Jim Flaherty and Stephen Harper are worried about America heading off towards the “fiscal cliff”. They do not seem ashamed that Conservatives’ spending cuts propel Canada in the same direction.

Most agree the U.S. must address impending increases in taxes and cuts to spending in order to prevent a further fall into recession. The fiscal cliff looms because spending cuts and tax increases are scheduled to happen automatically before January (when the old Congress is replaced) unless the President and the lame duck Congress can agree to act.

Not all understand that the way for the U.S. to prevent the fall from the “cliff” is for the U.S. government to increase its deficit. Why? Because the private sector suffers when the government withdraws purchasing power from people, either by cutting expenditure programs, or increasing taxes.

In Canada, Harper and Flaherty are hoping U.S. expansion will boost the Canadian economy by pulling more exports from Canada into the U.S. Though they do not broadcast it, they agree the U.S. deficit needs to go up to prevent a downturn. But, the Harper government pretends Canada needs to go the opposite way. Indeed, slowing the Canadian economy through reducing government spending is Conservative policy. Since a sluggish economy becomes even more sluggish, when deficit reduction is the priority, Canadian pay the price in reduced employment opportunities, and stagnating wages.

U.S. progressives have real concerns about what the Obama administration and the outgoing Congress are going to agree upon as part of the fiscal cliff negotiations. The first marker set out by the President was that upper-income Americans needed to pay more in taxes. As Robert Kuttner pointed out, it would have been more reassuring to hear that social spending had to be increased. Apparently, the President was prepared to cut $4 trillion in spending (over 10 years) in the last round of budget negotiations, which failed, because Republicans refused to any tax increase, even on the wealthy.

The Republican Congress has a list of so-called entitlements it wants to reduce. Progressive Americans oppose them because they do not want to see the age for Social Security increased, Medicaid and Medicare reduced, less funds for education, housing and public infrastructure. This kind of “grand bargain” appeases bankers focused on short-term gains, and not American jobs and incomes.

Jeff Faux, long prominent in U.S. progressive policy circles, and co-founder and first president of the Economic Policy Institute (EPI), has described how the Wall Street dream of unending profits, and the Pentagon dream of U.S. military supremacy, have choked off the American dream of rising standards of living for its citizens. Faux agrees backing Obama was important for defensive reasons, but wants to see progressive Americans organize and push for a constitutional amendment declaring that corporations are not persons, and banning corporate money from electoral politics.

On November 6 Montana voted “yes” in such a referendum declaring corporations are not people.

Since 1988, EPI has been charting the fall in living and working conditions of Americans, in its publication The State of Working America. Recently EPI joined forces with other major progressive groups to propose a Prosperity Economics agenda.

Prosperity instead of austerity sounds promising. The 19 specific proposals that make up the policy package outlined in the paper co-authored by Jacob Hacker and Nathaniel Loewentheil of Yale University are based on solid, documented evidence. The entire package could be adopted by the incoming Obama administration. Indeed he could fill his key cabinet positions with people who understand and support Prosperity Economics.

The economic realities faced by working people in both Canada and the United States need to be addressed. Talk about putting the fiscal house in order is code for taking money away from working people. It does not preclude giving grossly indecent fiscal advantages to corporations.

The electoral process provides no guarantees about policy outcomes post-election. The Obama administration will be watched carefully to see how it treats the citizens who re-elected the President: singles, women, Afro-Americans, Hispanics and trade unionists. The political reality is that the Democrats cannot be counted upon to support the workers who voted them into power in the rust belt states. Corporations have a call on policy directions because of their campaign contributions.

The debate about the fiscal cliff is important because it helps focus attention on how government policy can have negative or positive effects on quality of life, and living standards.

Getting agreement on the link between spending increases and prosperity would be an improvement over falsehoods put about in Canada and the U.S. about how austerity is necessary to reduce deficits. It is not, and will not. All austerity does is reduce the standard of living of citizens.

Duncan Cameron is the president of and writes a weekly column on politics and current affairs.

Duncan Cameron

Duncan Cameron

Born in Victoria B.C. in 1944, Duncan now lives in Vancouver. Following graduation from the University of Alberta he joined the Department of Finance (Ottawa) in 1966 and was financial advisor to the...