canadian (non)exceptionalism: crisis, recovery, austerity
DESCRIPTION
Presentation by Jim Stanford - Economist, Canadian Auto Workers at CLMR Conference, Ryerson University, 23 March 2012.TRANSCRIPT
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Canadian (Non)Exceptionalism:
Crisis, Recovery, Austerity
Presentation by Jim StanfordEconomist, Canadian Auto Workers
CLMR Conference, Ryerson U., March 2012
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Global Financial Crisis
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Mother Of All Meltdowns
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The Long-Awaited Demise
Of Capitalism
As We Know It
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Big …
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Where Did This CrisisCome From, Anyway?
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Where Did This CrisisCome From, Anyway?
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Wha’ Happened?• Speculative bubble (again):
– Centred in U.S. housing
• Fueled by aggressive, irresponsible lending– “NINJA” mortgages
• Speculators borrowed at 50:1 or more• U.S. housing prices began falling in 2006• Chain reaction of collapse, deleveraging• Blow to wealth, confidence, lending,
investment, spending RECESSION• Globalization made things far worse• Global austerity just a new phase of same
crisis.
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The Economic “Recovery”…(Has anybody seen it???)
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Do the Math
• Official unemployment: 1,500,000• Lost participation: 350,000• Involuntary part-time: 375,000• Waiting for a job to start: 130,000• True unemployment: over 2 million (12%)• No improvement in “employment rate”
since summer 2010.• Canada’s performance has been “ho-
hum”
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Employment Rate Decline
61.0%
61.5%
62.0%
62.5%
63.0%
63.5%
64.0%
2007 2008 2009 2010 2011
Empl
oyed
as
% W
orki
ng A
ge P
op'n
-2.5 pts
+0.4 pts
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Mediocre is the Word• Comparisons of Canada to other countries
must take into account our faster population growth.
• Relative to population growth, our performance has been mediocre:– 17 out of 34 in real per capital GDP since 2007– 17 out of 33 in employment rate since 2008
• We did better than others that experienced all-out bank failures:– US, UK, Ireland, Iceland, Italy
• But compared to the rest, we’ve done badly– Germany, Korea, Australia
• Canadian triumphalism rings increasingly hollow.
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Change in Real per Capita GDP,
2007-2011
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Change in Employment Rate,
2008-2011
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The Coming Fiscal Austerity
DON’T FORGET! • Deficits are the consequence of financial
crisis & recession (not “overspending”).– Automatic deficit (less tax in, more EI out).– Stimulus measures.– Bank bail-outs in some countries.
• Slow recovery has undermined budgets.• Now governments and business (who
always wanted cutbacks) are going for blood:– Federal - Provincial - Municipal
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Fiscal Math 101
Bad recession+ Lousy Recovery= Deficit
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Ontario Provincial Deficit
-25
-20
-15
-10
-5
0
5
2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11
$ Billi
on
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Impact of Recession: Ontario
• Double-barreled impact on revenues:– Decline in GDP (8-10% below previous trend)
= $10 billion lost revenue.– Decline in revenue as share of GDP (<1 point)
= $5 billion lost revenue.– Combined fiscal impact: $15 billion.
• Impact on program spending:– Automatic stabilizers (income supports).– Discretionary stimulus.
• Impact on debt service costs:– Follow-through growth of interest costs.– Low interest rates have been helpful.
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Canada, Ontario Have No Debt Problem• Debts are low by historical and
international standards.• Deficits are clearly cyclical.• Interest rates are low (and likely to
remain there).• First task: put Canadians back to
work (paying taxes).
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Ontario Debt Ratios
0
5
10
15
20
25
30
35
40
2002-3 2003-4 2004-5 2005-6 2006-7 2007-8 2008-9 2009-10 2010-11
% of
GDP
Net Debt
Accumulated Deficit
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An “Animal Farm” Theoryof Debt
“Private debt good, public debt bad.”• But like any other borrower, public debt makes
sense to finance productive long-lived assets.
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Fiscal Math 201:Numerators and Denominators
• Key constraint: debt ratio= Net debt GDP
• Reducing debt ratio requires reduction in the numerator and/or expansion in the denominator.
• Greece: The more they cut, the more GDP shrank, the worse the debt ratio became.
