By Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0 (and happens to be Canadian).
For once, Canada is making the news for the wrong reasons: The government of the United Kingdom has braced the country for cuts in government spending of up to 20 per cent as the new Conservative-Liberal Democrat coalition lays the groundwork for an austerity program to last the whole parliament. Their inspiration? According to the Telegraph, the administration of Prime Minister David Cameron hopes to draw lessons from the experiences of the Canadian Government of the 1990s. Before too much damage is done, we suggest they’d better re-read the history books a bit more closely.
The standard narrative of the Canadian experience in the 1990s is this: in 1993, Canada’s budget deficit and debt-to-GDP ratios were the second highest amongst the G7 countries, after Italy’s, and the U.S. financial press was unfavourably comparing Canada to Mexico. That year, with the IMF supposedly lurking at the door, the Liberal Government of Prime Minister Jean Chretien, and his Finance Minister, Paul Martin, laid out a goal to halve the budget deficit to 3 per cent by 1998, with an unannounced goal of a zero deficit by 2000. Martin began cutting costs significantly in 1994, chopping 10 per cent from department budgets and converting a deficit equal to nearly 7 per cent of gross domestic product into a surplus by 1997. By 1998, the deficit was eliminated and overall debt was dropping quickly, amidst a rapidly growing economy.
Success, correct? Certainly, this narrative has largely gone unchallenged (even in Canada). It has metamorphosed into received wisdom, and has been used to has been used by many to justify a renewed assault on the welfare state; it is argued that the impact of Chretien government’s cuts in public spending allowed Canada to get through the Asian crisis with little damage and go on to become one of the strongest Western economies.
And this is the lesson drawn by the British government. Hence, the remarks of the Chancellor of the Exchequer, George Osborne, who yesterday announced an unprecedented four-year spending review. According to Osborne, every Cabinet minister will have to justify in front of a panel of colleagues every pound they spend. He said the task ahead represented “the great national challenge of our generation” and that after years of waste, debt and irresponsibility it was time to bring public spending under control guided by the principle that people should ask “what needs to be done by government and what we can afford to do”.
The Canadian experience certainly makes for an interesting story, although we suspect that the IMF threat was significantly overstated. In 1995, Canada had a debt to GDP ratio which was around half of that of Italy and Belgium. Yet curiously, those countries were never deemed to be ready-made victims for the Fund’s Little Shop of Horrors, even as the Canada was supposedly threatened with the prospect of becoming a ward of the IMF a la the United Kingdom in 1976. In truth, the IMF threat represented yet another in a series of manufactured crises so as to enable longstanding opponents of government spending to muscle through budget cuts in vital and politically popular social programs.
The reality is somewhat more complex, as Professor Mario Seccareccia of the University of Ottawa has noted in a paper entitled, Whose Canada? Continental Integration, Fortress North America, and the Corporate Agenda, Montreal & Kingston: McGill-Queen’s University Press, 2007, pp. 234-58.
In the paper, Seccareccia noted the real reasons for the “success” of the Chretien/Martin austerity programs:
1. High growth in the US, Canada’s largest trading partner, combined with a sharply declining Canadian dollar (which fell as low as .62 cents against the greenback) and the implementation of the North American Free Trade Agreement (NAFTA), all of which combined to push the export sector’s share of Canadian GDP to 45% by 2000 (now about 33%), and
2. An expansionary monetary policy which did stimulate significantly consumer spending, and which was sustained until the financial crisis.
The turnaround emerged despite the fact that investment remained weak relative to historic economic recoveries. But the massive turn in the country’s external sector was largely made possible through a revival of growth in the US (Canada’s largest trading partner). The stock market boom in the US, the high tech bubble, and the beginnings of the American real estate boom (all of which were fuelled by huge increases in US PRIVATE debt growth, another malign effect of the Clinton budget surpluses), created huge demand for Canadian exports, which largely drove Canada’s recovery. If anything this vast improvement in Canada’s external account largely offset the deflationary impact of the fiscal austerity which, in any case, likely IMPEDED, rather than facilitated, economic recovery, given the slashing of employment insurance and social welfare benefits.
The other byproduct of this Canadian “budget miracle” was the increasing indebtedness of the Canadian private sector, a phenomenon mirrored in the US by the Clinton Administration, which repeatedly recorded budget surpluses in the late 1990s. Again, this is no surprise to those of us who adopt this financial balances approach, but it does give a fuller (and less flattering) picture of the ultimate impacts of eliminating Canadian “fiscal profligacy”.
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Marshall- interesting post, as always! Please drop me an email or call one of these days. I didn’t know that you were a Canadian, too.
I’ll have to agree with Mr Auerback on this one along with Michael Hudson, James Galbraith, etc. Austerity is a dead end with a detour through the debt compounding cycle.
Just the plums ripping off the proles.
A trade surplus is the key which is why Japan has never crashed despite two decades of deflation. Week UK pound would help but what will UK sell overseas? Beatles’ records reissued?
Interesting comparison but as a Brit living in Canada and knowing a bit of experience from both countries I’m not sure I agree.
The key is not to underestimate Mervyn King and his power to keep down the Great British Krona.
The UK is pretty special in Europe (actually a bigger free trade zone than NAFTA) where they are the second largest economy after Germany and yet have their own currency.
If growth fails to pick up watch out for UK interest rates being kept low. This would then mirror closer the Canadian experience vs the US Dollar; and also encourage households to stay indebted.
Out of all currencies devaluing recently GBP has managed to really win out on this front; and stay down against all majors and trading partners. Even the Euro’s fall from grace hasn’t harmed GBP in its mission to stay down. Merv/Cameron/Clegg will continue to preside over a weak Sterling until eventually the UK is competitive and an export-led growth results.
