Reform versus Retrenchment

by Glen

Just suppose we’ve got the mechanics of economic recovery wrong. Other nations, realizing that a double-dip recession is now a clear possibility, are ramping up stimulus spending in an effort to keep their economies from falling through the floor. According to Jim Flaherty, our finance minister, Canada won’t be heading down that road. Instead we’ll tighten our belts – the same language he used when he was finance minister under Mike Harris.

Who’s right? Could they all be wrong? One more question: why have we treated this last serious recession as a one-off, a sad downturn that will surely pass? I think it’s far more likely that our present financial predicament is merely the greatest in a line of economic declines. They are connected, and what joins them all together is that in each case where our economies stumbled we failed to take the proper steps to correct the previous series of mistakes. And because we haven’t taken the necessary steps to fix the financial economy the real economy has grown dysfunctional.

Each time we failed to make the proper corrections we increasingly distorted the proper distribution of wealth. We’ve done it for decades, but things are now serious enough that some people are no longer willing to trust the powers that be. Disenchantment with the political order has been growing deeper, yet for a time we’ve been willing to give our corporate leaders a pass. Now, however, we are in a process that has found its precedent at other times in history – disillusionments about both political and financial leaders are now joining together in one stream. The Wall Street demonstration last weekend was merely another wake-up call to the established order – something about to be replicated in cities across Canada, according to this week’s news reports. They didn’t demonstrate in front of a church or a city hall but on the very main street of the capitalistic empire. The majority of demonstrators weren’t from some fringe group, but were largely part of the shrinking American middle-class. Their misapprehensions have reached the point where they refuse to suffer their incremental decline in silence. The old order is being shaken up; we don’t know yet what the one to take its place will look like. Or will the present power brokers exert enough control to keep hanging on for one more recession? Oddly, it’s reminiscent of the Arab Spring.

You can see what’s happening. Consumers won’t be able to spend enough to keep the recovery going. Without serious buying, businesses won’t invest enough in R & D to fuel growing productivity. Whatever we export will never be enough to make up for our deep-rooted unemployment. The Canadian government won’t invest in serious infrastructure, or prepare the way for the meaningful jobs of tomorrow. Increased free trade agreements will inevitably result in our jobs being exported overseas. That might get us more goods brought to our shores, but if we don’t have meaningful wages, what will we do? And the environment? Well, its about ready to come crashing down on us and we have no plan! Blue boxing will never be enough to stop carbon emissions. Federal governments and financial leaders will never take dynamic action because the theory is that it will tip a precarious economy into the dumpster. Yet recession after recession that appears to be the way we’re headed anyway.

What the use of having all this wealth if we can’t find meaningful jobs or we spend our time watching the middle-class’s purchasing power continue to erode? We can only string our credit debt along so long, just like governments. At some point confidence will break and we’ll cut back on shopping. It can’t be any other way. It’s time to pay the piper. We pretend otherwise, but consumers are drained of their savings, governments are drained of their revenue, and corporations are facing a crisis of humanity. The government of the day in Ottawa, instead of guiding us to a place where the middle class can stretch its wings, is reflecting the prevailing faith in the all-knowing free market. It embraces deregulation, privatization, attacks on unions, increased tax cuts for the wealthy who don’t really need them, and is bailing on the social safety net. Tim Hudak, aspiring to be Ontario’s premier tomorrow, helped close 28 hospitals, fired 6,000 nurses in Ontario as the junior health minister under Mike Harris, and watched over the worst wait times in the country.This history could be repeated once more. Governments of the developed nations are presiding over a situation where the benefits of economic growth are accruing to a smaller and smaller group.

I think most of us are now starting to get this. The slash and burn politics of the last few years is now beginning to show its fangs as the grandmother’s attire gives way to the wolfish grin of wealth gone awry. Yet if people’s wages barely rise and they can only fulfill their commitments by borrowing, thereby going deeper and deeper into debt, how long before the jig is up and they cast off their blind obedience? Well, it’s my sense we are on the verge of it.

All this is but a symptom of what is really wrong. Our fetish for the financial economy has beguilingly blinded us to the real economy. Maybe that phase is ending. Whatever is about to transpire, it will likely result in a herculean contest between reformers and the power brokers. It won’t be pretty, but it can be hopeful. Someone asked me today what is the real economy. Perhaps we should take a look.