Like a Puritan obsessed with sin, Stephen Harper is obsessed with austerity. He is not alone in his obsession. Most of Europe's leaders share it. And their obsession has led The Financial Times' Martin Wolfe to write that their economies suffer from "chronic demand deficiency syndrome." The OECD has also been trying to get those who mistake economics for theology to see the folly of their moralistic crusade.
Not all countries take a moralistic approach to economics. Murray Dobbins writes that the Scandinavian countries -- particularly Norway -- have chosen another path:
A recent study, "How Can Scandinavians Tax So Much?" on Norway, Sweden and Denmark, demonstrates how national governments can actually address underlying structural demand weaknesses -- or rather, in their cases, how to prevent such weaknesses from developing in the first place. The key is not just high government spending but a dedication to revenue collection that comes as close as possible to eliminating leakage in the tax system.
The top marginal income tax rate in the three countries is between 60 per cent and 70 per cent compared to 43 per cent in the U.S. and about 50 per cent in Canada. Add in other taxes like consumption and payroll levies and the average Scandinavian worker gets to keep just 20 per cent of her paycheque. In the U.S. that same employee keeps 63 per cent. How can such high tax rates (which would be denounced as "punitive" here) result in some of the best economic outcomes on the planet -- high standards of living, high labour participation rates, highly profitable corporations and high placements (all higher than Canada) in the world competitiveness sweepstakes?
With the governments pumping billions of dollars into the Scandinavian economies there is no "chronic demand deficiency syndrome." They do not rely on debt-financed consumer demand, and the reduction of private consumer spending makes for more rational economic decision-making overall. The U.S. has accomplished what appears to be a stable recovery by also rejecting the austerity obsession and engaging in repeated rounds of quantitative easing -- artificially pumping money into the economy through bond purchases. Canada, meanwhile, is actually sucking billions out of the economy through tax cuts to sectors (corporations and the 1 per cent) who aren't spending it.
Over the last thirty years, rather than injecting money into our economy, our governments have withdrawn billions of dollars:
Of course we have withdrawn billions since 1985 -- over $60 billion a year in abandoned revenue at the federal level if you go back and count Paul Martin's huge tax cuts in 2000-2005. If we had that money back to spend, the vast majority of it ultimately ends up being spent in the private sector -- and might actually convince Canadian corporations to invest some of the $626 billion in idle cash they are now sitting on. (An IMF report recently chastised Canadians corporations for accumulating idle capital at a faster rate than any other country in the G7.)
And, rather than taking in money from our petroleum wealth, we have sold that resource at fire sale prices. Norway took a different tact:
In Canada we have virtually given away our energy heritage through criminally low royalty rates over a period of some 70 years. Norway bargained hard with oil companies to develop its relatively new found resource -- and kept ownership of it. The result, as reported in The Tyee last year, is a heritage fund of (as of a year ago) $909,364 billion (Canadian). That puts tiny Norway $1.5 trillion ahead of us and while each Canadian has a $17,000 share of our $600 billion debt national debt, each Norwegian has a $178,000 stake in their surplus. Norway puts aside a billion dollars a week from its oil resource.
Clearly, there is another path. And austerity isn't it.