Tuesday, April 12, 2011

Harpernomics:: Power Games Over Neoliberal Ideals

Stephen Harper, Canoe.ca

What has me worried about Stephen Harper's economic policy is that I think his economics training is stuck in the late 80s, when he adheres to it at all. I firmly believe Harper would rather be in power than adhere to any political or neoliberal economic values, since being in power is better than not being in power.

The Conservative budget presented last month and in the current platform is a risk-averse move. It's vague and promises nothing. A plea to "trust us". The question I think that should be on the mind of many is whether we're in a situation of "regular" economics or one that's of a "recessionary" flavour. Two things should be troubling to everyone in Canada. The unemployment and interest rates::

A 7.4% unemployment rate is expected to close out the year and Canada may be in store for a "jobless recovery," revisiting the painful 1990-92 era in Canada. While 7.4% may not seem particularly high and the recent bout of high unemployment has been relatively short {about 2 years}, the numbers may be misleading and not indicative of what's going on in the labour markets and with employees—who, after all is said and done are consumers. Some economists aren't painting a rosy picture of the labour market and this Globe & Mail article points to structural cracks in the labour market::
"In addition, average hours worked remains well below normal levels levels, reflecting the relatively high share of part-time jobs in total employment...These sources of slack in the labour market can be illustrated by recalculating the standard unemployment rate measure to include this weakness in average hours worked."
Harper may be right in that the economic recovery is fragile, but what exactly is he doing that will put it on the right track? He's very concerned about the deficit, but has expensive tastes in certain areas, such as F-35 stealth fighters {although he has a super secret note from his American pals} and a commitment to playing Team Canada World Police in Afghanistan. He wants to institute increasing efficiency, taken right out of the Toronto mayor Rob Ford's "stop the gravy train" playbook. I'm all for increasing efficiency, but I'll always say, you can't downsize your way to greatness.

Low interest rates are usually seen as a good thing, but cheap capital isn't used for productive purposes in eras of uncertainty—a liquidity trap. Tax breaks and quantitative easing are tools that may do nothing to jumpstart the economy, as corporations and banks may sit on money or invest globally. The Conservative Party's mantra of tax breaks needs to be scrutinized, given that individuals and firms may sit on money, i.e., save, or pay down debt, rather than consume more goods or invest in equipment or hire employees. Tax breaks for individuals may increase consumer welfare, but not stimulate the economy through consumption, which would make it an expensive policy with a little or no multiplier effect. Concern about the deficit needs to be addressed in the context of these very low interest rates. The standard argument is that government debt crowds out business. Governments issuing bonds compete with businesses for capital and drive up the interest rates, hence the cost of capital. Well, even with cheap capital, uncertainty is hindering economic activity. 

Arguably, the Conservatives are hoping for the exact same thing as the Obama administration. That the business cycle will turn and an increase in growth will fix everything. Under ordinary circumstances, this may be prudent, but, what if this is a curious Paul Krugmanesque situation like Japan's "lost decade" of stagnation, low interest rates, and increased competition?

In my opinion, Canada needs to create value—not be the low cost leader through low corporate taxes and outright giveaways. Not investing in social and economic infrastructure, including healthcare, education, housing, and transportation is shortsighted to say the least, as these are drivers of high productivity. Stephen Harper and his Finance Minister Flaherty are more interested in staying the course, a course of few promises and low expectations. I agree with Brian Mulroney that Stephen Harper lacks ambition and will add that he has no vision. Well, he does like to dally at being a player on the world stage, not realizing he's more Kathy Griffin than Sandra Bullock. His years of minority government will be the flipside to the achievements of Lester Pearson's; a government consisting of a cobbled-together party in an increasingly fragmemted polity. I think his fears of a coalition are a projection of his own that his one great accomplishment—uniting the right, may be slowly disintegrating.

Twitterversion:: [blog] Harpernomics,curious blend of neoliberalism & pwr games,ignores structural faults.Cancel or allow? #cdnpoli #elxn41 @Prof_K

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