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December 16, 2000

Chrétien's plan for a Canadian underclass

David Frum
National Post

Jean Chrétien's post-election brainwave of a guaranteed annual income isn't merely sneaky, although it surely is that. It's not just a bad idea, although it is that, too. It is just about the worst idea that this government has had -- one that will accelerate Canada's trend toward a U.S.-style underclass all our own.

We have always had poor people in Canada. But underclass poverty is different from the poverty of farm and fishing village. Underclass poverty is a poverty that separates people from the life of their society in an entrenched, permanent, helpless dependency, characterized by substance abuse, crime and suicide.

Over the past two decades, we have gone far in reproducing this kind of underclass poverty on our Indian reserves. Mr. Chrétien apparently wants to extend and broaden the underclass, to introduce it into every Canadian town and city.

Two ingredients go into making an underclass. The first and most fateful is welfare. Underclass poverty exists only in rich countries. In poor countries, poor people earn low wages. In rich countries, poor people earn no wages at all -- because the state pays them not to work. In the short run, leaving work for welfare is an appealing option for low-income people: The jobs available to them are dreary and depressing. Over the long haul, though, depriving people of work deprives them of purpose in life, encourages self-destructive habits, and robs schooling of any purpose.

The second ingredient in an underclass is fatherlessness, which is welfare's almost inevitable consequence. Generous welfare makes a low-income man's contribution to his household less valuable: His earnings won't provide a much higher standard of living than the dole will. It teaches boys that the girls they will get pregnant don't need them. And it permits girls who get pregnant outside of marriage to set up households of their own without their child's father. A reporter for The Wall Street Journal wrote a heart-rending account of a Chicago housing project titled, There Are No Children Here. He might equally have said: There Are No Adults Here. The world he described was one in which there was no legitimate authority, because there were no families with fathers. Families were headed by mothers only, often very young, and utterly incapable of steering their sons away from gangs, crime and drugs.

Canada has made alarming progress toward importing American-style fatherlessness: Nearly one out of every four children in Canada is born outside of marriage. We've been supplying the other ingredient -- welfare -- in larger and larger doses. Mr. Chrétien is proposing that we write universal dependency into our law as his enduring legacy to his country. Thanks!

Mr. Chrétien's guaranteed annual income isn't merely a bad idea. It's a bad idea that has been put to the test -- and flunked. Proponents of the guaranteed income take pleasure in pointing out that it was devised by Milton Friedman. What they neglect to add is that it was actually tried by the Nixon administration in 1969. A large sample of poor working families in Portland, Ore., were divided into two. Half were provided a guaranteed income; half were left to use the state's existing social-welfare programs if they needed and qualified for them. The author of the experiment, Daniel Patrick Moynihan, then Nixon's favourite domestic policy adviser, admitted later that he was shocked and horrified by the extent to which the guaranteed-income families quit working and -- soon after -- broke apart.

Nixon tried to solve the Portland problem by setting the guaranteed income at a very low rate, so low that work would always be more attractive. But this solution doomed the program politically: When it finally came to a vote in Congress in 1971, conservatives voted "nay" because of the Portland experience and liberals voted "nay" because the post-Portland Family Assistance Plan (as this family-wrecking plan was euphemistically rebranded) was too stingy.

What Mr. Chrétien needs to grapple with is that the poverty problem in Canada is the product of too much government, not too little. Does he really imagine that if $5-billion a year in handouts has brought only misery to Canada's native people, that an extra billion or two or five will make things better? If our economy is failing to create enough well-paying jobs because business is over-regulated and overtaxed, is it plausible that regulating and taxing it more severely to pay for a grandiose new welfare program will produce more good jobs?

The harsh truth about the Chrétien years is that Canada has been falling ever further behind the United States economically. We are trapped in a horrible cycle: The cost of our social programs has pushed our taxes too high, the weight of our taxes crushes entrepreneurship and business, the weakness of our business sector holds back the growth of personal incomes, and governments embarrassed by slow-growing incomes react by proposing new social programs.

Meanwhile, the same slow growth that has weakened our economy is corroding already existing programs. It's not as if medicare and the Canada Pension Plan are in such great shape that we can chalk them up as finished business and move on to the next free-spending agenda item.

Inside the bad idea of the guaranteed annual income is a good idea struggling to bust out: subsidies to top up the wages of the working poor. The Americans instituted one in 1974, in the wake of the wreck of the Family Assistance Plan, and this Earned Income Tax Credit (as it's called) has successfully boosted incomes without discouraging work. Unlike our Canadian income supplements, EITC sharply distinguishes between earned and unearned income. It's the sort of humane and self-limiting program a rich country can afford. When we're rich again, we might have a look at it.

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