Canada's economic growth on paper can itself be traced in part to the influx of debt-fueled spending. Yet even with consumers spending at unsustainable rates, that hasn't been enough to allow the benefits of economic growth to make their way down to Canadian workers.

In other words, Canada's economy is a lot less strong than the two main federal parties want to claim. And matters are only going to get worse if that fact isn't noticed and dealt with before consumer debt becomes completely unmanageable.