Saturday, June 26, 2010

The Harper Plan for a Global Depression

At the G8 and G20 Summits, the Harper government is touting its plan for governments around the world to cut their deficits in half by 2013 and to stabilize their debt-to-GDP ratios by 2016. In a letter sent to G20 leaders on the eve of the summit, Harper declared that “advanced countries must send a clear message that as their stimulus plans expire, they will focus on getter their fiscal houses in order.” It’s a plan, which if enough governments actually signed on, would plunge humanity into a global depression.

In the autumn of 2008, as financial institutions in the United States, the U.K. and other countries crashed, the world came very close to a descent into depression. What pulled the global economy back from the brink was the willingness of governments, led by the United States, to inject vast amounts of capital into the economy. Without the direct spending begun by the Bush administration and continued by the Obama administration, we would have seen a repeat of the 1930s.

And the global economic crisis is far from over. Alarming signs in both the United States and Europe make it clear that major economies are flirting with the danger of a second major crash. After a tax credit expired, housing purchases have plunged in the United States. New home sales in the U.S. dropped by 32.7 per cent in May, to an annual rate of 300,000, the lowest level since record keeping began. In Europe, the lesson being learned from the Greek calamity and the general risk of countries being unable to meet their debt payments, is that governments must adopt severe austerity regimes. Germany’s Chancellor Angela Merkel is a major proponent of this is as Britain’s new prime minister David Cameron.

It’s not that debt doesn’t matter. At the heart of the U.S. economic malaise are three interconnected layers of debt: the national debt of about $12 trillion; the indebtedness of individual Americans of about $11 trillion; and the rising net indebtedness of the United States to other countries, a debt that now totals several trillion dollars. The current economic crisis in which these debts are the elephant in the room is forcing the repositioning of the United States to play a smaller role in the global economy.

That repositioning will continue for many years to come. But if the U.S. and other major countries slam the brakes on government spending, the world will be pushed into a deflationary downward spiral. Unemployment will rise and many countries will be pushed back into recession. The U.S. needs to deal with its debt problems in such a way as not to convert the current economic malaise into a catastrophe. Over time, the U.S. will need to sharply raise taxes for the rich and the affluent, refashion its trade relationships with China and other countries, and re-launch its crumbling manufacturing sector.

Massive skepticism about whether the U.S. political system and culture can successfully manage the transition is in order.

In the meantime, though, the potential consequences of the rush to austerity that Stephen Harper and others are championing are all too obvious.

Harper and Finance Minister Jim Flaherty have never had a clue about the economy. Two weeks after the October 2008 federal election, while financial institutions and markets around the world were crashing, Flaherty assured a business audience that Canada would not need to run a government deficit at all. A couple of months later, the intrepid minister of finance unveiled a budget that announced that Ottawa would have the highest deficit in history.

Now the Harper government is back to putting ideology ahead of economic thinking. The Conservatives plan to continue lowering tax rates for corporations and the wealthy and they are determined to slash government spending, except for military outlays. Bash public servants, hold down their incomes, and cut social spending---that’s the recipe. If adopted by a large part of the world, it’s a recipe for depression.

On the bright side, nobody outside Canada much cares what the Harper government thinks on this or any other subject. Recent polls show that in the U.S., Britain, France and Germany, most people take little account of Canada and Canadians and think of us as a minnow not a shark.

That’s cool.

This week, Stephen Harper is playing the twin roles of manager of the Deerhurst Inn and director of the paramilitary occupation of Toronto.

Personally, I look forward to the G8 and G20 getting the hell out of here as quickly as possible. Future summits should be held online, or if the massive egos that lead these countries insist on meeting in person, let them do so on an aircraft carrier in the middle of the Pacific Ocean. That’s more their speed.

Reducing the normally vibrant city of Toronto to a comatose vegetable has not been a pretty sight. We have been treated to the methods of a police state where there is no connect between the people and their supposed leaders. This must never be allowed to happen in our country again.

Let’s declare Canada a Summit Free Zone.

32 comments:

Bill Bell said...

