Monday, October 3, 2011

Fiscal Austerity: Does it Work?

The Harper Regime is in the process of implementing some severe fiscal austerity measures. But does slashing spending and reducing deficits, as the advocates of such a policy claim,  really restore confidence and drive economic renewal?  It would seem not if we take both the Euro Zone countries - especially Greece where public servants are rioting in the streets of Athens - and the U.S. as examples. In fact, as Paul Krugman argues persuasively,  "budget austerity may well be counterproductive even from a purely fiscal point of view, because lower future growth means lower tax receipts."  

Get that: lower future growth means lower tax receipts, and there can be no growth, in the current world economic situation, without government stimulus funded by tax receipts. Not to mention that slashing government departments in the interest of so-called "efficiencies" requires firing people, who then cease to be tax payers providing government revenues since they are unemployed. Does axing employees ever inspire confidence except in some amoral/immoral investors who think cost cutting improves the bottom line and right wing economic pundits who think it inspires business investment? Not at this moment.

So what should be done?  Klugman says "the answer is that we need a major push to get the economy moving, not at some future date, but right now. For the time being we need more, not less, government spending, supported by aggressively expansionary policies from the [in this case the Bank of Canada] and its counterparts abroad."

What this also means, I think, is that Mark Carney's stand-up push to get European banks more substantially capitalized is not necessarily the right move at this moment either, especially now that Greece wll probably default.   The theory is that further capitalization will mitigate risk and  forestall a potential banking collapse and resulting bailout.  But from where does that new capital come in these already struggling countries? Beats me, but my guess is European taxpayers.  Isn't this sharp stance just adding more pressure to an already absurd situation, which - let's face it - is going to migrate here to some extent no matter how much the Harper Regime tinkers with boutique tax credits while slashing, burning, and killing.

Once again, it's not about ordinary people, the 99%.  It's about the 1% - banks and their investors -  euphemistically called, as Jim Stanford says, "the market."  As always, finance trumps both industry and people.

1 comment:

  1. I might add that some have seen McGuinty's accelerating the senior's tax credit for house refitting as an attempt to to push the economy now.