A threat to the strategy could be inflation. But with unemployment high and labour markets relatively flexible vs their European counterparts this is unlikely.
What they don’t want is a disorderly devaluation brought on by bond markets losing faith because of a ballooning deficit. If they can cut their deficit; maintain their credit rating AND slowly and steadily keep the pound down this will be the best medicine.
At the end of the day the private sector will always be a far better exporter than the public sector in the UK. So they’re using some of the public sector savings to keep private corporation taxes down.
“IMPEDED, rather than facilitated, economic recovery, given the slashing of employment insurance and social welfare benefits”
This is an rather short-term analysis. Sure slashing EI and welfare would be a small drag on demand… but heck there’s nothing like a super generous EI and Welfare system to keep people from seeking work altogether.
You’ve got to have a system where it’s always better for an employable worker to be better off in work rather than on EI and welfare. Prior to Chretien’s cuts this was not always the case.
Once people are motivated to seek work you get lots of benefits:
1) Multiplier effect as worker produces and consumes more.
2) Canadian corporations stay competitive. Nothing worse than being unable to hire people at a globally competitive wage because your potential employees are better off on EI / Welfare.
3) Cutting government allows you to potentially lower taxes later down the road; cutting taxes is again a stimulus to demand.
I would like to see the senior economic staff at any think tank, Wall Street firm or University economics department actually take the jobs they urge on the less fortunate members of society as a preferential substitute for the welfare state.
I am not sure if these “analysts” would 1) suffer crippling depression and anxiety resulting in the need for medication, 2) walk off the job in a fit of panic or 3) just kill themselves.
Neither 1, 2 or 3 would promote sustainable long-term economic growth.
Might be food for thought. LOL. In the old days soceities’ losers would row in the galleys. Today, they have to hit the so-called “job market.”
Glad we have economists and think tanks to make sense of this for us. ha ha ha.
Hindsight bias to a tee.
What’s the term for counterfactual bias? Negatives are impossible to prove. I have counterfactual bias for sure.
Good Luck
Canada has massive OIL, people. UK north sea is drying out quickly. (And BP is screwed)
Canada population was also around 30million. UK now is 60m. Canada sits in huge minerals and natural resource (Uranium, crude, gas, timber, cheap electricity, etc) They have to actually TRY hard to be in budget deficit.
UK is resource poor.
That makes a big difference.
“Canada” doesn’t have anything, including oil. All it has is a parasitic syndicate which ravages Alberta for the tar sands, to extract and export both the oil and the wealth (the syncrude to US SUVs, the loot to Chinese state companies and to IOCs like ExMob, ConocoPhilips, and everyone’s favorite BP).
Meanwhile this internal petrostate socializes all its risks and costs, environmentally and socially. The electricity and natural gas required for the bitumen extraction and syncrude processing drives up the price of electricity and heating for normal use throughout Canada. (This insatiable appetite for electricity has driven Canada’s nuclear expansion and the ravages of its stepped-up uranium mining; for the first time in history a nuke buildout is being done not as “alternative energy” but explicitly to help accelerate fossil fuel extraction.)
Meanwhile thanks to NAFTA and the SPP the US’s monster maw get first dibs on the oil produced. The rest of Canada actually has to import more foreign oil because of NAFTA and the tar sands.
Not one bit of this is intended to benefit the people of Canada in any way. On the contrary, the whole country is collateral damage. The federal government is a tar sands kleptocracy and Alberta is a veritable petrostate. (Much like our “Alaska”.)
So the alleged resource plenty of “Canada” is another late-neoliberal sham and assault. Canada’s slated by the gangsters to be nothing but a resource mine, figuratively and literally.
It’s looking more and more like the moon all the time.
Nasty multi-nationals.
Too bad.
Bold post. To begin with a criticism such as:”we suggest they’d better re-read the history books a bit more closely”, as the opening salvo of what is essentially a counter-factual argument, is bold indeed. Counter-factual arguments do have merit, they do allow exploration of uncharted intellectual territories… but the lack of empirical references does not vindicate fewer facts, rather, counter-factual arguments do require ‘more’ substantiation by showing patterns. What this article offers instead is, somewhat irrelevant information as a substitute for relevant facts and… some rather convenient cause and effect exclusions. For example, in the following sentence it matters not what the percentage is ‘now’:
“…all of which combined to push the export sector’s share of Canadian GDP to 45% by 2000 (now about 33%)…”; What matters here, is the percentage at the beginning of the “push”, or when ‘austerity’ was initially put into play. The post ‘is’ after-all about the effects of fiscal austerity from 1993 onward, and so, it seems suspicious that the authors (“we”) would inform us of what the export percentage is ‘now’, while excluding the starting point that would give an indication of how much exports rose during the historical period that the authors claims to know better than what the Cameron administration does. I don’t know much of anything about the Cameron administration but I suspect that there are people involved accordingly who know how to present a substantiated argument.
As for another cause/effect exclusion: what caused the “.62 cents” drop “against the greenback”? ( Fiscal austerity perhaps?)
And why do the MMT faithful (and libertarians) find it so difficult to understand the need to support claims:
“The turnaround emerged despite the fact that investment remained weak relative to historic economic recoveries.” (Is weak investment a given? What “historic economic recoveries” [all of them?]?
Again, is the following so widely accepted that it stands without support?
“If anything this vast improvement in Canada’s external account largely offset the deflationary impact of the fiscal austerity which, in any case, likely IMPEDED, rather than facilitated, economic recovery, given the slashing of employment insurance and social welfare benefits.”
Plus, should “we” be telling others to “re-read” anything:
“. It has metamorphosed into received wisdom, and has been used to has been used by many to justify a renewed assault on the welfare state;”
Another factor was the global declining interest rate environment, which reduced our debt servicing burden. That had a big impact on the deficit.
