Since the global economic crash in the autumn of 2008, Canadians have been jolted by reports about where we are headed that are by turns pessimistic and optimistic. It is bafflingly difficult for people to reach reasonable conclusions about the future of the country or of their community.
For much of 2009, the Bank of Canada made fairly optimistic predictions about the course of the Canadian economy. The Bank forecast economic growth in excess of 2 per cent for the third quarter of the year. Instead, growth in Canada came in at only 0.4 per cent, much below the projection, and lower than growth in the U.S. for the same quarter.
Despite the strong creation of jobs in November 2009, a sober assessment tells us that hundreds of thousands of jobs have been lost in Canada since the fall of 2008 and that thousands of people have been pushed into poverty and many more continue to fear the loss of their jobs. The youth unemployment rate in Canada and around the world is especially troubling. Sixteen per cent of Canadians between the age of sixteen and twenty-four are officially unemployed. And because the social safety net has been weakened in this country in recent years, youth unemployment is strongly linked to a descent into poverty.
In my view, the global economy is passing through a long-term crisis and transition.
Meanwhile, the federal government and provincial governments have made it clear that they believe they have done enough to deal with the crisis and it's now time for them to get their fiscal houses in order. The members of the Harper government have never really wanted to use federal spending as a way to create jobs and, just as important, steer Canada on the path it needs to take over the next few decades.
Finance Minister Jim Flaherty has recently said that the federal government views stimulus spending as a temporary measure and plans no new initiatives in next year's budget. He has made it clear that Ottawa does not intend to increase taxes. The subtext is evident -- the Harper government plans to slam on the breaks and slash public spending as soon as it can. That can only mean sharp cuts to the budgets of many government departments, job cuts in the federal public sector, as well as a pay freeze.
The same mindset is evident among the top members of the McGuinty government in Ontario. Both Dalton McGuinty and Finance Minister Dwight Duncan are looking for ways to slash spending to deal the province's $24.7 billion deficit. The next provincial budget is likely to include sharp spending cuts, the elimination of public sector jobs and pay freezes. The alternative -- a more equitable tax system in which the wealthy pay their fair share -- is not being seriously considered.
Progressive Canadians need to halt the turn toward austerity. What federal and provincial governments have done over the past year is to bail out giant auto companies, and the banks. (Acting through the Canadian Mortgage and Housing Corporation, Ottawa pumped $75 billion into Canadian banks to take mortgages off their hands -- a bailout anyway you cut it.)
Now that stock markets, including the TSX, have regained much of the ground they lost and the wealthy have been restored to economic health by government action, those same governments want to make public sector employees the victims of newly minted austerity policies.
One of the basic causes of the economic crash of 2008 was the widening income and wealth gap between the rich and the rest of the population. We need a new economic strategy, based on achieving greater income equality, not a return to the policies that brought on the crisis in the first place.
Meanwhile, the economic crisis continues.
The crash of 2008 has been widely recognized as the most severe global economic cataclysm since the crash of 1929 and the subsequent Great Depression. A compelling case can be made that the crash signifies the end of an economic epoch -- the neo-liberal age of globalization and the American-centred global economy. What lends weight to this thesis is both the nature of the system of finance whose collapse is at the centre of the global crisis and the crushing problems that face the United States, making the re-assertion of an American-centred global economy exceedingly improbable.
The proximate cause of the crash of 2008 was the bursting of the sub-prime housing bubble in the United States whose immediate consequences were the collapse of major financial institutions and the freezing of credit. The crash brought into play the vast and multi-layered problem of American indebtedness. The three peaks of the American debt mountain were as follows: the national debt, owed by the federal government, which totalled about U.S.$11 trillion and was set to climb much higher with the prospect of annual deficits in coming years of more than one trillion dollars; the swiftly increasing net indebtedness of Americans to the rest of the world, totalling trillions of dollars; and the indebtedness of individual Americans, amounting to about eleven trillion dollars, centred on the explosive use of credit cards.
The U.S. national debt is financed in part by securities held by U.S. government accounts, among the most important, the Federal Employees Retirement Funds, and the Federal Old-Age and Survivors Insurance Trust Fund. At the beginning of 2008, 55 per cent of the debt was held by the "public", meaning those who purchased U.S. treasury bonds. Forty-five per cent of these "public" purchases were made by foreigners, two-thirds of that total by foreign central banks. By far the most important of the central banks in making these purchases were those of China and Japan. When to the central banks of China and Japan are added the other purchasers from these two countries, about 47 per cent of the purchases by foreigners is accounted for. In total, foreigners have been financing about 25 per cent of the gigantic U.S. National Debt, a percentage that the Obama agenda could drive much higher.
Between them, the central banks of China and Japan hold over a trillion dollars worth of the U.S. securities used to finance the U.S. national debt. They don't buy them because they regard them as a good investment. Quite the contrary. They buy them to save the United States from the crippling consequences of its own internal weakness. This, they do, not as an act of generosity, but to safeguard their vitally important export markets in the U.S. and to prevent an even more calamitous global economic collapse.
In the dizzying run up to the crash, the debt mountain, swollen by the lax regulatory environment, and the gluttonous appetite of financiers, meant that Americans were enabled to live beyond their means. Now the time has come to pay the piper.
In place of the U.S.-centred economy of recent decades, the future global economy is likely to be multi-polar in character. Other states that will play enhanced roles as power centres in the global economy include: China, India, Japan, the European Union, Russia, Brazil, Mexico and South Africa.
Canadians need to consider the choices they have in this volatile environment. In Ottawa and at Queen's Park, policy makers seem intent on a return to the bad old days of wealth for a few and tough times for the many. For the first time in several decades, we need to seriously think through the ways to establish a progressive economic strategy for Canada, recognizing that labour is the source of wealth, and that the sustainable well-being of wage and salary earners should be the central objective of economic policy.
(This post is based on a recent talk I gave to the National Executive Board of the National Union of Public and General Employees in Ottawa. The post can also be found on the NUPGE website.)
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