• Normal recovery? Ratio falls via denominator.• Crucial task: start the engine of true recovery.
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But Where’s the Engine??
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Growth Needs an Engine…
• Some sector must lead the way with leading injections of expenditure (hopefully productive).
• Resulting employment and income leads to circular generation of more employment and more income.
• In a credit money system, the leading sector must also be borrowing…Creating the new money needed to buy
new output.
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Possible Engines• Investment (business, government)• Exports• Construction (private, public)• War (hope not!)• Public works• Consumers?
– Rarely, because consumer spending usually follows cycles (and amplifies them), not leads.
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How It’s Supposed to Work…
• Businesses borrow funds, put money into motion in the real economy.
• Resulting stimulus generates employment and income several times over.
• Real production, productivity, and innovation are supposed to result.
• We can argue over the terms (wages, taxes, regulations)…… but no arguing about the “engine”:
private capital accumulation.
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What’s Gone Wrong• Businesses are investing too little.
– Not even reinvesting their cash flow.• Businesses are channeling excess cash
back into the financial system.• Financial innovation, speculation, and
credit creation become a sideshow.– Irrelevant to real production at best,
destructive at worst.• Consumers become the default engine.
– Fueled by rising consumer debt.• Government stimulus can only do so
much.
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GDP by Domestic Sector
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011
Cycl
e Pe
ak =
100
Government
Consumers
BusinessInvestment
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A Growing Hoard
$300
$350
$400
$450
$500
$550
$600
2006 2007 2008 2009 2010 2011
Cash
and
Sho
rt-Te
rm A
sset
s ($
bil)
Non-FinancialCorporations
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Signs of a Structural Problem
• Profit-driven private capital accumulation cannot generate enough work to fully utilize our human resources.
• Long-run consequences:– Chronic labour market weakness– Sluggish innovation, productivity growth,
competitiveness– Excess financial capital
• Canada is not alone: U.S., Japan, others• Where’s the engine???• Need to go “beyond stimulus” to address
this bigger structural economic problem.
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Job Creation Strategies• Without recovery, deficits will remain.• Traditional engine of growth (private
sector investment) is not working.• Labour needs visionary, credible
alternatives:– Avoid spending cuts; expand public services.– Longer-run capital / infrastructure spending.– Targeted sector strategies.– Other novel ways to channel investment:
• Government as venture capital funder??? [Shiller]• Social sector / co-ops / other non-profits???
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Our Economic “To-Do” List
• Explain where this crisis came from– It wasn’t caused by workers– It was caused by finance– It wasn’t a random accident– It will happen again, if rules aren’t
changed
• Reclaim the value & legitimacy of real work and production
• Resist attempts to make us pay• Fight for an alternative economic vision
that puts production ahead of finance
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Taking Back Credit1. Regulate finance:
• Ban dangerous, unproductive activity.• Require safer practices (leveraging, quality
of debt, firewalls, globalization).
2. Tax finance:• Tobin tax?• Corporate income tax: 3% = $1.5 b/yr.• Eliminate tax subsidies.
3. Take back finance:• We can create money out of thin air as well
as a private bank can.• Use that power for production, not
speculation.
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Watch Out…WE are Now the Target
• Conservatives have exploited fear, confusion, and power over media to blame workers (esp. public sector) for crisis caused by private finance.
– “Shock Doctrine” (Naomi Klein)
• Now they will try to make US pay for a crisis THEY created.
– Especially union members
• Foster inequality & envy among workers.– “Divide and conquer.”– “Misery loves company.”
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Declare “War,” End Recession
• 1939: Recession ended immediately– Enormous social challenge– Side-stepped profit motive for initiating
work and production
• 2011: Do it again:– Declare war on pollution, poverty
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We Produce… …They Don’t
We Didn’t Cause the Crisis…They Did
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www.policyalternatives.ca“Canada’s Incomplete, Mediocre Recovery”
www.economicsforeveryone.ca
Twitter: @JimboStanfordFacebook: Jimbo Stanford
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Canadian (Non)Exceptionalism:
Crisis, Recovery, Austerity
Presentation by Jim StanfordEconomist, Canadian Auto Workers
CLMR Conference, Ryerson U., March 2012