The globalization and free-trade agreements along with the weak Loonie accounted for the rest. This is easily seen when looking at the numbers, but Liberals here in Canada constantly point to their good stewardship in the 90s, and it is frustrating.
But those cuts needed to be made. Our bureaucracies were ridiculous (even more so than now).
I do not know a lot about Canada, however as I am from Sweden I would like to point out that fiscal responsibility is very important. It was fiscal responsibility from the government that got us out of the mess we created during out boom in the eighties. Fiscal responsibility now is holding our interest rates down, not draining our public resources serving our debt.
Sure Sweden has still some problems; the largest is clearly that our private debt is growing alarming fast for the moment. However as our government has been fiscal responsible during both the boom and the bust we have not been needed to cut our public spending yet.
So I can’t agree that fiscal responsibility from the government is bad, and if fiscal responsibility leads to lower cost for serving the debt it might even make more money available for reforms or public investments.
UK on the other hand has run with budget deficit even during the good years, which is not sustainable. When debt is growing faster than income, you know that you are in problem; in short it means that you have become a debt slave. In the short run it will hurt UK to cut public spending however in the long run I believe that it will aid them.
Well as Mr Auerback say about Canada is even more true about Sweden:
net export-import % GDP 1993-2009 in Sweden
http://img261.imageshack.us/img261/2442/nalooaacd.jpg
http://img687.imageshack.us/img687/8551/lalfbaace.jpg
Full year equivalent supported by social welfare systems 1990-2003, that is people on unemployment dole, pre pensions and other stuff, the record high unemployment at the beginning of the 90s vash polished to lower levels but people supported by social welfare system remained record high.
Almost zero growth in the domestic economy the first decade with severe austerity to balance the budget.
Present Household and Company debt % of GDP,
http://img263.imageshack.us/img263/9720/lendingsweden.png
Total debt composition Ireland, Portugal, Spain, Italy, Greece, UK and Germany.
http://img261.imageshack.us/img261/6306/bamgiaacm.jpg
One can notice Sweden’s total debt is about as big as UK and household debt is on the level as in Spain, Portugal and Ireland.
The more one look at this stuff the more sense does MMT make. Fiscal “responsibility” and you have households in debt and vice versa, if Sweden didn’t have had during the period of “fiscal responsibility” close to world record in external surplus the private sector would by now have been in a very dire position, the economy has probably collapsed long time ago.
What Sweden did was to hammer down and put it’s domestic economy on a anorectic diet to force big external surpluses, the release of the nonsensical currency peg did of course also help.
Over the period from the late 70s to the beginning of the 2000s Sweden was rock bottom in OECD when it comes to growth in the domestic economy. The export sector in Sweden have a total hegemony on the economy in Sweden, they own the information on economy.
I fully agree, and I think that we have a housing bubble as Spain had. But I fail to see that the problem is that the government pulled back. (I just want to point out that I am support of a lot of public spending, health care, schools, railroads, energy). However we cannot spend what we don’t have, and if we continue to raise taxes (and we do have high taxes) the public economy will suffer even more.
The alternative is to borrow money, which in turn will raise the service cost for the debt. Personally I would like harder rules on how the banks are allowed to inflate the money supply and start with debt free government money (backed by public resources such as railroad or energy).
However this does not change the problem, the insane amount of debt we are sitting on in the west. One good example is Greece, which should have defaulted, rebalanced the budget according to the taxes paid. The same thing can be said to Sweden, when it come to the private sector, when our bubble burst (and it will) we must allow an easy way to clean of the debt. We need a recession to clean up our problem, what we don’t need is a government that will start to borrow money to compensate for the failing private market. The reason for this is that it will only move the problem from the private sector to the public sector, that’s why I fail to see that the problem is reduced government spending. I simply think the problem is the debt levels and we will not get rid of the debt without a recession.
There is 3 variables that balance each other in the national accounting, public sector, private sector and foreign sector. If the government goes into surplus some other sector has to go in deficit. That is primarily the private sector; foreign sector is an external influence.
Let’s say that the foreign sector is in balance then dollar by dollar of public surplus is matched by at private deficit. A foreign surplus will make a relief to the private sector if the power of the public sector is pushing them in deficit by surplus. Without the huge foreign sector surplus in Sweden the private sector had been in serious deficit problem with a public sector forcing a surplus.
So it is unrealistic and false to talk about different countries “recipe” to lower the debt burden without taking the foreign situation in account. Is it realistic to expect UK and the rest of EU debt countries to have 7-8% foreign surplus every year over the next one to two decades?
The crisis in Sweden was a heavy debt burden on the private sector, initially the equity of the private sector was 30%, a private sector in currency arbitrage and insane foreign and domestic real estate speculation all aided by a nonsensical pegged currency. The situation got worse and equity did sink to 20%. While at the meantime the public sector did have one of the strongest balance sheets in OECD. The gross debt was 700 billon (SEK) and financial assets equal to that, the value of real assets equaled then equity. The deleveraging process of the private sector resulted in that 1000 billion in debts were moved to the public balance sheet. All in all the total balance sheet of the country remained unchanged.
This part of the real crisis and the deleveraging (decontamination) of the private sector is always left out when the crisis is discussed. As history begins after, when the public sector have increased its gross debt burden with 143%. But still it was not in any way alarming, if I recall right the gross debt was at 90% of GDP and net debt 40%. This with a policy that created 3 year in row with negative GDP.
By 1996/97 the net debt was erased, there was no need to force this austerity on the Swedish people that had socialized this massive lump of private debt, it did come with a terrible price in human suffering, there was no need to force this in a very positive international Business cycle. What was done was a criminal act.
