Book Club VIII

March 15, 2015

What does it say about us that we’re operating under a political-economic framework that doesn’t work, at least, not for the overwhelming majority of us? isthisthingworkingMoreover, what does it say that we know categorically that that political-economic framework isn’t at all sound, that it’s based on ideology rather than evidence, and what evidence is provided can be (and has been) thoroughly debunked? We know there is a better route to take, one that does have a proven track record of success but one that runs counter to the prevailing narrative of the past 30 years, an approach challenging an established orthodoxy that’s pretty much faith-based, a faith based on little more than class and status.

These are thoughts I thought while reading Mark Blyth’s Austerity: The History of a Dangerous Idea. It’s a short book, considering the subject matter it covers, from the intellectual roots of economic austerity theory through to its current application post-2008 financial crisis. Spoiler alert! Blyth quite emphatically declares austerity does not work.

Austerity is more of a philosophical outlook than it is a working economic model. At its heart lies a distrust and dislike of the state. austerityGovernment, from an austerity point of view, serves only as an impediment, all red tape and interventionist bullying. Every dollar in public spending or investment translates into one less dollar in private sector spending or investment. Stated as if that is inherently a bad thing, based purely on an anti-statist philosophy, and one made, as with much of austerity economic thinking, without much evidence to back its case up.

Blyth traces modern austerity’s dim view of government back to the origins of liberal thought, the late 17th/early 18th-century and John Locke. That state, such as it was then, was represented by an authoritarian monarchy, subject to no rules but its own. Representative government was in its infancy. Locke foresaw a liberal, market-oriented society, free from the regular financial assaults on the state’s treasury by an anointed single family of misrule. Locke, and later others like David Hume and Adam Smith (the father of the free market’s Invisible Hand) wrote as champions of what grew to be the middle-class of merchants, bankers and small enterprise.

As unnecessary as it might seem to write that much has changed in the 300+ years since, to austerity proponents, evidently, it hasn’t.

Not This John Locke

Not This John Locke

In order for their economic case to be taken seriously, austerians must work to convince us that our representative form of government is as self-serving, antagonistic to free enterprise and willfully whimsical to the needs of its subjects citizens as any form of dynastic royalty. Unfortunately, they’ve succeeded in doing just that.

Forget for a moment such success at the wider, international level and simply look at our local politics currently. Toronto elects a new mayor in John Tory who almost immediately goes to work vilifying city staff, proclaiming that he’s confident, despite evidence to the contrary, there remains plenty of fat to trim. The solution to the city’s revenue problems lies in cutting its public sector spending.

Austerity in a nutshell.

Perhaps the more disturbing aspect of the success of austerity is that the economic underpinnings are highly suspect and when it has been trotted out by accommodating governments, as we’re watching right now in Europe, it hasn’t worked. In fact, it’s made the problems it sets out to solve even worse. fellforit1Government debt levels increase rather than drop. Ditto unemployment. Austerity exacerbates the economic upheaval and insists the only way to fix that is to implement more austerity.

Even here in North America, where pro-austerity governments reacted to the 2008 economic meltdown in a very non-austerity, very pro-Keynesian way via stimulus spending, at the first sign of, if not recovery, an easing of further cratering, the reins were quickly tightened and austerity pursued. All eyes turned to the public sector debt and we were told to quiver. This will dampen investor and consumer ‘expectations’ for an economic turnaround.

In an influential 2010 paper, Growth in a Time of Debt, economists Carmen Reinhart and Kenneth Rogoff suggested that once a government’s debt exceeds a point of 90% of a country’s GDP, it kills economic growth. This was all many governments and economic bodies needed to hear as they set out to slash debt. tightenyourbeltAusterity, in other words.

Turns out Reinhart and Rogoff’s numbers might’ve been a little off, an Excel spreadsheet error. Disturbing in and of itself but hardly the first time austerity advocates have pursued their agenda using faulty assumptions. Blyth goes into detail of the ‘expansionary austerity’ movement stemming from Milan’s Bocconi University and especially the work of two economists, Francesco Giavazzi and Marco Pagano. In essence, their theory goes, by cutting spending (and theoretically, its debt), governments signal two things: tough times ahead and decreased competition for the private sector for investment dollars from the public sector.

Both rely on the very imprecise notion of expectations and a predictable, rational response to them. Turns out, according to Blyth, reactions vary and, almost entirely in a way the theory doesn’t predict. richierichCertainly here in Canada, consumers haven’t responded to the federal government’s austerity measures by spending less while the private sector remains on the sidelines, sitting on ‘dead money’. Canadians pile up personal debt, propping up a shaky economy that shows little more than anemic growth, and the bigger players look on idly, waiting for an economic idea with no history of working anywhere to work this time.

