Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • A critical look at BC’s new tax breaks and subsidies for LNG May 7, 2019
    The BC government has offered much more to the LNG industry than the previous government. Read the report by senior economist Marc Lee.  
    Canadian Centre for Policy Alternatives
  • The 2019 living wage for Metro Vancouver April 30, 2019
    The 2019 living wage for Metro Vancouver is $19.50/hour. This is the amount needed for a family of four with each of two parents working full-time at this hourly rate to pay for necessities, support the healthy development of their children, escape severe financial stress and participate in the social, civic and cultural lives of […]
    Canadian Centre for Policy Alternatives
  • Time to regulate gas prices in BC and stop industry gouging April 29, 2019
    Drivers in Metro Vancouver are reeling from record high gas prices, and many commentators are blaming taxes. But it’s not taxes causing pain at the pump — it’s industry gouging. Our latest research shows that gas prices have gone up by 55 cents per litre since 2016 — and the vast majority of that increase […]
    Canadian Centre for Policy Alternatives
  • CCPA welcomes Randy Robinson as new Ontario Director March 27, 2019
    The Canadian Centre for Policy Alternatives is pleased to announce the appointment of Randy Robinson as the new Director of our Ontario Office.  Randy’s areas of expertise include public sector finance, the gendered rise of precarious work, neoliberalism, and labour rights. He has extensive experience in communications and research, and has been engaged in Ontario’s […]
    Canadian Centre for Policy Alternatives
  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Budget hints at priorities for upcoming […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Harper economics lead to a Harper deficit

Harper-economics lead to a Harper-recession and now to a Harper-deficit

Louis-Philippe Rochon
Associate Professor, Laurentian University
Co-Editor, Review of Keynesian Economics

Confirmation federal government finances have fallen back into deficit raises more questions about Harper’s image, now more myth than reality, as a sound economic manager.

A deficit of course was inevitable once you accept Canada has fallen into a Harper-recession: negative growth and falling revenues make a deficit a sure thing. This comes as no surprise to many of us who had predicted as much.

But what is particularly troubling of course is the government’s refusal to acknowledge the possibility of a recession, let alone the existence of a deficit. Yet, this is crucial if we have any chance to salvage this economic mess. The longer we wait to address the problem, the greater the possibility that it will become far worse.

But Harper has invested too much political capital in eliminating the deficit, mostly through accounting trickery, to result in a mea culpa. While news that his policies have failed deals a considerable blow to Harper’s reputation as an agent of fiscal righteousness, he will find salvation in the only place he knows: more austerity.

In many ways, Harper shares this characteristic with Angela Merkel who stubbornly refused to give Greece some debt relief. She was ideologically convinced that more austerity was the cure, not less. Harper is the same. Nothing will convince him that spending more in a recession will cure the economy. He admitted as much this week when he responded to the possibility of a “downturn” by saying that this will be met with increased fiscal restraint.

The underlying story to this sad economic saga is that Harper’s economic policies have failed Canadians greatly. Unable to produce growth, resulting instead in a Harper-recession, unable to lower significantly the unemployment rate (which stands closer to 9.5% once you account for the decline in labour participation), policies of austerity once again point to a predictable failure.

Yet, Harper’s stubbornness comes at an obvious price at the beginning of this unofficial election campaign. How foolish does he now look having made great fanfare of his $3 billion childcare benefits just hours before the confirmation of the Harper deficit? In private, his advisers know we are in a recession, and they must be working through the nights trying to figure out what to say, and how to say it.

But the correct pro-growth policies won’t be coming. Rather, I expect the Austerians in Ottawa to tighten the finances even more. Harper will be desperate to balance the books and to be restore his image as the great economic savior. His message will be clear: in these times of great instability, Canadians must re-elect the trusted party of sound finance. Now is not the time to rock the boat.

And Canadians may just buy this story, unfortunately. They won’t understand that Harper’s economics is to blame, rather they will accept the government’s story that blame must be laid at the feet of international event and the unpredictable oil crisis. Yet, we all read the same data and we all knew what was coming. Harper chose not to act, and to follow austerity policies, despite the fact that there is zero empirical support for such policies. They have failed us in the past, and they will fail us again today.

This brings us then to the consequences of Harper economics: with the first half of the year in a recession, with cutbacks coming, don’t expect the third quarter to be any different. So far, predictions including those from the Bank of Canada, show only modest growth. Yet, those predictions have persistently been revised downward. I expect the negative drag on the economy to continue into the third quarter of 2015, making this recession more than a technicality, as some pundits are trying to spin this story.

This means that by election time, Canadians will have confirmation that the first half will be in recession and that July was probably also in negative territory. Will this be sufficient to convince them to elect another party with a promise to spend on infrastructure?

Enjoy and share:

Comments

Comment from Larry Kazdan
Time: July 31, 2015, 5:27 am

Letter in Alberni Valley Times (followed by LetEd footnotes)

Re: With twice the debt of California, Ontario is now the world’s most indebted sub-sovereign borrower, Dmitrieva and Gutscher, July 20, 2015
http://business.financialpost.com/news/economy/with-twice-the-debt-of-california-ontario-is-now-the-worlds-most-indebted-sub-sovereign-borrower

Standard & Poor castigates Ontario for running up additional debt which demands ever increasing interest payments. There should be another option – low-cost financing from the Bank of Canada. After the great financial crisis of 2008, the federal government created a $200 billion Extraordinary Financing Framework to bail our commercial lenders. If the government can make huge loans to big banks, credit card issuers, retailers and car dealers, it can also lend modest amounts to provinces and municipalities for vital public infrastructure. Well-known constitutional lawyer Rocco Galati and COMER (Committee on Monetary and Economic Reform) are currently suing the Bank of Canada on the grounds that it fails to make low-interest loans to provincial governments though mandated to do so.

Provinces and municipalities should support this lawsuit and help make the banking system work for Main Street and not just Bay Street. The federal and provincial governments must renew infrastructure not only to kick-start the economy and put people to work, but also to leave a legacy of public goods for future generations. The answer is to pay interest expense back to ourselves rather than hand over huge sums for the benefit of private banks and foreign investment funds.

Footnotes:

1. Rocco Galati challenges role of Bank of Canada in latest case
http://www.cbc.ca/news/business/rocco-galati-challenges-role-of-bank-of-canada-in-latest-case-1.3065650

The lawyer best known for stopping the Supreme Court appointment of Judge Marc Nadon has turned his sights on the Bank of Canada. Rocco Galati has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending […]
2. Improving Access to Financing and Strengthening Canada’s …
http://www.fin.gc.ca/pub/report-rapport/2011-7/ceap-paec-2f-eng.asp

To soften the impact of the crisis, the first phase of Canada’s Economic Action Plan included measures to provide up to $200 billion to support lending to Canadian households and businesses through the Extraordinary Financing Framework.

3. Economist John Hotson
http://livingeconomiesforum.org/1996/15hotson

When the Bank of Canada encourages the Canadian government, provinces, and municipalities to borrow in New York and Tokyo it is a betrayal of Canada. Where should they borrow when new money is needed for government spending? They should borrow at the government owned Bank of Canada, paying near zero interest rates-just sufficient to cover the Bank’s running expenses.

Write a comment





Related articles