Canada's capitalists are squabbling. The issue is how to divvy up the costs of taking on bad debts associated with the sub-prime meltdown in the U.S.
On the one side you have the sellers of bad debts, the villain bankers and investment dealers; on the other side the buyers, the not so innocent suckers out for an extra buck, companies and private investors alike. In the middle is a gentleman named Puddy Crawford who has been promised a settlement since last December.
Currently Crawford is trying to sell all-parties an agreement on how to apportion the costs. He wants everyone to pay something, and no one to lose everything; and the price is that all would agree not to sue each other. Some of the suckers, both big and small, want to sue the hell out of their particular villain, and are holding up proceedings.
Watching this psychodrama play itself out brings to mind how we got into the current credit crisis in the first place: it was largely because of the Liberals and capitalist class solidarity. In 1993 the Liberals took power. The Canadian economy was faltering, and the Liberal Red Book promised to stimulate growth, provide childcare spaces, re-negotiate NAFTA, etc. Organized business had another idea: cut government spending, and interest rate reductions would follow. The magic of the market would do the rest.
As with Blair in the U.K., and Clinton in the U.S., the ChrÃ©tien Liberals bought into the capitalist line about public finance, quaintly termed neo-liberalism or neo-liberal globalization. Government spending caused inflation, reduced international competitiveness, and created debt that would be borne by future generations. Re-inventing government meant cutting taxes so governments would have less to spend, balancing budgets so governments would not borrow, and privatizing assets to pay down public debt.
Government deficit spending was demonized, though public investment âe" financed by borrowing âe" had built schools, parks, public transit, hospitals, universities, childcare centre, recreation facilities, art galleries, theatres, hockey arenas, playgrounds. In other words, just about all the places outside the home where what is important in life takes place. As well, citizens were not supposed to notice that government spending provides the most efficient known way that we can insure each other against getting older, becoming sick, getting hurt at work, having children, being poor, losing your job, or requiring education.
Forgotten in the capitalist account of public finance was the positive role of government debt in providing assets for pension funds, banks, investment dealers, and citizens. Secure, liquid, and providing modest returns, government debt was a sound investment, unlike the financial sludge churned out by the private debt markets in the form of asset backed mortgages, collateralized debt, and the trillions of dollars now tied up in credit derivatives.
The campaign against government taxation built upon the great victory of the capitalist class in Canada: federal dropping, and then provincial abdication of the inheritance tax. Instead, a capital gains tax was introduced. We should have had both. Indeed Canada would be a better place today if we had followed the Carter Commission on Taxation that in 1966 suggested all earnings should be taxed at the same rate. As it stands only earnings from work are fully taxed, while investment income is taxed at 50 per cent, and inheritance not at all.
So the great debt burden for the next generation could be handled easily by taxing the transfers of the holdings by individuals and families of government debt as they are passed on to the next generation because, yes, for those who hold governments bonds, it is a prime asset. And government bonds represent a useful and productive asset for society, unlike the private debt that has been in the headlines lately.
Under ChrÃ©tien and Martin, the Liberals began a programme of paying down the debt, instead of investing in childcare, aboriginal education, or implementing the Kyoto protocol. Since government debt represents an asset to the banks that hold it, eliminating debt amounts to destroying wealth. It is exactly as if the federal government has decided to burn money every day in front of the parliament buildings. So instead of buying government debt, the banks bought sub-prime paper, and re-packaged it, to produce attractive returns, except that it was worthless, and nobody wants it.
While Puddy Crawford tries to keep the capitalists from suing each other for false promises, who is going to call the 1990s Liberal party to account for accepting the capitalist dogma on public finance?
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