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NEWS: BMO economist says Harper’s call for global austerity is wrong

The Wall Street Journal reports, “A prominent Canadian economist warned Friday that Prime Minister Stephen Harper’s push for global government austerity is misguided given weak confidence in financial markets and the rising risks of a recession. ‘Prime Minister Harper’s prescription for the world economy, calling for more austerity, is precisely the wrong medicine at this time,’ said Douglas Porter, deputy chief economist at BMO Capital Markets, in a weekly note to clients.”

“Harper, along with Canada’s Finance Minister, Jim Flaherty, have reiterated they intend to cut up to C$4 billion (US$3.9 billion) in government spending to return to a balanced budget by mid-decade. On Friday, Flaherty told reporters there is much work left to be done in the euro zone on the austerity front.”

“Canada, along with five other countries, signed a letter to French President Nicolas Sarkozy, who is leading efforts by the Group of 20 industrial and developing nations this year, calling for a coordinated action to deal with a weakening economy. Harper has repeatedly argued investor confidence will return with vigor once the developed world gets its fiscal house in order through austerity, and as a G-20 host last year got countries to commit to halving their deficits by 2013.”

A Postmedia News article last week notes, “On Thursday, Harper and the leaders of Britain, Australia, Indonesia, Mexico, and the Republic of Korea sent an open letter to French President Nicolas Sarkozy, the current chair of the G20. They called for strong co-ordinated action at an early-November (Nov. 3-4) meeting of G20 leaders in Cannes, France to ensure global economic stability — specifically by reducing debt levels in the eurozone that are identified in the letter as a significant threat to the world economy.”

And today Postmedia News adds that the charge that the “Conservative government’s focus on austerity could drive the country into a recession” was “immediately rejected by Harper, who told the House of Commons that the governing Tories are pursuing an economic plan that is widely respected.”

What is austerity?

Council of Canadians trade campaigner Stuart Trew explains:

The boom and bust cycle is an inevitable feature of capitalism. The extent of the current collapse, however, was new but avoidable. According to the UN Conference on Trade and Development, a sustained process of financial deregulation, which led to an explosion in new novel financial products and excessive risk taking, are the ultimate causes of the crisis. The assumption that markets are self-regulating has been forever discredited. Global efforts to re-regulate in area of finance have been slow while major economies, including the European Union and United States, have continued to push financial deregulation onto trading partners through neoliberal free trade deals.

After the global financial meltdown of 2008, which was sparked by bank failures in the United States and Europe, G20 nations were united on the need to jumpstart economic activity with stimulus spending on job-creating infrastructure and other projects. However, less than two years later some countries, including Canada began, to endorse cutbacks in the stimulus, as well as austerity measures designed to quickly reduce government spending.

Canadians will be familiar with the process. In the mid-1990s, “deficit” became the dirty “d” word in Canada, and deficit reduction the most important policy recommendation of mainstream economists and business lobby groups. Partly this was in response to a downgrade in Canada’s credit rating, which affects government borrowing. As finance minister for Jean Chretien, Paul Martin announced major cuts to the public sector and drastically reduced transfer payments to the provinces for education, health care and other services.

Austerity is also an ideological project. To reduce government spending in Greece, for example, the International Monetary Fund has tied vicious conditions to its debt relief, including requirements to reduce workers pensions and privatize essential services such as water. The winners are the private sector who get cut rate deals on government infrastructure. The losers during austerity are inevitably the workers whose salaries and benefits are reduced or gutted, as well as the poorest in society who cannot afford to pay higher taxes or to do without accessible public services which are threatened by under funding or privatization.

It’s because of the way austerity takes from the poor and transfers it to rich multinationals, bondholders and other financial capitalists, that it can be called a type of class warfare. The more governments are held hostage by private credit rating agencies and the financial elite, the more austerity becomes the norm, the more our democracy will suffer. It would be far better policy today in Canada if the government would continue to stimulate job growth through needed infrastructure projects (water, transit, green energy, roads, etc), and to reverse corporate tax cuts which are leading to the worst income inequality in Canada since the Great Depression.

For campaign blogs related to austerity, please see http://canadians.org/blog/?s=austerity.