Monday, June 22, 2009

Economy 101

A great deal of attention has been devoted to Ignatieff and Harper's deal, which preserves -- at least for the summer -- Harper's government and allows the Ignatieff to claim some minor victories and devote more time to party building all the while trying not to look like the Liberals are propping up the Tories. This kind of politics -- who will take the blame for an election no one wants -- is interesting as are the behind the scenes manovering. If one likes this kind of speculative Ottawa-centric political discussion (and, I'll confess that I find it interesting), then this type of national-politics-as-soap-opera is making for good viewing. Is there anything more in it? Should we, as some are doing, debate Ignatieff's sincerity? Should we, as some are doing, try to tar the Liberals with the Tory brush?

I don't know, but there is something important to note in the political manovering that has followed in the wake of economic crisis; that is: the degree to which Harper at least is committed to the very free market, small state policies that created the economic crisis in the first place. Harper, for example, is busy rationalizing the huge public debt his government has run up (as did Mulroney before him) as a short term expediency. Within a year, maybe two, he says, things will return to normal, five years down the line, Canada will again be in the black and governments can resume the policy of cutting taxes and slashing programmes.

Hmmm .... wait, hasn't anything be learnt here? After all, the Canadian debt is remarkably higher then it needs to be because of cuts to the GST that did nothing to increase spending and hence address looming economic problems and -- as I believe I have mentioned before -- how could they? A 2 cent cut on GST does nothing -- and can do nothing -- to alter consumer behavour. This about it like this. Suppose you want to buy a chocolate bar. Does the fact that that chocolate bar is now worth $1.15 instead of $1.17 change your thinking on the purchase? Does the saving of two cents convince you to buy two chocolate bars instead of one? The only thing cuts to the GST did was impoverish the fiscal capacity of the state to address economic problems when these popped up, which is exactly what happened. The cuts to the GST did nothing to help the economy but the loss revenue that the state would have had if all these small two cent purchases had been pooled would have significantly reduced the level of debt Canada is now accuring and hence lessened the amount of time needed to pay it back, perhaps but a year or longer!

Why would Harper and his government make such an elementary mistake? Why would they not want to have the capacity to address problems if they occurred? Why would they not, in other words, want to save for a rainy day, taking a prudent and cautious approach that would create options? After all, they are supposedly conservatives ... should they not love prudence, caution, and saving for a rainy day? The truth is that they don't seem to think of these things. Thus while they are willing to preach them as a recipe to address individual problems, they don't seem to think that it is good policy for the state to plan ahead wearing something other than rose-coloured glasses. What they are telling us is that as soon as they can they will reintroduce the exact same policies that helped make a mess of Canada's national finances in the first place.

Now, this is an important point and my wording here is important. I don't think Harper's government caused the national economic crisis. (Conservative friends of mine who are already saying Dexter's NDP government will hurt the economy ... same thing). The international economic crisis really is an international economic crisis. The issue is not did Harper cause it but ... how did he respond to it? Did his government put any forethought into policies? Did they adopt a cautious approach to finances that allowed the state to maintain capacity to address a problem if one popped up? Problems simply occur. That is the nature of life. The issue is not that they occur but that we learn from that occurence so we don't make the same mistakees again.

Unfortunately, this is where Harper and his government have fallen down. They don't seem to have learnt anything. If I made a set of assumptions that turned out to be wrong and those assumptions cost me a whole pile of money, I'd reconsider my assumptions. Harper and his government have not. And, for that reason alone, they are a dangerous national government. I don't know about you, but I want a government that is not so wedded to ideology that it refuses to consider lessons it can learn along the way.
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