So how to explain such obstinacy? I’ll let Mark Blyth answer that:

When government services are cut because of “profligate spending,” it will absolutely not be people at the top end of the income distribution who will be expected to tighten their belts. Rather, it will be those who lie in the bottom 40 percent of the income distribution who haven’t had a real wage increase since 1979. These are the folks who actually rely upon government services and who have taken on a huge amount of debt (relative to their incomes) that will be “fiscally consolidated.” This is why austerity is first and foremost a political problem of distribution, and not an economic problem of accountancy.

Wrap it up in as glitzy a package as you want, sell it as the only viable alternative to improving our economy, backed up with proof of concept from various “schools” — Austria to Chicago to Bocconi – but at its very tiny, cold, cold heart, austerity is nothing more than the weapon of choice in the class war that’s been waged for over 30 years now. A lopsided affair that the rich, by getting richer and richer, are winning handily. It’s a situation, if history can provide any sort of guidance on the matter, that never turns out well for anyone.

austerely submitted by Cityslikr


What Becomes A Fiscal Conservative Most

June 19, 2014

With the provincial election in our rear view mirror and the new majority Liberal government ready to get down to the business of governing, haveachatperhaps it’s time to press the reset button on the conversation of fiscal policy. Especially once we kick into municipal campaign gear and everyone starts chattering away again about billion dollar savings, previous year’s surpluses and out of control government spending. Let’s re-examine the conversation on what constitutes good fiscal sense.

Last week David Dodge, former Bank of Canada governor and a Finance Department mucky muck from Pierre Trudeau through to Jean Chretien, suggested that maybe high-octane deficit reduction isn’t necessarily the way governments should be going right now. Yes, that David Dodge. Not some wild-eyed, socialist leaning, CCPA economist, David Dodge. Inflation-hating, deficit fighting, David Dodge.

“It is thus important to realize that in the current environment of low long-term interest rates, fiscal prudence does not require bringing the annual budget balance to zero almost immediately. Small increases in borrowing requirements to finance infrastructure investment would still lead to declines in the debt-to-GDP ratio.”

“Governments should expand their investment in infrastructure while restraining growth in their operating expenditures so as to gradually reduce their public debt-to-GDP ratio.”

That analysis is very different than Diagnosis: Austerity which every self-proclaimed fiscal conservative is demanding and touting texaschainsawmassacreas inevitable these days. Take on some additional debt, start spending money on much needed infrastructure (a deficit estimated in 2012 at $123 billion at the municipal level), hold the line on other operational expenditures and try to grow the economy rather than cut, cut, cutting into shape.

I didn’t see any pitch for lowering taxes. No drastic reduction in the civil service. Reasonable suggestions devoid of tough talk about tough choices.

The irony is not lost on me that the source of our current infrastructure needs can be traced back, at least in part, to the war waged on the federal deficit back in the mid-90s featuring none other than David Dodge, then a senior level Finance department bureaucrat. Downloads to the provinces, cuts in transfer payments, all managed to trickle down to cutbacks in spending on new infrastructure projects and the neglect of that already built and in place. There’s a little bit of the inflictor of damage stepping forward with his trowel and pail of cement, whome1offering to help repair the shit he knocked over.

Hell, I don’t even know if David Dodge is right but he’s presenting an alternative to what’s being sold to us as the only way to get ourselves back into the black. Austerity. An approach implemented elsewhere without any satisfactory results to show for it yet. If we just cut a little bit deeper, a little faster, we can stop this ship from sinking, this ship is sinking…

So when the federal government gets all sanctimonious about Ontario’s out-of-control deficit, and the need to introduce harsh measures to rein it in, we can just respond, But David Dodge said… Or if the provincial Liberals cite budgetary concerns for not, say, electrifying the GO corridor or building a particular LRT line, we can respond, But David Dodge said…

This is important to remember at the municipal level too. Although cities can’t run annual operating budget deficits (as per legislation from another, deficit-plagued level of government), there’s always the question of what to do with the inevitable operating surpluses that arise. If a municipal government is budgeting properly, there should always be an operating surplus.

Our current administration at City Hall has proudly puffed out its chest at the fact it’s used its operating surpluses to pay down capital debt and keep taxes low. areyousure2Meanwhile, the state of good repair for the TTC and TCHC continues to grow. The roads and parks are just a little worse for wear. And the city’s credit rating remains unchanged from the so-called profligate days of David Miller.