Here are some interesting USA graphs of public deficits, debt and its relation to the private sector:
(Especially interesting is the deleveraging of public sector debt after the huge massive public stimulus program called WWII, a deleveraging without any but a few years of public surplus, surpluses probably needed to cool down a booming economy. )
http://img267.imageshack.us/img267/4461/usbudgetparameterspcgdp.jpg
http://img256.imageshack.us/img256/3353/uspublicdebtratio194020.jpg
http://img263.imageshack.us/img263/5111/dakfgaacn.jpg
http://img13.imageshack.us/img13/6427/dakfjaacn.jpg
http://farm5.static.flickr.com/4005/4612678935_27e9c9d628_o.png
As a Brit — who has had a long-time involvement with Japan on a personal and business level — I’m struck by two things after reading this very thought-provoking article.
1) It’s riven with what I call the “US mentality” (sorry, that’s a sweeping generalisation, for which I can only apologise, but I’ll explain !). Namely that our current problems demand a solution. And that solution is known. So you simply have to identify the correct solution. Then implement it. Which can be done. This is the general US interpretation of the world’s problems in general and — as here — the UK’s problems specifically. Americans, as a rule, think they can do everything and anything and so should the rest of the world. Don’t get me wrong, that’s an excellent character trait and you can certainly teach other nations about the benefits of positive thinking and the perils of wallowing in apathy. It’s a really good coping mechanism. Except when it isn’t.
As is the case here. Because we are not in any sort of consensus about what the correct thing to do is (basically a choice between more deficit spending until the economy becomes able to affect a “self sustaining recovery” and thinking that is going to end in a crisis eventually so we’d better just bite the bullet and get back to “sound money”). Nor are we entirely sure how exactly to implement either of these economic strategies.
So, in the usual US-thinking fashion we’re exalted to do something. We then get hopelessly lost, as here, about the relative merits of the various somthings we’ve got to pick.
This is what the largely US-based punditry has been telling Japan to do for decades. “Massive Keynesian Stimulus Now !!!”. Oh no, wait a second. “Down with the State ! Liberate your Hopelessly Moribund Restrictive Economy !”. Okay then, how’s about “Embrace Immigration – you Know you Want to Really”. No joy ? Right, back to “You’re Really not Getting this Keynesian Thing are you ? Call that QE ? You’re Just not Trying it Hard Enough”
And so on.
Thus, I get to…
2) Now it’s Britain’s turn to benefit from all this sort of free advice. Such advice will be as well intentioned – and ineffective – when applied to the UK as it was when applied to Japan starting in 1990. The article here is of the “you can’t cut your stimulus now” variety. It could just as well be “you’re not getting the state out of people’s way” species. The reason such simplistic thinking hasn’t “worked” for Japan is that… it’s all too simplistic. As some UK (but precious few US – that I’ve seen – do jump in and tell me if I’m wrong) commentators are not beginning to see, the reason Japan hasn’t flicked some magic reset switch and got back “on track” is that a) the “track” isn’t necessarily the one everyone thinks you should be on and b) even if you assume for the sake of argument it is, getting on the track ain’t straightforward at all.
For the first time in a mainstream journal, I actually saw a vaguely accurate attempt at an assessment of Japan’s situation. It was in the FT, here’s a link: http://www.ft.com/cms/s/0/e2eea394-73fb-11df-87f5-00144feabdc0.html (sorry, registration is required)
Now that we are indeed “all Japanese now”, opinion in the UK – and perhaps soon the US too – is coming to the conclusion that there actually might not be nice ez-cleen bite size lite-solutions to our shared situation. The shock to the typical US psyche (and I must apologise again for generalising) is to me particularly striking.
To your typical Japanese – at least as far as I can gather being a non native – this is much less a dramatic change to their world view, ehtos and perception. They have shown themselves to be much better able to handle the predicament that we’ve all now got ourselves into.
So. A nice enough article. But so old-world. I know Marshall, it’s going to be hard for you, but try if you can to un-learn all your culturally embedded notions about all problems being solvable. Perhaps what’s needed for the UK is some traditional British keep-calm-and-carry-on make-do-and-mend fudge. We kind-of like that. The Japanese seem to as well.
We’ve tried in the past 10 years or so to make our peace with the starry eyed can-do attitude from across the pond. We’ve done our best to be the sort of people who went out conquering the Wild West. And defending the Alamo. While choosing to do these things not because they are easy but because they are hard. Yes, we really have tried. But frankly, it’s just not us.
Shocking though it may be to conceive, it’s vaguely possible that the non-US nations of the world may be better equipped mentally to deal with the future which might be coming than you are.
Could you therefore let us go about our typically English flip-flopping quasi-socialism, hard line Milton Friedman generally making the best of it muddle ? Heck, why not give it ago yourselves ? Unless you’ve got a 100%-money-back-guarantee-if-not-completely-satisfied better idea ?
I agree with you Chris, there is a whole lot of advising going on about “problems” which may not exist. America dose have a habit of thinking that its way is the way for everyone.
I’ve commented before, to people who talk about Japan as if they have a “problem” currently, that Japanese may not care about what we care about. They have low unemployment a close knit social structure and dont seem to have a need to constantly pursue robust GDP growth. Looking at them from an American perspective is wrong headed.
I do think you paint Marshall with a bit of the wrong brush however. He is less guilty of telling them (British) what is wrong with them than warning them not to act on traditional notions of what is wrong with them. Marshall has consistently said to ignore “ratios” and debt levels (govt) and focus on your people. This is what ALL govts should do. Ratios are for financial markets not for govts committed to improving citizens lives.
Ah yes, the old Milton-Friedman-way is the British way. Austerity and other Friedmanite prescriptions become patriotically correct, and any attack on these policies becomes an attack on Great Britain.