Not being an economist let me accept your point that this is not the time to put a brake on the economy by reducing spending. (I strongly suspect that you are correct.)

The big problem would be how to spend government funds. Their employees are already overpaid, badly utilised and ineffective for the most part. Witness the use of thousands of police in Toronto as I write this, not to mention the thousands of functionally illiterate people that 'graduate' from schools. Putting more money into government agencies will not help those Canadians who are in poverty now. That would just be another form of 'trickle down'. What's more, government agencies do not build capital in any efficient way. So we miss out on the multiplier effects of efficient use of funds.

Given the boneheads that gravitate to the 'top' in politics what do we do to provide for the efficient use of the enormous resources of people and everything else that this country has to offer?

Filostrato said...

I guess Karl Polyani's The Great Transformation wasn't on either Stephen "I am a Trained Economist" Harper's or Flaherty's reading list way back when they were getting their education. They haven't yet learned that the economy must serve the people and not the other way around. The worldwide depression they are triggering will lead to worldwide conflict, another world war.

What better thing could you do for a country than invest in its people and what worse thing than throwing it away on gigantic military expenditure.

I think the Cons may be a profound example of the Dunning-Kruger effect.

The Dunning–Kruger effect is a cognitive bias in which "people reach erroneous conclusions and make unfortunate choices but their incompetence robs them of the metacognitive ability to realize it." The unskilled therefore suffer from illusory superiority, rating their own ability as above average, much higher than it actually is, while the highly skilled underrate their abilities, suffering from illusory inferiority. This leads to the perverse situation in which less competent people rate their own ability higher than more competent people.

Anonymous said...

Hear hear!
Canada, a summit free zone!

Anonymous said...

Bill Bell's comment regarding what he considers overpaid and ineffective civil servants is an unsupported claim that stereotypes civil servants and is used to justify pay and job cuts in the civil service to fight deficits. Governments have been cutting the civil service and freezing or reducing their salaries for years and it has not prevented deficits. Like in the private sector baby boomers are retiring and if anything, there will be a shortage of qualified people to take their place. Trashing the civil service will only make this harder.

David Browne said...

Bill Bell's comment regarding what he considers overpaid and ineffective civil servants is an unsupported claim that stereotypes civil servants and is used to justify pay and job cuts in the civil service to fight deficits. Governments have been cutting the civil service and freezing or reducing their salaries for years and it has not prevented deficits. Like in the private sector baby boomers are retiring and if anything, there will be a shortage of qualified people to take their place. Trashing the civil service will only make this harder.

John FitzGerald said...

"Bill Bell's comment regarding what he considers overpaid and ineffective civil servants is...unsupported"? We just learned that Canada Revenue employees with good job evaluations are spending most of their work days surfing websites unrelated to work when they could be collecting revenue.

Many civil servants earn their keep. Far too many, though, are there to staff empires erected by ambitious politicians as evidence of their innovative and masterful leadership.

And doesn't Bill's idea of government spending as trickle-down interest you just a bit? The stimulus package is intended to put money in people's pockets which they then spend, boosting the economy. Are there not other more direct ways to do that?

Yo Ma Ma said...

The global economy is predicated on the concept of "growth", which means that more & more resources & more & more land will be required for more & more people.

Malthus died in vain, I see ...

Dared said...

There will be no economic recovery without economic expansion,i.e growth in GDP, employment, standards of living,infrastructure development. We cannot embark on true economic growth until we stabilize world trade currencies and reform our democracies to end graft and influence peddling that permits government representatives to be bought by corporate lobbyists.
We need to reform electioneering to outlaw political contributions by any institution or corporation and limit personal contributions to small monetary values. Any argument against this is an argument against democracy and for a continuance of monopolistic politics. All these rich emperors have no clothes and have not the wit to listen to the best and the brightest telling them so.

John FitzGerald said...

I think the crucial word used by Dared is "we." At some point we have to stop making comments about blog posts, get up, and do something. Most of us could start by actually thinking about these issues. In Canada we atill have some intelligent political discussion, but if we don't act soon we'll end up with the tribalism that passes for politics in the States. Anyway, one thing to describe what we need to do, another to do it.

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