The Davos Speech

The Prime Minister’s speech at Davos was, I would bet, written by Stephen Harper himself. It  bore the stamp of his long standing contempt for the European welfare state.

He all but said that the Europeans had brought the crisis on themselves through trying to live beyond their fiscal means:

 As I look around the world, as I look particularly at developed countries, I ask whether the creation of economic growth, and therefore jobs, really is the number-one policy priority everywhere?

“Or is it the case, that in the developed world too many of us have, in fact, become complacent about our prosperity, taking our wealth as a given, assuming it is somehow the natural order of things, leaving us instead to focus primarily on our services and entitlements?

“Is it a coincidence that as the veil falls on the financial crisis, it reveals beneath it, not just too much bank debt, but too much sovereign debt, too much general willingness to have standards and benefits beyond our ability or even willingness to pay for them.

Canada, of course, is different. And he proceeded to reinforce the difference before his top 0.01% audience by promising cuts to public pensions.

But – does he have a case that the fiscal crisis of the advanced economies, especially the Euro crisis is due to fiscal profligacy and indifference to growth?

No.

Per capita growth in Canada over the past decade has been no faster than in the  EU.  As Jim has just noted, growth under Harper’s recent watch is no better than the OECD average.

Much of the Euro crisis – as is the case with the US – is due to the socialization of bad bank debt by governments which had been reducing public debt as a share of GDP before the crisis.   

The weak US fiscal position is hardly due to above average spending on social programs and public services, but rather due to recession and pre recession tax cuts

Japan has been able to finance a truly massive public debt because they borrow it from themselves .

Many countries with much larger public debts than Canada – the US, Japan, the UK – do not pay higher interest rates than us, for the key reason that they have independent central banks able and willing to backstop the debt.

The Euro crisis is not a crisis of fiscal profligacy, but a crisis mainly caused by the absence of a European central bank prepared to guarantee the debt of weaker members (and even that seems to be changing.)

There is no significant correlation across OECD countries between per capita growth and unemployment rates on the one hand, and the ratio of public spending to GDP on the other.

 

 

 

8 comments

  • But what do the actual facts matter?

  • I agree with Harper’s middle paragraph excerpted above. A corollary for me is the need for us to see our future in solidarity with labour in low wage areas.

  • Attempts by Brown and Sarko to use the G8/G20 meetings in Canada to introduce some sort of bank taxes were sabotaged by Harper, who pushed his austerity line instead. How much better Europeans would be today if Canada had reacted differently, worked to make a FTT happen and produce some bank insurance scheme so that the sector would have to pay in instead of just take government hand-outs.

  • Perhaps, MPs should reduce their pensions to the OAS and the GIS only, as that is what the majority of citizens under 65 are going to be getting when they retire, or better question is, IF they are able to retire. What is good for the goose is good for the gander, Harper.

  • Re Angela Browne Comment:

    While there would be a certain level of emotional satisfaction from what you propose, I believe the real-life outcome of a major decrease in MP salaries would be an increase in the number who are susceptible to graft and bribes. Paying them well reduces that likelihood. It is up to us to ensure through political action that the MPs serve our interests and not only those of various business interests.

    I believe the best way of looking at this is from the perspective of the availability of real resources. The Tories and friends like to confuse us into thinking of financial minutiae that are irrelevant so many years ahead of time. The issue with OAS is one of the availability of real resources (workers, materials) to devote to the elderly cohort in 2030. Andrew in a previous post pointed out the share of GDP devoted to this cohort with OAS staying at age 65 would rise by a very slight 0.8% by that time. It is inconceivable we won’t have the resources for that.

    If there are resources unused in Canada in 2030, evidenced by a significant number of unemployed workers, then the real resources will be available to assist the elderly without taking away anything much from anyone else. If all resources are fully utilised, then it will be necessary to reduce resources employed somewhere else (for example in excessive banking activity, or tar sands development, or urban sprawl, etc) and direct them to the elderly.

  • The “socialization of bad bank debt” was indeed a significant cause of the Euro crisis. But I don’t think that applies to the US, which is at least breaking even on TARP. In North America, the problem is the recession not the bailouts.

  • However, the US still has a housing market that because of bad debt will keep its ability to grow (which had been based on housing bubble for at least a decade, stagnating wages, and polarized wealth distribution).

    Much of that bad debt is still not off the books, merely an accounting exercise away. 1/3 of all mortgages are still underwater and house sales are still orders of magnitude below a healthy economy.

  • that should be prevent its ability for adequate growth.

    Tarp was a drop in the bucket for estimating bad bank debt, not to mention all the economic hemorrhaging that came about from it.

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