Layer on top of that the historical black hole that Chris operates within, and you’ve got some serious stupidity going on here. Don’t they teach British history in Great Britain? Evidently not, at least if Chris is any indication.
Chris lectures Marshall:
I know Marshall, it’s going to be hard for you, but try if you can to un-learn all your culturally embedded notions about all problems being solvable. Perhaps what’s needed for the UK is some traditional British keep-calm-and-carry-on make-do-and-mend fudge. We kind-of like that. The Japanese seem to as well.
We’ve tried in the past 10 years or so to make our peace with the starry eyed can-do attitude from across the pond. We’ve done our best to be the sort of people who went out conquering the Wild West. And defending the Alamo. While choosing to do these things not because they are easy but because they are hard. Yes, we really have tried. But frankly, it’s just not us.
The truth, despite Chris’ butchering of history, is that Great Britain has a proud and glorious past. At one time Great Britain was in the vanguard of the forces of progress that were transforming the world. This fact was dramatically demonstrated, as Aaron L. Friedberg points out,
at the Crystal Palace Exhibition held in London in 1851, where locals and foreign visitors could view the fruits of the industrial revolution and especially steam engines and locomotives of British design. The so-called Great Exhibition has been described as “the supreme festival of [the] belief of the age in itself,” but it was also more specifically a profound expression of English self-confidence. Queen Victoria described the inauguration of the exhibition as “the greatest day in our history, the most beautiful and imposing and touching spectacle ever seen.” Several months earlier, as preparations for the grand opening were being completed, the queen had summed up her feelings and doubtless those of many of her subjects. “We are capable,” she confided to her diary, “of doing anything.”
–Aaron L. Friedberg, The Weary Titan
Chris: Defeated, decadent and proud of it.
Ah yes, the old Milton-Friedman-way is the British way. Austerity and other Friedmanite prescriptions become patriotically correct, and any attack on these policies becomes an attack on Great Britain.
I remember as a university student attacking Thatcher for ignoring the economists who were telling her to increase spending to keep the UK economy from imploding. She ignored the bad advice and stuck to her guns. As a result, the UK economy recovered sharply as public finances improved. No matter how it is being spun, the muddled and incoherent Keynesian belief in more borrowing to cure the problems created by too much borrowing has been exposed as intellectually indefensible. It is time to move on and let serious people do what must be done to save the economy from the meddling of bureaucrats and politicians.
My favorite story about Thatcher is when Hayek and Friedman, after Pinochet had rounded up and mass murdered thousands of Allende Partisans, recommended Chile to her as a model to complete her free-market revolution. The Prime Minister, at the nadir of Chile’s 1982 financial collapse, agreed that Chile represented a “remarkable success” but believed that Britain’s “democratic institutions and the need for a high degree of consent” make “some of the measures” taken by Pinochet “quite unacceptable.”
http://www.counterpunch.org/grandin11172006.html
Now the neoliberals are on the verge of getting the rank and file Brit to point a loaded gun at his own head and pull the trigger.
One thing about it, if the Brits decided to commit economic suicide, they will have done it to themselves.
Neoliberal Deficit Hysteria Strikes Again
“… the European Commission has somberly warned London to tighten its budget–to bring its deficit down to 3% … through higher fees and taxes, as well as cuts that “will be more drastic than those under (former Prime Minister) Margaret Thatcher …”
…
“It should be remembered that Thatcher oversaw the downsizing of the UK economy, moving it to second-rate status so far as economies go. (In 1980 the UK’s per capita income was 79% of that of the US; by 1985 it had fallen below half. It is now the third largest economy in Europe, and sixth in the world—but it ranks 21st on the Human Development Index.) Apparently the EC would like to see the UK reduced to a third-rate economy—perhaps as punishment for dealing with the global financial crisis in more reasonable manner than the EC has. …“
Chris says: “Now that we are indeed “all Japanese now”, opinion in the UK – and perhaps soon the US too – is coming to the conclusion that there actually might not be nice ez-cleen bite size lite-solutions to our shared situation.”
I believe its more like we are indeed “all Gazans now”, and the nice ez-clean bite size solution is to recognize that we are victims of a global propaganda snow job. You have either been drinking the Kool aid or you are selling it.
Sure austerity and being prudent are excellent qualities, but when the wealthy ruling elite, through their central banks, create rolling debt bubbles around the planet, that are used to intentionally pit the prudent against the not so prudent, and then further exacerbate those debt traps by creating phony over leveraged derivative products based on the debt trapped bubble assets, and even now continue the scam, then being prudent is not the solution. Japan was a R&D pilot program. The solution is to get rid of the wealthy ruling elite, their scam central banks and the crooked governments they own and control. This is classic rich against poor and they seek to control and eliminate us by engaging us in perpetual conflict with each other. Fuck the noble lie elite rich people!
When the duped masses get out of their national boxes and take a big bite out of that solution then things will come together nicely.
European social democracy has been as hard hit as scamerican social institutions and the rape and decimation continues.
Wake up and smell the forces that shape and mold you.
Deception is the strongest political force on the planet.
Excellent comments from fellow Brit,Chris. Well played Sir!
There is already the beginnings of a diffreent atmosphere in this country since the election.
We have a feckless element in society, we have wastage on a massive scale, the country is damn nearly on its knees but at last the lies, the prevarications, the spin and the evasions are coming to an end.
In our hearts we quite like belt tightening and a bit of austerity might be quite fun. We have a sense of the common good. There are still plenty of people who remember the war and its aftermath. While we wrinklies often depair at our youth we do pass on to them the stories of food rationing, petrol rationing, furniture coupons, the hard times and they listen. Those hard times were our “Finest Hour” and that is why we relate to them.
