Monday, January 26, 2015

Economic history

I try not to read the Globe's Report on Business. It reads like too much old-timey sports pages used to: always rooting for the home team, and offering hot investment tips that sound a lot like "Lucky Dan in the fifth."

But the weekend's big survey of the world's economic troubles really emphasizes how out of touch the RoB and its reliable sources have been for years. It's perplexing, they say. It's different than anyone has experienced. I've never seen anything like this.  Where this is going, I don't know. It's all interrelated! (This is in lieu of "We've been wrong about everything.")

Then at the end: "Professor Farmer is quick to say he is not a fan of big-spending government stimulus largesse"  ... and neither is the RoB, for sure. But it's pretty clear even from their own reporting that government stimulus largesse remains the solution, even though it's the one the RoB and its experts have been successfully opposing for six years now. Consumers can't spend because they are loaded with debt, and because spending is risky with unemployment still huge and wages being driven down. Money is cheap and central banks are making tons of it available, but business won't borrow it, because with consumers not spending, they are retrenching, closing shop, and laying off. China and the new industrial powers can't save us, because we ain't buying.

And what are governments doing? Preparing for inflation, when the real threat continues to be deflation. Laying off civil servants when unemployment is high. Closing programs when the private sector is least able to replace them. Attacking wages when consumers cannot afford to spend.

Frankly, the solution has seemed pretty obvious since the recession of the Thirties. We have seen this before. When nobody can afford to borrow and spend to get the economy going, it's the right time for governments to do so. Money is cheap, infrastructure and social programs are dying for lack of investment, labour is abundant. If government borrows and spends, production rises, the economy grows, people get jobs and begin to spend again, growth returns. Then the government gets into surplus and earns its money back, as in the early 2000s. It ain't rocket science.

Except the conservative German government, the conservative British government, the conservative European Union, the conservative American congress, and the conservative Canadian government have all been determined for the last six years on the opposite:  If business can't spend and consumers can't spend and unemployment is high ... somehow the solution is austerity. The plan has been to stop governments from spending, create unemployment, let the physical plant run down....  We have a global economic slowdown by deliberate political choice, and now, gosh, if somehow times are still hard, how perplexing! The people making those choices are still presented as serious economic managers instead of dangerous incompetent ideologues.

I was reading on the weekend about the far-left party that has won the Greek elections (it's a prop-rep country, but they will probably get a near majority of seats on 40% of the vote, because the fine print of PR is rigged that way). What they hope for seems not so much far left as mostly like the most orthodox Keynesian economics: when we are all this deep in the hole, could Europe please stop digging?

Then there is Canada. With plunging government revenues because of the oil-price collapse (and everything else), the government promise, yes, they are still determined to balance the budget nevertheless. They just have to cut some more programs.  Yeah, take more money out of circulation, create more unemployment, produce more concern and uncertainty -- that's really going to help, according to these serious economic managers.

Syriza in Greece seems to be tagged as far left because the consensus has been so far-right. Maybe we need a little far left in Canada too.

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