Thursday, October 13, 2011

Harper's Unearned Economic "Credibility"

It's one of those "truths" in politics that is beyond questioning, like the "necessity" of an independent (i.e. free from democratic controls) central bank, but which, like everything else has evolved from a time when it wasn't actually the truth. I'm, of course, speaking of the popular idea that the Tories are "good economic managers". Underlying this prejudice is a more foundational idea that in tough times you need a government run by tightwads and hard-hearted bean counters. And nobody would ever accuse the Tories of being anything but hard-hearted. Thus comes the story the other day in the Globe & Mail that the Tories popularity is on the rise as Canadians switch from being concerned about health care (a left wing, touchy-feely issue) to jobs and the economy (a hard-headed, objective issue).

Now, it may well be true that the reason for the Tories' rise in fortunes this fall is that people believe they are best able to manage rough economic waters - though I personally suspect that it is more complex than that. But even if that is the case, it doesn't change the fact that this belief is simply wrong. Of course, the Tories are a party of big business and so are chock-a-block with (mostly) men in suits with MBAs and experience running companies and banks. Harper himself is an economist who formerly wrote policy for the conservative National Citizen's Coalition (which is, ironically not made up of citizens but of corporations). So, yes, we must grant that they likely know how to balance books, monitor supply chains and all sorts of other micro-economic administration. The trouble is the present crisis has been caused by (mostly) men in suits with MBAs who run big corporations and banks. Why should we trust the "business sector" when that is the origin of this crisis?

In fact, Harper appears to be channelling the ghost of Herbert Hoover with his insistent calls for debt reduction as a solution to the crisis. As has been pointed out by myself and many other, rather more important economists, like Paul Krugman, cutting government spending in the middle of a contraction in demand, i.e. a recession, is like pouring gasoline on the fire. That doesn't mean that debt isn't a problem but while debt is a problem it isn't the problem. The sovereign debt crisis and the debt ceiling battles in the US are symptoms of a deeper issue, which is the decline in the rate of profit. And the only way to solve that more fundamental problem is either to get rid of a system based upon production for exchange as commodities - capitalism - and replace it with an economic system based upon the democratic allocation of resources based upon need. Or to smash the living standards of the majority of people - the working class - in order to direct more money into profits.

I'll give you two guesses as to which is Harper's preferred solution.

In the Globe & Mail opinion piece by Harper that I linked to above, Harper's whole "plan" can basically be summed up as: keep doing the same thing that caused the mess, plus shore up the banks that over-extended themselves, plus attack working class living standards to increase competitiveness under the guise of "fighting the deficit/debt". Could this "work" - sure, I suppose so but not without big battles (people tend to resist big attacks on their living standards), lots of instability and the real possibility that the economic downward spiral that such a fierce attack on demand causes will not be offset by the effect of restoring the rate of profit. What's more, Harper's chest-thumping bravado about the state of the Canadian economy and state finances is disingenuous.

Canada's low state debt (not private sector debt - Canadians are in hock up to their eyebrows, as was recently pointed out by the IMF) is as much the result of Canada's peculiar position in the global economy as it is about what was done at the policy level. We are a small nation with a very big land mass, lots of natural resources and an advanced economy. The bread and butter of Canadian capitalism is global trade and investment. In recent years we have been cushioned from the decline of the US economy, our biggest trading partner, by the rise of China, which has a voracious appetite for Canadian resources such as lumber. Seeing natural resources as strategic to their own economic growth has also encouraged a boom in Chinese investment into Canada's resource sector. And China's boom is the result of heavy state intervention into the economy and financial sector, including keeping a tight rein on exchange rates to keep Chinese goods affordable in the West. In other words, China is doing precisely the opposite of what Harper is demanding. The failure of the Harper model and the success of the Chinese model doesn't exonerate capitalism as an exploitative, destructive and inefficient system but it does demonstrate that even on its own terms it is silly to think that the Tories are great economic managers. They are dogmatists whose "theories" have past their best buy date and are likely to deepen an already very deep crisis.

It’s time for Europe and the G20 to act decisively - The Globe and Mail

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