Austerity is the wrong move

The Harper government’s economic policy, as enunciated in the Throne Speech and the Budget, is properly described by Finance Minister Jim Flaherty as “stay the course” or business-as-usual (that is, what business wants business gets). That is, we are offered more of the same old neo-liberalism and globalization with wealth for the few and austerity for the many — with only a brief panic-stricken Keynesian moment — that got us into the messes we’re in.

Some commentators have said that the devil is in the details. That’s true, but in this case the devil incarnate is also in the overall mindset. It’s as if the government has learned nothing from the global economic crisis.

Harper and Flaherty like to brag how the Canadian banks are now seen as the soundest in the world. While this claim is true, the fact is that this government had nothing to do with the restraints that saved the banking system.

This government’s policy is to push for deregulation and an open door to foreign investment — but Canada’s banking sector is strongly precisely because previous governments maintained strict regulations and prohibited foreign ownership.

When sensible people propose a Financial Transactions Tax so as to lessen damaging speculative activity, Flaherty says there is no need for that in Canada, as if all financial crises originate here and we’re immune to those from outside.

Now that we have learned (yet again) that financial crises are inherent to global capitalism, we ought to be diligently shoring up safety nets at home and abroad. But that, of course, is not what we’re doing.

Instead, the Harperites are revising EI — by raising premiums. One-half of the unemployed still won’t be eligible.

Financial crises are catastrophic for the poorest people in the world, of whom there are now one billion. The Harper-Flaherty contribution is to freeze foreign aid, abandoning commitments that have already been made, and to undermine the global safety net. I call that behaviour cruel, callous, and truly insensitive.

Canada is playing host for G8 during 2010, and will shortly convene the next (and possibly final) G-8 summit, in June. What an opportunity that meeting could be, for Canada to show leadership to the world!

Instead, Harper will be remembered, if at all, as the person who got to preside at the G8’s just-in-time demise, swamped by rising countries from the South.

The Harperites’ reflexive commitment to globalization — as if that concept were not now in disrepute — is shown in its decision to open up the telecommunications sector to foreign takeover and pull out the safety net for Canadian culture. The selling point for the public will be that we are paying too much for our cellphones, which we are.

We could and should deal with exorbitant monthly fees by better regulation. Letting foreign giants in doesn’t increase competition, but rather ups the potential for collusion.

One immediate effect of foreign takeovers of Canadian companies is an increased demand for Canadian dollars, that pushes up the loonie’s price. This in turn further disadvantages an already ailing manufacturing sector.

Blithe indifference to the loonie’s worth fits with the fact that this government has only the vaguest notion of an industrial policy. That oversight may just be its biggest failure. The budget eliminated tariffs on virtually everything that businesses import, including machinery and equipment.

Flaherty boasted that Canada was the only G20 country that was “a tariff-free zone for manufacturers.” Perhaps the other nineteen know something we don’t.

We’ve long lived off our resources or staple exports — and there isn’t anything necessarily wrong with that — but that’s no reason not to try to diversify the economy. Instead, we’ve let ourselves be caught in a staples trap where our business class and governments are content to export resources and do little else.

The relevant staple now is oil from the tar sands, with its vast propensity to do environmental damage here and globally. As Brendon Haley, an astute graduate student at Carleton University, puts it, we’ve compounded the staple trap by making it a carbon trap.

Not to appear glib, but isn’t a green industrial policy the way out of both traps — the environmental as well as the economic? Yet with this government, the likelihood of a green industrial policy is precisely zero.

The most depressing thought of all, for this economist of a progressive persuasion , is this: though Keynesianism saved the system, that school of economics is now back in the trashcan as we once again obsess about deficits.

Applied Keynesianism kept us from having another Great Depression. The austerity that is now sweeping the world promises that we will have for the indefinite future a Great Recession. That is not what Keynes had in mind.

The gap between practice and theory is depressing evidence that we have learned little. It’s fun to taunt right wingers who have preached no-deficit-ever until they were forced to run one — but taunting is counter-productive.

The Canadian public, which wants and needs jobs, desperately needs to learn how to think about deficits and debt — like how come it’s OK for you to have a mortgage on your house, which is called a debt, but it’s never OK except for the briefest of moments for governments to go in debt? The public needs to learn how to distinguish between good deficits (from spending to create jobs) and bad deficits (from not taxing the rich and the corporations).

Canadians are getting slight help from the news media (CBC TV included), who accept two impossible ideas in their discussions about the budget. First, they think that bank economists are disinterested objective commentators; and second, they think that business journalists know about economics and listen to more sources than just business representatives.

There are so many other dimensions of the budget left unexplored! What a refreshing change it would be, if instead being bombarded with debates about who demands the biggest tax cuts, we were told how this Budget stacked up against the Canadian Centre for Policy Alternatives’ alternative budget.

Mel Watkins is a Professor Emeritus in Economics and Political Science at the University of Toronto and a CCPA Research Associate. This commentary was originally published on StraightGoods.ca.