Fiscal responsibility doesn’t mean being cheap or simply hating the concept of government spending money. It means making smart decisions, decisions based on the reality of the day and not some theoretical exercise that looks great on a blackboard and fits neatly into an ideology. There’s no one way to be a fiscal conservative except for, maybe, a right and wrong way.

sensibly submitted by Cityslikr


You Can Run But You Can’t Hide

July 30, 2012

Turns out, even for a somewhat political obsessive like me, it’s remarkably easy to switch off the electronic gizmos and happily walk away without so much as looking back. Head off to some place where people haven’t the foggiest idea what #TOpoli means and might just stare blankly at you when you respond to their query about where you’re from. “You mean, New York?” Places our country itself is but a vague notion. “It’s big, yes? With big mountains?”

Admittedly, it wasn’t complete cold turkey. I did find myself on occasion plopped down in a fully licensed free wifi zone, casually, very casually, checking in on what was going on back here. More disconcerting gunplay. More a-one diplomacy with the province from our mayor. The mayor’s big birthday surprise.

All the important stuff.

Still, despite such self-imposed exile (yeah, that’s what we call ‘vacations’ in these parts), politics does seep in, largely unnoticed at first. Knocking around Madrid and then more southerly spots in Spain as well as unOlympicized parts of northern Great Britain, it’s difficult not to see the economic distress. En alquiler, en venta, for sale, to let. Precio reducido. We won’t be undersold.

Everywhere. Along with boarded up storefronts and abandoned buildings. I tweeted about a moment in Grenada. Wandering through some alleyway, we encountered two bins on wheels outside a five storey walk up building. Both were full to bursting with what could be seen as stuff pulled out as part of some pre-renovation demolition. But it was all too intact and too many personal items for that to be the likely case. Repossession and salvage was our guess.

A man walked up the stairs past us and, very likely hearing our English prattling, turned back in our direction as he passed the bins and said, This Is Spain. Twice. Not necessarily angrily although it wasn’t simply a passing remark. Sad wouldn’t be how I describe it either. Resigned? Disappointed? Disbelieving? How the hell did it come to this?

Sitting in one of Madrid’s main squares, Plaza Mayor, we chatted with our waiter about the quiet atmosphere of the place. Granted it was a Monday night and it was only midnight or so, things do generally pick up later in Spain than they do here, but it was July. It was a gorgeous evening out. Que pasa?

Apparently, the place is packed and jumping on weekends but come the week nights? Nada. Unsettlingly subdued. On the upside… yeah, no. There is no upside.

The parts of northern Wales and up into Scotland we travelled didn’t look a whole lot more robust. Plenty of places for rent or sale, deserted and derelict properties. Sales galore! Of course, all that gloominess could’ve been on account of the greyer skies and cooler temperatures.

For its part, Edinburgh seemed chock full of vital with infrastructure construction going on all over the place. Sure, most of that was to do with the building of a tram system but even that will sound familiar to those of us who’ve been living in Toronto for the past 5 years or so. Initially, the system was supposed to run from the airport down through the town centre and onto the portside community of Leith. The whole enterprise was put on hold a couple years ago due to concerns over funding. A more modest version is now well underway. What was once a War on Cars has been scaled back to a mere skirmish.

Hanging over all of the UK now is the shadow of a double dip recession. It seems the austerity measures of the Tory-Lib Dem coalition haven’t quite worked out as hoped. Or, depending on your political perspective, it’s all gone swimmingly. Growth is down, unemployment is up and angry eyes have turned toward the Chancellor of the Exchequer, George Osborne. Fortunately for him and his government, the Olympics have got Britons’ hearts a-beating and their flags a-waving; their minds momentarily diverted from the economic crisis taking firmer hold of their green and pleasant land.

(That’s not hokey now if Danny Boyle used it.)

I couldn’t have been happier travelling in my relative Canadian anonymity than I was during the past two weeks. Who wants the rest of the world to know what our government is saying about their situation right now? Smugly tsk, tsk, tsking the Euro-region for the dire condition of their books and urging more, deeper austerity despite all indications pointing to this being the worst thing we can do at this moment. It’s working so well for us, right? What’s that you say CIBC?

Thank god I didn’t have to explain to anyone the nonsense going on here in this city where we’ve had to fend off a faux-financial crisis entirely manufactured by those who see almost any government spending as the root of all evil. Fiscal dimwits gravely invoking the names of Greece or Spain every time they sense any pushback to a proposed cut to services or programs. As if library spending rather than LIBOR fiddling was at the root of the global economic malaise. (Woo! Did I have to work for that one.)

It’s ugly out there which causes me to think the situation isn’t nearly as rosy for many of us here as we’re trying to convince ourselves. Pretending that it is, pretending all that stands between us and future prosperity is a tax cut here, a service efficiency there is nothing short of fucking delusional. Delusional, and if you’re an elected official, bordering on pure negligence. No, we’re not Greece or Spain. We’re not Great Britain. But the surest path in that direction is to advocate slashing and burning as the way avoid their grim fate.

*sigh*

Vacation’s over, I guess.

grumpily submitted by Cityslikr