Although we have played the U.S. game of taking out a quart from a pint pot for years, we know the cupboard is now bare and the results have been disastrous. And deep down we have felt such attitudes were all a bit alien even though we have gone along with them.
I believe we will slowly move away from American attitudes and become more European. It may be unfashionable at the moment but I would prefer the Euro to the Dollar on any view beyond the next six months.
Ancient Brit provides us with yet one more example of defeatism gooed over with historical revisionism in order to lend it legitimacy.
Ancient Brit, do you really believe the British people bending over and taking the big one up the ass from the international criminal banking cartel is consistent with the indomitable British character?
…We are told today that the Germans believe Londoners, after a while, will rise up and demand a new government, one that will make peace with Germany. It’s more probable they’ll rise up and murder a few Germans pilots who come down by parachute. The life of a parachutist would not be worth much in the East End of London tonight.
The politicians who called this a “people’s war” were right, probably more right than they knew at the time. I’ve seen some horrible sights in this city during these days and nights, but not once have I heard man, woman, or child suggest that Britain should throw in her hand. These people are angry.
Edward R. Murrow, Radio broadcast from London, September 10, 1940
The R.A.F. pilot was a new kind of fighting man, born of a new type of warfare. His appearance was studiedly unmilitary; the cloth crown of his officer’s cap flopped loosely, and he often wore a neck scarf to thumb his nose at military conventions. He was little more than a boy but was doing more than a man’s work, for R.A.F. pilots were in short supply, and he was often called on to go up and fight three, four, or even five times a day. He lived close to death and could never be sure the friend he chatted with at breakfast would be back to share experiences with over dinner. He was the man of whom Winston Churchill said, “Never in the field of human conflict was so much owed by so many to so few.” R.A.F. pilots themselves pointedly ignored “Winnie” and his rolling oratory.
–C.L. Sulzberger, World War II
Your appeal to anti-Americanism to defend your indefensible ideology also no basis in history nor in tradition. As Sulzberger goes on to explain:
And so, in a most extraordinary curious way, primarily through the will power and political genius of one man, Franklin Roosevelt, often inadvertently and sometimes only by executive order, the United States became deeply involved in history’s greatest conflict without actually joining the war… We dispatched envoys to see what material was needed, and warships to insure that it was safely delivered. There is no doubt that we deliberately violated any internationally accepted concept of neutrality for eighteen months before we became belligerents. There is also no doubt that had we not done so, first Britain and then Russia would have lost the war. The isolation so many Americans craved would then have become total and disastrous.
Excess.
It is not hard to be “Anti-American” in these times, and by that I mean anti the “consumerist model”. The rest of the developed world will realize more quickly the value of “restraint”. Americans who continue to drive gas guzzling pick-ups and SUVs while the Gulf of Mexico sloshes with oil will probably be the last. America is not about “limits”.
billwilson,
Wow! Talk about taking the truth and turning it on its head!
Consumerism and the peddling of unsustainable debt are step 1 of neoliberalism. Austerity is part of step 2. The whole thing is a ploy to trick a nation into giving up something dear and sacred for a bunch of neon crap. It’s kind of like Martha J. Lamb’s tale of the beads that bought Manhattan Island, but with the myth actually coming true: “He [Minuit] then called together some of the principal Indian chiefs, and offered beads, buttons, and other trinkets in exchange for their real estate. They accepted the terms with unfeigned delight, and the bargain was closed at once.” But neoliberalism is an American innovation. It’s as American as apple pie. The big tip off should have been when Chris advocated following the prescriptions of Milton Friedman, as if Friedman was anything but American.
So Chris and Ancient Brit take something that is patently American, embrace it, and then appeal to British nationalism, chauvinism and anti-Americanism to defend it.
The irony and audacity of it all is breathtaking.
Huh?
A few points:
1. A lot of the deficit cutting was shifting costs to the Provinces, who then shifted costs to municipalities. The large provinces, Ontario and Quebec continues to run large deficits.
2. Clinton never ran a surplus (in that the debt declined). It was smoke and mirrors (social security surpluses which should never have been included).
3. It was more David Dodge (Deputy Finance Minister) than Paul Martin responsible for The deficit cutting. Dodge later became an excellent Governor of the Bank of Canada.
4. Canada did exactly what other nations should have done. It saved during good times, so as to have room during the bad. Wow, what a concept.
5. Canada benefited from the cutting with a large drop in interest rates. They used to be well above US rates, but as the program worked, rates fell to below US rates. That was a huge after tax benefit to many Canadians (cheaper mortgage and loan rates). This “stimulus” had a lot to do with the increased consumption during the period.
6. There has continued to be widespread voter support for cutting the deficit (an Ontario government was thrown out for wanting to reduce taxes).
7. A good part of Martin/Dodge approach was to under promise over deliver. They would always underestimate growth and over estimate spending, then at the end of the year “find” a nice pile of cash to use to pay down debt (by then it was too late to spend it). In that way they also had a cushion against unforeseen events. It was excellent perception management.
8. You neglect to note that Canada’s currency is now almost at par with the US dollar. This too has had a deflationary effect, but has also served to hurt Canadian manufacturers and their competitiveness. Yet somehow Canada has been able to prosper. Whocoodanode.
9. Canada also “regulated” its banks more strictly (the banks were not allowed to do whatever they wanted to do). There was less leverage, limits on size (restrictions on mergers), and in general a tendency to avoid US style alphabet soup mortgages – result a much milder financial crisis.
There is a lot to learn from the Canadian approach.
OOPS, forgot about how the current “mob” of “conservatives” screwed up the place.
1. Allowed American style mortgages and low downpayments to infiltrate.
2. Cut the GST (consumption tax) in the middle of a boom, while the Bank of Canada was raising rates tried to cool the economy. Idiots. Although now might be a better time to cut the tax, there is no ammo left.
