Earlier this week, Paul Krugman wrote that -- in the United States, at least -- the fiscal fever has broken:
So the good news is that this fever, unlike the fever of the Tea Party, has finally broken.
True, the fiscal scolds are still out there, and still getting worshipful treatment from some news organizations. As the Columbia Journalism Review recently noted, many reporters retain the habit of “treating deficit-cutting as a non-ideological objective while portraying other points of view as partisan or political.” But the scolds are no longer able to define the bounds of respectable opinion.
In Canada, unfortunately, the scolds are still in power. All that matters is the deficit. Scott Clark and Peter Devries review Canada's recent economic performance:
The year 2013 has not been a good year for economic growth and job creation in Canada. In fact the economy has not been doing well for some time. We’ve been in a growth decline since 2010 and job creation has been dismal since then. In 2009, real GDP declined by 2.9 per cent and then bounced back in 2010 to 3.3 per cent. Since then, growth has been slowing: to 2.4 per cent in 2011; to 1.7 per cent in 2012; and to a forecast rate of around 1.6 per cent in 2013.
At the G8 summit in 2010, Stephen Harper pushed hard for a global dose of austerity, siding with Carmen Rinehart and Kenneth Rogoff, who claimed that government debt has severe negative effects on growth when it exceeds 90 percent of G.D.P. Krugrman writes:
From the beginning, many economists expressed skepticism about this claim. In particular, it seemed immediately obvious that slow growth often causes high debt, not the other way around — as has surely been the case, for example, in both Japan and Italy. But in political circles the 90 percent claim nonetheless became gospel.
Then Thomas Herndon, a graduate student at the University of Massachusetts, reworked the data, and found that the apparent cliff at 90 percent disappeared once you corrected a minor error and added a few more data points.
That news never penetrated the Conservative bunker. Harper and Flaherty are focused on the deficit -- employment be damned:
In February 2008, the unemployment rate hit a low of 5.9 per cent. In November 2013 it was 6.9 per cent. In February 2008, the labour force participation rate hit a high of 67.8 per cent; in November 2013, it had fallen to 66.5 per cent, clearly indicating that many Canadians had simply withdrawn from the the job market because of a lack of opportunities. It also means that the ‘real’ unemployment rate, which includes discouraged workers, is much higher than 6.9 per cent.In February 2008, the ratio of working Canadians aged 15 and over to the population aged 15 and over (referred to as the employment rate) reached a high of 63.8 per cent; by November 2013, it had fallen to 61.7 per cent. In other words, the economy is just not growing fast enough to create enough jobs for a growing working-age population. The youth unemployment rate remains stubbornly and unacceptably high.
Austerity -- Mr. Harper's prescription for world economic health -- has been a disaster. The rest of the world has come to that conclusion. But, in Canada, the fever still rages.