3. Over promised, under delivered. Consistently.
4. Turned surpluses into deficits overnight by cutting taxes with no idea how they were going to be paid for.
I’m with Bill on this narrative.
Dead on Bill. Now we are stuck with Steven Harper and his conservative clowns (actually Reform Party but renamed to make them more palatable). These guys took a $10 billion surplus and turned it into a $50 billion deficit. These idiots couldn’t run a lemonade stand but they are now in charge of Canada. If they stay in power, expect Canada to be in the same position as the PIIGS within a few years. Lyin’ Brian Mulroney and his Conservatives got us in debts once, we don’t want to go there again.
@Down South.
I do not get it. I loathe the “international banking cartel” and wish it had never been deregulated. I am not defeatist and I am not anti- American. On the contrary I have done business in the U.S., thoroughly enjoyed my visits, lived in Canada for a year. I respect all that the U.S. did for the world both during and after the second world war.
All I was trying to say is that after a long, foolish and irresponsible consumption boom, the U.K must sober up in a big way. I further tried to make the point that five weeks after an election we appear to have a govenment that wishes to grasp the nettle. Furthermore most people seem to understand although I admit that the real battle has yet to start.
I would love to see America start to get its act together as would, no doubt, millions of American citizens. Alas there is little sign of it for the moment.
American finance over the last twenty years has exported its dubious ways around the world and it is that which I dislike. If that is what you mean by anti-American then so be it.
Ancient Brit,
Let’s go back to the example I used with billwilson in my comment in response to him above.
The neoliberals are not angling for Manhattan Island here. They’re angling for the welfare state, the bulk of which is comprised of social security pensions and healthcare.
When the neoliberals tried trading “beads, buttons, and other trinkets” (read big-screen TVs, designer clothes and BMWs) for Manhattan Island (read pensions, social security and healthcare), the Indians refused to trade.
So the neoliberals cooked up a new scheme. We’ll sell them the “beads, buttons, and other trinkets” on credit, they surmise, and then when the Indians can’t pay, we’ll take Manhattan Island in a default judgment!
But there’s a problem with this strategy. The fly in the ointment is that the Indians don’t have to give up their island, unless they can be persuaded to do so voluntarily. The Indians, after all, are in a majority, and in a democracy it is the majority that gets to make up the law.
So all this is little more than a moral appeal to the Indians to get them to surrender their island of their own volition.
We’ve seen this same movie play out time and time again in Latin America, where people have sacrified practically everything on the altar of unsustainable debt.
Now I agree that the moral issues here become a little ambiguous. But how is it that the guys who made imprudent loans, loans that never should have been made in the first place, are somehow always made whole in this rigged game? Put me in the camp that says the Indians were tricked, and they need to tell the banksters (neoliberals) to take a hike.
And I always thought that we stole this country from the Indians ‘fair and square’.
Reference/inference is made/drawn to the US being a democracy. Just when was our contract for government amended to being that of a democracy as opposed to the republic that was originally contracted for.
As to this muddle of a discussion about austerity. Fix the currency first, austerity follows. Is it painful, yes and especially so if you’ve been profligate and been borrowing to support direct consumption as opposed to loans that fund production.
The US is a democratic republic: if enough of you wote for an Amendment to the Constitution, you may extinguish any right whatsoever.
There is no limit to the sovereignty of the people, in theory.
In fact, of course, there is.
“W” pronounced “v”, in the above.
See my reply to Chris above …
Deception is the strongest political force on the planet.
I find the argument unconvincing. It isn’t just Canada that has had success when it had decided to cut spending. Margaret Thatcher ignored the economists that were warning her of an impending disaster and got the UK’s spending under control by slashing budgets in the early 1980s. Instead of collapsing, the UK economy grew rapidly and the standard of living increased sharply. The government of New Zealand did exactly the same thing when it was cornered and a continuation of policies was not workable. Like the UK, New Zealand recovered quickly and the economy boomed when the burden of government spending was reduced substantially.
Then we have the example of the US. Harding inherited a mess as the economy contracted after the inflationary policies of WW I ended. Instead of spending more to prevent a contraction he cut taxes and government spending. The contraction, was sharp but deep and the economy was off and running within two years. The obvious contrast was the policies of Hoover/FDR, who meddled in the economy and by preventing liquidation of malinvestments turned a contraction into a Great Depression.
If we want a true recovery in the real economy we have to allow the market to liquidate the bad bets made by the risk takers who were counting on governments stepping in to bail them out if they failed. It is time that we put workers and savers first and held people accountable for their actions.
Wow.
Every single commenter here, save downsouth, needs to get a copy of the book “The Shock Doctrine” by Naomi Klein.
Honestly. Give it a go. It is like clearing away the cobwebs in one’s mind and then being able to see the forest for the trees.
Marshall – Klueless Keynesian Klaptrap promoter, are you? I’m embarrassed you are Canadian.
I’m Canadian, and I remember those years well. I fully supported the spending cuts then, and I still do. The Government did the right thing. And I am not even a Liberal.
I know it is intellectual poison for morons like Krugman and other Klueless Keynesians, who contemplate austerity with horror. Their reaction tells me all I need to know – if they oppose it, it must be a superb idea worthy of immediate adoption.
Yes, I am of the Austrian School. That’s the one based on logic and common sense. I think the free markets should be allowed to work – no bailouts for anyone, ever. Let the chips fall where they may. Those who made bad decisions must suffer the consequences. Period.
So I call bullfeathers on the whole tone of this article.
Governments are bloated monstrosities, over-staffed with over paid, over benefitted, over pensioned swivel servants – I would bet money we could eliminate 90% of Government jobs, and the average citizen not employed by means of ripping off other taxpayers would never notice.
Save the economy – eliminate Government. And Klueless Keynesians. Don’t let the door hit you in the ass on the way out.
The rest of you who agree with Marshall – sorry about your cranial-rectal inversion.
What amazes me so much about comments like this is not that they are stupid. I meet a lot of stupid people. There’s nothing remarkable about that.
What really amazes me is that someone takes the time to write this many words (and think up the “oh-so-clever” insults, replete with alliteration etc.) and not realize that the comment does nothing to persuade anyone of anything other than the stupidity of the author. Speaking of words, does “counterproductive” mean anything to you?
Anonymous Jones,
Don’t be so naive. ‘Canadian Austrian’ is obviously a fifth columnist out to discredit Austrian thinking by suggesting that it consists of nothing more than childish alliterative insults. Personally I think his efforts would be more effective if they were more subtle.
I liked many things about the “Canadian Model” used for getting government finances, taxation and social programs into harmony with each other.
A long, hard decade of fiscal responsibility and sacrifice is now paying off for Canada and Canadians?
Outside of all the nice social programs and free health care Canada will also have the lowest corporate tax rate in the world soon. Neat, eh?
The “rich” didn’t have to steal from the “poor” to achieve that. A balanced budget, 2% inflation target and low government debt load does the job just fine.
It only takes a decade.
I do not think the blog post by Auerback makes any sense at all. The UK seems to want to use the principles and methods, not “copy cat” the actual implementation ideas.
Auerback also makes it sound like Canada was “lucky”. Um… it is actually quite intelligent to get your debt down while the rest of the world is going through a period of economic growth. The situation in the UK is different but : so what? Gravity works in good times and bad times. Sensible economic principles and methods do the same.
The core of the Canadian process seemed to be :
1. Transparency. Open up the budget consultation process. Join hands and sing camp-fire songs every now and again. People do business with people. It is instinctively clear that the budget needs to be balanced and that nominal debt needs to be slowly paid down – just like your mortgage. So, get the people who are affected by your budget cuts into the office and try and come up with some good (or – at least – “less bad”) ideas.
2. Draw lines. It doesn’t matter if the Department of Fisheries “needs” a new boat. You give them the choice : a) we fire enough people to get the money or b) you live without your new boat for a year BUT best case if you can : c) you figure out a smarter way to do the work
3. The Brick Wall. If a project goes into to “cost overruns” then you just halt the project. No more money? Fine : the work stops on a dime. (It would seem that Canada did not keep this one very well). The new budget will be out in a few months with some fresh cash.
Otherwise, every department manager will low-ball and then create a need for “emergency funding”. Your budget boat will keep taking on water. The Brick Wall ensures that a manager who misses his cost estimates will become very visible in the media very quickly.
4. The Money Laser Beam. Get rid of the slush funds. All budgets are composed of targeted projects focused on producing quantifiable deliverables. They can each be audited separately. Their project managers can be hired and fired individually without disrupting other projects.
5. The Secret Decoder Ring. Corruption elimination is a high priority. Look at how many laws (hundreds of them) were made over the decade to weed out opportunities to scam the Canadian government. Corruption in contracts can cost a government 5% – 10% of their budget? It never stops but you can – at least – change the risk/reward equation.
So, may all countries find their own clever solutions to their problems!
This world could be such a beautiful place…
Namke von Federlein
Hey, you just described the process in the TBTF bank I work for. Anything TBTF will eventually run on BS gas expelled by “management”.
Free health care. Very nice but the provincial governments decided to sabotage their health care system in 1993 by reducing by 10% the admission to medical schools in Canada. Meanwhile, the population has increased by 15% since then. To this day, it is very difficult , if not impossible to get a family doctor, especially outside big cities.
http://www.physicianhr.ca/reports/PhysicianSupplyInCanada-Final1999.pdf (Page 5)
The corporations have bought off our political whores and pay ridiculously low tax rates. They’re not paying their fair share of taxes and they are always lobbying for handouts and tax breaks. Paul Martin has even gotten a law through so that corporate taxes can be defered indefinitely. Nice!
The rich don’t have to rob the poor. The government does it for them. WOW!
@Vangel. Sorry, mate, but I’m a Brit who lived through Thatcherism and I can tell you it completely fckd our economy, finished a lot of our industry, closed our mines, and started us down the road of neo-liberal bullshit which has caused the current crisis. Thatcher and Blair are the worst things that have happened to my country in my lifetime, and for what it’s worth I think the current austerity measures are a repeat of the mistakes of the 30’s and we are heading straight to another depression – the crisis we have now is only the beginning…
Here is Krugman’s comment on Auerback.
June 10, 2010, 12:38 pm
Oy, Canada
Marshall Auerback points out that the new UK government, in arguing that fiscal austerity won’t destroy the economic recovery, is pointing — wrongly — to Canada’s experience in the 1990s. Actually, it’s even worse than Auerback says.
As he points out, Canada was able to offset the contractionary effects of fiscal austerity through increased exports to a booming US economy. What he doesn’t point out is that this export boom had a lot to do with this:
See graphic here: http://krugman.blogs.nytimes.com/
Then scroll to the date of the blog entry.
Yep, you can have fiscal austerity without contraction if you have a massive devaluation against your main trading partner. So we can have austerity without a new depression as long as all the world’s major economies devalue against … oh, wait.
And monetary policy, of course, wasn’t up against the zero lower bound, so the Bank of Canada could and did offset fiscal austerity with looser monetary policy (which partly explains the drop in the loonie.)
I do feel a sense of despair here. Ever since the crisis began, some of us have been trying to get across the point that you have to be very careful with your historical precedents, that things work very differently when you have a synchronized severe financial crisis, with interest rates near zero everywhere. And here we are, two years in, and it’s as if we’ve been talking to a wall.